-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uh4sPrYEq8k0aQC3uTZ87blccuIFK5Iimoxql7WhjpA2tNdtx+oGCNYqfDqUFSQe JLdJ0kwmKHSr3Cs44dx/CA== 0000950133-96-002888.txt : 19961223 0000950133-96-002888.hdr.sgml : 19961223 ACCESSION NUMBER: 0000950133-96-002888 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MLC HOLDINGS INC CENTRAL INDEX KEY: 0001022408 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 541817218 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28926 FILM NUMBER: 96683649 BUSINESS ADDRESS: STREET 1: 11150 SUNSET HILLS ROAD STREET 2: SUITE 110 CITY: RESTON STATE: VA ZIP: 20190-5321 BUSINESS PHONE: 7038345710 MAIL ADDRESS: STREET 1: 11150 SUNSEL HILLS ROAD STREET 2: SUITE 110 CITY: RESTON STATE: VA ZIP: 20190-5321 10-Q 1 MLC HOLDINGS, INC. FORM 10-Q. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission File Number XXXXXXXX MLC HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 54-1817218 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)
11150 Sunset Hills Road, Suite 110, Reston, VA 20190-5321 (Address of principal executive offices) (Zip Code) (703) 834-5710 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [_] No [X] The number of shares of Registrant's common stock outstanding at September 30, 1996 was 4,000,000 shares. 2 MLC HOLDINGS, INC. AND SUBSIDIARIES
Page Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets September 30, 1996 (Unaudited)and March 31, 1996 Condensed Consolidated Statements of Earnings Three month and six month periods ended September 30, 1996 and 1995 (Unaudited) Condensed Consolidated Statements of Cash Flows Six month periods ended September 30, 1996 and 1995 (Unaudited) Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures
3 MLC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31, 1996 1996 ------------ ------------ (Unaudited) ASSETS Cash and cash equivalents........................ $ 2,784,223 $ 357,881 Accounts receivable.............................. 4,637,789 1,272,707 Notes receivable................................. 1,120,351 91,857 Employee advances................................ 92,856 76,349 Inventories...................................... 886,704 86,280 Investment in direct financing and sales-type leases ---- net................................ 16,932,624 16,273,218 Investment in operating lease equipment ---- net. 10,891,915 10,219,826 Property and equipment ---- net.................. 257,102 280,468 Other assets..................................... 947,767 1,177,629 ---------- ---------- TOTAL ASSETS.......................................... 38,551,331 29,836,215 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable ---- equipment.................. $ 11,958,860 $ 4,972,979 Accounts payable ---- trade...................... 304,338 604,650 Salaries and commissions payable................. 135,904 61,910 Accrued expenses and other liabilities........... 1,052,978 935,315 Income taxes payable............................. 425,155 6,332 Recourse notes payable........................... 111,796 1,284,742 Nonrecourse notes payable........................ 19,827,486 18,351,579 Loans from stockholders.......................... 275,000 275,000 Deferred taxes................................... 490,000 469,000 ---------- ---------- Total liabilities........................... 34,581,517 26,961,507 COMMITMENTS AND CONTINGENCIES......................... -- -- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value -- 2,000,000 shares authorized; none issued or outstanding.................................... -- -- Common stock, $.01 par value -- 10,000,000 shares authorized; 4,000,000 shares issued and outstanding.................................... 40,000 40,000 Additional paid--in capital...................... 9,592 9,592 Retained earnings................................ 3,920,222 2,825,116 ---------- ---------- Total stockholders' equity.................. 3,969,814 2,874,708 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 38,551,331 $ 29,836,215 ========== ==========
See accompanying notes to condensed consolidated financial statements 4 MLC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------ 1996 1995 1996 1995 ---------- ---------- ----------- ---------- REVENUES: Sales of Equipment.................. $ 5,163,233 $ 5,324,635 $ 9,340,276 $ 7,415,343 Sales of Leased Equipment........... 3,472,413 7,706,538 9,707,396 7,706,538 ---------- ---------- ---------- ---------- Sales................................ 8,635,646 13,031,173 19,047,672 15,121,881 --------- ---------- ---------- ---------- Lease revenues....................... 2,119,145 1,256,548 3,910,603 2,224,622 Net margin on sales-type leases...... -- 10,099 -- 85,273 Fee and other income................. 949,871 487,759 1,642,339 1,128,389 ---------- ---------- ---------- ---------- Total revenues..................... 11,704,662 14,785,579 24,600,614 18,560,165 ---------- ---------- ---------- ---------- COSTS AND EXPENSES: Cost of Sales of Equipment........... 4,908,866 4,816,056 8,552,704 6,269,845 Cost of Sales of Leased Equipment.... 3,340,522 7,299,485 9,590,999 7,299,484 ----------- ---------- ----------- ----------- Cost of sales........................ 8,249,388 12,115,541 18,143,703 13,569,329 ----------- ---------- ----------- ----------- Direct lease costs................... 915,955 415,764 1,696,743 701,743 Professional and other fees.......... 81,581 279,929 209,366 328,998 Salaries and benefits................ 895,280 596,701 1,560,358 1,442,485 General and administrative expenses........................... 274,097 236,442 532,646 427,914 Interest and financing costs......... 386,454 423,409 756,692 731,527 ---------- ---------- ---------- ---------- Total costs and expenses........... 10,802,755 14,067,786 22,899,508 17,201,996 ---------- ---------- ---------- ---------- EARNINGS BEFORE PROVISION FOR INCOME TAXES................................ 901,907 717,793 1,701,106 1,358,169 PROVISION FOR INCOME TAXES............. 322,000 253,000 606,000 480,000 ---------- ---------- ---------- ---------- NET EARNINGS........................... $ 579,907 $ 464,793 $ 1,095,106 $ 878,169 ========== ========== ========== ========== NET EARNINGS PER COMMON SHARE.......... $ 0.14 $ 0.12 $ 0.27 $ 0.22 ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements 5 MLC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, -------------------------- 1996 1995 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings......................................... $ 1,095,106 $ 878,169 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization.................... 1,096,825 525,861 Gain on sale of operating lease equipment. (44,172) (46,060) Adjustment of basis to FMV of early returned operating lease equipment........................ 299,403 -- Payments from lessees directly to lenders........ (794,668) (206,617) (Gain)/Loss on disposal of property and equipment......................... (8,740) 1,575 Deferred taxes................................... 21,000 -- Changes in: Accounts receivable............................ (3,365,083) 270,195 Notes receivable............................... (1,028,493) 34,773 Employee advances.............................. (16,507) (14,819) Inventories.................................... (693,487) (351,937) Refundable income taxes........................ -- 48,946 Other assets................................... 82,593 (166,170) Accounts payable ---- equipment................ 6,985,881 3,803,561 Accounts payable ---- trade.................... (300,312) 1,495,659 Salaries and commissions payable............... 73,994 (6,928) Accrued expenses and other liabilities......... 117,662 1,008,943 Income taxes payable........................... 418,824 312,825 ---------- ---------- Net cash provided by operating activities................................. 3,939,826 7,587,976 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of operating lease equipment...... 1,290,311 196,094 Purchase of operating lease equipment................ (10,653,298) (3,668,360) Increase in investment in direct financing and sales-type leases................................ (3,515,522) (14,162,973) Proceeds from sale of property and equipment......... 8,740 -- Purchases of property and equipment.................. (19,248) (83,065) Decrease (increase) in other assets.................. 147,270 (106,655) ---------- ---------- Net cash used in investing activities........ (12,741,747) (17,824,959) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Nonrecourse borrowings............................... 12,998,838 12,584,539 Repayments: Nonrecourse........................................ (597,629) (427,735) Recourse........................................... (33,751) (27,944) Repayments of loans from stockholder................. -- (50,000) Repayments from lines of credit...................... (1,139,195) (1,472,384) ---------- ---------- Net cash provided by financing activities.... 11,228,263 10,606,476 ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 2,426,342 369,493 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 357,881 253,475 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 2,784,223 $ 622,968 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid........................................ $ 82,782 $ 118,535 ========== ========== Income taxes paid.................................... $ 108,176 $ 118,300 ========== ==========
See accompanying notes to condensed consolidated financial statements 6 MLC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of September 30, 1996, and the consolidated statements of earnings and consolidated statements of cash flows for the three-month and six-month periods ended September 30, 1996 and September 30, 1995 have been prepared by the Company, without audit. The quarterly financial information is submitted in response to the requirements of Form 10-Q and does not purport to be financial statements prepared in accordance with generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. They therefore do not include all disclosures which might be associated with such statements. In the opinion of management such information includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position at September 30, 1996, and for all periods presented. For a summary of significant accounting principles, which have been continued without change, refer to Note 1 to the financial statements for the year ended March 31, 1996 included in the Prospectus dated November 14, 1996. 2. PUBLIC OFFERING OF COMMON STOCK On November 20, 1996, the Company closed a public offering of 1,000,000 shares of its Common Stock. The Company received net proceeds of $8,137,500 from the offering, not including expected expenses of $700,000. On December 13, 1996 an additional 150,000 shares were issued under an over-allotment option exercised by the Company's underwriters. The Company received net proceeds from these shares of $1,220,625. 3. INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES The Company's investment in direct finance leases consists of the following components (in thousands):
SEPTEMBER 30, MARCH 31, 1996 1996 ------------ ----------- Minimum lease payments receivable....... $ 18,921 $ 18,212 Estimated unguaranteed residual value... 448 348 Initial direct costs - net.............. 1,603 1,539 Less: Unearned lease income............. (4,039) (3,826) --------- --------- Investment in direct financing lease and sales-type leases - net............. $ 16,933 $ 16,273 ========= =========
4. INVESTMENT IN OPERATING LEASE EQUIPMENT The components of the net investment in operating lease equipment are as follows (in thousands):
SEPTEMBER 30, MARCH 31, 1996 1996 ------------ ----------- Cost of equipment under operating leases................... $ 12,404 $ 11,411 Initial direct costs.................... 49 54 Accumulated depreciation and amortization....... ................ (1,561) ( 1,245) --------- --------- Investment in operating leases - net. $ 10,892 $ 10,220 ========== =========
7 MLC HOLDINGS, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996. RESULTS OF OPERATIONS Revenues. Total revenues decreased 20.8% to $11,704,662 and increased 32.5% to $24,600,614 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. The fluctuation in revenue is attributed to the variability of timing of transactions originated, and/or sold by the Company, and fluctuations may continue in the future (See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS"). Sales. Sales decreased 33.7% to $8,635,646 and increased 26.0% to $19,047,672, for the for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. Sales of Equipment: Sales of Equipment decreased 3.0% to $5,163,233 and increased 26.0% to $9,340,276 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. Sales of Leased Equipment: Sales of Leased Equipment decreased 54.9% to $3,472,413 and increased 26.0% to $9,707,396 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. The fluctuation in Sales of Leased Equipment is a result of fluctuations in the timing of the sales to the Company's institutional equity partners, GATX Capital Corporation and Cargill Leasing Corporation. Lease Revenues. Lease revenues increased 68.7% to $2,119,145 and 75.8% to $3,910,603 for the three and six month periods ended September 30, 1996. The increases in lease revenue reflect a higher average investment in operating and direct finance leases, resulting from increases in operating and direct finance leases originated by the Company over the past year, and an increase in interim rents accrued, in the first three and six months of 1996, compared to the same periods of 1995. Fee and Other Income. Fee and other income increased 98% to $949,871 and 45.6% to $1,642,339 for the three and six month periods ended September 30, 1996 as a result of a higher level of interest income, remarketing fees, earnings from a prepay escrow fee, and higher levels of management fee income earned from the equity joint ventures with Cargill and GATX, as compared to the same periods of 1995. Expenses. Total expenses decreased 23.2% to $10,802,755 and increased 33.1% to $22,899,508 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. Cost of Sales. Cost of sales decreased 31.9% to 8,249,388 and increased 33.7% to $18,143,703 for the three and six month periods ended September 30, 1996 as a result of a decrease and increase in sales activities for those periods. The fluctuation in sales expenses can be attributed to the variability of timing of transactions originated, and/or sold by the Company, and fluctuations may continue in the future (See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS"). Cost of Sales of Equipment: The Cost of Sales of Equipment decreased 1.9% to $4,908,866 and increased 36.4% to $8,552,704 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period reflecting decreases and increases in related sales. Cost of Sales of Leased Equipment: The Cost of Sales of Leased Equipment decreased 54.2% to $3,340,522 and increased 31.4% to $9,590,999 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. This fluctuation is a result of fluctuations in the timing of the sales to the Company's institutional equity partners, GATX Capital Corporation and Cargill Leasing Corporation. 8 Direct Lease Costs. Direct lease costs increased 120.3% to $915,955 and 141.8% to $1,696,743 for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. The increase is due to the increase in the operating and direct finance lease base, resulting from increases in operating and direct finance leases originated by the Company over the past year. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 12.4% to $1,250,958 and 4.7% to $2,302,370, for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. The increase is primarily attributable to increased compensation and benefit costs as a result of an increase in the number of employees, increase in commissions paid as a result of transaction profitability, a decrease in professional and other fees, and an increase in general and administrative costs relating to the higher volume of lease business. Interest Expense. Interest expense decreased 8.7% to $386,454 and increased 3.4% to $756,692, for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period. Provision for Income Taxes. The provision for income taxes was 35.7% and 35.6% for the three and six months ended September 30, 1996 as compared to 35.2% and 35.3% for the corresponding prior year period. Net Income. Net income increased 24.8% to $579,907 and 24.7% to $1,095,106, for the three and six month periods ended September 30, 1996, compared with the corresponding prior year period, as a result of the changes in the components of total revenues and total costs and expenses specifically described above. Earnings per share increased 16.7% to $0.14 and 22.7% to $0.27 for the three and six month periods. Adjusted retroactively for the Company's Initial Public Offering of 1,000,000 additional shares which was completed on November 20, 1996 plus the overallotment which was exercised on December 13, 1996 for 150,000 shares, for a total of 5,150,000 shares, earnings per share would have decreased 21.4% to $0.11 and 22.2% to $0.21 per share for the three and six month periods. LIQUIDITY AND CAPITAL RESOURCES Cash Flow. The Company generated cash flow from operations of $3,939,826 during the six month period ended September 30, 1996, compared to net income of $1,095,106 for the same prior year period. Cash flow from operations was higher than net income primarily as a result of non-cash expenses such as depreciation and amortization of $1,096,825, an increase in Accounts Payable -- Equipment of $6,985,881, and Adjustment of Basis to FMV of Early Returned Operating Lease Equipment of $299,403, (this was a result of the early termination of a number of operating leases with one customer where the Company received a termination fee which was in excess of the non-cash adjustment, resulting in positive net fee income for the transaction as a whole), and other assets and liabilities of $714,073, and was offset by uses of cash in operations, including resulting changes in Accounts Receivable of $3,365,083, Notes Receivable of $1,028,493, Payments from Lessees Directly to Lenders of $794,668, increase in Inventory of $693,487 and other assets and liabilities, totaling $369,731. Investing activities, which are primarily related to investments in equipment under lease, used $14,168,820 during the six month period. Financing activities in the six month period generated $11,228,263 from the Company's new borrowings of non-recourse debt totaling $12,998,838 and was offset by repayment of recourse and non-recourse borrowings aggregating $631,380 and repayment of $1,139,195 to its lines of credit. The net result of the above activity for the six month period was a increase in cash and cash equivalents of $2,426,343. The financing necessary to support the Company's leasing activities has principally been provided from nonrecourse and recourse borrowings. Historically, the Company has obtained recourse and nonrecourse borrowings from money center banks, regional banks, insurance companies, finance companies and financial intermediaries. Bank Lines of Credit. Prior to the permanent financing of its leases, interim financing has been obtained through short-term, secured, recourse facilities. The Company's available credit under its short-term, recourse facility currently totals $5,000,000. The First Union Facility is a $5,000,000 revolving facility provided by First Union National Bank of Virginia (no 9 amounts were outstanding as of September 30, 1996), with borrowing available through April 30, 1997, and repayments due 90 days after borrowing. Borrowings under the First Union Facility bear interest at LIBOR plus 275 basis points. The Company previously had a $2,000,000 facility with NationsBank, N.A. which expired December 1, 1996. Equity Joint Ventures. Through MLC/GATX Limited Partnership I and MLC/CLC LLC, the Company has formal joint venture arrangements with two institutional investors which provide the equity investment financing for certain of the Company's transactions. GATX, an unaffiliated company which beneficially owns 90% of MLC/GATX Limited Partnership I, is a publicly listed company with stockholders' equity in excess of $332 million, as of June 30, 1996. Cargill Leasing Corporation, an unaffiliated investor which owns 95% of MLC/CLC LLC, is affiliated with Cargill, Inc., a privately held business that was reported by Forbes Magazine to have 1995 earnings in excess of $900 million. These joint venture arrangements enable the Company to invest in a significantly greater portfolio of business than the Company's limited capital base would otherwise allow. MLC/GATX and MLC/CLC LLC provide the majority of the Company's equity investment from third parties as referenced above. During fiscal year 1996, out of total leased equipment sales of approximately $16.3 million sales to MLC/GATX were $13.1 million or 80% and sales to MLC/CLC were approximately $1.3 million or 8.0%. For the quarter ended September 30, 1996, out of Sales of Leased Equipment of $3,472,413, MLC/GATX represented $1,353,402 or 39.0% and MLC/CLC represented $1,692,238 million or 48.7%. For the six months ended September 30, 1996, out of Sale of Leased Equipment of $9,707,396, MLC/GATX represented $2,203,413 or 22.7% and MLC/CLC represented $6,489,337 or 66.9%. For the three and six month periods ended September 30, 1996, approximately 14.5% and 26.4%, respectively, of the Company's total revenue was attributable to sales of lease transactions to MLC/CLC, and 11.6% and 9.0%, respectively, of the Company's total revenue was attributable to sales of lease transactions to MLC/GATX Limited Partnership I. Transactions involving the use or placement of equity from these joint ventures require the consent of the relevant joint venture partner, and if financing from those sources were to be withheld or were to become unavailable, it would limit the amount of equity available to the Company and could have a material adverse effect upon the Company's business, financial condition and results of operations. Warehouse Lines of Credit. In July, 1996, the Company entered into the NationsBanc Leasing Facility, under which NationsBanc Leasing Corporation may lend up to $2.0 million in various notes with terms of up to 60 months. The facility, but not transactions financed thereunder, expires January 31, 1997. Borrowings under the facility bear interest at a fixed or floating basis, at the Company's option at the time of each borrowing, as follows: fixed, where the underlying lessee is investment grade, at U.S. Treasury Notes plus 250 basis points; fixed, where the underlying lessee is below investment grade, at U.S. Treasury Notes plus 295 basis points; floating, at the bank's prime rate plus 1%. As of September 30, 1996, there were no borrowings under this facility. In October, 1996, the Company was notified that a $5.0 million facility had been internally approved by Heller Financial Corporation, under which it may lend up to $5.0 million in various notes with terms of up to 60 months. Borrowings under the facility will bear interest at the 3 year treasury plus 300 basis points. The Company is currently negotiating the loan documents and no assurance can be given that the loan documents will be finalized. 10 The Company's debt financing activities typically provide approximately 80% to 100% of the purchase price of the equipment purchased by the Company for lease to its customers. Any balance of the purchase price (the Company's equity investment in equipment) must generally be financed by cash flow from its operations, the sale of the equipment lease to one of its institutional partnerships with GATX or Cargill, or subsequent to September 30, 1996, the proceeds from the issuance of the Company's common stock. Although the Company expects that the credit quality of its lessees and its residual return history will continue to allow it to obtain such financing, no assurances can be given that such financing will be available, at acceptable terms or at all. The Company's current lines of credit, if renewed or replaced, its expected access to the public and private securities markets, both debt and equity, anticipated new lines of credit (both short-term and long-term and recourse and non-recourse), anticipated long-term financing of individual significant lease transactions, and its estimated cash flow from operations are anticipated to provide adequate capital to fund the Company's operations, including acquisitions and financings under its vendor programs, for the next twelve months. Although no assurances can be given, the Company expects to be able to renew or timely replace its existing lines of credit, to continue to have access to the public and private securities markets, both debt and equity, and to be able to, as required, enter into anticipated new lines of credit and individual financing transactions. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's future quarterly operating results and the market price of its stock may fluctuate. In the event the Company's revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of the Company's stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing companies or major customers or vendors of the Company. The Company's quarterly results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, as a result of sales by the Company of equipment it leases to its customers. Such sales of leased equipment, which are an ordinary but not predictable part of the Company's business, will have the effect of increasing revenues, and, to the extent sales proceeds exceed net book value, net income, during the quarter in which the sale occurs. Furthermore, any such sale may result in the reduction of revenue, and net income, otherwise expected in subsequent quarters, as the Company will not receive lease revenue from the sold equipment in those quarters. Given the possibility of such fluctuations, the Company believes that comparisons of the results of its operations to immediately succeeding quarters are not necessarily meaningful and that such results for one quarter should not be relied upon as an indication of future performance. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS The Company completed its Initial Public Offering of 1,000,000 shares of common stock on November 20, 1996, in a public offering subject to its Registration Statement on Form S-1, Registration No. 333-11737. That Registration Statement and the Prospectus, dated November 14, 1996, which is a part of it (the "Prospectus"), include a section entitled "Risk Factors," which describes certain factors that may affect future operating results of the Company. That section is hereby incorporated by reference in this Report. Those factors should be considered carefully in evaluating an investment in the Company's Common Stock. If you do not have a copy of the Prospectus, you may obtain one by requesting it from the Company's Investor Relations Department by phone, at (703) 834-5710, or by mail at MLC Holdings, Inc. Suite 110, 11150 Sunset Hills Road, Reston, VA 20190, Attn.: Investor Relations, or by sending an Email request to KParkhurst@MLCGroup.com STOCK OPTION PLANS 1996 Stock Incentive Plan. The Company has established a stock incentive program (the "Stock Incentive Plan") to provide an opportunity for directors, executive officers, independent contractors, key employees, and other 11 employees of the Company to participate in the ownership of the Company. The Stock Incentive Plan provides for the award to eligible directors, employees, and independent contractors of the Company, of a broad variety of stock-based compensation alternatives such as incentive stock options for employees under the 1996 Incentive Stock Option Plan, formula length of service based nonqualified options to nonemployee directors under the 1996 Outside Director Stock Plan, and nonqualified stock options under the 1996 Nonqualified Stock Option Plan, as well as other restrictive stock and performance based stock awards and programs which may be established by the Board of Directors. Currently, the Company has reserved a total of 400,000 shares of Common Stock for issuance upon exercise of options under: (i) the employment agreements with Messrs. Norton, Bowen and Parkhurst (under which options for an aggregate of 245,000 shares have been granted); (ii) the 1996 Outside Director Stock Plan (under which options for 30,000 shares have been granted and an additional 45,000 shares have been reserved for future formula grant); (iii) the 1996 Incentive Stock Option Plan (under which options for an aggregate of 60,000 shares have been granted); (iv) the 1996 Nonqualified Stock Option Plan (under which no options have been granted); and (v) 20,000 additional shares of Common Stock reserved for issuance under the 1996 Stock Incentive Plan. The Stock Incentive Plan is administered by the Stock Incentive Committee, which is authorized to select from among the eligible participants the individuals to whom options, restricted stock purchase rights and performance awards are to be granted and to determine the number of shares to be subject thereto and the terms and conditions thereof. The Stock Incentive Committee is authorized to adopt, amend and rescind the rules relating to the administration of the Stock Incentive Plan. Except for grants that are approved by a majority of the Company's Board of Directors, no member of the Stock Incentive Committee will be eligible to participate in future grants of options in the Stock Incentive Plan. Incentive stock options issued under the 1996 Incentive Stock Option Plan are designed to comply with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and are subject to restrictions contained in the Code, including a requirement that exercise prices be equal to at least 100% of fair market value of the shares of Common Stock on the grant date and a ten-year restriction on the option term. The incentive stock options may be subsequently modified to disqualify them from treatment as incentive stock options. Under the Stock Incentive Plan and the Code, non-employee directors are not permitted to receive incentive stock options. The Company granted in November, 1996, options totaling 60,000 shares of Common Stock to employees other than those receiving options under employment agreements or nonqualified stock options as described above. Each of the foregoing incentive stock option grants was at the initial public offering price and is exercisable in 20% increments over five years, subject to continued employment and subject to acceleration upon certain conditions. Nonqualified stock options issued under the 1996 Stock Incentive Plan, may be granted to directors, officers, independent contractors and employees and will provide for the right to purchase shares of Common Stock at a specified price which may be less than fair market value on the date of grant, and usually will become exercisable in installments after the grant date. Nonqualified stock options may be granted for any reasonable term. Under the 1996 Outside Director Stock Option Plan, each of the three nonemployee directors have been granted options to purchase an aggregate of 30,000 shares of Common Stock, 50% of which may be exercised after the first year of service and the remaining 50% of which may be exercised after the second year of service provided they continue to serve as directors. The 1996 Outside Director Stock Option Plan also provides for the grant of options for shares to each nonemployee director (15,000 annually in the aggregate) on the second, third and fourth anniversary of service, at an exercise price equal to the market price as of the date of grant, with each option being exercisable as to 50% of the shares on the first anniversary of grant and the remaining 50% of the shares as the second anniversary of grant. Options for 15,000 shares becoming exercisable after the second, third and fourth anniversaries of grants. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this Report which are not historical facts may be deemed to contain forward-looking statements with respect to events, the occurrence of which involve risks and uncertainties, including, without limitation, demand and competition for the Company's lease financing services 12 and the products to be leased by the Company, the continued availability to the Company of adequate financing, the ability of the Company to recover its investment in equipment through remarketing, the ability of the Company to manage its growth, and other risks or uncertainties detailed in the Company's Securities and Exchange Commission filings, including the Prospectus. 13 MLC HOLDINGS, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Under Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security-Holders Prior to the date that the Company became a publicly owned company, its stockholders took various actions in furtherance of the Company's formation, organization, and restructuring, all as described in the Company's Registration Statement on Form S-1 concerning the Offering. All such actions were adopted by written action in lieu of meeting and included: (1) The approval effective September 1, 1996, of the adoption by the Corporation of the 1996 Stock Incentive Plan by unanimous written action of the stockholders in lieu of meeting. The 1996 Stock Incentive Plan included the 1996 Incentive Stock Option Plan, the 1996 Nonqualified Stock Option Plan, and the 1996 Outside Director Stock Option Plan. All of the foregoing are as described in the Company's Registration Statement on Form S-1 concerning the Offering. (2) The approval and ratification effective September 1, 1996, of the Employment Agreements between the Company and Phillip G. Norton, Chairman, Chief Executive Officer, and President, Bruce M. Bowen, Director, Chief Financial Officer and Executive Vice President, Kleyton L. Parkhurst, Secretary and Treasurer, and William J. Slaton, by unanimous written action of the stockholders in lieu of meeting. These employment agreements are as described in the Company's Registration Statement on Form S-1 concerning the Offering. (3) The approval and ratification effective September 12, 1996, of certain option agreements between the Company and Phillip G. Norton, Chairman, Chief Executive Officer, and President, Bruce M. Bowen, Director, Chief Financial Officer and Executive Vice President, and Kleyton L. Parkhurst, Secretary and Treasurer, by unanimous written action of the stockholders in lieu of meeting. These employment agreements are as described in the Company's Registration Statement on Form S-1 concerning the Offering. Item 5. Other Information. Not Applicable. Item 6. Exhibits and reports on Form 8-K
EXHIBIT SEQUENTIAL NO. DESCRIPTION OF EXHIBIT PAGE NUMBER 3.1 Certificate of Incorporation of the Company * 3.2 Bylaws of the Company * 4.1 Specimen certificate of Common Stock of the Company * 10.1 Material Contracts -- 1996 Stock Incentive Plan * 10.2 Material Contracts --1996 Outside Directors * Stock Option Plan 10.3 Material Contracts --1996 Nonqualified Stock * Option Plan 10.4 Material Contracts --1996 Incentive Stock * Option Plan
14 10.5 Material Contracts -- Form of Indemnification * Agreement entered into between the Company and its directors and officers. 10.7 Material Contracts -- Form of Employment Agreement * between the Company and Phillip G. Norton 10.8 Material Contracts -- Form of Employment Agreement * between the Company and Bruce M. Bowen 10.9 Material Contracts -- Form of Employment Agreement * between the Company and William J. Slaton 10.10 Material Contracts -- Form of Employment Agreement * between the Company and Kleyton L. Parkhurst 10.11 Form of Irrevocable Proxy and Stock Rights Agreement * 10.12 First Amended and Restated Business Loan and Security * Agreement by and between the Company and First Union Bank of Virginia, N.A. 10.13 Loan Modification and Extension Agreement by and * between the Company and First Union National Bank of Virginia, N.A. 27 Financial Data Schedule.
(b) Reports on Form 8-K None Filed during the quarter for which this report is filed. * Incorporated by reference from the Company's Registration Statement on Form S-1, Commission File No. 333-11737. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MLC HOLDINGS, INC. By: /s/ Phillip G. Norton ------------------------- Phillip G. Norton Chairman, President and Chief Executive Officer By: /s/ Bruce M. Bowen ------------------------- Bruce M. Bowen Executive Vice President and Chief Financial Officer (Principal Financial Officer) DATE: ---------------------- 13 15
EXHIBIT SEQUENTIAL NO. DESCRIPTION OF EXHIBIT PAGE NUMBER 3.1 Certificate of Incorporation of the Company * 3.2 Bylaws of the Company * 4.1* Specimen certificate of Common Stock of the Company 10.1 Material Contracts -- 1996 Stock Incentive Plan * 10.2 Material Contracts --1996 Outside Directors * Stock Option Plan 10.3 Material Contracts --1996 Nonqualified Stock * Option Plan 10.4 Material Contracts --1996 Incentive Stock * Option Plan 10.5 Material Contracts -- Form of Indemnification * Agreement entered into between the Company and its directors and officers. 10.7 Material Contracts -- Form of Employment Agreement * between the Company and Phillip G. Norton 10.8 Material Contracts -- Form of Employment Agreement * between the Company and Bruce M. Bowen 10.9 Material Contracts -- Form of Employment Agreement * between the Company and William J. Slaton 10.10 Material Contracts -- Form of Employment Agreement * between the Company and Kleyton L. Parkhurst 10.11 Form of Irrevocable Proxy and Stock Rights Agreement * 10.12 First Amended and Restated Business Loan and Security * Agreement by and between the Company and First Union Bank of Virginia, N.A. 10.13 Loan Modification and Extension Agreement by and * between the Company and First Union National Bank of Virginia, N.A. 27 Financial Data Schedule.
(b) Reports on Form 10-K None Filed during the quarter for which this report is filed. * Incorporated by reference from the Company's Registration Statement on Form S-1, Commission File No. 333-11737. EX-27 2 FINANCIAL DATA SCHEDULE.
5 1,000 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 2,784 0 5,758 0 887 0 257 0 38,551 0 0 0 0 40,000 0 38,551 19,048 24,601 18,144 0 3,999 0 757 1,701 606 1095 0 0 0 1,095 0.27 0.27
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