-----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, BrHDdCoGhwhuIVmr2ppb/gR8ohtZBH4SzIiMb7yTI7YV58Ls7JLA0vfu3iWEUZJO hN7c0dr3onQsIu2ZKDTeUA== 0000950133-97-002755.txt : 19970812 0000950133-97-002755.hdr.sgml : 19970812 ACCESSION NUMBER: 0000950133-97-002755 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 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: 97654842 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 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 June 30, 1997 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 0-28926 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 [X] No [ ] The number of shares of Registrant's common stock outstanding July 24, 1997 was 5,572,307 shares. 2 2 MLC HOLDINGS, INC. AND SUBSIDIARIES
PAGE Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets June 30, 1997 (Unaudited)and March 31, 1997 Condensed Consolidated Statements of Earnings, Three month periods ended June 30, 1997 (Unaudited) and 1996 (Unaudited) Condensed Consolidated Statements of Cash Flows, Three month periods ended June 30, 1997(Unaudited) and 1996 (Unaudited) Notes to Condensed Consolidated Financial Statements (Unaudited) 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 3 MLC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, March 31, 1997 1997 (UNAUDITED) ------------- ------------- ASSETS Cash and cash equivalents $ 3,796,192 $ 6,048,008 Accounts receivable 4,907,662 5,184,214 Notes receivable 11,478,904 2,154,250 Employee advances 63,618 47,812 Inventories 1,165,455 184,085 Investment in direct financing and sales-type leases - net 19,625,802 17,473,069 Investment in operating lease equipment - net 9,750,137 11,065,159 Property and equipment - net 303,058 297,617 Other assets 740,218 604,792 ------------- ------------- TOTAL ASSETS $ 51,831,046 $ 43,059,006 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable - equipment $ 6,435,546 $ 4,946,422 Accounts payable - trade 493,489 561,482 Salaries and commissions payable 110,700 472,258 Accrued expenses and other liabilities 2,743,630 1,615,898 Income taxes payable 269,082 930,587 Recourse notes payable 7,818,471 268,744 Nonrecourse notes payable 18,472,012 19,705,059 Deferred taxes 590,000 590,000 ------------- ------------- Total liabilities $ 36,932,930 $ 29,090,450 ------------- ------------- 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; 5,150,000 shares issued and outstanding at June 30, 1997 and March 31, 1997 51,500 51,500 Additional paid-in capital 8,617,654 8,611,354 Retained earnings 6,228,962 5,305,702 ------------- ------------- Total stockholders' equity 14,898,116 13,968,556 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,831,046 $ 43,059,006 ============= =============
See accompanying notes to condensed consolidated financial statements. 4 4 MLC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, --------------------------------------- 1997 1996 ----------------- -------------------- REVENUES: Sales of equipment $ 2,169,170 $ 4,177,042 Sales of leased equipment 20,140,240 6,234,984 ----------------- -------------------- Total sales 22,309,410 10,412,026 ----------------- -------------------- Lease revenues 3,840,264 1,791,458 Fee and other income 613,061 692,468 ----------------- -------------------- Total revenues 26,762,735 12,895,952 ----------------- -------------------- COSTS AND EXPENSES: Cost of sales of equipment 1,946,262 3,643,838 Cost of sales of leased equipment 19,912,017 6,250,477 ----------------- -------------------- Cost of sales 21,858,279 9,894,315 ----------------- -------------------- Direct lease costs 1,708,450 780,788 Professional and other fees 171,042 127,785 Salaries and benefits 769,787 665,078 General and administrative expenses 431,631 258,549 Interest and financing costs 439,974 370,238 ----------------- -------------------- Total costs and expenses 25,379,163 12,096,753 ----------------- -------------------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 1,383,572 799,199 PROVISION FOR INCOME TAXES 460,312 284,000 ----------------- -------------------- NET EARNINGS $ 923,260 $ 515,199 ================= ==================== NET EARNINGS PER COMMON SHARE $ 0.18 $ 0.13 ================= ====================
See accompanying notes to condensed consolidated financial statements. 5 5 MLC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30, ---------------------------------------------- 1997 1996 ---------------------- ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings $ 923,260 $ 515,199 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation & amortization 1,149,032 528,544 Provision for credit losses (30,000) ----- (Gain) loss on sale of operating lease equipment (113,952) 17,180 Adjustment of basis to fair market value of early returned operating lease equipment 231,000 ----- Payments from lessees directly to lenders (641,730) (388,623) Deferred taxes ----- 21,000 Compensation to outside directors-stock options 6,300 ----- Changes in: Accounts receivable 276,552 (689,646) Notes receivable (9,324,654) (954,045) Employee advances (15,806) (1,410) Inventories (851,370) 19,013 Other assets (21,109) 38,284 Accounts payable - equipment 1,489,123 (1,580,806) Accounts payable - trade (67,993) (301,196) Salaries & commissions payable (361,558) 69,181 Accrued expenses and other liabilities 1,127,732 336,510 Income taxes payable (661,505) 212,476 ---------------------- ----------------------- Net cash used in operating activities (6,886,678) (2,158,339) ---------------------- ----------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of operating lease equipment 353,762 850,099 Purchase of operating lease equipment (1,018,137) (3,653,553) Increase in investment in direct financing and sales-type leases (2,997,485) 27,844 Purchase of property and equipment (30,599) (6,240) (Increase)/decrease in other assets (114,315) 92,934 ---------------------- ----------------------- Net cash used in investing activities (3,806,774) (2,688,916) ---------------------- ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings: Nonrecourse 2,004,927 5,051,925 Recourse 94,364 ----- Repayments: Nonrecourse (1,113,018) (316,991) Recourse (44,637) (16,541) Proceeds from lines of credit 7,500,000 216,962 ---------------------- ----------------------- Net cash provided by financing activities 8,441,636 4,935,355 ---------------------- ----------------------- NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,251,816) 88,100 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,048,008 357,881 ---------------------- ----------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,796,192 $ 445,981 ====================== =======================
6 6
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 400 $ 46,242 ====================== ======================= Income taxes paid $ 1,121,818 $ 50,523 ====================== ======================= (concluded)
See accompanying notes to condensed consolidated financial statements. 7 7 MLC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of June 30, 1997, and the statements of earnings and statements of cash flows for the three month periods ended June 30, 1997 and June 30, 1996 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, the accompanying unaudited financial statements include all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company's financial position at June 30, 1997 and results of earnings and cash flows for the periods ended June 30, 1997 and 1996. 2. INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES The Company's investment in direct finance leases consists of the following components:
JUNE 30, MARCH 31, 1997 1997 ------------------ ------------------ (In thousands) Minimum lease payments $ 19,649 $ 18,752 Estimated unguaranteed residual value 2,599 1,271 Initial direct costs - net of amortization 1,050 1,237 Less: Unearned lease income (3,636) (3,721) Reserve for credit losses (36) (66) ------------------ ------------------ Investment in direct financing lease and sales-type lease - net $ 19,626 $ 17,473 ================== ==================
3. INVESTMENT IN OPERATING LEASE EQUIPMENT The components of the net investment in operating lease equipment are as follows:
JUNE 30, MARCH 31, 1997 1997 ------------------ ------------------ (In thousands) Cost of equipment under operating leases $ 13,741 $ 14,519 Initial direct costs 21 42 Accumulated depreciation and amortization (4,012) (3,496) ------------------ ------------------ Investment in operating leases - net $ 9,750 $ 11,065 ================== ==================
8 8 4. BUSINESS COMBINATION On July, 24, 1997, the Company, through a new wholly owned subsidiary, MLC Network Solutions, Inc. incorporated on July 14, 1997, entered into an Agreement and Plan of Merger with Compuventures of Pitt County, Inc. ("Compuventures"). Compuventures was merged into MLC Network Solutions, Inc. effective July 24, 1997. The outstanding shares of Compuventures Common Stock were converted into 260,978 common shares, valued at $3,384,564, of MLC Holdings, Inc. Common Stock. Compuventures is a value-added reseller of PC's and related network equipment and software products and provides various support services to its customers from facilities located in Greenville, Raleigh and Wilmington, North Carolina. The merger will be accounted for as a pooling of interests. The following unaudited pro forma data summarizes the combined operations of the Company and Compuventures as if the merger had occurred at the beginning of the periods presented. The amounts below have been adjusted to include a tax provision in Net Income for Compuventures as it did not provide for income taxes under its former S Corporation tax status.
Unaudited Pro Forma Three Months Ended June 30, ------------------------- 1997 1996 (In thousands, except per share information) Revenue $ 32,986 $ 16,968 Net Income $ 1,118 $ 636 Net Earnings per common share $ 0.21 $ 0.15 Pro Forma Outstanding shares 5,432 4,260
The pro forma earnings per common share are based on the sum of the historical average common shares outstanding ,as reported by MLC Holdings, Inc., and the historical average common shares outstanding for Compuventures converted to MLC Holdings, Inc. shares. 5. PRIVATE PLACEMENT OF EQUITY SUBSEQUENT TO QUARTER END On July 1, 1997, the Company issued 161,329 shares of stock to a single investor in a private placement for cash consideration of $2,000,000 (per share price at $12.40). The stock was priced, per a Stock Purchase Agreement dated June 18, 1997, at a per share price equal to one-twentieth (1/20)of the sum of the closing price per share of the Company's common stock as reported on the NASDAQ National Market at the close of each of the last twenty business days immediately prior to the closing date (June 4, to July 1), multiplied by (.95). Earnings per share amounts in this report are not adjusted for this stock placement as it was consummated subsequent to June 30, 1997. MLC HOLDINGS, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1997. The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in the Company's 10-K for the fiscal year ended March 31, 1997. Certain statements contained herein are not based on historical fact, but are forward-looking statements that are based upon numerous assumptions about future conditions that may not occur. Actual events, transactions and results may materially differ from the anticipated events, transactions, or results described in such statements. The Company's ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the existence of demand for and acceptance of the Company's services, economic conditions, the impact of competition and pricing, results of financing efforts and other factors affecting the Company's business that are beyond the Company's control. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release the result of any revisions to these forward-looking statements that may be made to reflect future events or circumstances. RESULTS OF OPERATIONS 9 9 Revenues. Total revenues increased 107.5% to $26,762,735 for the three month period ended June 30, 1997, compared with the corresponding prior year period. The fluctuation in revenue is attributed to the variability of timing of transactions originated, or sold by the Company, and fluctuations may continue in the future (See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS"). Sales. Sales increased 114.3% to $22,309,410 for the three month period ended June 30, 1997, compared with the corresponding prior year period. Sales of Equipment: Sales of Equipment decreased 48.1% to $2,169,170 for the three month period ended June 30, 1997, compared with the corresponding prior year period. The decrease in Sales of Equipment is a result of fluctuations in business activity in this business segment which can vary considerably from quarter to quarter based on the number and size of transactions. Sales of Leased Equipment: Sales of Leased Equipment increased 223.0% to $20,140,240 for the three month period ended June 30, 1997, compared with the corresponding prior year period. The fluctuation in Sales of Leased Equipment is a result of increased activity and fluctuations in the timing of the sales to the Company's institutional equity partner, Cargill Leasing Corporation. Lease Revenues. Lease revenues increased 114.4% to $3,840,264 for the three month period ended June 30, 1997, compared with the corresponding prior year period. 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 months of 1997, compared to the same period in 1996. Fee and Other Income. Fee and other income decreased 11.5% to $613,061 for the three month period ended June 30, 1997 as a result of a lower level of remarketing fees, offset partially by higher levels of broker fee earned from the equity sale, as compared to the same period in 1996. Costs and Expenses. Total expenses increased 109.8% to $25,379,163 for the three month period ended June 30, 1997, compared with the corresponding prior year period. Cost of Sales. Cost of sales increased 120.9% to $21,858,279 for the three month period ended June 30, 1997, compared with the corresponding prior year period, as a result of an increase in sales activities for this period. The fluctuation in sales expenses can be attributed to the variability of increased activity and timing of transactions originated, 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 46.6% to $1,946,262 for the three month period ended June 30, 1997, compared with the corresponding prior year period reflecting decreases in related sales. Cost of Sales of Leased Equipment: The Cost of Sales of Leased Equipment increased 218.6% to $19,912,017 for the three month period June 30, 1997, 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 partner. Direct Lease Costs. Direct lease costs increased 118.8% to $1,708,450 for the three month period ended June 30, 1997, 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 30.5% to $1,372,460 for the three month periods ended June 30, 1997, 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, and an increase in general and administrative costs relating to the higher volume of lease business. Interest Expense. Interest expense increased 18.8% to $439,974 for the three month period ended June 30, 1997, compared with the corresponding prior year period. This is compared to the increase in recourse and nonrecourse debt of 45.6% to $26,290,483. 10 10 Provision for Income Taxes. The provision for income taxes was 33.3% for the three months ended June 30, 1997 as compared to 35.5% for the corresponding prior year period. Net Income. Net income increased 79.2% to $923,260 for the three month period ended June 30, 1997, 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 38.5% to $0.18 from $0.13 for the corresponding three month period. LIQUIDITY AND CAPITAL RESOURCES Cash Flow. The Company used cash flow from operations of $6,886,678 during the three month period ended June 30, 1997 as a result of increases in notes receivable of $9,324,654 (due to amounts owed by MLC/CLC LLC for unfunded equity sale made at quarter-end), inventories of $851,370 (primarily due to the purchase of equipment having a cost of approximately $841,000 not yet recorded as a lease), Payments from Lessees Directly to Lenders of $641,730, decrease in lease and other accounts receivables of $276,552, and increase in other assets of $36,915. Non-cash expenses which increased cash flow included Depreciation and Amortization of $1,149,032 (due to an increase in the amount of operating lease assets held during the quarter and amortization of indirect costs), Accounts Payable - Equipment of $1,489,123 , increase in accrued expenses and other liabilities of $1,127,732 (primarily due to an increase in cash held for others), decrease in Accounts Payable - Trade of $67,993, and Income Taxes Payable of $661,505, Adjustment of Basis to FMV of Early Returned Operating Lease Equipment of $231,000, (this was a result of the early termination of operating leases with one customer), gain from sale of operating lease equipment of $113,952, and decrease in salaries and commission payable of $361,558. Investing activities, which are primarily related to investments in equipment under lease, used $3,806,774 during the three month period. Financing activities in the three month period generated $8,441,636 from the Company's new borrowings of non-recourse debt of $ $2,004,927, recourse debt of $94,364, and $7,500,000 from its lines of credit, offset by repayment of recourse and non-recourse borrowings aggregating $1,157,655. The net result of the above activity for the three month period was a decrease in cash and cash equivalents of $2,251,816. 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. On June 5, 1997, the Company entered into the CoreStates Facility, a $15 million committed recourse line of credit with CoreStates Bank, N.A. Borrowings under the CoreStates Facility, which is available through June 5, 1998, bear interest at LIBOR + 110 basis points, or, at the Company's option, Prime minus one percent. On June 10, 1997, the Company terminated its First Union Facility and drew down $7.5 million on the CoreStates Facility. The line of credit is made to MLC Group, Inc., and guaranteed by MLC Holdings, Inc. Availability under the revolving lines of credit may be limited by the asset value of equipment purchased by the Company and may be further limited by certain covenants and terms and conditions of the facilities. Partial Recourse Borrowing Facilities. In March 1997, the Company established the Heller Facility, a $10,000,000 credit facility agreement, with Heller Financial,Inc, Vendor Finance Division. Under the terms of the Heller Facility, a maximum amount of $10 million is available to the Company, provided, that each draw is subject to the approval of Heller. As of June 30, 1997, the principal balance due under the Heller Facility is $884,178. 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 held company with stockholders' equity in excess of $774 million, as of December 31, 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 11 11 business than the Company's limited capital base would otherwise allow. MLC/CLC LLC provide the majority of the Company's equity investment from third parties as referenced above. During the quarter ended June 30, 1996, out of total leased equipment sales of approximately $6.2 million, sales to MLC/CLC LLC were $4.8 million or 77.1%. For the quarter ended June 30, 1997, out of Sales of Leased Equipment of $20.1 million MLC/CLC LLC represented 89.1% or $17.9 million. For the three month periods ended June 30, 1997 and 1996, approximately 67.0% and 37.2%, respectively, of the Company's total revenue was attributable to sales of lease transactions to MLC/CLC LLC, 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. 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. 12 NEW BUSINESS RELATIONSHIP In the three months ended June 30, 1997, MLC Group, Inc. entered into a business relationship with Cisco Systems Capital Corporation (Cisco) in which MLC Group, Inc. will provide to Cisco a guaranty, on certain deals, of a minimum residual value realization on transactions that Cisco will hold in their portfolio. As consideration for this guaranty, MLC Group, Inc. will receive fees from the residual value remarketing after Cisco receives their original residual amount. As of June 30, 1997, MLC Group, Inc. has provided residual guarantees to two lease contracts and that no fee income, guaranty expenses or liabilities have been realized. 13 "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 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. 14 14 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 Not Applicable Item 5. Other Information. Not Applicable. Item 6. Exhibits and reports on Form 8-K 15 15
EXHIBIT SEQUENTIAL NO. DESCRIPTION OF EXHIBIT PAGE NUMBER 2.1 Agreement and Plan of Merger dated July 24, 1997, by and among MLC Holdings, Inc., MLC **** Network Solutions, Inc., Compuventures of Pitt County, Inc., and the Stockholders of Compuventures of Pitt County, Inc. 3.1 Certificate of Incorporation of the Company * 3.2 Bylaws of the Company * 4.1 Specimen certificate of Common Stock of the Company * 5.1 Text of Loan and Security Agreement dated January 31, 1997 between MLC Group, Inc. and ** Heller Financial, Inc. 5.2 Text of First Amendment to Loan and Security Agreement dated March 12, 1997 between MLC ** Group, Inc. and Heller Financial, Inc. 10.1 1996 Stock Incentive Plan * 10.2 1996 Outside Directors Stock Option Plan * 10.3 1996 Nonqualified Stock Option Plan * 10.4 1996 Incentive Stock Option Plan * 10.5 Form of Indemnification Agreement entered into between the * Company and its directors and officers. 10.7 Form of Employment Agreement between the Company and Phillip G. * Norton 10.8 Form of Employment Agreement between the Company and Bruce M. * Bowen 10.9 Form of Employment Agreement between the Company and William J. * Slaton 10.10 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. 10.14 Credit Agreement by and Between the Company and NationsBanc Leasing Corporation * 10.15 Loan Modification and Extension Agreement * 10.16 Text of Loan and Security Agreement dated January 31, 1997 between MLC Group, Inc. and Heller Financial, Inc. ** 10.17 Text of First Amendment to Loan and Security Agreement dated March 12, 1997 between MLC Group, Inc. and Heller Financial, Inc. ** 10.18 Credit Agreement dated as of June 5, 1997, by and between MLC Group, Inc. and *** CoreStates Bank, N.A. 10.19 Form of Employment Agreement between the Registrant and Thomas B. Howard, Jr. *** 10.20 Form of Employment Agreement between the Registrant and Steven J. Mencarini *** 27 Financial Data Schedule. (b) Reports on Form 8-K None Filed during the quarter for which this report is filed.
16 16 * Incorporated by reference from the Company's Registration Statement on Form S-1, Commission File No. 333-11737. ** Incorporated by reference from the Company's 8-K filed March 28, 1997, Commission file No. 000-28926 *** Incorporated by reference from the Company's 10-K filed June 30, 1997, Commission file No. 000-28926 **** Incorporated by reference from the Company's 8-K filed August 8, 1997, Commission file 000-28926 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/ Steven J. Mencarini ------------------------- Steven J. Mencarini Senior Vice President and Chief Financial Officer (Principal Financial Officer) DATE: August 9, 1997 ---------------------- 13 EX-27 2 FINANCIAL DATA SCHEDULE.
5 1,000 3-MOS MAR-31-1998 APR-01-1997 JUN-30-1997 3,796 0 16,450 0 1,165 0 303 0 51,831 0 0 0 0 52 0 51,831 22,309 26,763 21,858 0 3,081 0 440 1,383 460 923 0 0 0 923 0.18 0.18
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