<PAGE> 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)
<TABLE>
<S> <C>
DELAWARE 54-1817218
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
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.
<PAGE> 2
MLC HOLDINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
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
</TABLE>
<PAGE> 3
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
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
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 4
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 5
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
--------------------------
1996 1995
----------- ------------
<S> <C> <C>
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
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 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):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------ -----------
<S> <C> <C>
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
========= =========
</TABLE>
4. INVESTMENT IN OPERATING LEASE EQUIPMENT
The components of the net investment in operating lease equipment are
as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------ -----------
<S> <C> <C>
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
========== =========
</TABLE>
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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 [email protected]
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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
<S> <C> <C>
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
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
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.
</TABLE>
(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
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
<S> <C> <C>
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.
</TABLE>
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,784
<SECURITIES> 0
<RECEIVABLES> 5,758
<ALLOWANCES> 0
<INVENTORY> 887
<CURRENT-ASSETS> 0
<PP&E> 257
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,551
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,551
<SALES> 19,048
<TOTAL-REVENUES> 24,601
<CGS> 18,144
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 757
<INCOME-PRETAX> 1,701
<INCOME-TAX> 606
<INCOME-CONTINUING> 1095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,095
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
