<PAGE> 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.
<PAGE> 2
2
MLC HOLDINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
</TABLE>
<PAGE> 3
3
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
(UNAUDITED)
------------- -------------
ASSETS
<S> <C> <C>
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
============= =============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
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
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
4
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------------------
1997 1996
----------------- --------------------
REVENUES:
<S> <C> <C>
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
================= ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
5
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------------------
1997 1996
---------------------- -----------------------
<S> <C> <C>
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
====================== =======================
</TABLE>
<PAGE> 6
6
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C>
Interest paid $ 400 $ 46,242
====================== =======================
Income taxes paid $ 1,121,818 $ 50,523
====================== =======================
(concluded)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 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:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
------------------ ------------------
(In thousands)
<S> <C> <C>
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
================== ==================
</TABLE>
3. INVESTMENT IN OPERATING LEASE EQUIPMENT
The components of the net investment in operating lease equipment are as
follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
------------------ ------------------
(In thousands)
<S> <C> <C>
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
================== ==================
</TABLE>
<PAGE> 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.
<TABLE>
<CAPTION>
Unaudited Pro Forma
Three Months Ended
June 30,
-------------------------
1997 1996
(In thousands, except per
share information)
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 15
15
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
<S> <C>
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.
</TABLE>
<PAGE> 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
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,796
<SECURITIES> 0
<RECEIVABLES> 16,450
<ALLOWANCES> 0
<INVENTORY> 1,165
<CURRENT-ASSETS> 0
<PP&E> 303
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,831
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,831
<SALES> 22,309
<TOTAL-REVENUES> 26,763
<CGS> 21,858
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440
<INCOME-PRETAX> 1,383
<INCOME-TAX> 460
<INCOME-CONTINUING> 923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 923
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