<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 1-7708
------
MARLTON TECHNOLOGIES, INC.
--------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New Jersey 22-1825970
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2828 Charter Road, Suite 101.
Philadelphia, PA 19154
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 676-6900
--------------
Former name, former address and former fiscal
year, if changed since last report.
Check whether the issuer (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
--------------- --------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity as of the last practicable date:
4,469,468
- ---------
Transitional Small Business Disclosure Form (check one):
Yes X No
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<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 and DECEMBER 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current:
Cash and cash equivalents $ 3,507,667 $ 1,028,606
Accounts receivable, net of allowance
of $159,465 and $132,000, respectively 7,360,706 4,444,597
Inventory (Note 2) 3,889,070 2,422,494
Prepaids and other current assets 700,683 575,719
Deferred income taxes (Note 4) 657,000 357,000
------------ ------------
Total current assets 16,115,126 8,828,416
Property and equipment, net of accumulated
depreciation and amortization 2,193,491 1,786,711
Rental assets, net of accumulated amortization 903,177 625,631
Goodwill, net of accumulated amortization of
$664,967 and $595,478, respectively (Note 3) 3,032,127 3,101,616
Deferred income taxes 1,162,000 1,792,000
Other assets, net of accumulated amortization
of $752,031 and $644,720, respectively (Note 3) 722,789 330,329
------------ ------------
Total assets $ 24,128,710 $ 16,464,703
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 451,542 $ 524,586
Accounts payable 3,792,031 1,542,433
Accrued expenses and other (Note 5) 6,557,245 3,089,304
------------ ------------
Total current liabilities 10,800,818 5,156,323
------------ ------------
Long term debt, net of current portion 919,697 991,894
------------ ------------
Total liabilities 11,720,515 6,148,217
------------ ------------
Stockholders' equity:
Common stock, $.10 par - shares authorized
10,000,000; 4,474,468 and 3,937,534 issued, respectively 447,447 393,754
Additional paid-in capital 20,914,791 20,171,051
Accumulated deficit (8,842,366) (10,136,642)
------------ ------------
12,519,872 10,428,163
Less cost of 5,000 treasury shares 111,677 111,677
------------ ------------
Total stockholders' equity 12,408,195 10,316,486
------------ ------------
Total liabilities and stockholders' equity $ 24,128,710 $ 16,464,703
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
Shares Issued Treasury Paid-in Accumulated
Issued Amount Amount Capital Deficit
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,937,534 $ 393,754 $ (111,677) $ 20,171,051 $(10,136,642)
Additional shares issued 536,934 53,693 -- 743,740 --
Net income for the six month period -- -- -- -- 1,294,276
--------- ------------ ------------ ------------ ------------
Balance, June 30, 1996 4,474,468 $ 447,447 $ (111,677) $ 20,914,791 $ (8,842,366)
========= ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended For the three months ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 18,865,573 $ 15,094,043 $ 10,287,515 $ 7,712,415
Cost of sales 13,430,612 10,688,054 7,381,069 5,584,431
------------ ------------ ------------ ------------
Gross profit 5,434,961 4,405,989 2,906,446 2,127,984
------------ ------------ ------------ ------------
Expenses:
Selling 3,114,917 2,480,443 1,721,451 1,224,136
Administrative and general 1,470,582 1,373,118 778,582 695,123
------------ ------------ ------------ ------------
4,585,499 3,853,561 2,500,033 1,919,259
------------ ------------ ------------ ------------
Operating profit 849,462 552,428 406,413 208,725
------------ ------------ ------------ ------------
Other income (expense):
Interest income 85,611 27,990 45,520 10,343
Interest (expense) (65,253) (68,066) (30,543) (33,940)
Other income (expense) (25,544) 9,705 (21,004) 16,091
Gain from contract amendment (Note 5) 1,000,000 -- -- --
------------ ------------ ------------ ------------
994,814 (30,371) (6,027) (7,506)
------------ ------------ ------------ ------------
Income before provision for income taxes 1,844,276 522,057 400,386 201,219
Provision for income taxes (Note 4) 550,000 155,000 120,000 65,000
------------ ------------ ------------ ------------
Net income $ 1,294,276 $ 367,057 $ 280,386 $ 136,219
============ ============ ============ ============
Number of common shares, weighted average 4,889,895 3,936,901 5,175,966 3,936,989
------------ ------------ ------------ ------------
Income per common share (Note 6): $ .264 $ .093 $ .054 $ .035
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
1996 1995
----------- -----------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 1,294,276 $ 367,057
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 764,864 604,208
Minority interest in (profit) loss of EDSI (39,100) 6,127
Decrease in deferred tax asset 330,000 95,000
Change in assets and liabilities; net of effect of Piper purchase:
(Increase) in accounts receivable, net (2,531,826) (76,025)
(Increase) decrease in inventory (841,217) 430,378
(Increase) decrease in prepaids and other assets (62,174) 271,662
Increase (decrease) in accounts payable and other accrued
expenses (Notes 3 and 5) 3,307,291 (1,665,960)
----------- -----------
Net cash provided by operating activities 2,222,114 32,477
----------- -----------
Cash flows (expended through) financing activities:
Capital expenditures for rental assets and property and equipment (872,812) (509,618)
Minority investment in Sparks Japan (Note 5) (25,000) --
Net cash paid to acquire Piper (Note 3) (50,000) --
----------- -----------
Net cash (expended through) investing activities (947,812) (509,618)
----------- -----------
Cash flows provided by (expended through) financing activities:
Issuance of common stock subject to put option (Note 5) 1,350,000 --
Note payable, related to Piper acquisition (Note 3) 100,000 --
Principal payments on long-term debt (245,241) (44,782)
----------- -----------
Net cash provided by (expended through) financing activities 1,204,759 (44,782)
----------- -----------
Increase (decrease) in cash and cash equivalents 2,479,061 (521,923)
Cash and cash equivalents - beginning of period 1,028,606 1,469,175
----------- -----------
Cash and cash equivalents - end of period $ 3,507,667 $ 947,252
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 65,253 $ 60,672
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Summary of Accounting Policies:
1. Basis of Presentation:
The consolidated financial statements include the accounts of
Marlton Technologies, Inc., its wholly-owned subsidiaries and majority owned
subsidiary (the "Company"), All intercompany accounts and transactions have been
eliminated. In the opinion of the Company's management, all adjustments
(primarily consisting of normal recurring accruals) have been made which are
necessary to present fairly the financial condition as of June 30, 1996 and the
results of operations and cash flows for the three month periods ended June 30,
1996 and 1995, respectively. The December 31, 1995 condensed balance sheet data
was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles and includes
certain account reclassifications for comparative purposes with the June 30,
1996 consolidated balance sheet.
2. Inventory:
Inventory, as of the respective dates, consist of the following:
June 30, 1996 December 31, 1995
------------- -----------------
Raw Materials $ 680,179 $ 510,774
Work In Process 3,208,891 1,911,720
---------- ----------
$3,889,070 $2,422,494
========== ==========
3. Acquisition, Piper Productions:
The Company acquired 100% of the stock of Piper Productions,
Inc. ("Piper") of Orlando, Florida, effective April 1, 1996. Piper produces
business theater, theme park attractions, themed interiors, theatrical
scenery and special effects. Piper clients include major restaurant and
entertainment chains, national theme parks and business/ entertainment
companies. Total consideration paid for the stock of Piper, including
related expenses, approximated $350,000. The Company paid a cash payment of
$50,000 at closing, a $50,000 payment due upon receipt of certain amounts
to Piper (which had not been received as of June 30, 1996) and a $100,000
note bearing interest at 6%, payable in 5 equal installments commencing
April 1, 1997. An additional $200,000 is payable if Piper achieves defined
sales levels at defined contribution margin percentages and Piper's
previous owner continues to be employed under an employment Agreement.
6
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The acquisition was accounted for as a purchase with the
operating results of Piper included in the consolidated statement of operations
from the acquisition date. Accordingly, the acquired assets and liabilities have
been recorded at their estimated fair values at the date of acquisition. The
excess of purchase price over the fair market value of identifiable tangible net
assets acquired has been recorded as an intangible asset, approximating
$565,000, and is being amortized on a straight-line basis over five years. The
intangible asset is a component of Other Assets on the June 30, 1996
consolidated balance sheet.
4. Income Taxes:
The components of the provision for income taxes for the
respective three month periods ended June 30, were as follows:
1996 1995
---- ----
Currently payable:
Federal $ 20,000 $ 13,000
State 25,000 27,000
-------- --------
45,000 40,000
Deferred:
Federal 75,000 220,000
-------- --------
$120,000 $260,000
======== ========
The significant component of the deferred income tax provisions in 1996
and 1995 was the utilization of the Company's net operating loss carryforward.
The difference between the provisions for income taxes computed at the federal
statutory rate of 34% and that reported for financial statement purposes is
primarily a result of state and local income taxes and goodwill amortization.
5. Gain on Contract Amendment:
The Company and Tsubasa System Company, Ltd. ("Tsubasa") a
diversified manufacturing and marketing company entered into a distribution
and license agreement in 1995 and jointly formed a Japanese corporation,
Sparks Japan, to market portable exhibits in Japan. Sparks Japan was
capitalized with $250,000 and is 90% owned by Tsubasa and 10% owned by the
Company. In an amendment to that agreement in January 1996, the Company
agreed to eliminate certain future payments from Sparks Japan and issue to
Tsubasa 500,000 unregistered shares of the Company's common stock in
exchange for $3,000,000 from Tsubasa.
7
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Sparks Japan is obligated to purchase certain portable exhibits
from the Company's majority owned subsidiary, EDSI. Sparks Japan opened its
Tokyo portable exhibit showroom during March 1996 and the Company provides
requisite technical, operational and marketing support to the Japanese
operation. The agreement also requires that the funds received by the Company
are to be used for its operating activities and to acquire companies, products
and services within the exhibit industry. The funds may not be used to retire
certain debts or pay bonuses, incentives, commissions, etc. to officers,
directors or shareholders of the Company, without obtaining prior approval from
Tsubasa.
In the event Sparks Japan does not achieve certain sales levels
by December 31, 1998 and the Company's common stock is trading at less than
$3.00 per share at that time, if requested by Tsubasa, the Company will, at its
option, repurchase the Tsubasa shares at $3.00 per share or make a cash payment
to Tsubasa equal to the difference between the December 31, 1998 trading price
and $3.00.
Amounts were allocated to the 500,000 shares of the Company's
common stock issued to Tsubasa and the "put option" (the guaranteed difference
between the Company's December 31, 1998 market value and $3.00 per share) based
on their estimated fair market values. Incremental costs expected to be incurred
by the Company through December 31, 1998 with respect to complying with certain
requirements of the transaction have been approximated at $650,000. The $650,000
of incremental costs plus the value of the put option at $600,000 are included
as a component of accrued expenses and other. As of June 30, 1996 approximately
$140,000 of incremental costs were charged against the accrual. $750,000 of the
$3.0 million was allocated to the Company's capital accounts with the remaining
$1,000,000 balance recorded as a gain during the first quarter of 1996.
6. Income per Common Share:
Income per common share is based on the weighted average number
of common shares outstanding during the period, adjusted for common equivalent
shares when the effect is not antidilutive. Income per share of common stock,
assuming full dilution, is equal to primary earnings per share for reported
periods.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
General Overview
On August 7, 1990, Marlton Technologies, Inc. (the "Company") acquired the
current business of Sparks Exhibits Corp. ("Sparks"). Through this acquisition,
the Company's core business became the custom design, manufacture and sale of
sophisticated trade show exhibits, displays, signage and graphics for clients in
industry, government, consumer electronics, athletic goods, healthcare,
telecommunications and other specialized fields.
During the fourth quarter of 1990, Sparks purchased certain assets, principally
customer lists, from DCA, Inc., a custom trade exhibit business. Additionally,
Sparks formed a portable exhibits group, which distributes affiliated and
non-affiliated manufacturers' portable exhibit products, in an effort to expand
its market to include both high-end (custom exhibits) and lower-end (portable
exhibits) products. During July 1991, a wholly-owned subsidiary of Sparks,
Sparks Exhibits, Inc. ("Exhibits") acquired assets from two unrelated custom
exhibit businesses in suburban Atlanta, Georgia.
During 1992 the Company, through two newly-formed wholly-owned subsidiaries,
Sparks Exhibits, Ltd. ("Limited") and Sparks Exhibits Incorporated
("Incorporated"), acquired assets, respectively, from a custom and portable
exhibit manufacturing business in suburban San Diego, California and a custom
exhibit business in Melbourne, Florida.
During July 1993, the Company and an unrelated portable exhibit manufacturer,
Abex Display Systems, Inc. ("ADSI"), entered into an agreement to organize a new
corporation, Expose Display Systems, Inc. ("EDSI") to manufacture and market the
Company's proprietary panelized portable exhibit - Expose - through ADSI's
worldwide distribution network.
During March 1995, the Company and a Japan-based diversified manufacturing and
marketing company, Tsubasa System Company Ltd. ("Tsubasa") entered into an
agreement to organize a new Japanese corporation, Sparks Exhibits Japan ("SEJ"),
and grant exclusive Japan distribution rights to SEJ for the Company's portable
exhibits products and technology and to license the name and logo of "Sparks
Exhibits" in Japan. See Note 5 of the consolidated financial statements.
During April 1996, the Company acquired Piper Productions, Inc. ("Piper") of
Orlando, Florida which produces business theater, theme park attractions, themed
interiors, theatrical scenery and special effects. The acquisition of Piper
enhances the Company's ability to pursue exhibit opportunities within Piper's
areas of expertise. See Note 3 of the consolidated financial statements.
The benefits of management's aggressive growth plan, since the August 1990
acquisition of Sparks, has resulted in the dramatic expansion of the Company's
client base, the development of new business groups for expansion of its
products and services, and the extension into major geographic markets of the
United States and internationally. Management believes the acquisitions and the
continuing development of the new business groups will position the Company to
increase its revenue base through the continued offering of expanded products
and services to a larger customer network.
9
<PAGE>
RESULTS OF OPERATIONS
Three months ended June 30, 1996 as compared with three months ended
June 30, 1995.
Sales
Second quarter 1996 revenues of $10.29 million, the highest quarterly
revenues in post-reorganization Company history, exceeded second quarter 1995
revenues of $7.71 million by approximately 33%.
The increase in 1996 second quarter revenues as compared with the same
period during 1995 is due to a general increase in sales to both new and
existing clients during 1996. The largest increases were experienced in the
Company's Philadelphia facility, increasing second quarter 1996 sales volume by
approximately $1.75 million over the same period during 1995. Additionally, the
Rental group increased its 1996 first quarter revenues by approximately $187,000
as compared with the similar period during 1995. The Company's museum and
international groups fell short of their second quarter 1995 combined sales
volume of approximately $2.0 million by approximately $675,000; however, these
two sales groups are positioned to regain those revenues throughout the balance
of 1996 more fully descripted in the "Backlog" section of this report.
Additonally, the Company's Florida facility fell short of 1995 second quarter
sales volume of $400,000 during the same quarter of 1996 by $166,000. The
remaining sales groups (Portables and Expose') and the Company's San Diego and
Atlanta facilities increased their combined second quarter 1996 revenues over
related combined second quarter 1995 revenues by approximately $363,000, a 13%
increase. The April 1, 1996 acquisition of Piper contributed approximately $1.1
million of additional revenues to the Company's second quarter 1996 sales
results.
Operating Profits
The 33% increase in second quarter 1996 revenues as compared with
second quarter 1995 revenues contributed to a 95% increase in the Company's
operating profits during the respective comparative periods. The second quarter
1996 gross profit percentage increased marginally from the second quarter 1995
gross profit to 28.2%. This increase was primarily due to higher second quarter
1996 sales in manufacturing revenue categories, historically higher margin
sales. Second quarter 1996 selling costs, higher as a percentage of sales, as
compared with the same period during 1995, were attributed primarily to higher
sales commissions on the higher margin revenues and increased sales and
marketing costs in connection with the development of the Company's three-year
strategic marketing plan, to be implemented during 1997. General and
administrative costs, as a percentage of sales, decreased approximately 15%
during the second quarter of 1996 as compared with the second quarter of 1995.
Higher sales levels and related gross profits more than offset the higher
selling and general and administrative costs, contributing to the dramatic 95%
increase in second quarter 1996 operating profits as compared with second
quarter 1995 operating profits. Piper sales of $1.1 million contributed 17%
gross profit levels, consistent with management's expectatons during the
transition period. Gross profit levels for this type of work fall below
traditional exhibit manufacturing levels, similar to the Company's museum group.
However, management is implementing cost reduction policies and procedures which
should improve the gross profit levels by year-end 1996. Similarly, Piper
experienced selling and general and administrative costs approximating 17% of
revenues during the second quarter 1996, which resulted in a breakeven impact on
Company profitability for the three month period. Again, with implementation and
execution of cost savings programs, management is hopeful to reduce these costs
during the balance of the year. During the second quarter of 1996 - its initial
three months of operations as part of the Company - Piper did not generate any
operating profits or losses. Accordingly, the $1.1 million of Piper revenues
included in the statement of operations negatively impacts results of
operations, on a comparative basis with 1995, as a percentage of sales.
10
<PAGE>
Other Income (Expense):
Other (expense) remained consistent during the second quarter of 1996
as compared with the second quarter of 1995. Cash availability for investment
purposes during the second quarter of 1996 contributed to a $39,000 increase in
net interest income during the respective comparative periods. However, this
benefit was primarily offset by the minority interest's 49% share in EDSI's
second quarter 1996 profits.
Income Taxes:
The provision for income taxes, as a percentage of income before taxes,
decreased to 30% during the second quarter of 1996 as compared with 32.3% during
the same period in 1995. This decrease is due to the release of valuation
allowances based on management's current evaluation of the future utilization of
the Company's net operating loss carryforward. See Note 4 to the consolidated
financial statements.
Net Income:
Net income during the second quarter of 1996 of $280,386 ($.054 per
share) more than doubled as compared with second quarter 1995 net income of
$136,219 ($.035 per share). Including the dilutive effect of issuing 500,000
additional shares of the Company's common stock during the first quarter of
1996, the Company increased its second quarter 1996 earnings per share by
approximately 54% as compared with the related period during 1995.
Backlog:
The Company's backlog of orders at June 30, 1996 was approximately $7.9
million as compared with $3.0 million as of June 30, 1995. This significant
increase is predominantly attributable to a backlog of new orders generated
through the museums and international groups, whose $3.7 million combined
backlog at June 30, 1996 approximately doubled the June 30, 1995 backlog. The
majority of the remaining backlog increase was generated by experienced account
executives with established client bases who joined the Company during the
fourth quarter of 1995.
Six months ended June 30, 1996 as compared with six months ended June 30, 1995
Sales
During the first six months of 1996, revenues of $18,865,000, the
highest semi-annual revenues in post-reorganization Company history, exceeded
1995 comparable period revenues of approximatley $15,094,000 by 25%.
The increase in 1996's first six months revenues, when compared with
the same period during 1995, is due to a general increase in sales to both new
and existing clients. This increase in sales during 1996 is particularly
attributable to a 45% increase in revenues within the Philadelphia facility
during that period as compared with the same period during 1995, and a $386,000
increase in rental group revenues during 1996 as compared to 1995. Sales volume
during the 1996 six month period from the museum sales group, international
sales group, portables sales group and the Expose' sales groups trailed related
period 1995 sales volume by approximately $425,000, primarily due to the timing
of revenue recognition during 1996. Sales from the Company's Atlanta and Florida
facilities from the first six months of 1996 fell $725,000 below the related
period sales during 1995, primarily due to poor sales performance from these
facilities and the lack of additional work transferred from the Philadelphia
facility to those locations, as was the case during the six month period in
1995. Management continues to seek long-term solutions to increasing sales
volume on a consistent basis, within the Atlanta facility. Accordingly, as
indicated in
11
<PAGE>
the "Outlook" section of this report, the Company hired an individual with more
than 20 years industry experience and longstanding relationships in the Atlanta
community to be that facility's General Manager. The Melbourne, Florida
facility's viability, in light of the April 1996 Piper acquisition, whose
offices are located in Orlando, Florida, will be more carefully evaluated during
the third and fourth quarters of 1996. As stated in the second quarter
comparatives, Piper generated $1,105,000 of revenues from the date of
acquisition, April 1, 1996, which is included in the consolidated sales results
of $18,865,573.
Operating Profits
The Company experienced a 54% increase in operating profits during the
initial six months of 1996 as compared with the same period during 1995. The
gross profit percentage decreased slightly to 28.8% during the first six months
of 1996 from 29.2% during the first six months of 1995. This decrease is
predominantly due to higher direct costs on sales within the Philadelphia and
Atlanta facilities during the initial six months of 1996 as compared with the
related period during 1995. Selling costs and general and administrative costs,
as a percentage of sales, declined by 1.0% during the 1996 six month period as
compared with the same period during 1995.
The increase in operating profits during the first six months of 1996
predominantly stems from gross profit dollars generated from the additional
sales which were recorded during the period, less related selling expenses, and
the incremental selling costs incurred as part of hiring new, experienced
account executives with existing client bases.
Operating profits related to the Expose' product for the first six
months of 1996 significantly increased to $119,000 from $64,000 when compared
with the same period during 1995. The 19% increase in 1996 revenues over 1995
assisted in the absorption of higher 1996 fixed overhead, selling and general
and administrative expenses. While revenues for the first six months of 1996
were sufficient to offset these higher expenses, future revenues to support the
added costs cannot be guaranteed.
During the first six months of 1996, the portable sales group reduced
its fixed overhead, selling and general and administrative costs by
approximatley 18% while marginally increasing its sales volume. The effect of
the decreased costs within the portable sales group was to significantly
increase that group's 1996 first six month operating profits to $111,000 as
compared with $12,000 for the same period during 1995.
As previously stated, Piper did not contribute any operating profits or
losses to the Company during the second quarter of 1996, its initial quarter of
operations since the April 1, 1996 acquisition.
Other Income (Expense):
Other income increased by approximately $1,026,000 during the first six
months of 1996 as compared with the first six months of 1995. This increase is
predominantly attributed to the $1,000,000 gain the Company recorded during the
first quarter of 1996 in connection with the contractual amendment more fully
described in Note 5 to the consolidated financial statements. Net interest
income improved by $60,000 during the six month period in 1996 as compared with
the related period in 1995 due to larger cash reserves available for investment,
again, generated by the $3.0 million received in connnection with the above
described contractual transaction.
Income Taxes:
The provision for income taxes, as a percentage of income before income
taxes, remained constant at 30% during the related six month periods of 1996 and
1995. See Note 4 to the consolidated financial statements.
12
<PAGE>
Net Income:
Net income increased from $367,057 ($.093 per share) to $1,294,276
($.264 per share) during the respective first six months of 1995 as compared
with the similar period during 1996. The dramatic increase , however, is
partially attributable to the 1996 gain from the contractual amendment of
$1,000,000 ($700,000 net of income taxes). Exclusive of this gain, net of income
taxes, the Company's first six months of 1996 net income was $594,276 ($.122 per
share) as compared with $367,057 ($.093 per share) during the first six months
of 1996, a 30% increase in earnings per share during 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended June 30, 1996, the Company
increased its cash reserves by $2,479,061; from $1,028,606 to $3,507,667. This
significant increase in the Company's cash reserves is predominantly attributed
to the transaction described in Note 5 to the consolidated financial statements.
As a result of the record sales levels achieved during the first
six months of 1996, the Company also experienced an increase in its trade
accounts receivable of approximately $2.5 million. However, this increase was
more than offset by a $3.3 million increase in accounts payable and other
accrued expenses. The higher balances in accounts payable and other accrued
expenses is predominantly due to a $2.0 million increase in customer deposits
for jobs to be completed subsequent to the June 30, 1996 balance sheet date. The
majority of the customer deposit increase is directly related to the backlog of
orders in the museum and international sales groups as of June 30, 1996 and,
approximately $300,000 relating to Piper jobs in progress as of June 30, 1996.
The accounting for the transaction described in Note 5 includes accrued
incremental costs ($510,000) and the value of the put option ($600,000) as part
of accrued expenses on the June 30, 1996 consolidated balance sheet.
The Company expended approximately $425,000 during the first six
months of 1996 for the following assets; $100,000 for machinery and equipment,
$200,000 for data processing and CAD equipment, and $125,000 for other capital
assets. Additionally, EDSI, the Company's 51% owned portable exhibit company,
invested approximately $200,000 for Expose' LS (a newly-developed and marketed
modular laminate exhibit system) tooling and design. The Company also invested
$250,000 in revenue-producing rental assets during the initial six months of
1996.
During the first six months of 1996 the Company made no
additional net borrowings under its revolving credit facility to support the
increased trade receivables and operating cash flow requirements, however,
management does anticipate utilizing the facility during the 3rd quarter of 1996
to support trade receivables and inventory balances. Additionally, the Company
repaid outstanding term debt of approximately $245,000 during the first quarter
of 1996. The Company allocated $1.35 million for the 500,000 shares of the
Company's common stock, subject to the put option, in connection with the
transaction described in Note 5 to the consolidated financial statements.
Exclusive of the $1.1 million of accrued costs related to the
transaction described in Note 5 to the consolidated financial statements and
included as part of accrued expenses on the June 30, 1996 consolidated balance
sheet, the Company's current ratio remained at levels consistent with December
31, 1995; approximately 1.7 to 1. This level was maintained after absorption of
approximately $650,000 of current liabilities, net of current assets acquired,
as part of the Piper acquisition described in Note 3. Including the above
described $1.1 million of accrued costs plus the net current liabilities assumed
as part of the Piper transaction, the Company's current ratio decreased to
approximately 1.5 to 1 and its debt to equity ratio increased from .6 to 1 on
December 31, 1995 to .9 to 1 on June 30, 1996.
13
<PAGE>
OUTLOOK
Subsequent to its largest semi-annual sales volume output in
post-reorganization history, management is confident that the Company is
postured to exceed third quarter 1995 sales volume of $5.4 million during the
third quarter of 1996, particularly in light of the June 30, 1996 sales backlog
of $7.9 million; the majority of which will be billed during the third quarter
of 1996. The increase in sales volume assists in the absorption of fixed
overhead, selling and general and administrative costs throughout the Company's
four manufacturing facilities -- Philadelphia, Atlanta, San Diego and Melbourne,
Florida. With the second quarter 1996 acquisition of Piper Productions, Inc., as
more fully described in Note 3 to the consolidated financial statements,
management will seek to consolidate the Florida facilities during 1997 and,
obtain economies of scale which should contribute to enhanced operating results.
The Piper acquisition, consistent with the Company's strategic plan for growth,
expands the scope of products and services offered by the Company and
compliments the core business of the Sparks companies, allowing contracts
previously awarded unaffiliated suppliers to remain within the consolidated
group. This factor, alone, may provide Sparks companies a greater competitive
edge in its core business as well as providing new opportunities in the
expanding theme park and themed-interiors marketplace. Piper Productions, with
annual sales exceeding $5.0 million during 1994 and 1995, will contribute to the
Company's overall sales volume for the balance of 1996 and beyond. However, the
results of operations are not expected to have either a positive or negative
impact on the Company's 1996 earnings.
Management is continually trying to improve the results of
operations within its Atlanta facility. To that end, during the second quarter
of 1996, the Company hired an experienced person to become General Manager of
that facility. Management is hopeful that this individual's extensive experience
in design, sales and general management will lend new stability and new focus to
generate the consistency of sales volume required to generate acceptable
operating results in the Atlanta location.
The Company's balance sheet will provide a strong foundation for
management to seek new business opportunities and assist the Company in
achieving its growth objectives within its market, and, ultimately, to increase
shareholder value.
PART II. OTHER INFORMATION
Responses to Items one through six are omitted since these items
are either inapplicable or response thereto would be negative.
SIGNATURE
In accordance with the requirements of the Securities Exchange
Act of 1993, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARLTON TECHNOLOGIES, INC.
/s/ E. D. Costantini, Jr. /s/ Robert B. Ginsburg
- ------------------------------ --------------------------------------
Edmond D. Costantini, Jr. Robert B. Ginsburg
Chief Financial Officer President and Chief Executive Officer
Dated: August 14, 1996
14
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