<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
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MARLTON TECHNOLOGIES, INC.
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(Exact name of 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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (215) 676-6900
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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__________
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:
7,097,078
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Transitional Small Business Disclosure Form (check one):
Yes __________ No ___X_____
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
------------ -----------
Current:
<S> <C> <C>
Cash and cash equivalents $ 5,363,096 $ 7,115,100
Accounts receivable, net of allowance
of $334,000 and $310,000, respectively 13,074,814 10,444,298
Inventory 5,543,258 10,073,491
Prepaids and other current assets 2,272,433 1,337,497
Deferred income taxes 852,000 965,000
----------- -----------
Total current assets 27,105,601 29,935,386
Property and equipment, net of accumulated
depreciation and amortization of $3,651,604
and $3,976,745, respectively 2,544,577 2,268,994
Rental assets, net of accumulated amortization
of $1,404,432 and $1,348,279, respectively 868,734 901,651
Goodwill, net of accumulated amortization of $1,053,164
and $871,546, respectively 20,677,328 19,763,768
Deferred income taxes 416,870 616,870
Other assets, net of accumulated amortization
$1,048,899 and $1,112,601, respectively 1,042,946 626,586
----------- -----------
Total assets $52,656,056 $54,113,255
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,380,919 $ 1,386,117
Accounts payable 4,237,133 4,294,971
Accrued expenses and other 9,676,697 12,235,351
----------- -----------
Total current liabilities 15,294,749 17,916,439
Long-term debt, net of current portion 12,243,312 12,243,312
----------- -----------
Total liabilities 27,538,061 30,159,751
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par - shares authorized
10,000,000; no shares issued or outstanding - -
Common stock, $.10 par - shares authorized
50,000,000; 7,102,078 and 6,889,444 issued, respectively 710,208 688,944
Additional paid-in capital 29,612,505 29,169,410
Accumulated deficit ( 5,093,041) ( 5,793,173)
----------- -----------
25,229,672 24,065,181
Less cost of 5,000 treasury shares 111,677 111,677
----------- -----------
Total stockholders' equity 25,117,995 23,953,504
----------- -----------
Total liabilities and stockholders' equity $52,656,056 $54,113,255
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Total
Shares Issued Paid-in Accumulated Treasury Shareholder's
Issued Amount Capital Deficit Amount Equity
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 6,889,444 $688,944 $29,169,410 $(5,793,173) $(111,677) $23,953,504
Additional shares issued under
compensation arrangements 212,634 21,264 443,095 - - 464,359
Net income for the three month
period - - - 700,132 - 700,132
----------- ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1998 7,102,078 $710,208 $29,612,505 $(5,093,041) $(111,677) $25,117,995
=========== =============== ============== =============== =============== ==============
</TABLE>
See notes to consolidated financial statements
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<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $22,050,546 $11,838,258
Cost of sales 16,571,700 8,321,109
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Gross profit 5,478,846 3,517,149
----------- -----------
Expenses:
Selling 2,462,096 1,865,758
Administrative and general 1,721,537 961,442
----------- -----------
4,183,633 2,827,200
----------- -----------
Operating profit 1,295,213 689,949
----------- -----------
Other income (expense):
Interest income 97,753 39,484
Interest (expense) (233,951) (14,592)
Other income (expense) 4,117 (52,537)
----------- -----------
(132,081) (27,645)
----------- -----------
Income before income taxes 1,163,132 662,304
Provision for income taxes 463,000 260,000
----------- -----------
Net income $ 700,132 $ 402,304
=========== ===========
Net income per common share:
Basic $.10 $.08
=========== ===========
Diluted $.09 $.07
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MARLTON TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
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Cash flows provided by operating activities:
<S> <C> <C>
Net income $ 700,132 402,304
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 487,886 436,677
Decrease in deferred tax asset 313,000 143,000
Change in assets and liabilities (2,883,789) (135,538)
---------- ----------
Net cash provided by (used in) operating activities (1,382,771) 849,443
---------- ----------
Cash flows (expended through) investing activities:
Capital expenditures (648,748) (133,266)
Cash paid for minority investment in ADSI (179,646) -
---------- ----------
Net cash (expended through) investing activities: (828,394) (133,266)
---------- ----------
Cash flows provided by (expended through) financing activities:
Proceeds from issuance of common stock 464,359 331,160
Principal payments on long-term debt (5,198) (390,198)
---------- ----------
Net cash provided by (expended through) financing acitivites: 459,161 (59,038)
---------- ----------
Increase in cash and cash equivalents (1,752,004) 657,139
Cash and cash equivalents - beginning of period 7,115,100 3,300,010
---------- ----------
Cash and cash equivalents - end of period $5,363,096 $3,957,149
========== ==========
Supplemental cash flow information:
Cash paid for interest $ 1,474 $14,592
========== ==========
Cash paid for income taxes $65,000 $55,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF ACCOUNTING POLICIES:
Basis of Presentation:
The consolidated financial statements include the accounts of Marlton
Technologies, Inc., its wholly-owned subsidiaries and the effects of minority
investments in non-consolidated businesses (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 March 31, 1998 and the results of operations and
cash flows for the three month periods ended March 31, 1998 and 1997,
respectively. The December 31, 1997 condensed balance sheet data was derived
from audited financial statements but does not includes all disclosures
required by generally accepted accounting principles and may include certain
account reclassifications for comparative purposes with the March 31, 1998
consolidated balance sheet.
Activity included in the consolidated statement of
operations consists primarily of the design, manufacture, sale and servicing
of custom and portable trade show and the manufacturing of museum exhibits,
themed interiors, theme park attractions, store fixtures and point of purchase
displays.
Acquisitions:
DMS Store Fixtures Corp.
On December 31, 1997, the Company acquired the assets and liabilities
of DMS Store Fixtures L.P. ("LP") through its newly-formed, wholly-owned
subsidiary DMS Store Fixtures Corp. ("DMS"), a supplier of custom store
fixtures and displays to national retailers, department stores and consumer
product manufacturers. The acquired assets and liabilities of LP were recorded
at their estimated fair value with the excess purchase price and related costs
of acquisition recorded as goodwill at December 31, 1997. During the first
quarter of 1998, the Company recognized as cost of sales $160,000 of the
inventory write-up to fair market value with the remaining $200,000 to
be recognized as cost of sales relating to inventory turnover during the
balance of 1998.
The following table summarizes the unaudited consolidated pro forma
information for the Company for the three months ended March 31, 1997 assuming
the acquisition occurred at the beginning of 1997 and the Company's actual
results of operations for the three months ended March 31, 1998 (in thousands
except per share data).
1998 1997
Actual Pro forma
--------- -----------
Net sales $22,051 $17,974
Operating profit 1,295 899
Net income $ 700 $ 456
Weighted average of common shares:
Basic 7,032 6,748
Diluted 7,791 7,631
Net income per common share:
Basic $.10 $.06
Diluted $.09 $.05
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<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma consolidated results of operations for the three
months ended March 31, 1997 include adjustments to give effect to amortization
for goodwill, interest expense on acquisition debt and certain other
adjustments, together with related income tax effects. The unaudited pro forma
information is not necessarily indicative of the results of operations that
would have occurred had the purchase been made at the beginning of 1997.
Abex Display Systems, Inc. ("ADSI")
Effective February 1, 1998, the Company forgave approximately $1.12
million of EDSI's inter-company debt, exchanged its 51% majority interest in
Expose' Display Systems, Inc. ("EDSI"), and paid approximately $175,000 in
cash, for its 25% interest in ADSI. The Company's investment in ADSI has been
accounted for using the equity method. Accordingly, the Company did not
consolidate EDSI's revenues and expenses within its operating results
subsequent to January 31, 1998. The Company has recognized its pro-rata
portion of ADSI's operating results after January 31, 1998 as a part of other
income.
For the two-months ended March 31, 1998, the Company included
$1,000 as part of other income, representing its pro-rata share of ADSI's net
income for the period.
Per Share Data
Basic net income per common share is calculated using the average
shares of common stock outstanding, while diluted net income per common share
reflects the potential dilution that could occur if stock options were
exercised. Prior periods have been restated in accordance with Statement of
Financial Accounting Standards (SFAS) 128 "Earnings Per Share." Restated
diluted net income per common share amounts do not differ materially from
previously reported primary net income per common share amounts.
Recently Issued Accounting Standards
Effective January 1, 1998 the Company was required to adopt the
provisions of SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. For the quarter ended March 31, 1998 the Company
had no items of other comprehensive income.
2. INVENTORY:
Inventory, as of the respective dates, consists of the following:
March 31, 1998 December 31, 1997
-------------- -----------------
Raw Materials $ 343,231 $ 819,273
Work In Process 2,585,085 6,763,508
Finished Goods 2,614,942 2,490,710
---------- -----------
$5,543,258 $10,073,491
========== ===========
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<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. INCOME TAXES:
The components of the provision for income taxes for the respective
three month periods ended March 31, were as follows:
1998 1997
---- ----
Currently payable:
Federal $100,000 $52,000
State 50,000 65,000
-------- --------
150,000 117,000
Deferred:
Federal 313,000 143,000
------- -------
$463,000 $260,000
======== ========
4. NET INCOME PER COMMON SHARE:
Income per share amounts have been restated in accordance with SFAS
128, "Earnings Per Share." This restatement did not result in a material
change between diluted per common share amounts and previously reported
primary per common share amounts.
The following table sets forth the computation of basic and diluted
net income per common share (in thousands except per share data):
Three Months Ended
March 31,
1998 1997
---- ----
Net Income $700 $402
===== =====
Weighted average common shares
outstanding used to compute basic net
income per common share 7,032 4,748
Additional common shares to be issued
assuming exercise of stock options, net of
shares assumed reacquired 875 883
----- -----
Total shares used to compute diluted net
income per common share 7,907 5,631
===== =====
Basic net income per share $.10 $.08
===== =====
Diluted net income per share $.09 $.07
===== =====
Options and warrants to purchase 168,000 shares of common stock at prices
ranging from $6.18 per share to $7.00 per share were outstanding at March 31,
1998, but were not included in the computation of diluted income per common
share because the option's and warrant's exercise price was greater than the
average market price of the common shares during the first quarter of 1998.
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<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. SUBSEQUENT EVENT:
On April 1, 1998, the Company acquired 100% of the stock of
Rusty Hinges, Inc. d/b/a Steele Productions ("Steele") located in the San
Francisco, California area. Steele produces properties for industrial and
corporate theater events throughout the United States.
The transaction included a cash payment of approximately
$425,000, a five year note of approximately $250,000 payable in equal annual
installments bearing interest at 6% per annum, and, approximately 40,000
shares of the Company's common stock. Based upon a final, approved balance
sheet of Steele as of March 31, 1998 and the related equity account, the above
estimate of the cash, notes and Company stock will be finalized and recorded
utilizing the purchase method of accounting. The excess cost of the
acquisition, including related costs of the transaction, over the net assets
acquired, if any, will be amortized on a straight-line basis over a period of
10 years commencing April 1998. Steele Productions' sales for 1997
approximated $3.0 million.
-9-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL OVERVIEW
The Company's core business is 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. Through its wholly-owned
subsidiary, Piper Productions, Inc. ("Piper") of Orlando, Florida, the Company
produces business theater, theme park attractions, themed interiors,
theatrical scenery and special effects.
The Company acquired DMS Store Fixtures Corp. on December 31, 1997, a supplier
of custom-made store fixtures and displays to national retailers, department
stores and consumer product manufacturers. During 1997, DMS generated over $30
million of revenues to a well-established customer base for which cross
marketing opportunities exist to other business groups of the Company.
The Company expanded its business opportunities in corporate and industrial
theater events through the April 1, 1998 acquisition of Steele Productions
("Steele") in the San Francisco Bay area. See Note 5 of the consolidated
financial statements.
Management's aggressive growth plan from the August 1990 acquisition of Sparks
Exhibits Corp. ("Sparks"), the December 31, 1997 acquisition of DMS and the
April 1, 1998 acquisition of Steele, 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 in the United States and internationally. Management
believes the acquisitions and the continuing development of the new business
groups should position the Company to increase its revenue base and move
toward its goal of becoming a leading dimensional marketing company through
the continued offering of expanded products and services to a larger customer
network.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 as compared with three months ended
March 31, 1997
Sales
Total Company revenues for the three months ended March 31, 1998 as
compared with the same period during 1997 increased by 86%, to $22.1 million
from $11.8 million. Half of the overall sales increase during 1998 was due to
the reveneus generated by the December 31, 1997 acquired DMS Store Fixtures
Corp., which is included is the Permanent and scenic displays group. The first
quarter of each year has historically been the lowest quarter for revenues and
operating profits for DMS, with the remaining quarter's being their
highest quarters for sales and operating profits. All other business groups
generated the remaining fifty percent of the overall $10.2 million increase in
revenues for the three month period ended March 31, 1998 as compared with the
same period during 1997.
Three Months Ended
March 31,
(in thousands)
Reported business groups 1998 1997
--------------------------------------------------------------------------
Trade show exhibits group $13,222 $ 9,009
Permanent and scenic displays group 8,829 2,829
------- -------
Total revenues $22,051 $11,838
======= =======
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<PAGE>
The Trade show exhibits group experienced a $4.2 million sales
increase during the first quarter of 1998 as compared with the related quarter
during 1997. This 47% increase in Trade show exhibits group sales reflects the
Company's continuing program of client expansion in all three custom trade
show exhibit manufacturing facilities - Philadelphia, Atlanta and San Diego.
The Company's rental exhibit sales group, portable/modular exhibit sales group
and international sales group - reported as a part of the Trade show exhibits
group - also experienced sales increases during the first quarter of 1998 as
compared with their sales during the first quarter of 1997.
The Permanent and scenic displays group, comprised of DMS, the
museum/productions sales group and Piper Productions, experienced a $6 million
increase in first quarter 1998 revenues as compared with first quarter 1997
revenues. Exclusive of the sales generated by the December 31, 1997-acquired
DMS, the museum/production and Piper sales groups experienced sales increases
during the first quarter of 1998 as compared with the same period during 1997.
The Company exchanged its interest in Expose' Display Systems, Inc.
("EDSI"), forgave inter-company debt and paid cash to acquire a 25% interest
in Abex Display Systems, Inc. ("ADSI"), a manufacturer of portable and modular
trade show exhibits distributed throughout the world via ADSI's distribution
network. The exchange occurred on February 1, 1998. Sales and the related
costs of operations generated by EDSI, formerly a consoliated 51% owned
subsidiary of the Company, were recorded through January 31, 1998. Subsequent
to that exchange, the Company records its pro-rata equity interest in ADSI's
net profits or losses using the equity method of accounting. (See Note 1 to
the consolidated financial statements.) During January 1998, EDSI generated
revenues, net of inter-company sales, approximating $400,000.
Operating Profits
Operating profits increased by 88% from approximately $700,000 to
$1,300,000 for the comparative first quarters of 1997 and 1998, respectively.
This increase in 1998 operating profits occurred despite a 5.0% decrease in
the gross profit margin, as a percentage of sales, during the first quarter of
1998 as compared with the first quarter of 1997. This expected decrease is
predominantly due to the lower gross profit margins on sales generated by
newly-acquired DMS, whose gross margins are similar to the Company's
museum/productions group and Piper Productions. These three sales groups
achieve historically lower gross margins than the gross margins generated by
the Company's core business group - Trade show exhibits. However, the higher,
more consistent revenues generated by the Permenent and scenic displays
business group provides operating efficiencies in the Company's manufacturing
facilities as well as absorbing fixed overhead, selling, and general and
administrative costs. The lower gross profit margin percentage was mitigated
by 5% lower selling costs, as a percentage of sales, during the first quarter
of 1998 as compared with the first quarter of 1997. Historically DMS'
operating profits have been lowest during the first calendar quarter of the
year due to the cyclical nature of the retail industry.
Other Income/(Expense)
Other income/(expense) increased from ($28,000) during the first
quarter of 1997 to ($132,000) during the first quarter of 1998. Interest
income increased predominently from gains on the sale of certain investments
during the first quarter of 1998 while interest (expense) during that period
increased to ($234,000) from ($15,000) during the first quarter of 1997. The
significant increase in interest (expense) during 1998 is attributable to the
$13.5 million term debt associated with the December 31, 1997 acquisition of
DMS.
Other (expense) of ($52,537) during 1997 was primarily attributable
to the minority partners' interest in EDSI's first quarter 1997 profits. The
February 1, 1998 exchange for a 25% interest in ADSI (see Note 1) no longer
requires the Company to include the minority partner's interest in profits or
losses of EDSI since EDSI is no longer accounted for as a consolidated
subsidiary of the Company effective February 1, 1998.
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<PAGE>
Income Taxes
The provision of income taxes, as a percentage of income before
income taxes, remained relatively consistent for the first quarter of 1998 and
1997, 39.8% and 39.3% respectively.
Net Income
Net income increased to $700,132 ($.09 per diluted share) during the
first quarter of 1998 from $402,304 ($.07 per diluted share) during the first
quarter of 1997, a 74% increase. This increase is attributed to the higher
sales levels and related operating profits generated by the reported business
groups during the first quarter of 1998
BACKLOG
The Company's backlog of orders at March 31, 1998 was approximately
$21.0 million as compared with approximately $13.0 million as of March 31,
1997. Exclusive of the $5.7 million of DMS' backlog of orders at March 31,
1998, the $2.3 million increase in backlog is attributable to new orders
generated from the reported business groups. The current backlog primarily
relates to expected 1998 sales.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1998, the Company's cash reserves
decreased by $1,752,004. As a result of the high first quarter 1998 sales
levels, the March 31, 1998 inventory level decreased by $3.8 million from the
December 31, 1997 inventory level, exclusive of $.7 million of EDSI inventory,
no longer consolidated as part of the Company's balance sheet and statement of
operations (see Note 1 of the consolidated financial statements). Customer
deposits (included as a part of Accrued expenses and other) decreased to $4.5
million as of March 31, 1998 from $6.6 million as of December 31, 1997. The
remaining $600,000 decrease in accounts payable and accrued expenses as of
March 31, 1998, as compared with December 31, 1997, is primarily attributable
to the elimination of liabilities related to EDSI included in the December 31,
1997 balance sheet and not included in March 31, 1998 accounts.
Accounts receivable balances increased approximately $1.5 million
during the first quarter of 1998, exclusive of $1.0 million of EDSI's accounts
receivable. This increase is consistent with the higher sales levels achieved
during the first quarter of 1998. Prepaid expenses and other current asset
balances increased approximately $1.0 million during the first quarter of
1998, exclusive of approximately $100,000 of prepaid assets relative to EDSI
as of December 31, 1997. This increase is due to advances made by DMS during
the first quarter of 1998 to its suppliers for product and equipment.
The Company expended $179,646 as part of obtaining a 25% interest in
ADSI during the first quarter of 1998. Additionally, as part of this
investment, the Company forgave approximately $1.1 million of inter-company
debt from EDSI prior to exchanging its 51% majority interest in EDSI for a 25%
minority interest in ADSI. The Company expended approximately $650,000 during
the first quarter of 1998 for capital assets, including approximately $450,000
for hardware and software relative to the Management Information System
("MIS") program, $25,000 for rental assets, $25,000 for computer-aided design
("CAD") equipment and approximately $150,000 for other machinery and
equipment.
The Company did not borrow against its $6.5 million revolving credit
facility during the first quarter of 1998 to support the higher levels of
trade receivables during that period. The first principal and interest payment
against the Company's term loan related to the acquisition of DMS was paid on
April 1, 1998 in accordance with the terms and conditions of its lending
agreement.
-12-
<PAGE>
The Company generated cash proceeds of $464,000 from the exercise of
stock options by certain Company employees during the first quarter of 1998.
The March 31, 1998 current ratio improved to 1.78 : 1 from 1.67 : 1
as of December 31, 1997. Additionally, the Company's debt to worth ratio
improved from 1.3 : 1 to 1.1 : 1 on the respective balance sheet dates of
December 31, 1997 and March 31, 1998. The Company was in compliance with its
lending institution covenants as of March 31, 1998.
OUTLOOK
First quarter 1998 sales volume of $22.1 million contributed greatly
to the higher operating profits the Company experienced during the initial
three months of 1998. The Company expects continued sales growth from both the
Tradeshow exhibits group and Permanent and scenic displays group during the
balance of 1998. The planned expansion of the Company's Western region has
created the need for a significantly larger facility in San Diego county.
Accordingly, the Company is negotiating a lease for another sales and
production facility, within the San Diego area, to be used as a low-cost
producer of tradeshow and permanent exhibitry, in addition to being a major
storage facility for client exhibit properties. The April 1, 1998 acquisition
of Steele (see Note 5 to the consolidated financial statements) provides the
Company with a presence in the San Francisco/Silicon Valley region of
California as well as an additional manufacturing facility. Management hopes
this acquisition helps to expand the Company's client base in that region and
provides cross-marketing opportunities to Steele's existing client base.
Additionally, Steele's expertise in the techniques of producing industrial and
corporate theater events may be advantageously utilized within the Company's
core business - trade show exhibit design and fabrication.
The Company's historic overall gross profit percentages may be
difficult to maintain in light of the expected increase in 1998 sales volume
from the Permanent and scenic displays group, whose historic margins fall
below traditional custom exhibit margins. Additionally, the Company's core
business client base of Fortune 1000 companies, as well as Pacific Rim
clients, are more tightly managing their marketing budgets which could
negatively impact the Company's historic custom exhibit margins. However, the
expected higher revenues and gross profit dollars from the Trade show exhibits
group and the Permanent and scenic displays group should continue to enhance
the Company's 1998 operating profits by aiding all of the manufacturing
facilities to generate more consistent operating efficiencies.
The first quarter 1998 exchange of the Company's majority interest in
EDSI for a 25% interest in ADSI should provide the Company additional
opportunities to increase its earnings as ADSI expands its portable/modular
exhibit product lines and distribution into more domestic and international
markets.
The Company is continuing its project of replacing existing
management information systems hardware and software with state-of-the-art
technology positioning the organization to effectively meet the changing
environment of information processing among its clients and suppliers as well
as year 2000 issues. Additionally, the new technology should increase
operating efficiencies between the Company's manufacturing facilities as
information is processed and managed more seamlessly. The Company maintains a
formal Management Information System ("MIS") Department staffed with two
experienced professionals who are responsible to guide the Company in its
acquisition and utilization of new hardware and software technology. The
Company believes this necessary investment in technology will assist it in
minimizing the need for additional administrative personnel as its sales
growth continues.
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<PAGE>
Again, management is encouraged by the Company's overall performance
during the first quarter of 1998 and realizes certain areas will require
additional attention and resources during the balance of 1998. As the Western
Region continues to expand, the Company will seek additional account
executives for that region to enhance the possibility of positive trends in
sales and operating profits during the balance of 1998 and beyond. Conversely,
the Atlanta operation continues to perform below expectations. While
management continues to be encouraged by the contributions of the rental group
in the Atlanta facility during the first quarter of 1998, the Company's core
custom exhibits group continues to suffer from an insufficient Atlanta client
base to support the fixed costs of that operation, becoming increasingly
dependent upon the transfer of custom exhibit work from the other facilities.
The Company will continue its search for experienced sales executives with an
existing base of custom exhibit clients to contribute the additional sales
volume which will assist in stabilizing the Atlanta operation.
While the first quarter has historically been DMS' slowest quarter
with respect to sales and operating profits, the backlog of orders maintained
by DMS as of March 31, 1998 provides management with positive expectations for
the balance of the year. The cyclical nature of the retail industry,
particularly for store fixtures and displays, has historically benefited DMS
through the second, third and fourth quarters of the year.
Management is committed to maintaining the highest standards for
product quality and customer service while aggressively seeking acquisition
possibilities, meeting synergistic and financial-structure requirements. By
following this strategy, the Company will be positioned to take advantage of
future opportunities to increase shareholder value.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. In connection with
the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995, there are certain important factors that could cause the Company's
actual results to differ materially from those included in such
forward-looking statements. Some of the important factors which could cause
actual results to differ materially from those projected include, but are not
limited to: the Company's ability to continue to identify and complete
strategic acquisitions to enter new markets and expand existing business;
continued availability of financing to provide additional sources of funding
for future acquisitions, capital expenditure requirements and foreign
investments; satisfying any potential year 2000 issues with no material
adverse effect on operations; the effects of competition on products and
pricing, growth and acceptance of new product lines through the company's
sales and marketing programs; changes in material prices from suppliers;
uncertainties regarding accidents or litigation which may arise in the
ordinary course of business; and the effects of, and changes in the economy,
monetary and fiscal policies, laws and regulations, inflation and monetary
fluctuations as well as fluctuations in interest rates, both on a national and
international basis.
-14-
<PAGE>
PART II. OTHER INFORMATION
Responses to Items one through six are omitted since these
items are either inapplicable or response thereto would be negative.
ITEM 7. EXHIBITS
(1) Letter Agreement dated January 2, 1997 to Amendment Employment
Agreement with Robert B. Ginsburg Page 16
(2) Letter Agreement dated January 2, 1997 to Amended Employment
Agreement with Alan I. Goldberg Page 18
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: May 13, 1998
-15-
<PAGE>
January 2, 1998
Mr. Robert B. Ginsburg
Marlton Technologies, Inc.
2828 Charter Road
Philadelphia, PA 19154
Dear Bob:
Confirming the action of the Compensation Committee and the Board of Directors
at a meeting held on December 16, 1997, regarding your employment with
Marlton:
Effective January 1, 1998, your term of employment, salary and bonus
plan is amended as set forth on the attached Schedule.
Except as amended by the above, your Amended Employment Agreement dated
December 11, 1992, as amended on January 22, 1996 shall remain in full force
and effect in accordance with its terms.
Very truly yours,
Marlton Technologies, Inc. Agreed to:
- ----------------------- ----------------------------
Fred Cohen, Chairman Robert B. Ginsburg
-16-
<PAGE>
SCHEDULE
Robert Ginsburg: President & CEO
Term: The dates in Paragraph 2(a) and 3 (regarding term of employment) and
in Paragraph 6 (regarding right to obtain common stock) of the
Amended Employment Agreement are extended in each case from December
31, 2000 to December 31, 2002
Salary: $200,000 per annum with annual increases of 3%
Bonus: 7% of pre-tax profit if EPS increases from prior year by 25.0%
6% of pre-tax profit if EPS increases from prior year by 20.0%
5% of pre-tax profit if EPS increases from prior year by 17.5%
4% of pre-tax profit if EPS increases from prior year by 15.0%
3% of pre-tax profit if EPS increases from prior year by 12.5%
2% of pre-tax profit if EPS increases from prior year by 10%
1% of pre-tax profit if EPS increases from prior year by 5.0%
Non-recurring profits and/or expenses will not normally be included
in bonus calculations unless such items effect cash. However, the
Board may give consideration to special circumstances.
-17-
<PAGE>
January 2, 1998
Mr. Alan I. Goldberg
Marlton Technologies, Inc.
2828 Charter Road
Philadelphia, PA 19154
Dear Alan:
Confirming the action of the Compensation Committee and the Board of Directors
at a meeting held on December 16, 1997, regarding your employment with
Marlton:
Effective January 1, 1998, your term of employment, salary and bonus
plan is amended as set forth on the attached Schedule.
Except as amended by the above, your Amended Employment Agreement dated
December 11, 1992, as amended on January 22, 1996 shall remain in full force
and effect in accordance with its terms.
Very truly yours,
Marlton Technologies, Inc. Agreed to:
- ----------------------- ----------------------------
Fred Cohen, Chairman Alan I. Goldberg
-18-
<PAGE>
SCHEDULE
Alan Goldberg: Executive Officer
Term: The dates in Paragraph 2(a) and 3 (regarding term of employment) and
in Paragraph 6 (regarding right to obtain common stock) of the
Amended Employment Agreement are extended in each case from December
31, 2000 to December 31, 2002
Salary: $150,000 per annum with annual increases of 3%
<TABLE>
<CAPTION>
Bonus: 1998 1999 2000 and after
----- ---- --------------
<S> <C> <C> <C> <C>
6.3% 5.6% 5.25% of pre-tax profit if EPS increases from
prior year by 25.0%
5.4% 4.8% 4.5% of pre-tax profit if EPS increases from
prior year by 20.0%
4.5% 4.0% 3.75% of pre-tax profit if EPS increases from
prior year by 17.5%
3.6% 3.2% 3.0% of pre-tax profit if EPS increases from
prior year by 15.0%
2.7% 2.4% 2.25% of pre-tax profit if EPS increases from
prior year by 12.5%
1.8% 1.6% 1.5% of pre-tax profit if EPS increases from
prior year by 10.0%
0.9% .8% .75% of pre-tax profit if EPS increases from
prior year by 5.0%
</TABLE>
Non-recurring profits and/or expense will not normally be included in
bonus calculations unless such items effect cash. However, the Board may
give consideration to special circumstances.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096988
<NAME> MARLTON TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,363,096
<SECURITIES> 0
<RECEIVABLES> 13,074,814
<ALLOWANCES> 334,000
<INVENTORY> 5,543,258
<CURRENT-ASSETS> 27,105,601
<PP&E> 6,196,181
<DEPRECIATION> 3,651,604
<TOTAL-ASSETS> 52,656,056
<CURRENT-LIABILITIES> 15,294,749
<BONDS> 0
0
0
<COMMON> 30,322,713
<OTHER-SE> (5,093,041)
<TOTAL-LIABILITY-AND-EQUITY> 52,656,056
<SALES> 22,050,546
<TOTAL-REVENUES> 22,050,546
<CGS> 16,571,700
<TOTAL-COSTS> 4,183,633
<OTHER-EXPENSES> (101,870)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,951
<INCOME-PRETAX> 1,163,132
<INCOME-TAX> 463,000
<INCOME-CONTINUING> 700,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700,132
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
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