<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, 1999
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 issuer as specified in its charter)
New Jersey 22-1825970
- --------------------------------------------------------------------
(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__________
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:
7,273,765
Transitional Small Business Disclosure Form (check one):
Yes__________ No ___X_____
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------ ------------
Current:
<S> <C> <C>
Cash and cash equivalents $ 732,281 $ 4,620,079
Accounts receivable, net of allowance
of $680,000and $635,000 respectively 17,673,039 16,511,804
Inventory 12,818,718 9,466,161
Prepaids and other current assets 2,028,028 2,324,679
Deferred income taxes 690,000 740,000
------------ ------------
Total current assets 33,942,066 33,662,723
Investment in affiliates 2,530,796 2,010,427
Deferred income taxes -- 43,000
Property and equipment, net of accumulated
depreciation of $4,216,850 and $3,995,801 3,742,336 3,779,367
Rental assets, net of accumulated depreciation
of $1,784,142 and $1,661,020, respectively 1,297,195 1,369,009
Goodwill, net of accumulated amortization of $1,773,835
and $1,580,519, respectively 20,428,611 20,621,855
Other assets, net of accumulated amortization
of $1,169,811 and $1,131,958, respectively 513,919 535,879
------------ ------------
Total assets $ 62,454,923 $ 62,022,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of longterm debt $ 2,114,463 $ 1,950,790
Accounts payable 7,739,213 7,153,619
Accrued expenses and other 11,901,547 13,528,076
------------ ------------
Total current liabilities 21,755,223 22,632,485
------------ ------------
Long term liabilities:
Longterm debt, net of current portion 11,210,743 10,926,995
Other longterm liabilities 750,870 817,500
------------ ------------
Total longterm liabilities 11,961,613 11,744,495
------------ ------------
Total liabilities 33,716,836 34,376,980
------------ ------------
Commitments and contingencies
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: 7,278,765 and 7,200,905 issued, respectively 727,876 720,090
Additional paidin capital 30,256,670 30,009,409
Accumulated (deficit) (2,134,782) (2,972,542)
------------ ------------
28,849,764 27,756,957
Less cost of 5,000 treasury shares (111,677) (111,677)
------------ ------------
Total stockholders' equity 28,738,087 27,645,280
------------ ------------
Total liabilities and stockholders' equity $ 62,454,923 $ 62,022,260
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
For the three months ended
March 31,
1999 1998
------------ ------------
Net sales $ 25,790,981 $ 22,050,546
Cost of sales 20,230,334 16,571,700
------------ ------------
Gross profit 5,560,647 5,478,846
Expenses:
Selling 2,261,056 2,462,096
Administrative and general 1,742,481 1,712,411
------------ ------------
4,003,537 4,174,507
------------ ------------
Operating profit 1,557,110 1,304,339
------------ ------------
Other income (expense):
Interest income 37,356 97,753
Interest (expense) (224,734) (233,951)
Income from investments in affiliates, net 33,898 874
Other (expense) (7,870) (5,883)
------------ ------------
(161,350) (141,207)
------------ ------------
Income before income taxes 1,395,760 1,163,132
Provision for income taxes 558,000 463,000
------------ ------------
Net income $ 837,760 $ 700,132
============ ============
Net income per common share:
Basic $ .12 $ .10
============ ============
Diluted $ .11 $ .09
============ ============
See notes to consolidated financial statements.
3
<PAGE>
MARLTON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity
--------- -------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,200,905 $720,090 $30,009,409 ($2,972,542) ($111,677) $27,645,280
Issuance of shares in Sparks Europe acquisition 70,160 7,016 221,004 -- -- 228,020
Issuance of shares under compensation arrangements 7,700 770 26,257 -- -- 27,027
Net income for the three months ended March 31, 1999 -- 837,760 837,760
--------- -------- ----------- ----------- --------- -----------
Balance, March 31, 1999 7,278,765 $727,876 $30,256,670 ($2,134,782) ($111,677) $28,738,087
========= ======== =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MARLTON TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
1999 1998
---------- ----------
Cash flows provided by operating actuates:
<S> <C> <C>
Net income $ 837,760 $ 700,132
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 452,146 487,886
Decrease in deferred tax asset 93,000 313,000
Other items (97,302) (111,724)
Change in assets and liabilities (5,258,076) (2,772,065)
---------- ----------
Net cash (used in) operating activities (3,972,472) (1,382,771)
Cash flows (expended through) investing activities:
Capital expenditures (235,325) (648,748)
Cash paid for minority investments (258,451) (179,646)
---------- ----------
Net cash (expended through) investing activities: (493,776) (828,394)
---------- ----------
Cash flows provided by (expended through) financing activities:
Proceeds from issuance of common stock 27,027 464,359
Proceeds from revolving credit facility 894,000 --
Principal payments on longterm debt (342,577) (5,198)
---------- ----------
Net cash provided by financing activities: 578,450 459,161
---------- ----------
Decrease in cash and cash equivalents (3,887,798) (1,752,004)
Cash and cash equivalents beginning of period 4,620,079 7,115,100
---------- ----------
Cash and cash equivalents end of period $ 732,281 $ 5,363,096
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 224,734 $ 1,474
=========== ===========
Cash paid for income taxes $ 75,000 $ 65,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<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"). Investments in
affiliates, representing the Company's 20% or more but less than 50%
investments, are accounted for using the equity method. 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, 1999 and the results of operations and cash flows for the three
month periods ended March 31, 1999 and 1998, respectively. The December 31, 1998
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, 1999 consolidated balance sheet.
Activity included in the consolidated statement of operations consists primarily
of the design, manufacture, sale and servicing of sophisticated custom and
portable/modular trade show exhibits and the manufacturing of museum interiors,
themed interiors, theme park attractions, staging, custom store fixtures and
point of purchase displays. Substantially all of the Company's net sales and
long-lived assets reside within the United States.
Acquisitions:
On February 19, 1999, the Company paid $258,451 and issued 70,160 shares of its
common stock for a 25% minority interest in Hans Uljee Explotatie en Beheer B.V.
("Uljee"), a Netherlands-based organization focusing on exhibit fabrication,
interior design, event displays and graphics production, with annual sales
approximating $10.0 million during 1998. Subsequent to the Company's 25%
investment, Uljee changed its' name to Sparks Europe, B.V. ("Sparks Europe").
Should Uljee attain defined cumulative net income levels the Company will be
required to pay an additional amount in Eurodollars and/or its' common stock,
at the Company's option. During the first quarter of 1999, the Company included
$7,588 in income from investments in affiliates, representing its' 25% interest
in Sparks Europe's operating results from February 19, 1999 through March
31,1999.
Major Customers:
During the first quarter of 1999, two individual customers accounted for 30% of
consolidated net sales. The loss of one or both of these customers, or a
significant reduction in one or both of these customers' purchases, could have
had a material adverse effect on the Company's first quarter 1999 results of
operation. The Company does not anticipate that these two customers will
individually account for greater than 10% of consolidated net sales, on a
calendar year basis, during 1999.
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Per Share Data:
The following table sets forth the computation of basic and diluted net income
per common share (in thousands except for per share data):
Three months ended
March 31
1999 1998
---- ----
Net income $ 838 $ 700
===== =====
Weighted average common
shares outstanding used to compute
basic net income per common share 7,231 7,032
Additional common shares to be issued
assuming exercised of stock options,
net of shares assumed reacquired 596 875
----- -----
Total shares used to compute diluted
net income per common share 7,827 7,907
===== =====
Basic net income per share $ .12 $.10
===== =====
Diluted net income per share $ .11 $.09
===== =====
Options and warrants to purchase 547,000 shares of common stock at prices
ranging from $3.88 to $7.00 per share and 168,000 shares of common stock at
prices ranging from $6.18 per share to $7.00 per share, were outstanding at
March 31, 1999 and 1998, respectively. These options and warrants were not
included in the computation of diluted income per common share because the
options' and warrants' exercise price was greater than the average market price
of the common shares.
2. INVENTORY:
Inventory, as of the respective dates, consists of the following:
March 31, 1999 December 31, 1998
-------------- -----------------
Raw Materials $ 391,541 $ 404,961
Work In Process 7,657,489 6,330,634
Finished Goods 4,769,688 2,730,566
----------- -----------
$12,818,718 $ 9,466,161
=========== ===========
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Overview
The Company's business is the custom design, production and sale of exhibits and
environments for trade shows, museums, theme parks, themed interiors and retail
stores for clients in industry, government, entertainment, and commercial
establishments.
On August 7, 1990, the Company acquired the business of Sparks Exhibits Corp.
("Sparks") in Philadelphia, Pennsylvania, which custom designs and manufactures
sophisticated trade show exhibits, displays, architectural and museum interiors,
graphics and signage, provides trade show services and designs and sells
portable exhibits. The Company subsequently formed (i) Sparks Exhibits, Inc.
("Exhibits") during July 1991 in the Atlanta, Georgia area, (ii) Sparks
Exhibits, Ltd. ("Limited") during July 1992 in the San Diego, California area,
and (iii) Sparks Exhibits Incorporated ("Incorporated") during December 1992 in
the Orlando, Florida area, in each case by acquiring the assets of trade show
exhibit manufacturing companies.
During July 1993, the Company and Abex Display Systems, Inc. ("ADSI"), an
unaffiliated portable/modular trade show exhibit manufacturer based in Los
Angles, California, entered into an agreement to organize a new California
corporation, Expose' Display System, Inc. ("EDSI"). The Company acquired 51% of
EDSI with ADSI acquiring the balance. Effective February 1, 1998, the Company
exchanged its 51% majority interest in EDSI plus cash for a 25% interest in
ADSI.
During April 1996, the Company acquired Piper Productions, Inc. ("Piper") of
Orlando, Florida which produces business theater, theme park attraction, themed
interiors, theatrical scenery and special effects.
On December 31, 1997, the Company acquired DMS, which is engaged in the business
of supplying custom store fixtures, showcases and point of purchase display for
retailers. DMS utilizes various unaffiliated manufacturers with whom it has
developed long-standing business relationships for the production of its
products. The retail fixture industry includes outfitting new retail stores and
remodeling existing stores, including specialty apparel chains, "category
killer" stores, department stores, outlet stores, supermarkets, building supply
stores and drug stores.
On April 1, 1998, the Company acquired Rusty Hinges, Inc. d/b/a Steele
Productions ("Steele") located in the San Francisco, California area. Steele
produces exhibit properties for industrial and corporate theater events
throughout the United States. The Company subsequently changed the name of
Steele to Sparks Scenic, Ltd.
("Scenic").
During the third quarter of 1998, the Company completed a 20% equity investment
in Abex Europe, Ltd. ("Abex Europe"), a producer of customized graphics and an
assembler and distributor of ADSI products. This investment should assist the
Company to expand its international presence and benefit ADSI, which is 25%
owned by the Company,
During the first quarter of 1999, the Company acquired a 25% minority interest
in a Netherlands-based exhibit design and manufacturing company which,
subsequent to the Company's minority investment, changed its name to Sparks
Europe, B. V. ("Sparks Europe").
As part of a major marketing and branding effort during the first quarter of
1999, the Company changed its Sparks and Piper operating companies names to
"Sparks Exhibits & Environments". This branding effort is important to
clarifying the Company's focus and source of business growth...trade show
exhibits for domestic and international clients and creating themed environments
for theaters, museums, theme parks, visitor centers and retail establishments.
8
<PAGE>
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 businesses and areas of expertise 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 new areas of expertise will position the Company to
increase its revenue base and move toward its goal of becoming a leading
exhibits and environments company through the continued offering of expanded
products and services to a larger customer network.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 as compared with three months ended March 31,
1998
Sales
Three months ended
March 31,
(in thousands)
1999 1998 % increase
---- ---- ----------
Revenue sources
EDSI - $ 400 -
Trade show exhibits $ 14,269 12,822 11.3%
Permanent/scenic displays 11,522 8,829 30.5%
-------- -------- -----
Total revenues $ 25,791 $ 22,051 17.0%
======== ======== =====
Total Company revenues for the three-months ended March 31, 1999 as compared
with the same period during 1998, increased by 17%, to $25.8 million from $22.1
million. Sales generated by EDSI approximated $400,000 during the first quarter
of 1998 as compared with no recorded revenues during the first quarter of 1999,
due to the exchange of the Company's investment in EDSI in connection with the
Company's acquisition of a minority interest in ADSI as of February 1, 1998.
Sales and the related costs of operations generated by EDSI, formerly a
consolidated 51% owned subsidiary of the Company, were recorded through January
31, 1998. Subsequent to the exchange with ADSI, the Company recorded its
pro-rata equity interest in ADSI's net profits using the equity method of
accounting. Accordingly, sales and related costs from EDSI's operations were not
reflected in the Company's consolidated statement of operations subsequent to
January 31, 1998. Trade show exhibits, which includes business theater revenues
from the San Francisco operation, generated $1.45 million (39.1%) of the overall
$3.74 million increase in total revenues for the first quarter of 1999 as
compared with the first quarter of 1998 total revenues, reflecting the Company's
ongoing program of client expansion. Permanent/scenic displays comprised of DMS,
museum/productions sales and permanent/scenic also experienced a $2.69 million
increase in first quarter 1999 revenues as compare with related first quarter
1998 revenues.
Operating Profits
Operating profits increased by 19% from approximately $1.30 million, to $1.56
million for the comparative first quarters of 1998 and 1999, respectively. This
increase in 1999 operating profits occurred despite a 3.2% decrease in the gross
profit margin, as a percentage of sales, during the first quarter of 1999 as
compared with the first quarter of 1998. This expected decrease is predominantly
due to lower gross profit margins realized on sales generated by
permanent/scenic displays. This revenue source achieves historically lower gross
margins than the gross margins historically generated by Trade show exhibits.
However, the higher, more consistent revenues generated by permanent/scenic
displays 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
3.4% lower selling, general and administrative costs, as a percentage of sales,
during the first quarter of 1999 as compared with the first quarter of 1998.
9
<PAGE>
Other Income/(Expense)
Other (expense) increased from ($141,207) during the first quarter of 1998 to
($161,350) during the first quarter of 1999. Interest (expense) decrease during
the first quarter of 1999 as comparedd with the first quarter of 1998 due to
lower balances of the DMS term debt.
Interest income during the first quarter of 1999 was less than first quarter
1998 interest income due to lower cash balances available for investment during
the first quarter of 1999.
Income Taxes
The provision of income taxes, as a percentage of income before income taxes,
remained relatively consistent for the first quarter of 1999 and 1998, 39.8% and
40% respectively.
Net Income
Net income increased to $837,760 ($.11 per diluted share) during the first
quarter of 1999 from $700,132 ($.09 per diluted share) during the first quarter
of 1998, a 20% increase. This increase is attributed to the higher sales levels
and related operating profits generated during the first quarter of 1999
Backlog
The Company's backlog of orders as of March 31, 1999 and March 31, 1998 was
approximately $21.0 million.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1999, the Company's cash balance decreased by
approximately $3.9 million. The decrease was due to a $1.2 million increase in
trade receivables as a result of the higher sales levels achieved and a slower
billing-collection process, experienced during the first quarter of 1999, due to
the implementation of a new management information system during January 1999.
Additionally, the Company experienced a $3.3 million increase in its inventory
levels during the first three months of 1999, which is primarily attributable to
DMS' higher inventory levels at March 31, 1999. Accounts payable and accrued
expenses at March 31, 1999 decreased by approximately $1.0 million when compared
with December 31, 1998 levels.
On February 19, 1999 the Company invested approximately $258,000 in cash and
issued 70,160 shares of its common stock in exchange for a 25% interest in
Uljee, a Netherlands-based trade show exhibit house.
The Company expended approximately $235,000 during the first quarter of 1999 for
MIS hardware and software, rental assets and other machinery and equipment.
The Company borrowed $894,000 against its $6.5 million revolving credit facility
during the first quarter of 1999 to support the higher levels of trade
receivables. The Company expects to continue utilizing the credit facility
during the balance of 1999 to continue supporting the expected higher levels of
trade receivables expected with higher sales levels and the slower
billing-collection turnaround time due to implementation of the new management
information system. The January 1, 1999 principal payments of $337,500 and
requisite interest payments against the Company's term loan were made in
accordance with the terms and conditions of its lending agreement. The Company
was in compliance with its lending institution covenants as of March 31, 1999.
The March 31, 1999, current ratio remained relatively consistent with the
December 31, 1998 current ratio of approximately 1.5 : 1. Additionally, the
Company's debt to worth ratio improved to 1.17:1 from 1.24 : 1, on the
respective balance sheet dates of March 31, 1999 and December 31, 1998.
10
<PAGE>
OUTLOOK
Sales volume of $25.8 million contributed to the higher operating profits
achieved by the Company during the first quarter of 1999. The Company expects
continued sales growth from trade show exhibits and permanent/scenic displays
during the balance of 1999. The February 19, 1999 minority investment in Sparks
Europe was made to help expand the Company's international presence in the
custom trade show exhibit markets.
The planned expansion of the Company's Western Region has created the need for a
significantly larger facility in the San Diego area. Accordingly, the Company is
moving into a new sales, production and storage facility, in the same area,
during June 1999. The 1998 acquisition of Sparks Scenic Ltd. provides the
Company with a presence in the San Francisco/Silicon Valley region of California
as well as an additional support facility. The Company expects to continue
making additional investments in facilities, systems and personnel during 1999
within the Western Region. These expected investments may negatively impact the
Company's quarterly operating profits during the balance of 1999 as compared
with 1998 quarterly operating profits as management continues to build the
Western Region infrastructure necessary to expand its market share in trade show
exhibits and permanent/scenic displays.
The lower gross profit margins experienced during 1998 and the first quarter of
1999 should stabilize as the sales mix of permanent/scenic displays and trade
show exhibits becomes more consistent. DMS will continue to incur additional
costs in its effort to diversify its customer base during 1999. DMS's gross
profit margins, as a percentage of sales, are lower on sales to new customers
due to the increasingly competitive nature of the store fixture and display
marketplace; this trend is expected to continue during the balance of 1999. The
Company's trade show exhibit client base of Fortune 1000 companies, as well as
its Pacific Rim clients, continue to tightly manage their marketing budgets,
which may negatively impact the Company's historic custom trade show exhibit
margins. However, the expected higher revenues and gross profit dollars from
both trade show exhibits and permanent/scenic displays should continue to
support the Company's overall 1999 operating profits by generating more
consistent operating efficiencies within all facilities.
The Company began using its new management information system during January
1999. As expected, the Company experienced certain collection inefficiencies and
transitional problems with respect to integrating the new system during the
first quarter of 1999, including extended billing turnaround time and the need
for additional temporary staff to assist in data input. The billing slowdown
negatively impacted first quarter 1999 cash flow, resulting in the Company's
need to use $894,000 of its' $6.5 million revolving credit facility. This
situation is expected to continue, at least, through the second and third
quarter of 1999. Management believes many of the expected transitional problems
will be eliminated during the second quarter of 1999. Replacement of the
existing management information system hardware and software with
state-of-the-art technology was necessary to position the organization to
effectively meet the changing environment of information processing among its
clients and suppliers as well as year 2000 issues.
Management is not completely satisfied with the Company's overall performance
during the first quarter of 1999 and realizes certain areas require additional
attention and resources during the balance of the year. As the Western Region
develops, the Company will continue to seek additional account executives and
invest in appropriate sales and project management support to create long-term
growth and profit opportunities. As was the case during 1998, the Atlanta
operation has not generated new sales opportunities due to the Company's
inability to attract and retain experienced account executives. However, the
Atlanta operation continues to profitably produce custom exhibit work
transferred from other facilities. Management continues to review the most
effective utilization of this facility. Management is also focused on securing
additional museum projects for 1999 and year 2000 production. Through mid-May
1999, these efforts have not brought about the expected sales results.
Museum-related volume is critical in maintaining manufacturing efficiencies
throughout all of the Company's production facilities. Similarly, management
continues to monitor the gross profit margins being generated by the Orlando
facility as it continues its expansion into specialized themed-environment
projects with expected sales volume increases.
Additional investments in project management will be needed to support
profitable growth in themed-environment projects.
11
<PAGE>
Management also continues to monitor DMS' client expansion and overall
operations. While short-term investments in new clients are necessary to reduce
DMS' reliance upon any one or two customers, management is also focused on
securing lower-cost production methods from suppliers and sub-contractors to
yield higher profitability margins to the Company.
Management is committed to growing the Company internally, while aggressively
seeking acquisition possibilities that meet synergistic and financial-structure
requirements. By following this strategy, the Company hopes to achieve its
objective of increasing shareholder value.
Year 2000 Readiness Disclosures:
The following statements include "Year 2000 Information and Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. During January 1999, the Company switched to its new
management information system, which is year 2000 compliant, based on the
software applications and business programs acquired and installed during 1998.
All software packages are standard "off the shelf" business systems whose
developer's have determined them to be Y2K compliant. Management is relying upon
the software developers (e.g. Microsoft, Solomon, ADP, etc.) programming
adjustments to meet all necessary Y2K issues. The Company expended approximately
$1.3 million for hardware, software, and implementation of the new management
system during 1998. The Company expects to invest an additional $700,000 for
completion of the MIS project, including new or upgraded hardware for Company
personnel, modification of certain software packages to the latest release
version and additional implementation and training costs. The Company has not
formally assessed and evaluated the state of readiness of its customers and
suppliers. Certain customers/vendors have requested information from the Company
regarding its Y2K readiness. Additionally, some suppliers have confirmed to the
Company their internal Y2K readiness.
The most reasonably likely worst case Y2K scenario would be the failure of
either the Company or a third party to correct a material Y2K problem that would
cause an interruption in, or failure of, normal business activities or
operations. In the event that the worst case scenario occurs, the impact on the
Company's financial position or results of operations cannot be estimated. While
the Company believes that all internal IT and non-IT systems will be converted
prior to January 1, 2000, the Company has not addressed contingency plans which
would be implemented in the event of a Y2K failure. However, the Company would
develop manual procedures and processes for critical transactions. To the extent
that the Company experiences a Y2K failure related to a third party's lack of
readiness, alternate sources of supply will be identified. At this time, the
Company has not identified a Y2K problem that it believes cannot be remedied
prior to it having a material impact on operations. The Company will continue to
assess the readiness of its own systems and, if a problem is identified that
cannot be fixed in the appropriate time period, a specific plan to address that
issue will be developed.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will require that all derivative
financial instruments be recognized as either assets or liabilities in the
balance sheet. SFAS No. 133 will be effective no later than for the Company's
first quarter of 2000. The Company is evaluating the effects of this new
statement and when to implement the new requirements. However, management
currently believes the adoption of SFAS 133 will not have a material impact on
the Company's consolidated results of operation, financial position or cash
flows.
12
<PAGE>
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, pricing, and, 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk:
Fluctuations in interest and foreign currency exchange rates do not
significantly affect the Companys' financial position and results of operations.
The existing bank term debt bears a fixed rate of interest, 6.15%, plus an
applicable spread from 75 to 100 basis points, dependent upon the Company's
capitalization ratio, measured on a quarterly basis. The Company's revolving
credit facility bears a floating rate of interest, based on LIBOR rates, plus an
applicable spread similar to the term debt requirements. The Company utilized
approximately, $894,000 of its $6.5 million revolving credit facility during the
first quarter of 1999. The Company holds a 20% equity interest in a United
Kingdom based trade-show exhibit Company. Accordingly, the Company's financial
positions and results of operations will not be significantly affected should
foreign exchange rates fluctuate.
Environmental:
The Company believes it is in compliance with federal, state and local
provisions regulating discharge of materials into the environment or otherwise
relating to protection of the environment. The Company has not been identified
by federal or state authorities as a potentially responsible party for
environmental clean-ups at any of its sites.
Litigation:
The Company is a defendant and counterclaimant in various lawsuits that arise
out of, and are incidental to, the conduct of its business. These suits concern
labor-related matters. While it is not feasible to predict the outcome of all
pending suits and claims, the ultimate resolution of these matters should not
have a material effect upon the financial position of the Company.
13
<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.
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/ Edmond E. Costantini, Jr. /s/ Robert B. Ginsburg
- ----------------------------- -------------------------------------
Edmond D. Costantini, Jr. Robert B. Ginsburg
Chief Financial Officer President and Chief Executive Officer
Dated: May 14, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096988
<NAME> MARLTON TECHNOLOGIES, INC.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 732,281
<SECURITIES> 0
<RECEIVABLES> 18,353,039
<ALLOWANCES> 680,000
<INVENTORY> 12,818,718
<CURRENT-ASSETS> 33,942,066
<PP&E> 7,959,186
<DEPRECIATION> 4,216,850
<TOTAL-ASSETS> 62,454,923
<CURRENT-LIABILITIES> 21,755,223
<BONDS> 0
30,872,869
0
<COMMON> 0
<OTHER-SE> (2,134,782)
<TOTAL-LIABILITY-AND-EQUITY> 62,454,923
<SALES> 25,790,981
<TOTAL-REVENUES> 25,790,981
<CGS> 20,230,334
<TOTAL-COSTS> 20,230,334
<OTHER-EXPENSES> 4,003,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (224,734)
<INCOME-PRETAX> 1,395,760
<INCOME-TAX> 558,000
<INCOME-CONTINUING> 837,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 837,760
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
