<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 June 30, 2000
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)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
New Jersey 22-1825970
--------------------------------------------------------------- ------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
2828 Charter Road Philadelphia PA 19154
---------------------------------------------- ----------------------------- ----------------- --------------
(Address of principal executive offices) City State Zip
Issuer's telephone number (215) 676-6900
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</TABLE>
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:
7,365,896
---------
Transitional Small Business Disclosure Form (check one):
Yes No X
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<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 832 $ 836
Accounts receivable, net of allowance
of $236 and $410, respectively 24,878 16,232
Inventory 11,445 11,655
Prepaids and other current assets 2,294 2,320
Deferred income taxes 341 341
-------- --------
Total current assets 39,790 31,384
Investment in affiliates 1,906 2,058
Property and equipment, net of accumulated
depreciation of $5,999 and $5,312, respectively 5,047 5,011
Rental assets, net of accumulated depreciation
of $2,069 and $1,942, respectively 1,754 1,370
Goodwill, net of accumulated amortization of $2,943
and $2,523, respectively 19,839 20,258
Other assets, net of accumulated amortization
of $1,138 and $1,088, respectively 560 121
-------- --------
Total assets $ 68,896 $ 60,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 110 $ 2,912
Accounts payable 7,542 7,080
Accrued expenses and other 10,345 9,328
-------- --------
Total current liabilities 17,997 19,320
-------- --------
Long-term debt, net of current portion 19,665 10,448
Other long-term liabilities 420 551
Deferred income taxes 159 159
-------- --------
Total liabilities 38,241 30,478
-------- --------
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; 7,365,896 and 7,331,765 issued, respectively 737 733
Additional paid-in capital 30,454 30,353
Accumulated deficit (424) (1,250)
-------- --------
30,767 29,836
Less cost of 5,000 treasury shares (112) (112)
-------- --------
Total stockholders' equity 30,655 29,724
-------- --------
Total liabilities and stockholders' equity $ 68,896 $ 60,202
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
--------------------------------- ----------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 24,790 $ 24,026 $ 49,842 $ 49,817
Cost of sales 19,237 19,276 37,853 39,506
-------- -------- -------- --------
Gross profit 5,553 4,750 11,989 10,311
-------- -------- -------- --------
Expenses:
Selling 2,644 2,349 5,569 4,611
Administrative and general 2,120 1,763 4,229 3,505
-------- -------- -------- --------
4,764 4,112 9,798 8,116
-------- -------- -------- --------
Operating profit 789 638 2,191 2,195
-------- -------- -------- --------
Other income (expense):
Interest income and other income 6 53 41 83
Interest (expense) (367) (302) (646) (527)
Income (loss) from investments
in affiliates, net (23) (36) 4 (2)
-------- -------- -------- --------
(384) (285) (601) (446)
-------- -------- -------- --------
Income before provision for income taxes 405 353 1,590 1,749
Provision for income taxes 195 141 764 699
-------- -------- -------- --------
Net income $ 210 $ 212 $ 826 $ 1,050
======== ======== ======== ========
Income per common share:
Basic $.03 $.03 $.11 $.15
Diluted $.03 $.03 $.11 $.13
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(In thousands except share data)
<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 at December 31, 1999 7,331,765 $733 $30,353 ($1,250) ($112) $29,724
Issuance of shares for debt restructuring 37,210 4 96 - - 100
Issuance of shares under compensation arrangements 1,921 - 5 - - 5
Net income for the six months ended June 30, 2000 - 826 - 826
--------- ---- ------- ------ ----- -------
Balance at June 30, 2000 7,370,896 $737 $30,454 ($424) ($112) $30,655
========= ==== ======= ====== ===== =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MARLTON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 826 $ 1,050
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 1,329 1,259
Decrease in deferred tax asset - 121
Equity in income of affiliates (50) (48)
Other items 5 26
Change in assets and liabilities:
(Increase) decrease in accounts receivable, net (8,490) (1,654)
(Increase) decrease in inventory 210 (2,814)
(Increase) decrease in prepaid and other assets 69 (150)
Increase (decrease) in accounts payable, accrued
expenses and other 1,479 (3,009)
------- -------
Net cash used in operating activities (4,622) (5,219)
------- -------
Cash flows from investing activities:
Guaranteed payments to sellers (131) (135)
Capital expenditures (1,234) (1,660)
Cash paid to acquire investment in affiliate - (258)
------- -------
Net cash used in investing activities (1,365) (2,053)
------- -------
Cash flows from financing activities:
Payments for loan origination fees (432) -
Net borrowings from revolving credit facility 6,415 4,037
Principal payments on long-term debt - (927)
------- -------
Net cash provided by financing activities 5,983 3,110
------- -------
Decrease in cash and cash equivalents (4) (4,162)
Cash and cash equivalents - beginning of period 836 4,621
------- -------
Cash and cash equivalents - end of period $ 832 $ 459
======= =======
Supplemental cash flow information:
Cash paid for interest $ 300 $ 460
======= =======
Cash paid for income taxes $ 785 $ 643
======= =======
Non-cash financing activity:
Issuance of common stock for revolving credit facility $ 100 -
======= =======
Issuance of common stock in connection with acquisition - $ 228
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements included herein are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) which are necessary to present fairly the financial
position, results of operations and cash flows for the interim periods. These
financial statements should be read in conjunction with the Annual Report to
Shareholders and Form 10-K for the year ended December 31, 1999.
2. PER SHARE DATA
--------------
The following table sets forth the computation of basic and diluted net income
per common share (in thousands except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30, June 30, June 30, June 30,
--------- --------- --------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 210 $212 $ 826 $ 1,050
===== ==== ===== =======
Weighted average common
shares outstanding used to compute
basic net income per common share 7,366 7,231 7,360 7,231
Additional common shares to be issued
assuming the exercise of stock options,
net of shares assumed reacquired -- 694 235 632
----- ----- ----- -----
Total shares used to compute diluted
net income per common share 7,366 7,925 7,595 7,863
===== ===== ===== =====
Basic net income per share $.03 $.03 $.11 $.15
==== ==== ==== ====
Diluted net income per share $.03 $.03 $.11 $.13
==== ==== ==== ====
</TABLE>
Options and warrants to purchase 930,000 and 597,000 shares of common stock were
outstanding at June 30, 2000 and 1999, respectively, but were excluded 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.
3. INVENTORY
---------
Inventory consists of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Raw materials $ 486 $ 482
Work-in-process 6,478 7,612
Finished goods 4,481 3,561
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$11,445 $11,655
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6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
-----
<TABLE>
<CAPTION>
Three months ended
(in thousands)
% Increase/
June 30, 2000 June 30, 1999 (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Trade show exhibits group $16,571 $13,040 27.1%
Permanent and scenic displays group 8,219 10,986 (25.2)
------- ------- ----
Total sales $24,790 $24,026 3.2%
======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
Six months ended
(in thousands)
% Increase/
June 30, 2000 June 30, 1999 (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Trade show exhibits group $34,469 $27,309 26.2%
Permanent and scenic displays group 15,373 22,508 (31.7)
------ ------ ------
Total sales $49,842 $49,817 0.1%
======= ======= ======
</TABLE>
Total sales grew 3.2% in the second quarter of 2000 and were essentially
unchanged in the first six months of 2000 as compared with the same 1999
periods. This was the net result of higher sales of trade exhibits (up 27.1% in
the second quarter and 26.2% in the first half) offset by lower sales of
permanent and scenic displays (down 25.2% in the second quarter and 31.7% in the
first half). Higher trade show exhibit sales were principally attributable to
sales to new clients secured near the end of 1999, resulting from the Company's
continuing focus on client expansion. The decrease in permanent and scenic
displays sales was largely the result of lower sales for store fixtures and for
Sparks scenic displays. The store fixtures decrease was primarily due to lower
sales to large national retail customers experiencing slower new store growth.
The decrease for scenic displays was due to large projects in the first half of
1999 which were not replaced with similar size projects in the first half of
2000, resulting from a general slowdown in the industry.
Operating Profit
----------------
Operating profit increased to $0.8 million, or 3.2% of sales, in the second
quarter 2000 from $0.6 million, or 2.7% of sales, in the same 1999 period, and
was essentially unchanged in the first half of 2000 as compared with the first
half of 1999. This was the net result of higher gross profit margins offset by
higher selling, administrative and general expenses. The gross profit margin, as
a percentage of sales improved to 22.4% and 24.1% from 19.8% and 20.7% in the
second quarter and first six month periods of 2000 and 1999, respectively. The
second quarter gross profit margin improvement was principally attributable to
higher margins generated by the scenic displays business. During the second
quarter of 1999, the Company incurred poor execution in estimating and
manufacturing certain significant projects, which reduced gross profit margins.
Management changes were made at this operation and gross margins improved
significantly in the second quarter of 2000. The improvement for the first six
month period was largely the result of this improvement in the scenic displays
business as well as to higher gross profit margins generated by trade show
exhibits sales during the first quarter.
7
<PAGE>
Selling expenses, as a percentage of sales increased to 10.7% and 11.2% from
9.8% and 9.2% in the second quarter and first six months of 2000 and 1999,
respectively. These increases were largely the result of higher trade show
exhibit sales, which are subject to higher sales commissions and variable
selling expense.
Administrative and general expenses increased $0.4 million in the second quarter
and $0.7 million in the first half of 2000 versus 1999 due to several factors,
including higher depreciation expense related to investments in computer systems
and to improvements in the Company's office facilities at several locations. The
Company also relocated and consolidated its DMS Store Fixtures business during
the first half of 2000 and incurred higher recruiting expenses.
Other Income (Expense)
----------------------
Interest expense increased to $0.4 million and $0.6 million from $0.3 million
and $0.5 million in the second quarter and first half of 2000 and 1999,
respectively. This increase was due in large part to higher borrowings and
interest rates on the Company's revolving credit facility to finance working
capital requirements resulting from slower billing and collections of accounts
receivable.
Income Taxes
------------
The provision for income taxes, as a percentage of pre-tax income, increased to
48% in the second quarter and first six months of 2000 from 40% in the
comparable 1999 periods. The 1999 rate reflects a benefit from the utilization
of business tax credits. The difference between statutory income tax rates and
these effective tax rates is principally attributable to non-deductible goodwill
amortization.
Net Income
----------
Net income of $0.2 million ($.03 per fully diluted share) for the second quarter
2000 was essentially unchanged from the same prior year period. For the first
half of 2000, net income decreased to $0.8 million from $1.1 million due in
large part to higher interest expense and provision for income taxes.
Backlog
-------
The Company's backlog of orders increased to approximately $24 million at June
30, 2000 from $22 million at June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $9.7 million during the first half of
2000 to $21.8 million at June 30, 2000 from $12.1 million at December 31, 1999.
This increase was principally attributable to an $8.6 million increase in
accounts receivable and to a $2.8 million reduction in the current portion of
long-term debt, partially offset by a $1.5 million increase in accounts payable
and accrued expenses. The accounts receivable increase was due to a higher
balance for the Company's DMS Store Fixtures business (up $4.2 million) largely
related to major new clients and to a slower billing and collection process
experienced by the Company's trade show exhibits operations. Billing and
collection delays were attributable to several factors, including continuing
difficulties associated with the deployment of a new computer system described
below. Management believes that these difficulties will continue for the
remainder of 2000. The decrease in the current portion of long-term debt was the
result of the debt agreement restructuring described below.
On January 21, 2000, the Company restructured its bank debt with an amended
revolving credit facility, providing for borrowing capacity up to $30 million.
This new facility, which matures on January 21, 2005, was used to refinance a
term loan and can be used to finance capital expenditures, permitted
acquisitions and other working capital requirements as needed. The new facility
is collateralized by all of the Company's assets and bears interest at rates
based on the LIBOR, adjusted for applicable spreads ranging from 1.25% to 2.5%.
The Company is subject to an annual commitment fee of 1/4% on the average unused
portion of the revolving credit facility. This new facility includes certain
financial covenants requiring a minimum net worth and maintenance of certain
financial ratios, and restricts the Company's ability to pay dividends. Loan
origination fees totaling $532,000 comprised of $432,000 of cash payments and
issuance of 37,210 shares of the Company's common stock are included under other
assets and will be amortized over five years. There were borrowings of $19.6
million under this facility at June 30, 2000.
8
<PAGE>
OUTLOOK
The Company expects continued sales growth from trade show exhibits and
relatively flat sales from permanent and lower sales of scenic displays for the
last six months of 2000. Management believes that the trade show exhibit client
base of Fortune 1000 companies will continue to tightly manage their marketing
budgets, which may impact the Company's trade show exhibit profit margins. The
Company has upgraded several facilities and continues to pursue operating
efficiency improvements to mitigate the impact of margin pressure from its
client base.
The Company converted its management information system at the beginning of 1999
and incurred inefficiencies as a result of the transition, which have continued
into 2000. Although management is taking decisive action to address this
situation, inefficiencies are expected to continue into the second half of 2000.
Further investments are planned to upgrade the Company's management information
systems.
Management plans ongoing investment in human resources, particularly for new
sales executives and support staff to create long-term growth opportunities, and
believes that these investments combined with the new debt capacity, will
provide future opportunities for continued growth and business expansion.
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 working capital
requirements, future acquisitions, capital expenditure requirements and foreign
investments; 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; ability to attract and
retain competent employees; ability to add and retain customers; changes in
sales mix; ability to integrate and upgrade technology; 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 DISCLOSURES ABOUT MARKET RISK
The Company's revolving credit facility bears a floating rate of interest, based
on LIBOR rates, plus an applicable spread. The Company had borrowings of $19.6
million from its $30 million revolving credit facility at June 30, 2000.
Fluctuations in foreign currency exchange rates do not significantly affect the
Company's financial position and results of operations.
9
<PAGE>
PART II - OTHER INFORMATION
Responses to Items one, two, three and five are omitted since these items are
either inapplicable or the response thereto would be negative.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 22,
2000. Alan I. Goldberg and Seymour Hernes were elected as directors to serve for
a three-year term. Fred Cohen, William R. Hamilton, Robert B. Ginsburg and
Jeffrey Harrow continued their respective terms of office as directors. At such
meeting votes were cast as follows:
Election of Directors For Against
--------------------- --- -------
Alan I. Goldberg 5,374,311 101,985
Seymour Hernes 5,374,300 101,996
ITEM 6.
(a) Exhibits
<TABLE>
<CAPTION>
Page
<S> <C> <C>
10(w) Amendment to Employment Agreement dated May 1, 2000 with Lawrence W. Schan 11
------
10(x) Option Agreement dated January 10, 2000 with Stephen P. Rolf 14
------
10(y) Option Agreement dated August 7, 2000 with Robert B. Ginsburg 15
------
10(z) Option Agreement dated August 7, 2000 with Alan I. Goldberg 17
------
10(AA) Option Agreement dated August 7, 2000 with Outside Directors 19
------
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period covered
by this report on Form 10-Q
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MARLTON TECHNOLOGIES, INC.
/s/ Robert B. Ginsburg
-----------------------
Robert B. Ginsburg
President and Chief Executive Officer
/s/ Stephen P. Rolf
-------------------
Stephen P. Rolf
Chief Financial Officer
Dated August 11, 2000
10
