<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 September 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)
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) City State Zip
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by court
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity as of the last practicable date:
7,422,266
Transitional Small Business Disclosure Form (check one):
Yes No X
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MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share data)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
-------- --------
<S> <C> <C>
Current:
Cash and cash equivalents $ 1,029 $ 836
Accounts receivable, net of allowance
of $1,642 and $410, respectively 21,141 16,232
Inventory 11,285 11,655
Prepaids and other current assets 1,874 2,320
Deferred income taxes 1,327 341
-------- --------
Total current assets 36,656 31,384
-------- --------
Investment in affiliates 1,835 2,058
Property and equipment, net of accumulated
depreciation of $6,309 and $5,315, respectively 4,850 5,011
Rental assets, net of accumulated depreciation
of $2,188 and $1,942, respectively 1,678 1,370
Goodwill, net of accumulated amortization of $3,148
and $2,523, respectively 19,634 20,258
Other assets, net of accumulated amortization
of $1,178 and $1,088, respectively 517 121
-------- --------
Total assets $ 65,170 $ 60,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 112 $ 2,912
Accounts payable 8,540 7,080
Accrued expenses and other 8,424 9,328
-------- --------
Total current liabilities 17,076 19,320
-------- --------
Long-term debt, net of current portion 18,086 10,448
Other long-term liabilities 354 551
Deferred income taxes 159 159
-------- --------
Total liabilities 35,675 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; 7,427,266 and 7,331,765 issued, respectively 743 733
Additional paid-in capital 30,543 30,353
Accumulated (deficit) (1,679) (1,250)
-------- --------
29,607 29,836
Less cost of 5,000 treasury shares (112) (112)
-------- --------
Total stockholders' equity 29,495 29,724
-------- --------
Total liabilities and stockholders' equity $ 65,170 $ 60,202
======== ========
</TABLE>
See notes to consolidated financial statements.
2
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MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 21,482 $ 21,921 $ 71,324 $ 71,738
Cost of sales 17,417 16,744 55,270 56,250
-------- -------- -------- --------
Gross profit 4,065 5,177 16,054 15,488
-------- -------- -------- --------
Selling expenses 2,272 2,187 7,841 6,798
Administrative and general expenses 3,606 1,694 7,835 5,199
-------- -------- -------- --------
5,878 3,881 15,676 11,997
-------- -------- -------- --------
Operating profit (loss) (1,813) 1,296 378 3,491
-------- -------- -------- --------
Interest income and other income 27 31 68 114
Interest (expense) (384) (309) (1,030) (836)
(Loss) from investments in affiliates, net (71) (27) (67) (29)
Write down of investment in affiliate -- (465) -- (465)
-------- -------- -------- --------
(428) (770) (1,029) (1,216)
-------- -------- -------- --------
Income (loss) before provision for income taxes (2,241) 526 (651) 2,275
Provision for (benefit from) income taxes (986) 210 (222) 909
-------- -------- -------- --------
Net income (loss) $ (1,255) $ 316 $ (429) $ 1,366
======== ======== ======== ========
Income (loss) per common share:
Basic $ (.17) $.04 $ (.06) $.19
Diluted $ (.17) $.04 $ (.06) $.18
</TABLE>
See notes to consolidated financial statements.
3
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MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(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, 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 58,291 6 94 -- -- 100
Net loss for the nine months ended September 30, 2000 -- -- -- (429) -- (429)
--------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 2000 7,427,266 $ 743 $ 30,543 $ (1,679) $ (112) $ 29,495
========= ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
4
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MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the nine months ended September 30,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (429) $ 1,366
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 2,027 1,843
Decrease in deferred tax asset (986) 181
Equity in (income) loss of affiliates (2) 29
Write down of investment in affiliate -- 465
Other non cash item 100 --
Change in assets and liabilities:
(Increase) decrease in accounts receivable, net (4,753) (976)
(Increase) decrease in inventory 370 (1,997)
(Increase) decrease in prepaid and other assets 492 131
Increase (decrease) in accounts payable, accrued
expenses and other 554 (6,236)
------- -------
Net cash used in operating activities (2,627) (5,194)
------- -------
Cash flows from investing activities:
Guaranteed payments to sellers (197) (201)
Capital expenditures (1,390) (2,220)
Cash paid for investment in affiliate -- (258)
------- -------
Net cash used in investing activities (1,587) (2,679)
------- -------
Cash flows from financing activities:
Payments for loan origination fees (432) --
Net borrowings from revolving credit facility 4,839 5,365
Principal payments on long-term debt -- (1,634)
Proceeds from exercised stock options -- 110
------- -------
Net cash provided by financing activities 4,407 3,841
------- -------
Increase (decrease) in cash and cash equivalents 193 (4,032)
Cash and cash equivalents - beginning of period 836 4,620
------- -------
Cash and cash equivalents - end of period $ 1,029 $ 588
======= =======
Supplemental cash flow information:
Cash paid for interest $ 673 $ 705
======= =======
Cash paid for income taxes $ 787 $ 744
======= =======
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
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MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF ACCOUNTING POLICIES
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 for per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(1,255) $316 $(429) $1,366
======== ==== ====== ======
Weighted average common
shares outstanding used to compute
basic net income per common share 7,380 7,282 7,367 7,231
Additional common shares to be issued
assuming exercise of stock options,
net of shares assumed reacquired -- 427 38 571
Total shares used to compute diluted
net income (loss) per common share 7,380 7,709 7,405 7,802
===== ===== ===== =====
Basic net income (loss) per share $ (.17) $.04 $ (.06) $.19
======= ==== ======= ====
Diluted net income (loss) per share $ (.17) $.04 $ (.06) $.18
======= ==== ======= ====
</TABLE>
Options and warrants to purchase 1,779,000 and 266,000 shares of common stock
were outstanding at September 30, 2000 and 1999, respectively, but were not
included in the computation of diluted income per common share because the
options' and warrants' exercise prices were greater than the average market
price.
3. INVENTORY
Inventory consists of the following (in thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
Raw Materials $ 465 $ 482
Work In Process 6,407 7,612
Finished Goods 4,413 3,561
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$11,285 $11,655
======= =======
4. INVESTMENT IN AFFILIATES
During the third quarter of 1999, the Company recognized an impairment loss of
approximately $465,000 related to its investment in Abex Europe, which went into
receivership on October 15, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
<TABLE>
<CAPTION>
Three months ended
(in thousands)
September 30, 2000 September 30, 1999 % Increase/
------------------ ------------------ (Decrease)
-----------
<S> <C> <C> <C>
Trade show exhibits group $ 9,642 $ 8,252 16.8%
Permanent and scenic displays group 11,840 13,669 (13.4)
-------- -------- -------
Total net sales $ 21,482 $ 21,921 (2.0)%
======== ======== =======
Nine months ended
(in thousands)
September 30, 2000 September 30, 1999 % Increase/
------------------ ------------------ (Decrease)
-----------
Trade show exhibits group $ 44,111 $ 35,561 24.0%
Permanent and scenic displays group 27,213 36,177 (24.8)
--------- --------- ------
Total net sales $ 71,324 $ 71,738 ( 0.6)%
========= ========= ======
</TABLE>
Total net sales decreased 2% in the third quarter of 2000 and were essentially
unchanged in the first nine months of 2000 as compared with the same 1999
periods. This was the net result of higher sales of trade show exhibits (up
16.8% in the third quarter and 24% in the first nine months) offset by lower
sales of permanent and scenic displays (down 13.4% in the third quarter and
24.8% in the first nine months). 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 third
quarter decrease in sales of permanent and scenic displays was principally
attributable to stopping production for a customer having financial
difficulties, as discussed below. The decrease in permanent and scenic displays
sales for the first nine month period was largely the result of lower sales for
store fixtures during the first six months of 2000 and for scenic displays
during the first nine months of 2000. The store fixtures decrease in the first
six months of 2000 was primarily due to lower sales to large national retail
customers experiencing slower new store growth. The decrease for scenic displays
in the first nine months of 2000 was due to large projects in 1999 which were
not replaced with similar size projects in 2000, resulting from a general
slowdown in the industry, as well as the aborted production for the customer
having financial difficulties, as discussed below.
Operating Profit (Loss)
An operating loss of $1.8 million was incurred in the third quarter of 2000 as
compared with operating profit of $1.3 million in the same prior year period.
The Company recorded a bad debt provision for $1.4 million and an inventory
reserve of $.6 million related to two permanent and scenic displays customers.
One of these customers, which the Company has successfully serviced for several
years, disclosed in the third quarter that it is in violation of its bank debt
covenants. Based on information currently available, management believes it is
uncertain that the Company will receive payment for $1.2 million of accounts
receivable related principally to permanent displays installed in the first half
of 2000. The Company also incurred operating losses at its Orlando, Florida
operation in the third quarter of 2000 associated with curtailed production for
this customer. These Orlando operating losses are expected to continue into the
fourth quarter of 2000 as the Company attempts to replace this lost sales and
production volume. The Company is in dispute with another customer with respect
to the quality of certain store fixtures and stopped doing business with this
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customer. Although management intends to aggressively pursue collection of
accounts receivable and recovery of inventory produced for purchase orders
received from this customer, such collection and cost recovery is uncertain.
Accordingly, a reserve of approximately $200,000 and $600,000 for the accounts
receivable and inventory, respectively was recorded in the third quarter. The
Company also incurred operating losses at its San Francisco, California
operation in the third quarter 2000 due in large part to lower sales and
production volume. Additional operating losses are expected for this operation
in the fourth quarter 2000 as the Company discontinues production operations in
San Francisco and consolidates it into other production facilities.
The gross profit margin, as a percentage of net sales, decreased to 18.9% in the
third quarter and increased to 22.5% in the first nine months of 2000 as
compared with 23.6% and 21.6% in the respective prior year periods. The third
quarter decrease was principally attributable to the $600,000 inventory write
down discussed above, which reduced the gross profit percentage by 2.8%. The
gross profit percentage increase for the first nine months of 2000 was the net
result of several factors, including higher margins generated by the scenic
displays business in the second quarter and higher gross profit margins
generated by trade show exhibits sales in the first quarter, partially offset by
the third quarter inventory write down.
Selling expenses, as a percentage of net sales, increased to 10.6% in the third
quarter and 11% in the first nine months of 2000 from 10% and 9.5% in the
respective 1999 periods. These increases were due in part to higher tradeshow
exhibit sales, which are subject to higher sales commissions and variable
selling expenses. The Company also invested in additional sales personnel in
2000.
Administrative and general expenses increased by $1.9 million in the third
quarter and by $2.6 million in the first nine months of 2000 as compared with
the corresponding periods of 1999. These increases were attributable to several
factors, including the $1.4 million third quarter bad debt provision, higher
depreciation expense related to investments in computer systems and office
facilities, management recruiting expenses and relocation costs to consolidate
the Company's store fixtures business during the first half of 2000.
Other Income (Expense)
Interest expense increased to $0.4 million and $1.0 million from $0.3 million
and $0.8 million in the third quarter and first nine months of 2000 and 1999,
respectively. These increases were 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 benefit for income taxes, as a percentage of the pre-tax losses in 2000, was
44% in the third quarter and 34% in the first nine months of 2000. The 1999 rate
of 40% 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
A net loss of $1.3 million ($.17 per fully diluted share) and $0.4 million ($.06
per fully diluted share) was incurred in the third quarter and first nine months
of 2000 as compared with net income of $0.3 million ($.05 per fully diluted
share) and $1.4 million ($.18 per fully diluted share) in the respective prior
year periods. The losses incurred in 2000 were the result of several factors,
including the third quarter bad debt and inventory provisions, higher
administrative and general expenses and higher interest expense.
Backlog
The Company's backlog of orders decreased to approximately $22 million at
September 30, 2000 from approximately $24 million at September 30, 1999.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $7.5 million during the first nine
months of 2000 to $19.6 million at September 30, 2000 from $12.1 million at
December 31, 1999. This increase was principally attributable to an $4.9 million
increase in accounts receivable and to a $2.8 million reduction in the current
portion of long-term debt. The accounts receivable increase was due to a higher
balance for the Company's store fixtures 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. 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. 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 $18 million under this facility at
September 30, 2000. 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. The Company was not in
compliance with the financial covenants of certain of these financial ratios at
September 30, 2000 as a result of the bad debt provision and inventory write
down recorded in the third quarter. The Company obtained a waiver from the bank
expiring on December 29, 2000 with respect to non-compliance with these
covenants. Management is in ongoing communications with the bank and anticipates
that it will require an extended waiver or amendment to these covenants prior to
December 29, 2000 to avoid non-compliance at year end.
OUTLOOK
The Company expects continued sales growth from trade show exhibits and lower
sales from permanent and scenic displays for the last three 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 fourth quarter 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 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
9
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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; changes in customers'
financial condition; 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 $18
million from its $30 million revolving credit facility at September 30, 2000.
Fluctuations in foreign currency exchange rates do not significantly affect the
Company's financial position and results of operations.
PART II - OTHER INFORMATION
Responses to Items one through six are omitted since these items are either
inapplicable or the response thereto would be negative.
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 November 13, 2000
10
