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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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)
Pennsylvania 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
--------------
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
---------------------- -------------------
Check whether the issuer is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes No X
---------------------- -------------------
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 stock as of the last practicable date:
12,845,096
Item 1. FINANCIAL STATEMENTS
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (In thousands except share data)
September 30, December 31,
ASSETS 2003 2002
------ ------
Current:
Cash and cash equivalents $ 315 $ 880
Accounts receivable, net of allowance
of $333 and $309, respectively 6,991 8,083
Inventory 6,366 5,723
Prepaids and other current assets 1,669 1,042
-------- --------
Total current assets 15,341 15,728
Investment in affiliates 279 259
Property and equipment, net of accumulated
depreciation of $10,195 and $9,168, respectively 3,707 3,929
Rental assets, net of accumulated depreciation
of $3,490 and $3,200, respectively 2,782 2,535
Goodwill 2,714 2,714
Other assets, net of accumulated amortization
of $1,518 and $1,349, respectively 489 211
Notes receivable 154 233
-------- --------
Total assets $ 25,466 $ 25,609
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,603 $ 128
Accounts payable 4,894 4,509
Accrued expenses and other 6,485 7,630
-------- --------
Total current liabilities 16,982 12,267
-------- --------
Long-term debt, net of current portion 271 4,000
-------- --------
Total liabilities $ 17,253 $ 16,267
Commitments and contingencies -- --
Minority interest 76 --
Stockholders/ equity:
Preferred stock, no par value - shares authorized
10,000,000; no shares issued or outstanding -- --
Common stock, no par value - shares authorized 50,000,000;
12,993,499 issued at September 30, 2003 and at December 31, 2002 -- --
Stock warrants 742 742
Additional paid-in capital 32,951 32,951
Accumulated deficit (25,409) (24,204)
-------- --------
8,284 9,489
Less cost of 148,403 treasury shares at September 30, 2003 and
at December 31, 2002 (147) (147)
-------- --------
Total stockholders' equity 8,137 9,342
-------- --------
Total liabilities and stockholders' equity $ 25,466 $ 25,609
======== ========
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
financial statements.
2
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (In thousands except
per share data)
For the three months ended For the nine months ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Sales $ 12,626 $ 15,204 $ 49,946 $ 53,419
Cost of sales 10,400 12,576 38,711 42,299
-------- -------- -------- --------
Gross profit 2,226 2,628 11,235 11,120
Selling expenses 1,818 1,814 6,353 6,192
Administrative and general expenses 1,627 1,395 5,288 5,115
Restructuring and other expenses 1,114 - 1,114 -
-------- -------- -------- --------
Operating loss (2,333) (581) (1,520) (187)
Other income (expense):
Interest income and other income 3 1 12 38
Interest expense (58) (124) (169) (346)
Income from investments in affiliates 20 - 20 (1,156)
Minority interest 19 - 19 -
-------- -------- -------- --------
Loss before income taxes and change in
accounting principle (2,349) (704) (1,638) (1,651)
Provision for (benefit from) income taxes (433) (239) (433) 52
-------- -------- -------- --------
Net loss before change in accounting principle (1,916) (465) (1,205) (1,703)
Cumulative effect of change in accounting
principle, net of tax benefit - - - (12,385)
-------- -------- -------- --------
Net loss $ (1,916) $ (465) $ (1,205) $(14,088)
======== ======== ======== ========
Loss per common share before change in accounting
principle:
Basic $ (0.15) $ (0.04) $ (0.09) $ (0.13)
======== ======== ======== ========
Diluted $ (0.14) $ (0.04) $ (0.09) $ (0.13)
======== ======== ======== ========
Loss per common share after change in accounting
principle:
Basic $ (0.15) $ (0.04) $ (0.09) $ (1.08)
======== ======== ======== ========
Diluted $ (0.14) $ (0.04) $ (0.09) $ (1.08)
======== ======== ======== ========
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
financial statements.
3
MARLTON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the nine months ended September 30,
2003 2002
-------- ---------
Cash flows from operating activities:
Net loss $ (1,205) $ (14,088)
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 1,486 1,614
(Income) loss from investment in affiliates (20) 1,156
Cumulative effect of change in accounting principle - 12,385
Non-cash compensation and other operating items - 191
Change in assets and liabilities, net of businesses acquired:
Receivables, net 1,092 206
Inventories (643) 1,471
Prepaid and other assets (627) (132)
Notes and other receivables (240) 383
Accounts payable, accrued expenses and other (760) (551)
-------- ---------
Net cash provided by operating activities (917) 2,635
-------- ---------
Cash flows from investing activities:
Capital expenditures (620) (985)
Acquistion of business, net of cash acquired (384) -
-------- ---------
Net cash used in investing activities (1,004) (985)
-------- ---------
Cash flows from financing activities:
Principal (payments for) proceeds from revolving credit facility 1,500 (2,000)
Payments for loan origination fees (50) (50)
Payments for promissory note (113) (113)
Acquisition of minority interest 19 -
-------- ---------
Net cash (used in) provided by financing activities 1,356 (2,163)
-------- ---------
Decrease in cash and cash equivalents (565) (513)
Cash and cash equivalents - beginning of period 880 1,233
-------- ---------
Cash and cash equivalents - end of period $ 315 $ 720
======== =========
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
financial statements.
4
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIL 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. 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. Operating results for the
quarter are not necessarily indicative of the results that may be expected for
the full year or for future 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, 2002.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results may differ from those estimates.
2. ACQUISITION AND RESTRUCTURING COSTS:
On August 1, 2003, a Company subsidiary acquired the assets of Exhibit Crafts,
Inc., a Los Angeles, CA area manufacturer of trade show exhibits and a 20%
interest in International Exposition Services, Inc., (IES), a trade show
shipping and installation provider. The initial purchase price was $694,000,
including the assumption of certain liabilities totaling $310,000. In addition,
the sellers received 20% of the subsidiary's common stock. The purchase price
approximated the fair value of the net assets acquired. In addition, the asset
purchase agreement provides for contingent payments of up to $750,000 based on
operating performance in 2004, 2005 and 2006. The Company relocated its San
Diego area manufacturing facility to the newly acquired Los Angeles, CA area
facility during the third quarter of 2003. Costs incurred in connection with
this relocation and consolidation were approximately $1.1 million, which
included relocation and employee termination expenses and the Company recorded a
charge for a portion of the remaining lease obligation related to the vacated
San Diego area facility.
3. MAJOR CUSTOMERS:
During the third quarter and first nine months of 2003, one customer accounted
for 24% and 18%, respectively, of the Company's total net sales. During the
third quarter and first nine months of 2002, this customer accounted for 30% and
24%, respectively, of the Company's total net sales.
4. DEBT:
As of September 30, 2003, the Company was not in compliance with the minimum
tangible net worth and fixed charge coverage ratio covenants under its Second
Amended and Restated Revolving Credit and Security Agreement dated as of May 16,
2002 with Wachovia Bank, NA, as amended on March 11, 2003. At September 30,
2003, $5.5 million was outstanding under this $8 million revolving credit
facility. Wachovia Bank has waived this financial covenant non-compliance as of
September 30, 2003 under the facility agreements.
The Company has received and accepted a commitment letter from another financial
institution for a three year $12 million revolving credit facility, with a
closing required by January 14, 2004. While there can be no assurance that this
new commitment will result in a replacement revolving credit facility, the
Company is working diligently to accomplish this replacement financing.
5
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIL STATEMENTS
(UNAUDITED)
5. 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):
Three months ended Nine months ended
-------------------------- -----------------------
September September September September
30, 2003 30, 2002 30, 2003 30, 2002
--------- --------- --------- ---------
Net loss before change in accounting principle $(1,916) $(465) $(1,205) $ (1,703)
======= ===== ======= ========
Net loss after change in accounting principle $(1,916) $(465) $(1,205) $(14,088)
======= ===== ======= ========
Weighted average common
shares outstanding used to compute
basic net income per common share 12,845 12,988 12,845 12,988
Additional common shares to be issued
assuming the exercise of stock options,
net of shares assumed reacquired 1,163 -- 1,163 --
------- ------ ------ ------
Total shares used to compute diluted
net income per common share 14,008 12,988 14,008 12,988
======= ====== ====== ======
Before change in accounting principle:
Basic net loss per share $(.15) $(.04) $(.09) $(.13)
===== ===== ===== =====
Diluted net loss per share $(.14) $(.04) $(.09) $(.13)
===== ===== ===== =====
After change in accounting principle:
Basic net loss per share $(.15) $(.04) $(.09) $(1.08)
===== ===== ===== ======
Diluted net loss per share $(.14) $(.04) $(.09) $(1.08)
===== ===== ===== ======
Excluded in the computation of diluted income per common share were options and
warrants to purchase 336,000 and 7,400,000 shares of common stock, which were
outstanding at September 30, 2003 and 2002, respectively, because the option and
warrant exercise prices were greater than the market price of the common shares.
6. INVENTORIES:
Inventories, as of the respective dates, consists of the following (in
thousands):
September 30, 2003 December 31, 2002
------------------ -----------------
Raw materials $ 682 $ 373
Work in process 3,652 4,400
Finished goods 2,032 950
------ ------
$6,366 $5,723
====== ======
7. INVESTMENTS IN AFFILIATES:
The Company recorded an impairment loss of $1.2 million for its investment in a
portable trade show exhibit manufacturer in the first quarter of 2002. No income
tax benefit was recorded in connection with this capital loss.
6
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIL STATEMENTS
(UNAUDITED)
During the first quarter of 2002 the Company also recorded a valuation allowance
of $191,000 against a deferred tax asset associated with a capital loss, which
resulted from the write-off of an investment in an affiliate located in the
United Kingdom. Management has concluded that the Company will most likely not
generate capital gains in the next two years that would be sufficient to realize
the tax benefit from this capital loss.
8. CHANGE IN ACCOUNTING PRINCIPLE (ADOPTION OF SFAS NO. 142):
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which
eliminates amortization of these assets and requires annual testing for
impairment. The Company's reporting units for purposes of applying the
provisions of SFAS 142 are the DMS Store Fixtures business ("DMS") and the
Sparks Exhibits & Environments businesses ("Sparks"). SFAS 142 requires a
comparison of the reporting unit's fair value, which is determined based on
discounted cash flows, to its carrying value to determine potential impairment.
If the fair value is less than the carrying value, an impairment loss is
recognized. The Company recorded an impairment loss of $12.4 million in the
first quarter of 2002 in connection with the adoption of SFAS 142.
9. RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities" ("SFAS 146"). SFAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs associated with exit and
disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Effective in the first
quarter of 2003, the Company adopted the provisions of SFAS 146. This new
accounting principle had an impact on the timing and recognition of costs
associated with the Company's relocation and consolidation of its West Coast
operations (see Note 2).
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46") FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The initial recognition provisions of FIN 46 are
applicable immediately to new variable interests in variable interest entities
created after January 31, 2003. For a variable interest in a variable interest
entity created before February 1, 2003, the initial recognition provisions of
FIN 46 are to be implemented no later than the beginning of the first interim or
annual reporting period beginning after December 15, 2003. The Company will
continue to evaluate the impact of FIN 46 on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 addresses the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The Company
will continue to evaluate the impact of SFAS 150 on its financial statements.
10. TERMINATED MERGER AGREEMENT:
The Company and Redwood Acquisition Corp.("Redwood") entered into a merger
agreement in February 2003 pursuant to which all of the outstanding shares of
common stock of the Company (other than the shares held by approximately eight
shareholders) would be converted into the right to receive $0.30 per share. On
June 19, 2003, the Company's Board of Directors approved a termination proposal
submitted by Redwood, which terminated the proposed merger agreement with
Redwood. Costs of approximately $250,000 incurred in connection with this
proposed merger agreement were charged to administrative and general expenses in
the second and third quarters of 2003.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 2003 and 2002.
Sales
Three Months Ended
(In thousands)
September 30, September 30,
2003 2002 % Inc./(Dec.)
------------- ------------- -------------
Trade show exhibits group $ 5,263 $ 6,575 (20)%
Permanent and scenic displays group 7,363 8,629 (15)
------- ------- ---
Total sales $12,626 $15,204 (17)%
======= ======= ===
Nine Months Ended
(In thousands)
September 30, September 30,
2003 2002 % Inc./(Dec.)
------------- ------------- -------------
Trade show exhibits group $30,964 $31,914 (3)%
Permanent and scenic displays group 18,982 21,505 (12)
------- ------- ---
Total sales $49,946 $53,419 (7)%
======= ======= ===
Total net sales of $12.6 million for the third quarter of 2003 decreased 17%
below the third quarter of 2002, and total net sales of $49.9 million for the
first nine months of 2003 decreased 7% from the same prior year period. The
third quarter decrease was attributable to lower sales of trade show exhibits,
which decreased 20%, and lower sales of permanent and scenic displays (store
fixtures and permanent museum exhibits), which decreased 15%. Lower sales of
trade show exhibits and related services were primarily due to reductions in
certain customers' trade show marketing budgets, which led to cancelled
participation in trade shows that these customers attended in the past. These
marketing budget reductions also resulted in lower new trade show exhibit
construction. The sales decreases for permanent and scenic displays were largely
due to lower sales of store fixtures.
Gross Profit
Gross profit, as a percentage of net sales, increased to 17.6% and 22.5% for the
third quarter and first nine months of 2003, respectively, from 17.3% and 20.8%
in the corresponding 2002 periods. These improvements were due, in large part,
to higher gross profit margins generated from sales of store fixtures as well as
to cost reduction and profit improvement initiatives implemented in the second
half of 2002. Management continues to pursue cost reduction initiatives,
including operational improvements and staff reductions, to offset the impact of
lower sales volume.
Selling Expenses
Selling expenses increased to 14.4% and 12.7% of net sales in the third quarter
and first nine months of 2003, respectively, from 11.9% and 11.6% in the
comparable periods of 2002. These increases were principally attributable to the
unfavorable impact of lower sales volume as compared with certain fixed selling
expenses such as sales office and salary expenses. Management has taken further
staff and cost reduction steps in response to the lower sales volume in the
fourth quarter of 2003.
8
Administrative and general expenses
Administrative and general expenses increased to $1.6 million and $5.3 million
in the third quarter and first nine months of 2003, respectively, from $1.4
million and $5.1 million in the same periods of 2002. The third quarter increase
was attributable to several factors, including higher business insurance costs,
integration costs to consolidate the Company's West Coast operations and higher
telecommunications costs. The increase for the first nine months of 2003 was
largely due to these third quarter factors as well as to costs incurred in
connection with the terminated merger transaction (See Note 9.). In the fourth
quarter of 2003, management has implemented executive compensation reductions,
staff reductions and further cost cutting initiatives in response to the lower
sales volume.
Acquisition and restructuring costs
On August 1, 2003, a Company subsidiary acquired the assets of Exhibit Crafts,
Inc., a Los Angeles, CA area manufacturer of trade show exhibits and a 20%
interest in International Exposition Services, Inc., (IES), a trade show
shipping and installation provider. The initial purchase price was $694,000,
including the assumption of certain liabilities totaling $310,000. In addition,
the sellers received 20% of the subsidiary's common stock. The purchase price
approximated the fair value of the net assets acquired. In addition, the asset
purchase agreement provides for contingent payments of up to $750,000 based on
operating performance in 2004, 2005 and 2006. The Company relocated its San
Diego area manufacturing facility to the Los Angeles, CA area facility during
the third quarter of 2003. Costs incurred in connection with this relocation and
consolidation were approximately $1.1 million, which included relocation and
employee termination expenses and the Company recorded a charge for a portion of
the remaining lease obligation related to the vacated San Diego area facility.
Operating profit (loss)
An operating loss of $2.3 million was incurred in the third quarter of 2003 as
compared with an operating loss of $0.6 million in the third quarter of 2002.
For the first nine months of 2003 the operating loss increased to $1.5 million
from $0.2 million in the same prior year period. The increase in operating
losses was primarily due to lower sales and the restructuring charge recognized
in the third quarter of 2003.
Other income/(expense)
A loss of $1.2 million from investments in affiliates was recorded in the first
quarter of 2002 to write down the Company's investment in a portable trade show
exhibit manufacturer.
Benefit from income taxes
In the third quarter of 2003, the Company recognized the benefit of an expected
income tax refund for $0.4 million related to a net operating loss carry back.
In the fourth quarter of 2002, the Company established a valuation allowance for
deferred income tax assets. As a result, the Company did not record an income
tax benefit from the current period pre-tax loss.
The Company established a valuation allowance for the income tax benefit from
the $1.2 million write down of investments in affiliates recorded in the first
quarter of 2002 because this capital loss is not expected to be offset by
capital gains within the required statutory period. The provision for income
taxes recorded in the first quarter of 2002 also included a valuation allowance
of $191,000 related to a 1999 capital loss incurred in connection with the
Company's investment in a United Kingdom affiliate.
9
Cumulative effect of change in accounting principle
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which
eliminates amortization of these assets and requires annual testing for
impairment. The Company's reporting units for purposes of applying the
provisions of SFAS 142 are the DMS Store Fixtures business ("DMS") and the
Sparks Exhibits & Environments businesses ("Sparks"). SFAS 142 requires a
comparison of the reporting unit's fair value, which is determined based on
discounted cash flows, to its carrying value to determine potential impairment.
If the fair value is less than the carrying value, an impairment loss is
recognized. The Company recorded an impairment loss of $12.4 million in the
first quarter of 2002 in connection with the adoption of SFAS 142.
Backlog
The Company's backlog of orders was approximately $16 million at September 30,
2003 and $17 million at September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company had borrowings of $5.5 million at September 30, 2003 from its
revolving credit facility, which expires May 16, 2004. These borrowings were
classified as the current portion of long term, which caused the Company's total
liabilities of $17.3 million to exceed its current assets of $15.3 million at
the end of the third quarter of 2003.
As of September 30, 2003, the Company was not in compliance with the minimum
tangible net worth and fixed charge coverage ratio covenants under its Second
Amended and Restated Revolving Credit and Security Agreement dated as of May 16,
2002 with Wachovia Bank, NA, as amended on March 11, 2003. At September 30,
2003, $5.5 million was outstanding under this $8 million revolving credit
facility. Wachovia Bank has waived this financial covenant non-compliance as of
September 30, 2003 under the facility agreements.
The Company has received and accepted a commitment letter from another financial
institution for a three year $12 million revolving credit facility, with a
closing required by January 14, 2004. While there can be no assurance that this
new commitment will result in a replacement revolving credit facility, the
Company is working diligently to accomplish this replacement financing.
The Company has lease commitments for several facilities under non-cancelable
operating leases. Timing of future lease commitments as well as maturities of
long-term debt is as follows:
(In thousands)
2003 2004 2005 2006 2007 After 2007
---- ---- ---- ---- ---- ----------
Lease commitments $640 $2,507 $2,462 $1,914 $1,165 $1,060
Debt maturities 86 5,589 89 78 32 --
The Company leases a facility from a partnership controlled by two shareholders
of the Company. This lease, which expires on May 14, 2019, requires minimum
annual rent of $771,000 at a fixed rate for the first 10 years, and the Company
is responsible for taxes, insurance and other operating expenses. The Company
has the option to terminate this lease in 2009 subject to the landlord's ability
to relet or sell the premises at minimum specified values.
10
OUTLOOK
The Company expects sales to decrease in the remainder of 2003 and in 2004 from
2002 levels. The Company's trade show exhibit client base of Fortune 1000
companies is expected to closely manage their marketing expense budgets, which
would inhibit trade show exhibit sales and profit margins. The Company continues
to pursue new sales opportunities while implementing cost reduction initiatives,
including executive compensation reductions and staff reductions, to mitigate
the impact of lower sales volume.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities" ("SFAS 146"). SFAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs associated with exit and
disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Effective in the first
quarter of 2003, the Company adopted the provisions of SFAS 146. This new
accounting principle had an impact on the timing and recognition of costs
associated with the Company's relocation and consolidation of its West Coast
operations (see Note 2).
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46") FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The initial recognition provisions of FIN 46 are
applicable immediately to new variable interests in variable interest entities
created after January 31, 2003. For a variable interest in a variable interest
entity created before February 1, 2003, the initial recognition provisions of
FIN 46 are to be implemented no later than the beginning of the first interim or
annual reporting period beginning after December 15, 2003. The Company will
continue to evaluate the impact of FIN 46 on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 addresses the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The Company
will continue to evaluate the impact of SFAS 150 on its financial statements.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. When used in this report, the
words "intends," "believes," "plans," "expects," "anticipates," "probable,"
"could" and similar words are used to identify these 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 identify and enter new markets, to maintain
and expand existing business; continued availability of financing to provide
additional sources of funding for capital expenditures, working capital and
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 and labor prices from suppliers; changes in
customers' financial condition; the Company's ability to attract and retain
competent employees; the Company's ability to add and retain customers; changes
in sales mix; the Company's ability to integrate and upgrade technology;
uncertainties regarding accidents or litigation which may arise; the financial
impact of facilities consolidations; the Company's ability to sublet or
terminate leases for vacated facilities; uncertainties about the threat of
future terrorist attacks on business travel and related trade show attendance;
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.
11
ITEM 3. 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. Fluctuations in foreign currency
exchange rates do not significantly affect the Company's financial position and
results of operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
The Company established a Disclosure Committee chaired by the
Company's Chief Financial Officer and comprised of managers
representing the Company's major areas, including financial
reporting and control, sales, operations and information
technology. This Committee carried out an evaluation of the
effectiveness and operation of the Company's disclosure controls
and procedures, and established ongoing procedures to monitor and
evaluate these controls and procedures in the future. Based upon
that evaluation, within the 90 days prior to the date of this
report, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures
are effective in alerting them on a timely basis to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic
SEC filings.
(b) Changes in internal controls
There were no significant changes in the Company's internal
controls or in other factors that would significantly affect these
controls subsequent to the date of their evaluation.
12
PART II - OTHER INFORMATION
Responses to Items 1, 2, 3, 4 and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Page
------------
(2)(a) Agreement and Plan of Merger By and Between Redwood
Acquisition Corp. and the Company dated as of February 20,
2003 (Incorporated by reference to the Company's February 26,
2003 Preliminary Proxy Statement, filed with the Commission).
(2)(b) Agreement and Plan of Merger of the Company (Incorporated by
reference to the Company's Proxy Statement dated September
27, 2001, filed with the Commission).
(3)(i) Articles of Incorporation of the Company (Incorporated by
reference to the Company's Proxy Statement dated September
27, 2001, filed with the Commission).
3(ii) Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3(ii)(a) of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002,
filed with the Commission).
10(a) Amended and Restated Employment Agreement dated November 20,
2001 between the Company and Robert B. Ginsburg (Incorporated
by reference to the Company's September 27, 2001 Proxy
Statement, filed with the Commission).*
10(b) Employment Agreement dated 11/20/01 between the Company and
Jeffrey K. Harrow (Incorporated by reference to the Company's
September 27, 2001 Proxy Statement, filed with the
Commission).*
10(c) Employment Agreement dated 11/20/01 between the Company and
Scott Tarte (Incorporated by reference to the Company's
September 27, 2001 Proxy Statement, filed with the
Commission).*
10(d) Subscription Agreement dated 8/23/01 among Scott Tarte,
Jeffrey K. Harrow and the Company (Incorporated by reference
to the Company's September 27, 2001 Proxy Statement, filed
with the Commission).
10(e) Subscription Agreement dated 8/23/01 among Robert B.
Ginsburg, Alan I. Goldberg and the Company (Incorporated by
reference to the Company's September 27, 2001 Proxy
Statement, filed with the Commission).
10(f) Form of Warrants issued by the Company to Jeffrey K. Harrow,
Scott Tarte, Robert B. Ginsburg and Alan I. Goldberg on
11/20/01 (Incorporated by reference to the Company's
September 27, 2001 Proxy Statement, filed with the
Commission). Schedule of grants (Incorporated by reference to
Exhibit 10(f) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001, filed with the Commission).
10(g) Stockholders' Agreement date 11/20/01 among Jeffrey K.
Harrow, Scott Tarte, Robert B. Ginsburg and the Company
(Incorporated by reference to the Company's September 27,
2001 Proxy Statement, filed with the Commission).
14
10(h) Registration Rights Agreement dated 11/20/01 among Jeffrey K.
Harrow, Scott Tarte, Robert B. Ginsburg, Alan I. Goldberg and
the Company (Incorporated by reference to the Company's
September 27, 2001 Proxy Statement, filed with the
Commission).
10(i) Amended Agreement of Employment, dated December 11, 1992,
between the Company and Alan I. Goldberg (Incorporated by
reference to Exhibit 10(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, filed with
the Commission).*
10(j) Letter Agreement dated January 2, 1998 to Amended Employment
Agreement with Alan I. Goldberg (Incorporated by reference to
Exhibit 7(2) to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, filed with the
Commission).*
10(k) Letter Agreement dated 11/20/01 to Amended Employment
Agreement with Alan I. Goldberg. (Incorporated by reference
to Exhibit 10(k) to the Company's Annual Report on Form 10-K
for the year ended December 31, 2001, filed with the
Commission).*
10(l) Employment Agreement dated November 24, 1999 with Stephen P.
Rolf (Incorporated by reference to Exhibit 10(l) to the
Company Annual Report of Form 10-K for the year ended
December 31, 1999, filed with the Commission).*
10(m) Option Agreement dated January 10, 2000 with Stephen P. Rolf
(Incorporated by reference to Exhibit 10(x) to the Company
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, filed with the Commission).*
10(n) Option Cancellation Agreement dated November 20, 2001 among
Robert B. Ginsburg, Alan I. Goldberg and the Company
(Incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the year ended December 31,
2001, filed with the Commission).*
10(o) Option Agreements with Outside Directors (Incorporated by
reference to Company Proxy Statement dated April 30, 1999,
filed with the Commission).*
10(p) Option Agreements dated August 7, 2000 with Outside Directors
(Incorporated by reference to Exhibit 10(x) to the Company
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, filed with the Commission).*
10(q) Option Agreements dated March 1, 2002 with Outside Directors
(Incorporated by reference to Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31,
2001, filed with the Commission).*
10(r) 2000 Equity Incentive Plan (Incorporated by reference to
Exhibit 10(n) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001, filed with the
Commission).*
10(s) 2001 Equity Incentive Plan (Incorporated by reference to
Exhibit 10(ee) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001, filed with the
Commission).*
15
10(t) Lease for Premises located at 2828 Charter Road,
Philadelphia, PA dated May 14, 1999 (Incorporated by
reference to Exhibit 10(f) to the Company Annual Report on
Form 10-K for the year ended December 31, 1999, filed with
the Commission).
10(u) Amendment to Lease 2828 Charter Road, Philadelphia, PA dated
February 25, 2000 (Incorporated by reference to Exhibit 10(g)
to the Company Annual Report on Form 10-K for the year ended
December 31, 1999, filed with the Commission).
10(v) Lease for Premises located at 8125 Troon Circle, Austell, GA
30001 (Incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, filed with the Commission).
10(w) Lease Agreement dated June 29, 1998 between Gillespie Field
Partners, LLC and Sparks Exhibits, Ltd. (Incorporated by
reference to Exhibit 7(2) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998, filed with
the Commission).
10(x) Second Amended and Restated Revolving Credit and Security
Agreement dated as of May 16, 2002 with Wachovia Bank, NA,
(Incorporated by reference to Exhibit 10(bb) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, filed with the Commission).
10(y) Amendment to Second Amended and Restated Revolving Credit and
Security Agreement dated March 11, 2003 with Wachovia Bank,
NA (Incorporated by reference to the Company's Annual Report
on Form10-K for the year ended December 31, 2002, filed with
the Commission).
10(z) Option Agreement dated June 3, 2002 with Robert B. Ginsburg
(Incorporated by reference to Exhibit 10(cc) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, filed with the Commission).*
10(aa) Option Agreement dated June 3, 2002 with Alan I. Goldberg
(Incorporated by reference to Exhibit 10(dd) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002, filed with the Commission).*
10(bb) Option Agreement dated October 23, 2002 with Washburn
Oberwager (Incorporated by reference to Exhibit 10ee) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, filed with the Commission).*
10(cc) Fourth Amendment to Lease Agreement dated September 11, 2003
for premises located at 8125 Troon Circle, Austell, GA 30001. 19
---------------
10(dd) Sublease Agreement with Bradco International for premises
located at 2025 Gillespie Way, El Cajon, CA 92020. 26
---------------
10(ee) First Amendment to Lease Agreement dated October 31, 2003 for
premises located at 2025 Gillespie Way, El Cajon, CA 92020. 38
---------------
10(ff) Lease Agreement, First and Second Amendments for premises
located at Building J, 10232 Palm Drive, Santa Fe Springs,
CA 90670. 44
---------------
16
10(gg) Lease Agreement, First and Second Amendments for premises
located at Building G, Heritage Springs Business Park,
Santa Fe Springs. 50
---------------
21 Subsidiaries of the Company (Incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, filed with the Commission).
31 Section 1350 Certification 55
---------------
32(a) Rule 13A - 14(a) / 15d - 14(a) Certifications, Chief
Executive Officer 56
---------------
32(b) Rule 13A - 14(a) / 15d - 14(a) Certifications, Chief
Financial Officer 57
---------------
*Management contract or compensatory plan or arrangement.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly 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 14, 2003
18