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 March 31, 2005
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)
Pennsylvania 22-1825970
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2828 Charter Road 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 |_|
Indicate by check mark 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:
12,939,696
ITEM 1. FINANCIAL STATEMENTS
MARLTON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except share and per share data)
March 31, December 31,
ASSETS 2005 2004
-------- --------
Current:
Cash and cash equivalents $ 1,205 $ 311
Accounts receivable, net of allowance
of $384 and $444, respectively 14,155 10,157
Inventories 7,968 7,069
Prepaid and other current assets 691 400
-------- --------
Total current assets 24,019 17,937
Property and equipment, net of accumulated
depreciation of $10,960 and $10,792, respectively 3,157 2,469
Rental assets, net of accumulated depreciation
of $4,361 and $4,239, respectively 2,875 2,875
Goodwill 2,750 2,750
Other intangible assets, net of accumulated amortization of $44 5,096 --
Other assets, net of accumulated amortization
of $1,794 and $1,781, respectively 137 126
Notes receivable 158 178
-------- --------
Total assets $ 38,192 $ 26,335
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,209 $ 83
Accounts payable 6,606 5,596
Accrued expenses and other current liabilities 7,994 7,722
-------- --------
Total current liabilities 15,809 13,401
Long-term liabilities:
Long-term debt, net of current portion 11,002 5,070
Other long-term liabilities 1,775 --
-------- --------
Total long-term liabilities 12,777 5,070
-------- --------
Total liabilities 28,586 18,471
-------- --------
Commitments and contingencies -- --
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;
12,939,696 outstanding at March 31, 2005 and December 31, 2004 -- --
Stock warrants 1,528 742
Additional paid-in capital 32,998 32,998
Accumulated deficit (24,772) (25,728)
-------- --------
9,754 8,012
Less cost of 148,803 treasury shares (148) (148)
-------- --------
Total stockholders' equity 9,606 7,864
-------- --------
Total liabilities and stockholders' equity $ 38,192 $ 26,335
======== ========
The accompanying notes and the notes to the consolidated 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
March 31, 2005 March 31, 2004
---------------- ----------------
Net sales $ 18,835 $ 18,549
Cost of sales 14,422 13,810
---------------- ----------------
Gross profit 4,413 4,739
Selling expenses 2,147 2,217
Administrative and general expenses 1,209 1,525
---------------- ----------------
Operating profit 1,057 997
Other income (expense):
Interest and other income 34 --
Interest expense (135) (92)
---------------- ----------------
Income before income taxes 956 905
Provision for income taxes -- --
---------------- ----------------
Net income 956 905
================ ================
Net income per common share:
Basic $ 0.07 $.0.07
================ ================
Diluted $ 0.06 $.0.07
================ ================
The accompanying notes and the notes to the consolidated 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. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the three months ended
March 31, 2005 March 31, 2004
---------------- ----------------
Cash flows from operating activities:
Net income $ 956 $ 905
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 348 569
Change in operating assets and liabilities:
Increase in accounts receivable, net (2,685) (3,252)
Increase in inventories (332) (57)
(Increase) decrease in prepaid and other assets (291) 19
Decrease in notes and other receivables 20 26
Increase (decrease) in accounts payable,
accrued expenses and other current liabilities (255) 915
---------------- ----------------
Net cash used in operating activities (2,239) (875)
---------------- ----------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (2,752) --
Capital expenditures (166) (106)
---------------- ----------------
Net cash used in investing activities (2,918) (106)
---------------- ----------------
Cash flows from financing activities:
Proceeds from revolving credit facility, net 5,104 1,328
Proceeds from term loan 1,000 --
Payments for leasehold improvement obligation (18) (11)
Payments for loan origination fees (25) (117)
Payments for capital lease obligations (10) --
Payments for acqusition obligation -- (11)
---------------- ----------------
Net cash provided by financing activities 6,051 1,189
---------------- ----------------
Increase in cash and cash equivalents 894 208
Cash and cash equivalents - beginning of period 311 241
---------------- ----------------
Cash and cash equivalents - end of period $ 1,205 $ 449
================ ================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Acquisition of Showtime Enterprises, Inc. Assets and Specified Liabilities:
Cash purchase price $ 2,752
Long-term debt incurred 982
Other long-term liabilities incurred 1,775
Fair value of stock warrants 786
---------
Total purchase price $ 6,295
=========
Working capital acquired $ 343
Fair value of property, equipment and rental assets acquired 812
Covenants not to compete acquired 570
Customer relationships acquired 4,570
---------
Total purchase price $ 6,295
=========
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these financial statements.
4
MARLTON TECHNLOGIES, INC. AND SUBSDIDIARIES
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. 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 Form 10-K for the
year ended December 31, 2004.
2. ACQUISITION OF BUSINESS:
On March 15, 2005, Sparks Exhibits & Environments Corp., a subsidiary of the
Company, acquired substantially all of the assets and assumed specified
liabilities of Showtime Enterprises, Inc. and its subsidiary, Showtime
Enterprises West, Inc. (collectively "Showtime"). Showtime designed, marketed
and produced trade show exhibits, point of purchase displays, museums and
premium incentive plans. Showtime had sales of approximately $21 million in
2004. The aggregate purchase price was $6.3 million, comprised of $2.8 million
paid in cash, $1.7 million for contingent royalty and percentage of sales
payments, $1 million of long-term debt assumption and $0.8 million for stock
warrants. The Company financed this acquisition by increasing its revolving
credit facility borrowing capacity and obtaining a new term loan. The Company's
Audit Committee engaged the Company's registered public accounting firm to
perform the required audit of Showtime's financial statements. It was
subsequently determined that such audit could not be performed. The inability to
file these audited financial statements may limit the Company's ability to
engage in certain types of transactions requiring Securities and Exchange
Commission review, including without limitation, public offerings and certain
private offerings of securities and business combination transactions requiring
shareholder approval.
5
MARLTON TECHNLOGIES, INC. AND SUBSDIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The estimated fair values of the assets acquired and liabilities assumed are
summarized in the following table. The allocation of the purchase price to the
business acquired is preliminary and may be adjusted based on completion of
third party appraisals.
At March 15, 2005 (in thousands)
Current assets $1,880
Property, equipment and rental assets 812
Covenants not to compete 570
Customer relationships 4,570
------
$7,832
Current liabilities $1,537
Long-term debt 982
Other long-term liabilities 1,775
Stock warrants 786
------
Net assets acquired $2,752
======
Covenants not to compete will be amortized over 6 years and customer
relationships will be amortized over an estimated life of 10 years. The
covenants not to compete and customer relationships will be reviewed annually by
management for impairment.
3. MAJOR CUSTOMERS:
During the first quarter of 2005, one customer accounted for 12% of the
Company's total sales. During the first quarter of 2004, a different customer
accounted for 12% of the Company's total sales.
6
MARLTON TECHNLOGIES, INC. AND SUBSDIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. 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
March 31, March 31,
2005 2004
--------- ---------
Net income $ 956 $ 905
========= =========
Weighted average common
shares outstanding used to compute basic net income
per common share 12,940 12,845
Additional common shares to be issued
assuming the exercise of stock options, net of shares
assumed reacquired 4,218 742
--------- ---------
Total shares used to compute diluted
net income per common share 17,158 13,587
========= =========
Basic net income per share
$ 0.07 $ 0.07
========= =========
Diluted net income per share $ 0.06 $ 0.07
========= =========
Excluded in the computation of diluted income per common share were outstanding
options and warrants to purchase 1,193,336 and 248,846 shares of common stock at
March 31, 2005 and 2004, respectively, because the option and warrant exercise
prices were greater than the market price of the common shares.
5. INVENTORIES:
Inventories, as of the respective dates, consist of the following (in
thousands):
March 31, 2005 December 31, 2004
----------------- -----------------
Raw materials $ 584 $ 440
Work in process 3,831 3,231
Finished goods 3,553 3,398
----------------- -----------------
$ 7,968 $ 7,069
================= =================
7
MARLTON TECHNLOGIES, INC. AND SUBSDIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Exit or
Disposal Activities" ("FASB Statement FAS 146"). FAS 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, and is expected to have an impact on the timing and recognition of
costs associated with the Showtime acquisition and subsequent integration.
In December 2004, FASB issued FASB Statement No. 123 (revised 2004), Share-Based
Payment ("FAS123(R)" or the "Statement"). FAS 123(R) requires that the
compensation cost relating to share-based payment transactions, including grants
of employee stock options, be recognized in financial statements. That cost will
be measured based on the fair value of the equity or liability instruments
issued. FAS 123(R) covers a wide range of share-based compensation arrangements
including stock options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. The effect of the
Statement will require entities to measure the cost of employee services
received in exchange for stock options based on the grant-date fair value of the
award, and to recognize the cost over the period the employee is required to
provide services for the award. FAS 123(R) permits entities to use any
option-pricing model that meets the fair value objective in the Statement. The
Company will be required to apply FAS 123(R) starting January 1, 2006. FAS
123(R) allows two methods for determining the effects of the transition: the
modified prospective transition method and the modified retrospective method of
transition. Under the modified prospective transition method, an entity would
use the fair value based accounting method for all employee awards granted,
modified, or settled after the effective date. As of the effective date,
compensation cost related to the non-vested portion of awards outstanding as of
that date would be based on the grant-date fair value of those awards as
calculated under the original provisions of Statement No. 123; that is, an
entity would not re-measure the grant-date fair value estimate of the unvested
portion of awards granted prior to the effective date of FAS 123(R). An entity
will have the further option to either apply the Statement to only the quarters
in the period of adoption and subsequent periods, or apply the Statement to all
quarters in the fiscal year of adoption. Under the modified retrospective method
of transition, an entity would revise its previously issued financial statements
to recognize employee compensation cost for prior periods presented in
accordance with the original provisions of Statement No. 123. Although it has
not yet completed its study of the transition methods, the Company believes it
will elect the modified prospective transition method. Under this method, the
Company estimates that the adoption of FAS 123(R) would require the Company to
record approximately $15,000 of stock compensation expense in 2005 related to
employee options issued and outstanding at December 31, 2004. Based on expected
vesting of stock options outstanding at March 31, 2005, the Company may record
compensation expense of approximately $270,000 in each of 2006 through 2010. Any
further impact of this Statement on the Company in fiscal 2005 and beyond will
depend upon various factors including future compensation strategy. The pro
forma compensation costs are calculated using the Black-Scholes option pricing
model and may not be indicative of amounts which should be expected in future
years.
8
MARLTON TECHNLOGIES, INC. AND SUBSDIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. STOCK-BASED COMPENSATION
The Company accounts for grants of stock options under its stock option plans
based on the recognition and measurement principles of APB Opinion No. 25 and
related Interpretations. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123 to stock-based employee
compensation (in thousands except per share data):
For the three months ended
March 31, 2005 March 31, 2004
--------------- ---------------
Net income, as reported $ 956 $ 905
--------------- ---------------
Deduct: Total stock-based employee
compensation expense determined under fair
value based method, net of tax (3) --
--------------- ---------------
Pro forma net income $ 953 $ 905
=============== ===============
Earnings per share:
Basic:
As Reported $ 0.07 $ 0.07
=============== ===============
Pro forma $ 0.07 $ 0.07
=============== ===============
Diluted:
As reported $ 0.06 $ 0.07
=============== ===============
Pro forma $ 0.06 $ 0.07
=============== ===============
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 2005 as compared with three months ended
March 31, 2004
Sales
Three Months Ended
(in thousands)
March 31, 2005 March 31, 2004
---------------- ----------------
Trade show exhibits group $ 13,412 $ 13,208
Permanent and scenic displays group 5,423 5,341
---------------- ----------------
Total sales $ 18,835 $ 18,549
================ ================
Total net sales of $18.8 million for the first quarter of 2005 increased 1.5%
from total net sales of $18.5 million for the first quarter of 2004. Sales of
trade show exhibits and related services increased 1.5% in the first quarter of
2005 from the same prior year period as sales to new customers offset budget
reductions experienced for existing customers. Sales of permanent and scenic
displays also increased 1.5% in the first quarter of 2005 from the comparable
2004 period as lower sales of permanent museum displays were offset by higher
sales of store fixtures and point of purchase displays.
Gross Profit
Gross profit, as a percentage of net sales, decreased to 23.4% for the first
quarter of 2005 from 25.5% for the first quarter of 2004. This decrease was
attributable to several factors, including additional facility costs incurred
for the acquired Showtime business with no related trade show exhibit sales and
lower gross profit margins earned on certain first quarter 2005 projects. Higher
facility costs are expected to continue in 2005 and in the foreseeable future,
which should be absorbed by higher volume anticipated from the Showtime
business. The Company will relocate the Showtime Paulsboro, NJ facility to its
Philadelphia, PA facility in the second quarter of 2005. Costs incurred for this
relocation and consolidation are expected to reduce the Company's second quarter
gross profit by approximately $300,000.
Selling Expenses
Selling expenses of $2.1 million, or 11.4% of net sales, for the first quarter
of 2005 decreased from $2.2 million, or 11.9% of net sales, for the
corresponding period of 2004. This decrease was largely the result of cost
reduction initiatives, partially offset by approximately $200,000 for initial
Showtime payroll costs with no corresponding trade show exhibit sales.
10
Administrative and General Expenses
Administrative and general expenses decreased to $1.2 million in the first
quarter of 2005 from $1.5 million in the same prior year period. This decrease
was principally attributable to a bad debt recovery of $575,000 from a
bankruptcy settlement. Specifically, the Company received 4,266 shares of Sears
Holding Corp (previously K-Mart) stock from its bankruptcy claim for accounts
receivable and inventories, which were fully reserved for in 2001. The total
number of shares from the bankruptcy claim is 5,019, with approximately 15%
being subject to a holdback for the potential settlement of any excess
bankruptcy claims. The Company will recognize an additional bad debt recovery
based on the market price of Sears Holding Corp stock if and when the remaining
753 shares are received. The Company also recorded a reserve provision of
$175,000 for a customer dispute in the first quarter 2005, which partially
offset the bad debt recovery.
Other Income (Expense)
In the first quarter of 2005, the Company recognized income of $34,000 from a
former affiliate company.
Interest expense increased to $135,000 in the first quarter of 2005 from $92,000
in the first quarter of 2004 primarily as a result of higher interest rates
under the Company's new borrowing base facility discussed below and additional
indebtedness incurred in connection with the Showtime business acquisition.
Operating Profit
Operating profit increased to $1.1 million for the first quarter of 2005 from $1
million for the same period of 2004 largely as a net result of the bad debt
recovery reported under general and administrative expenses partially offset by
lower gross profit margins.
Provision for Income Taxes
The Company is currently using operating loss carry forwards to offset its
taxable income. As a result, the Company did not record an income tax provision
in the first quarters of 2005 or 2004. The Company currently has a full
valuation allowance against its operating loss carry forwards. This allowance is
reviewed by management for possible recovery on a periodic basis.
Net Income
Net income of $1 million for the first quarter 2005 increased from $0.9 million
for the comparable 2004 period largely as a result of the bad debt recovery,
partially offset by the lower gross profit margins.
Backlog
The Company's backlog of orders was approximately $33 million at March 31, 2005
and $21 million at March 31, 2004. The increase in the backlog is due in large
part to new permanent museum display projects, a substantial portion of which
extends through 2006.
11
LIQUIDITY AND CAPITAL RESOURCES
On February 6, 2004, the Company replaced its revolving credit and security
agreement with a new credit facility provided by a commercial asset-based
lender. The new credit facility originally expired on February 6, 2007 and
provided for maximum borrowing capacity of up to $12 million based on a
percentage of eligible accounts receivable and inventories. This facility bore
interest based on the 30-day dealer placed commercial paper rate plus a
formula-determined spread of 4.5% in 2004, restricts the Company's ability to
pay dividends, and includes certain financial covenants (fixed charge coverage
ratio and maximum capital expenditure amount). Based on the Company's
performance in 2004, the formula-determined spread was reduced to 3.5% effective
March 22, 2005, resulting in a total effective rate of 6.2% at such date.
On March 21, 2005, the Company amended its credit facility to increase the
maximum borrowing capacity from $12 million to $15 million, to increase the
maximum borrowings on certain inventories and to extend the term by one year to
February 6, 2008. The Company also obtained a one-year term loan for $1 million,
bearing interest at the commercial paper rate plus 3.75% and requiring monthly
principal payments of $25,000 starting on April 1, 2005, with the remaining
balance of $700,000 due on March 21, 2006. The Company had borrowings of
approximately $10 million and additional borrowing capacity of approximately
$4.9 million at March 31, 2005. This credit facility amendment and term loan
were obtained to finance the Showtime acquisition.
The Company's working capital increased $3.7 million in the first quarter of
2005 to $8.2 million at March 31, 2005 from $4.5 million at December 31, 2004,
largely due to a $4 million increase in accounts receivable. The increase in
accounts receivable was largely due to higher sales in the first quarter of 2005
as compared with the fourth quarter of 2004 ($18.8 million versus $16 million)
and accounts receivable acquired in connection with the Showtime acquisition.
The Company anticipates capital expenditures of approximately $1 million for
2005.
The Company has lease commitments for certain facilities under non-cancelable
operating leases. Timing of future lease commitments as well as maturities of
long-term debt are as follows:
Payment due by period (in thousands)
Less than 1 More than
Contractual Obligations Total Year-2005 1-3 Years 3-5 Years 5 Years
------------------------------ ---------- ---------- ---------- ---------- ----------
Long-Term Debt Obligations $ 12,211 $ 1,209 $ 11,002 $ -- $ --
Capital Lease Obligations -- -- -- -- --
Operating Lease Obligations 6,986 1,697 4,563 726 --
Purchase Obligations -- -- -- -- --
Other Long-Term Liabilities
Reflected on the Registrant's
Balance Sheet Under GAAP 1,775 -- 1,318 457 --
---------- ---------- ---------- ---------- ----------
Total $ 20,972 $ 2,906 $ 16,883 $ 1,183 --
========== ========== ========== ========== ----------
12
The Company jointly leases a 31,000 square foot facility with International Expo
Services ("IES"), in which the Company holds a minority interest. The annual
lease commitment for this facility is $214,000 through September 22, 2007, which
is not included with the above future operating lease commitments since IES
occupies this entire facility and pays the rent.
The Company leases a facility from a partnership controlled by two shareholders
of the Company. This lease, which expires on May 14, 2019, contains an option
for the Company to terminate after May 14, 2009 subject to the landlord's
ability to re-rent the premises. The minimum annual rent is $771,000 through May
14, 2009 and is reset thereafter (not included in the table above). The Company
is also responsible for taxes, insurance and other operating expenses for this
facility.
OUTLOOK
The Company expects sales of trade show exhibits and related services to
increase in 2005 due to the Showtime acquisition.
Planned profit improvements for the Company's base businesses in 2005 are
expected to be offset by relocation and transition costs anticipated to
integrate the Showtime business with the Company's existing businesses.
Subsequent to this relocation and transition, the Company expects profit
improvements in 2006.
The Company wrote off accounts receivable and inventories in 2001 as a result of
K-Mart, a DMS Store Fixtures customer, filing for bankruptcy. The subsequent
settlement from its bankruptcy claim is for 5,019 shares of Sears Holding Corp
(previously K-Mart) common stock. The company received 4,266 shares of the stock
and recognized a bad debt recovery of $575,000 in the first quarter of 2005.
Based on the current market price of Sears Holding Corp common stock, the
Company has a contingent additional bad debt recovery of approximately $109,000
for the remaining 753 shares from this bankruptcy settlement.
The Company acquired a past-due accounts receivable from mPhase Technologies,
Inc. ("mPhase") in connection with the 2003 acquisition of Exhibit Crafts, Inc.
In March 2005, the Company settled the claim with this customer for
approximately 213,000 shares of mPhase restricted common stock. Based on the
current market value of this common stock, the Company has a contingent gain of
approximately $50,000. Any gain will be recognized when the restrictions on the
Company's right to sell this common stock expire.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Exit or
Disposal Activities" ("FASB Statement FAS 146"). FAS 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, and is expected to have an impact on the timing and recognition of
costs associated with the Showtime acquisition and subsequent integration.
13
In December 2004, FASB issued FASB Statement No. 123 (revised 2004), Share-Based
Payment ("FAS123(R)" or the "Statement"). FAS 123(R) requires that the
compensation cost relating to share-based payment transactions, including grants
of employee stock options, be recognized in financial statements. That cost will
be measured based on the fair value of the equity or liability instruments
issued. FAS 123(R) covers a wide range of share-based compensation arrangements
including stock options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. The effect of the
Statement will require entities to measure the cost of employee services
received in exchange for stock options based on the grant-date fair value of the
award, and to recognize the cost over the period the employee is required to
provide services for the award. FAS 123(R) permits entities to use any
option-pricing model that meets the fair value objective in the Statement. The
Company will be required to apply FAS 123(R) starting January 1, 2006. FAS
123(R) allows two methods for determining the effects of the transition: the
modified prospective transition method and the modified retrospective method of
transition. Under the modified prospective transition method, an entity would
use the fair value based accounting method for all employee awards granted,
modified, or settled after the effective date. As of the effective date,
compensation cost related to the non-vested portion of awards outstanding as of
that date would be based on the grant-date fair value of those awards as
calculated under the original provisions of Statement No. 123; that is, an
entity would not re-measure the grant-date fair value estimate of the unvested
portion of awards granted prior to the effective date of FAS 123(R). An entity
will have the further option to either apply the Statement to only the quarters
in the period of adoption and subsequent periods, or apply the Statement to all
quarters in the fiscal year of adoption. Under the modified retrospective method
of transition, an entity would revise its previously issued financial statements
to recognize employee compensation cost for prior periods presented in
accordance with the original provisions of Statement No. 123. Although it has
not yet completed its study of the transition methods, the Company believes it
will elect the modified prospective transition method. Under this method, the
Company estimates that the adoption of FAS 123(R) would require the Company to
record approximately $15,000 of stock compensation expense in 2005 related to
employee options issued and outstanding at December 31, 2004. Based on expected
vesting of stock options outstanding at March 31, 2005, the Company may record
compensation expense of approximately $270,000 in each of 2006 through 2010. Any
further impact of this Statement on the Company in fiscal 2005 and beyond will
depend upon various factors including future compensation strategy. The pro
forma compensation costs are calculated using the Black-Scholes option pricing
model and may not be indicative of amounts which should be expected in future
years.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. When used in this report, the
words "intends," "believes," "plans," "expects," "anticipates," "probable,"
"could," "should" 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 relocate and consolidate the
Paulsboro, NJ facility of the Showtime business while maintaining the customer
base; continue to identify and enter new markets 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; uncertainties about the impact of 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.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's revolving credit facility bears a floating rate of interest, based
on the 30-day dealer placed commercial paper rate plus 3.50%. The Company had
borrowings of approximately $10 million from its revolving credit facility at
March 31, 2005.
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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company's Audit Committee engaged the Company's registered public accounting
firm to perform the required audit of Showtime's financial statements as
previously reported on Form 8-K. It was subsequently determined that such audit
could not be performed. The inability to file these audited financial statements
may limit the Company's ability to engage in certain types of transactions
requiring Securities and Exchange Commission review, including without
limitation, public offerings and certain private offerings of securities and
business combination transactions requiring shareholder approval.
15
Employment agreements for the Company's executive officers were amended on May
12, 2005 in a manner substantially consistent with the disclosures in the
Company's Form 10-K/A. Copies of such amendments are filed as exhibits to this
Form 10-Q.
ITEM 6. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 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).
2.2 Asset Purchase Agreement made as of January 11, 2005, by
and among Showtime Enterprises, Inc., Showtime Enterprises
West, Inc., and Sparks Exhibits & Environments Corp.
(Incorporated by reference to Exhibit 2.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2004, filed with the Commission).
2.3 Order entered March 4, 2005 in the United States
Bankruptcy Court for the District of New Jersey in
Showtime Enterprises, Inc. and Showtime Enterprises West,
Inc. (Case Nos. 05-11089 and 05-11090). (Incorporated by
reference to Exhibit 2.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2004, filed with
the Commission).
3.1 Articles of Incorporation of the Company (Incorporated by
reference to the Company's Proxy Statement dated September
27, 2001, filed with the Commission).
3.2 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).
4.1 Warrant issued to Argosy Investment Partners II, L.P. to
acquire shares of Marlton common stock at an exercise price
of $0.98 per share (Incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004, filed with the Commission).
4.2 Warrant issued to Argosy Investment Partners II, L.P. to
acquire shares of Marlton common stock at an exercise price
of $1.48 per share. (Incorporated by reference to Exhibit
4.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004, filed with the Commission).
4.3 Warrant issued to Alliance Mezzanine Investors, L.P. to
acquire shares of Marlton common stock at an exercise price
of $0.98 per share. (Incorporated by reference to Exhibit
4.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004, filed with the Commission).
16
4.4 Warrant issued to Alliance Mezzanine Investors, L.P. to
acquire shares of Marlton common stock at an exercise price
of $1.48 per share. (Incorporated by reference to Exhibit
4.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004, filed with the Commission).
10.1 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).*
10.2 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).*
10.3 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).*
10.4 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).
10.5 Stockholders' Agreement dated 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).*
10.6 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).
10.7 Amended Agreement of Employment, dated December 11, 1992,
between the Company and Alan I. Goldberg. (Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report
on Form 10-K for the year ended December 31, 2003, filed
with the Commission).*
10.8 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).*
17
10.9 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).*
10.10 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).*
10.11 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).*
10.12 Option Agreements with Outside Directors (Incorporated by
reference to Company Proxy Statement dated April 30, 1999,
filed with the Commission).*
10.13 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).*
10.14 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).*
10.15 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).*
10.16 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).*
10.17 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).
10.18 Amendment to Lease 2828 Charter Road, Philadelphia, PA
dated February 25, 2000 (Incorporated by reference to
Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, filed with the
Commission).
18
10.19 Lease for Premises located at 8125 Troon Circle, Austell,
GA 30001 (Incorporated by reference to Exhibit 10(s) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2003, filed with the Commission).
10.20 Exhibit removed.
10.21 Loan and Security Agreement dated as of February 6, 2004
with General Electric Capital Corporation. (Incorporated by
reference to Exhibit 10(u)) to the Company's Annual Report
on Form 10-KK for the year ended December 31, 2003, filed
with the Commission).
10.22 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).*
10.23 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).*
10.24 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).*
10.25 Fourth Amendment to Lease Agreement dated September 11,
2003 for premises located at 8125 Troon Circle, Austell, GA
30001 (Incorporated by reference to Exhibit 10(cc) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003, filed with the Commission).
10.26 Exhibit removed.
10.27 Exhibit removed
10.28 Lease Agreement, First and Second Amendments for Premises
located at Building J, 10232 Palm Drive, Santa Fe Springs,
CA 90670 (Incorporated by reference to Exhibit 10(ff) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003, filed with the Commission).
10.29 Lease Agreement, First and Second Amendments for Premises
located at Building G, Heritage Springs Business Park,
Santa Fe Springs (Incorporated by reference to Exhibit
10(gg) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003, filed with the
Commission).
10.30 Option Agreement dated May 13, 2004 with Stephen P. Rolf
(Incorporated by reference to Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, filed with the Commission).*
19
10.31 Fifth Amendment to Lease Agreement dated April 27, 2004 for
the Premises located at 8125 Troon Circle, Austell, GA
(Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2004).
10.32 Lease dated November 17, 1998 by and between Sunset &
Valley Distribution Center Joint Venture (the "Joint
Venture") and Showtime Enterprises West, Inc. ("Showtime
West"), as amended by and together with, the first
amendment thereto dated June 22, 1999, the second amendment
thereto dated March 31, 2000, by and between The
Northwestern Mutual Life Insurance Company
("Northwestern"), Sunset and Valley View Partners
("Partners") and Showtime West the third amendment thereto
dated March 27, 2003 by and between Northwestern, Partners
and Showtime West and the fourth amendment thereto dated
February 29, 2004 by and between Northwestern, Partners and
Showtime West. (Incorporated by reference to the Company's
Annual Report dated December 31, 2004, filed with the
Commission).
10.33 Employment Agreement dated March 15, 2005 by and between
Sparks Exhibits & Environments Corp. and David S. Sudjian*
(Incorporated by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.34 Employment Agreement dated March 15, 2005 by and between
Sparks Exhibits & Environments Corp. and Harold Jensen.*
(Incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.35 Royalty Agreement dated March 15, 2005 by and among Sparks
Exhibits & Environments Corp., Argosy Investment Partners
II, LP and Alliance Mezzanine Investors, L. P.
(Incorporated by reference to Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.36 Stock Option Agreement dated as of March 15, 2005 by
Marlton Technologies, Inc and David S. Sudjian with respect
to the grant of 500,000 shares of Marlton common stock.*
(Incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.37 Stock Option Agreement dated as of March 15, 2005 by
Marlton Technologies, Inc and Harold Jensen with respect to
the grant of 500,000 shares of Marlton common stock.*
((Incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
20
10.38 Letter agreement dated March 15, 2005 by and among Sparks
Exhibits & Environments Corp., David S. Sudjian and Harold
Jensen.* (Incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.39 First Amendment to Loan and Security Agreement with General
Electric Capital Corporation (Incorporated by reference to
Exhibit 10(f) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2004, filed with the
Commission).
10.40 Consent and Second Amendment to Loan and Security
Agreement dated as of March 15, 2005 by and among General
Electric Capital Corporation, Sparks Exhibits &
Environments Corp., Sparks Exhibits & Environments, Ltd.,
Sparks Exhibits & Environments, Inc. and DMS Store
Fixtures LLC. (Incorporated by reference to Exhibit 10.40
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2004, filed with the Commission).
10.41 Term Note issued by Sparks Exhibits & Environments Corp.
in favor of General Electric Capital Corporation.
(Incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.42 Note dated April 23, 2002 in favor of the United States
Business Administration (the "SBA Note"). (Incorporated by
reference to Exhibit 10.42 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2004, filed
with the Commission).
10.43 Promissory Note made by Sparks Exhibits & Environments
Corp. in face amount of $257,144 in favor of Argosy
Investment Partners II, L.P. (Incorporated by reference to
Exhibit 10.43 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2004, filed with the
Commission).
10.44 Promissory Note made by Sparks Exhibits & Environments
Corp. in face amount of $142,856 in favor of Alliance
Mezzanine Investors, L.P. (Incorporated by reference to
Exhibit 10.44 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2004, filed with the
Commission).
10.45 Agreement for Assumption of Indebtedness dated December
14, 2004 by and among the U.S. Small Business
Administration, Showtime Enterprises, Inc. and Sparks
Exhibits & Environments Corp. (Incorporated by reference
to Exhibit 10.45 to the Company's Annual Report on Form
10-K for the year ended December 31, 2004, filed with the
Commission).
21
10.46 Unconditional Guarantee issued by Marlton Technologies,
Inc. in favor of the U.S. Small Business Administration
with respect to the SBA Note. (Incorporated by reference
to Exhibit 10.46 to the Company's Annual Report on Form
10-K for the year ended December 31, 2004, filed with the
Commission).
10.47 Option Agreement with Jeffrey Harrow dated
December 20, 2004 *
10.48 Option Agreement with Scott Tarte, dated December
20, 2004 *
10.49 Agreement dated March 15, 2005 by and between Sparks
Exhibits & Environments Corp., Argosy Investment Partners
II, L.P. and Alliance Mezzanine Investors, L.P.
(Incorporated by reference to Exhibit 10.49 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission).
10.50 Amendment to Employment Agreement with Scott Tarte dated
May 12, 2005
10.51 Amendment to Employment Agreement with Jeffrey Harrow
dated May 12, 2005
10.52 Amendment to Employment Agreement with Robert B. Ginsburg
dated May 12, 2005
10.53 Amendment to Employment Agreement with Alan I. Goldberg
dated May 12, 2005
10.54 Amendment to Employment Agreement with Stephen P. Rolf
dated May 12, 2005
14 Code of Ethics (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
2003, filed with the Commission)
21 Subsidiaries of the Company (Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, filed with the Commission)
31.1 Rule 13a - 14(a) / 15(d) - 14(a) Certification, Chief
Executive Officer
31.2 Rule 13a - 14(a) / 15(d) - 14(a) Certification, Chief
Financial Officer
32 Section 1350 Certifications
22
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.
By: /s/ Robert B. Ginsburg
----------------------
Robert B. Ginsburg
President and Chief Executive Officer
By: /s/ Stephen P. Rolf
-------------------
Stephen P. Rolf, Chief Financial Officer
Dated: May 13, 2005
23