<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
-----------------------------------------
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 0-13817
MARGATE INDUSTRIES, INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-8963939
- ------------------------ ----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
129 N. Main Street Yale, Michigan 48097
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (810) 387-4300
--------------
Indicate by check mark whether the Registrant 91) 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
--- ---
As of September 30, 1995, the Company had 4,653,637 shares of its $.005 Par
Value Common Stock outstanding.
<PAGE>
MARGATE INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I: FINANCIAL STATEMENTS PAGE(S)
-------
Item 1. Financial Information
Consolidated Balance Sheets. . . . . . . . . . . .3-4
Consolidated Income Statement. . . . . . . . . . . .5
Consolidated Statements of Changes in
Stockholders' Equity . . . . . . . . . . . . . . .6
Consolidated Statements of Cash Flows. . . . . . . .7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . 8-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . 12
PART II: OTHER INFORMATION. . . . . . . . . . . . . . . . . 13
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-----------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 168,133 $ 573,957
Marketable securities 278,511 465,867
Accounts receivable:
Trade 427,818 308,637
Related party 1,355,816 651,957
Notes receivable - related party 17,800 17,800
Inventories - parts and supplies 101,272 104,572
Prepaid expenses and other 118,568 288,276
Prepaid Federal income tax -0- 279,758
Deferred tax asset 34,000 34,000
---------- ----------
Total Current Assets 2,501,918 2,724,824
INVESTMENT IN INVESTEE COMPANIES 2,150,712 2,311,712
NOTES RECEIVABLE - RELATED PARTIES 95,050 53,400
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated
depreciation and amortization
of $652,594 and $499,594
at September 30, 1995 and
December 31, 1994, respectively 2,482,679 2,240,281
---------- ----------
Total Assets $7,230,359 $7,330,217
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ -----------
(Unaudited)
<S> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Accounts payable $ 214,070 $ 325,585
Accrued salaries and wages 84,192 53,354
Accrued income tax 75,242 -0-
Dividend payable -0- 69,828
Accrued workers' compensation 1,564 49,000
Accrued single business tax 1,000 7,000
Notes payable 24,183 23,771
Other accrued liabilities 30,266 7,604
---------- ----------
Total Current Liabilities 430,517 536,142
DEFERRED TAX LIABILITY 88,000 88,000
OTHER POSTRETIREMENT BENEFITS 288,024 288,024
NOTES PAYABLE 8,275 26,433
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares authorized,
4,653,637 and 4,855,637 shares issued
and outstanding at September 30, 1995
and December 31, 1994, respectively 23,268 23,278
Paid in for common stock in excess
of par value 7,489,281 7,517,749
Accumulated deficit (1,097,006) (1,149,409)
---------- ----------
Total Stockholders' Equity 6,415,543 6,391,618
Total Liabilities and
Stockholders' Equity $7,230,359 $7,330,217
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES (including related
party sales and commissions of
$5,133,814 and $4,190,284 during
the nine months ended September
30, 1995 and 1994 respectively $2,232,815 $2,132,425 $7,009,036 $6,065,185
COST OF SALES 1,777,947 1,700,423 5,856,398 4,687,820
---------- ---------- ---------- ----------
Gross profit 454,868 432,002 1,152,638 1,377,365
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 241,680 213,814 622,117 559,171
RELATED PARTY SERVICES AND
SALES COMMISSIONS 6,174 25,362 14,930 39,935
---------- ---------- ---------- ----------
Income from operations 207,014 192,826 515,591 778,259
INTEREST AND DIVIDEND INCOME 6,844 24,531 28,771 52,316
INTEREST EXPENSE 375 1,056 1,211 3,063
---------- ---------- ---------- ----------
Net income before income taxes and
equity in income of
investee companies 213,483 216,301 543,151 827,512
PROVISION FOR FEDERAL INCOME TAXES 75,007 76,000 190,000 290,000
---------- ---------- ---------- ----------
Income before equity in income
of investee companies 138,476 140,301 353,151 537,512
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES (366,000) (119,000) (161,000) 649,000
---------- ---------- ---------- ----------
Net income (loss) $ (227,524) $ 21,301 $ 192,151 $1,186,512
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS (LOSS) PER COMMON SHARE:
Primary $ (0.049) $ 0.004 $ 0.041 $ 0.255
Fully diluted $ (0.048) $ 0.004 $ 0.040 $ 0.240
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER IN EXCESS OF ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT PAR VALUE DEFICIT EQUITY
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1995 4,655,637 $ 23,278 $7,517,749 $(1,149,409) $6,391,618
Stock issued in connection
with the exercising of
options 20,000 100 9,900 -- 10,000
Repurchase of common stock (22,000) (110) (38,368) -- (38,478)
Net income -- -- -- 192,151 192,151
Cash dividends declared,
1st qtr - $.0150 per share -- -- -- (69,889) (69,889)
2nd qtr - $.0150 per share -- -- -- (69,859) (69,859)
---------- ---------- ---------- ----------- ----------
Balance - September 30, 1995 4,653,637 $ 23,268 $7,489,281 $(1,097,006) $6,415,543
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER IN EXCESS OF ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT PAR VALUE DEFICIT EQUITY
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 4,632,280 $ 23,161 $7,359,039 $(2,314,337) $5,067,863
Stock issued in connection
with the exercising of
options 33,333 167 16,498 -- 16,665
Net income -- -- -- 1,186,512 1,186,512
Cash dividends declared,
1st qtr - $.0125 per share -- -- -- (58,120) (58,120)
2nd qtr - $.0125 per share -- -- -- (58,267) (58,267)
3rd qtr - $.0125 per share -- -- -- (58,320) (58,320)
---------- ---------- ---------- ----------- ----------
Balance - September 30, 1994 4,665,613 $ 23,328 $7,375,537 $(1,302,532) $6,096,333
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
See Notes to Consolidate Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 58,018 $ 90,085
INVESTING ACTIVITIES:
Purchase of marketable securities -- (129,432)
Proceeds from sale of securities 187,356 82,891
Purchase of plant and equipment (395,398) (563,036)
---------- ----------
Net cash used in investing activities (208,042) (609,577)
FINANCING ACTIVITIES:
Repurchase of common stock (38,478) --
Proceeds from issuance of
common stock 10,000 16,665
Proceeds (Principal payments) under
long-term obligations (17,746) 52,054
Payment of dividends (209,576) (174,707)
---------- ----------
Net cash (used in)
financing activities (255,800) (105,988)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (405,824) (625,480)
CASH AND CASH EQUIVALENTS - Beginning 573,957 946,968
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 168,133 $ 321,488
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
-7-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated Balance Sheet as of September 30, 1995 and the
related Consolidated Statements of Income, Changes in Stockholders'
Equity, and Cash Flows for the nine months ended September 30, 1995
and 1994 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have
been included. The results of operations for the nine months ended
September 30, 1995 and 1994 are not necessarily indicative of the
results to be expected for the whole year.
The notes to the financial statements are presented as permitted by
Form 10-Q and do not contain certain information included in the
Company's annual financial statements.
NOTE 2 - INVESTMENT IN UNCONSOLIDATED COMPANY
The Company accounts for its 45% investment in New Haven Foundry
("NHF") and 40% of Complete Engineering Design Services ("CEDS") using
the equity method. Summarized financial information of NHF and CEDS
are as follows:
<TABLE>
<CAPTION>
NHF
---
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Assets
Current assets $13,630,545 $12,613,943
Property, plant and
equipment, net of
accumulated depreciation 11,748,872 8,886,886
Other assets 1,201,933 1,201,933
----------- -----------
Total Assets $26,581,350 $22,702,762
----------- -----------
----------- -----------
Liabilities and Stockholders'
Equity
Current liabilities $15,201,403 $12,745,715
Non-current liabilities 6,488,382 4,819,482
Stockholders' equity 4,891,565 5,137,565
----------- -----------
Total Liabilities and
Stockholders' Equity $26,581,350 $22,702,762
----------- -----------
----------- -----------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
CEDS
----
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Assets
Current assets $ 182,886 $ --
Property, plant and
equipment, net of
accumulated depreciation -- --
Other assets -- --
----------- -----------
Total Assets $ 182,886 $ 0
----------- -----------
----------- -----------
Liabilities and Stockholders'
Equity
Current liabilities $ 305,274 $ --
Non-current liabilities -- --
Stockholders' equity (122,388) --
----------- -----------
Total Liabilities and
Stockholders' Equity $ 182,886 $ 0
----------- -----------
----------- -----------
<CAPTION>
NHF
---
Nine Months Ended
September 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $44,842,000 $40,787,973
Operating expenses 44,998,000 38,501,481
----------- -----------
Income (loss)
before income taxes (156,000) 2,286,492
Income taxes 90,000 845,000
----------- -----------
Net income (loss) $ (246,000) $ 1,441,492
----------- -----------
----------- -----------
Net income (loss) per
share of common stock $ 3.73 $ 21.85
----------- -----------
----------- -----------
<CAPTION>
CEDS
----
Nine Months Ended
September 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $ 434,259 $ --
Operating expenses 558,315 --
----------- -----------
Income (loss)
before income taxes (124,056) 0
Income taxes -- --
----------- -----------
Net income (loss) $ (124,056) $ 0
----------- -----------
----------- -----------
Net income (loss) per
share of common stock $ (74.46) $ --
----------- -----------
----------- -----------
</TABLE>
-9-
<PAGE>
NOTE 3 - DIVIDENDS
The Company paid dividends for the first two quarters of 1995 but
suspended dividends thereafter.
NOTE 4 - STOCK OPTIONS
On February 10, 1995 4,000 stock options and on April 13, 1995, 4,000
and 18,000 stock options, respectively, were exercised, resulting in
the issuance of 20,000 shares of common stock.
NOTE 5 - STATEMENTS OF CASH FLOWS
A reconciliation of net income to net cash flows provided by operating
activities is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(unaudited)
1995 1994
---------- ----------
<S> <C> <C>
Net income $ 192,151 $1,186,512
Adjustments to reconcile
net income to net cash
from operating activities:
Equity in (income) loss
of investee company 161,000 (649,000)
Depreciation and amortization 153,000 126,000
Changes in assets and
liabilities:
Accounts receivable
- Trade (119,181) (30,105)
- Related parties (703,859) (259,841)
Notes receivable
- Related parties (41,650) 208,900
Inventories 3,300 (3,850)
Prepaid expenses 169,708 (123,351)
Prepaid Federal tax 279,758 --
Accounts payable (111,515) (109,122)
Accrued workers'
compensation (47,436) (15,873)
Accrued single
business tax (6,000) 5,000
Accrued salaries
and wages 30,838 6,660
Accrued income tax 75,242 (180,000)
Other liabilities 22,662 (71,845)
---------- ----------
Net cash provided by
operating activities $ 58,018 $ 90,085
---------- ----------
---------- ----------
</TABLE>
NOTE 6 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,801,593 and 4,952,011 fully diluted for the six month
periods ended September 30, 1995 and September 30, 1994, respectively.
-10-
<PAGE>
NOTE 7 - CONTINGENT LIABILITY
NHF has received authorization from the Internal Revenue Service to
defer funding requirements for its pension plans for the years 1981
through 1984 and 1986. The deferred obligations are being funded over
a 15 year period. The Pension Benefit Guaranty Corporation had
required that the Company guarantee the deferred obligations and has
second and third liens on all Company assets as collateral for the
funding waivers. Accordingly, the Company is contingently liable for
the following contributions, including interest, to be made by NHF in
future years against the deferred portion of the pension obligation.
<TABLE>
<CAPTION>
Years Annual Contribution
----- -------------------
<S> <C>
1995 $312,204
1996 252,195
1997 191,878
1998 126,209
1999 and 2000 60,422
</TABLE>
NOTE 8 - ENVIRONMENTAL MATTERS
The Company's 45% owned equity investee has been in discussions with
the Michigan Department of Natural Resources and the United States
Environmental Protection Agency regarding used foundry sand on its
property. The ultimate outcome of this matter is uncertain at this
time and management is unable to predict whether the resolution of
this matter will have a materially adverse effect on the Company's
financial position and future results of operations. A more detailed
discussion of this matter is included in the Company's Annual Report
for this fiscal year ended December 31, 1994.
NOTE 9 - OTHER MATTERS
In May 1995 and July 1995, the Company repurchased 18,000 and 4,000
shares respectively, of its common stock in the open market. The
shares have been returned to treasury.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition and
results of operation during the periods included in the accompanying
consolidated financial statements for the nine (9) months ended September 30,
1995.
LIQUIDITY & CAPITAL RESOURCES
The Company has approximately $20,000 in money market accounts as of
September 30, 1995 which are included in the cash and cash equivalents amount
shown on the Balance Sheet. The Company has accrued Federal Income Taxes of
$75,242 as of September 30, 1995.
The Company's current market value of its investment in preferred stocks
was approximately $321,900 at September 30, 1995 as compared to its cost of
$313,925. Current balance sheet amount is $278,511. This results in unrealized
income of approximately $48,389 as of September 30, 1995.
The Company's two subsidiaries, Michigan Casting Corporation and Yale
Industries have a consolidated line of credit of $500,000 with monthly interest
payments at .5% over the prime rate with the National Bank of Detroit. The line
is collateralized by substantially all assets. No borrowings as of September
30, 1995.
RESULTS OF OPERATIONS
The Company is reporting year-to-date pre-tax profit on operations of
$543,151 for the nine months ended September 30, 1995 as compared to $827,512
for the same period in 1994. Net sales, year-to-date, as of September 30, 1995
were $7,009,036; which represents an increase of 15.6% from 1994 sales through
September 30, 1994 of $6,065,185. The Company has recognized equity in the loss
of its subsidiaries, NHF and CEDS, of $161,000 for the nine months ended
September 30, 1995 compared to $649,000 for the same period in 1994.
The cost of sales for the nine months ended September 30, 1995, as a
percentage of sales was 83.6% as compared to 77.3% for the same period in 1994.
The increase is due to higher labor costs in developing new business, higher
labor rates, increased labor turnover and increased maintenance costs.
Management anticipates results of operations for the next three months will
remain substantially the same as for the nine months ended September 30, 1995.
Management expects substantial improvement in the equity interest in investee
earnings for the last three months.
-12-
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
In October 1993, the Company filed reports on Form 8-K under Item 4
indicating a change in the Registrant's independent auditors.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MARGATE INDUSTRIES, INC.
By: /s/ William H. Hopton
-------------------------------------
William H. Hopton
Date: October 30, 1995
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 168
<SECURITIES> 279
<RECEIVABLES> 428
<ALLOWANCES> 0
<INVENTORY> 101
<CURRENT-ASSETS> 2502
<PP&E> 3136
<DEPRECIATION> 653
<TOTAL-ASSETS> 7230
<CURRENT-LIABILITIES> 431
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 6393
<TOTAL-LIABILITY-AND-EQUITY> 7230
<SALES> 2233
<TOTAL-REVENUES> 1873
<CGS> 1778
<TOTAL-COSTS> 1784
<OTHER-EXPENSES> 242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 213
<INCOME-TAX> 75
<INCOME-CONTINUING> (153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (228)
<EPS-PRIMARY> (.049)
<EPS-DILUTED> (.048)
</TABLE>
