<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 March 31, 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 March 31, 1995, the Company had 4,659,614 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>
March 31 December 31
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 310,961 $ 573,957
Marketable securities 421,702 465,867
Accounts receivable:
Trade 392,830 308,637
Related party 940,426 651,957
Notes receivable - related party 17,800 17,800
Inventories - parts and supplies 107,555 104,572
Prepaid expenses and other 76,077 288,276
Prepaid Federal income tax 225,758 279,758
Deferred tax asset 34,000 34,000
---------- ----------
Total Current Assets 2,527,109 2,724,824
Investment in Investee Companies 2,553,112 2,311,712
Notes receivable - related parties 53,400 53,400
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated
depreciation and amortization
of $550,594 and $499,594
at March 31, 1995 and December
31, 1994, respectively 2,459,867 2,240,281
---------- ----------
Total Assets $7,593,488 $7,330,217
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
---------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 219,663 $ 325,585
Accrued salaries and wages 115,295 53,354
Dividend payable 70,000 69,828
Accrued workers' compensation (351) 49,000
Accrued single business tax 14,000 7,000
Notes payable 23,771 23,771
Other accrued liabilities 90,980 7,604
---------- ----------
Total Current Liabilities 533,358 536,142
DEFERRED TAX LIABILITY 88,000 88,000
OTHER POSTRETIREMENT BENEFITS 288,024 288,024
NOTES PAYABLE 20,572 26,433
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares authorized,
4,659,614 and 4,655,614 shares issued
and outstanding at March 31, 1995 and
December 31, 1994, respectively 23,298 23,278
Paid in for common stock in excess
of par value 7,519,729 7,517,749
Accumulated deficit (879,493) (1,149,409)
---------- -----------
Total Stockholders' Equity 6,663,534 6,391,618
Total Liabilities and
Stockholders' Equity $7,593,488 $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
March 31,
1995 1994
---------- ------------
<S> <C> <C>
NET SALES (including related
party sales and commissions of
$1,867,099, and $1,474,599 during
the three months ended March 31,
1995 and 1994 respectively) $2,419,194 $2,073,384
COST OF SALES 2,076,065 1,478,680
---------- ----------
Gross profit 343,129 594,704
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 196,309 189,604
RELATED PARTY SERVICES AND
SALES COMMISSIONS 6,431 13,047
---------- ----------
Income from operations 140,389 392,053
INTEREST AND DIVIDEND INCOME 12,572 12,000
INTEREST EXPENSE 445 1,403
---------- ----------
Net income before income taxes and
equity in income of
investee companies 152,516 402,650
PROVISION FOR FEDERAL INCOME TAXES 54,000 140,000
---------- ----------
Income before equity in income
of investee companies 98,516 262,650
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES 241,400 423,000
---------- ----------
Net income $ 339,916 $ 685,650
---------- ----------
---------- ----------
EARNINGS PER COMMON SHARE:
Primary $ 0.073 $ 0.147
Fully diluted $ 0.069 $ 0.138
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 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 4,655,614 $ 23,278 $7,517,749 $(1,149,409) $6,391,618
Stock issued in connection
with the exercising of
options 4,000 20 1,980 -- 2,000
Net income -- -- -- 339,916 339,916
Cash dividends declared,
$.0150 per share -- -- -- (70,000) (70,000)
--------- --------- ---------- ------------ -----------
Balance - March 31, 1995 4,659,614 $ 23,298 $7,519,729 $ (879,493) $6,663,534
--------- ---------- ---------- ------------ ----------
--------- ---------- ---------- ------------ ----------
<CAPTION>
THREE MONTHS ENDED MARCH 31, 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 17,333 87 8,580 -- 8,667
Net income -- -- -- 685,650 685,650
Cash dividends declared,
$.0125 per share -- -- -- (58,120) (58,120)
---------- ---------- ----------- ------------ -----------
Balance - March 31, 1994 4,649,613 $ 23,248 $7,367,619 $(1,686,807) $5,704,060
---------- ---------- ----------- ------------ -----------
---------- ---------- ----------- ------------ -----------
</TABLE>
See Notes to Consolidate Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 37,114 $ (109,298)
INVESTING ACTIVITIES:
Purchase of marketable securities -- (104,322)
Proceeds from sale of securities 44,165 82,891
Purchase of plant and equipment (270,586) (234,372)
----------- -----------
Net cash used in investing activities (226,421) (255,803)
FINANCING ACTIVITIES:
Proceeds from issuance of
common stock 2,000 8,667
Principal payments under long-term
obligations (5,861) --
Payment of dividends (69,828) (57,902)
----------- ----------
Net cash provided by (used in)
financing activities (73,689) (49,235)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (262,996) (414,336)
CASH AND CASH EQUIVALENTS - Beginning 573,957 946,968
---------- -----------
CASH AND CASH EQUIVALENTS - Ending $ 310,961 $ 532,632
---------- ----------
---------- ----------
</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 March 31, 1995 and the related
Consolidated Statements of Operations, Changes in Stockholders'
Equity, and Cash Flows for the three months ended March 31, 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 three months ended
March 31, 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 Development Services ("CEDS")
using the equity method. Summarized financial information of NHF and
CEDS are as follows:
<TABLE>
<CAPTION>
NHF
---
March 31, December 31,
1995 1994
---------- -----------
<S> <C> <C>
Assets
Current assets $10,704,984 $12,613,943
Property, plant and
equipment, net of
accumulated depreciation 9,445,748 8,886,886
Other assets 1,201,933 1,201,933
---------- -----------
Total Assets $21,352,665 $22,702,762
----------- -----------
----------- -----------
Liabilities and Stockholders'
Equity
Current liabilities $ 9,931,957 $12,745,715
Non-current liabilities 5,737,143 4,819,482
Stockholders' equity 5,683,565 5,137,565
----------- -----------
Total Liabilities and
Stockholders' Equity $21,352,665 $22,702,762
----------- -----------
----------- -----------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
CEDS
----
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
Assets
Current assets $ 175,949 $ --
Property, plant and
equipment, net of
accumulated depreciation -- --
Other assets -- --
----------- ----------
Total Assets $ 175,949 $ 0
----------- ----------
----------- ----------
Liabilities and Stockholders'
Equity
Current liabilities $ 185,082 $ --
Non-current liabilities -- --
Stockholders' equity (9,133) --
----------- -----------
Total Liabilities and
Stockholders' Equity $ 175,949 $ 0
----------- -----------
----------- -----------
<CAPTION>
NHF
---
Three Months Ended
March 31,
1995 1994
---------- -----------
<S> <C> <C>
Net Sales $16,629,000 $13,416,538
Operating expenses 15,708,000 11,916,168
----------- -----------
Income (loss)
before income taxes 921,000 1,500,370
Income taxes 375,000 560,000
----------- -----------
Net income (loss) $ 546,000 $ 940,370
----------- -----------
----------- -----------
Net income (loss) per
share of common stock $ 8.27 $ 14.26
----------- -----------
----------- -----------
<CAPTION>
CEDS
----
Three Months Ended
March 31,
1995 1994
---------- ----------
<S> <C> <C>
Net Sales $ 96,500 $ --
Operating expenses 107,300 --
Income (loss) ----------- ----------
before income taxes (10,800) 0
Income taxes -- --
------------ ----------
Net income (loss) $ (10,800) $ 0
------------ ----------
------------ ----------
Net income (loss) per
share of common stock $ (5.47) $ --
------------ ----------
------------ ----------
</TABLE>
-9-
<PAGE>
NOTE 3 - DIVIDENDS
The Company declared a quarterly cash dividend of $0.0150 per share of
its common stock. The dividend is payable May 15, 1995 to Shareholders
of Record at the close of business on April 14, 1995.
NOTE 4 - STOCK OPTIONS
On February 10, 1995, stock options were exercised resulting in the
issuance of 4,000 shares of common stock.
NOTE 5 - STATEMENTS OF CASH FLOWS
A reconciliation of net income to net cash flows provided by (used in)
operating activities is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited)
1995 1994
---------- ----------
<S> <C> <C>
Net income $ 339,916 $ 685,650
Adjustments to reconcile
net income to net cash
from operating activities:
Equity in (income) loss
of investee company (241,400) (423,000)
Depreciation and amortization 51,000 42,000
Changes in assets and
liabilities:
Accounts receivable
- Trade (84,193) 178,275
- Related parties (288,469) (328,232)
Notes receivable
- Related parties -- 200,000
Inventories (2,983) 2,172
Prepaid expenses 212,199 (31,128)
Prepaid Federal tax 54,000 --
Accounts payable (105,922) (93,494)
Accrued workers'
compensation (49,351) 22,300
Accrued single
business tax 7,000 --
Accrued salaries
and wages 61,941 (3,874)
Accrued income tax -- (320,000)
Other liabilities 83,376 (39,967)
--------- ----------
Net cash provided by
(used in) operating
activities $ 37,114 $ (109,298)
----------- ------------
----------- ------------
</TABLE>
NOTE 6 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,915,614 and 4,965,613 fully diluted for the three
month periods ended March 31, 1995 and March 31, 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>
-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 three (3) months ended March 31, 1995.
LIQUIDITY & CAPITAL RESOURCES
The Company has approximately $100,000 in money market accounts as of March
31, 1995 which are included in the cash and cash equivalents amount shown on the
Balance Sheet. The Company has prepaid Federal Income Taxes of $225,758 as of
March 31, 1995.
The Company's current market value of its investment in preferred stocks was
approximately $424,000 at March 31, 1995 as compared to its cost of $421,702.
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 March 31,
1995.
RESULTS OF OPERATIONS
The Company is reporting year-to-date pre-tax profit on operations of
$152,516 as compared to a $402,650 for the same period in 1994. Net sales,
year-to-date, as of March 31, 1995 were approximately $2,419,194; which
represents an increase of 16.7% from 1994 sales through March 31, 1994 of
$2,073,384. The Company has recognized equity in the income of its
subsidiaries, NHF and CEDS, of $241,400 for the three months ended March 31,
1995 compared to $423,000 for the same period in 1994.
The cost of sales for the three months ended March 31, 1995, as a percentage
of sales was 85.8% as compared to 71.3% 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.
Because of costs reductions put into effect April 1, 1995, management
anticipates a reduction in cost of sales in the second quarter of 1995.
-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
An Annual Meeting of Shareholders is scheduled for June 22, 1995 for
the election of Directors and the approval and ratification of an
employee incentive stock option plan.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
-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: May 10, 1995
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 311
<SECURITIES> 422
<RECEIVABLES> 393
<ALLOWANCES> 0
<INVENTORY> 108
<CURRENT-ASSETS> 2527
<PP&E> 2460
<DEPRECIATION> 551
<TOTAL-ASSETS> 7593
<CURRENT-LIABILITIES> 533
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 6664
<TOTAL-LIABILITY-AND-EQUITY> 7593
<SALES> 2419
<TOTAL-REVENUES> 2673
<CGS> 2076
<TOTAL-COSTS> 2279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 152
<INCOME-TAX> 54
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340
<EPS-PRIMARY> .073
<EPS-DILUTED> .069
</TABLE>
