<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 June 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
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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 (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
----- -----
As of June 30, 1995, the Company had 4,657,637 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 Statements . . . . . . . . . . .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
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-----------------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 353,023 $ 573,957
Marketable securities 319,984 465,867
Accounts receivable:
Trade 557,265 308,637
Related party 969,292 651,957
Notes receivable - related party 17,800 17,800
Inventories - parts and supplies 105,704 104,572
Prepaid expenses and other 171,675 288,276
Prepaid Federal income tax -0- 279,758
Deferred tax asset 34,000 34,000
---------- ----------
Total Current Assets 2,528,743 2,724,824
INVESTMENT IN INVESTEE COMPANIES 2,516,712 2,311,712
NOTES RECEIVABLE - RELATED PARTIES 48,950 53,400
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated
depreciation and amortization
of $601,594 and $499,594
at June 30, 1995 and December
31, 1994, respectively 2,446,587 2,240,281
---------- ----------
Total Assets $7,540,992 $7,330,217
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
-----------------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES
Accounts payable $ 246,416 $ 325,585
Accrued salaries and wages 98,959 53,354
Accrued income tax 15,235 -0-
Dividend payable 70,000 69,828
Accrued workers' compensation 8,196 49,000
Accrued single business tax (500) 7,000
Notes payable 24,183 23,771
Other accrued liabilities 38,523 7,604
---------- ----------
Total Current Liabilities 501,012 536,142
DEFERRED TAX LIABILITY 88,000 88,000
OTHER POSTRETIREMENT BENEFITS 288,024 288,024
NOTES PAYABLE 14,245 26,433
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares authorized,
4,657,637 and 4,655,614 shares issued
and outstanding at June 30, 1995 and
December 31, 1994, respectively 23,288 23,278
Paid in for common stock in excess
of par value 7,496,046 7,517,749
Accumulated deficit (869,623) (1,149,409)
---------- ----------
Total Stockholders' Equity 6,649,711 6,391,618
---------- ----------
Total Liabilities and
Stockholders' Equity $7,540,992 $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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C>
NET SALES (including related
party sales and commissions of
$3,559,605 and $2,901,819 during
the six months ended June 30,
1995 and 1994 respectively) $2,357,027 $1,859,376 $4,776,221 $3,932,760
COST OF SALES 2,002,386 1,508,719 4,078,451 2,987,397
---------- ---------- ---------- ----------
Gross profit 354,641 350,659 697,770 945,363
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 184,128 155,753 380,437 345,357
RELATED PARTY SERVICES AND
SALES COMMISSIONS 2,325 1,526 8,756 14,573
---------- ---------- ---------- ----------
Income from operations 168,188 193,380 308,577 585,433
INTEREST AND DIVIDEND INCOME 9,355 15,785 21,927 27,785
INTEREST EXPENSE 391 604 836 2,007
---------- ---------- ---------- ----------
Net income before income taxes and
equity in income of
investee companies 177,152 208,561 329,668 611,211
PROVISION FOR FEDERAL INCOME TAXES 60,993 74,000 114,993 214,000
---------- ---------- ---------- ----------
Income before equity in income
of investee companies 116,159 134,661 214,675 397,211
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES (36,400) 345,000 205,000 768,000
---------- ---------- ---------- ----------
Net income $ 79,759 $ 479,561 $ 419,675 $1,165,211
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE:
Primary $ 0.017 $ 0.103 $ 0.090 $ 0.250
Fully diluted $ 0.017 $ 0.097 $ 0.087 $ 0.235
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 (18,000) (90) (31,603) -- (31,693)
Net income -- -- -- 419,675 419,675
Cash dividends declared,
1st qtr - $.0150 per share -- -- -- (69,889) (69,889)
2nd qtr - $.0150 per share -- -- -- (70,000) (70,000)
--------- ---------- ---------- ------------ ----------
Balance - June 30, 1995 4,657,637 $ 23,288 $7,496,046 $ (869,623) $6,649,711
--------- ---------- ---------- ------------ ----------
--------- ---------- ---------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 -- -- -- 1,165,211 1,165,211
Cash dividends declared,
1st qtr - $.0125 per share -- -- -- (58,120) (58,120)
2nd qtr - $.0125 per share -- -- -- (58,000) (58,000)
--------- ---------- ---------- ------------ -----------
Balance - June 30, 1994 4,665,613 $ 23,328 $7,375,537 $(1,265,246) $6,133,619
--------- ---------- ---------- ------------ -----------
--------- ---------- ---------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 114,675 $ 32,840
INVESTING ACTIVITIES:
Purchase of marketable securities -- (116,932)
Proceeds from sale of securities 145,883 82,891
Purchase of plant and equipment (308,306) (423,321)
---------- ----------
Net cash used in investing activities (162,423) (457,362)
FINANCING ACTIVITIES:
Repurchase of common stock (31,693) --
Proceeds from issuance of
common stock 10,000 16,665
Principal payments under long-term
obligations (11,776) (6,106)
Payment of dividends (139,717) (116,022)
---------- ----------
Net cash used in
financing activities (173,186) (105,463)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (220,934) (529,985)
CASH AND CASH EQUIVALENTS - Beginning 573,957 946,968
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 353,023 $ 416,983
---------- ----------
---------- ----------
</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 Sheets as of June 30 1995 and the related
Consolidated Statements of Income, Changes in Stockholders' Equity, and
Cash Flows for the six months ended June 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 six months ended June 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
---
June 30, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Assets
Current assets $14,454,769 $12,613,943
Property, plant and
equipment, net of
accumulated depreciation 10,536,137 8,886,886
Other assets 1,201,933 1,201,933
----------- -----------
Total Assets $26,192,839 $22,702,762
----------- -----------
----------- -----------
Liabilities and Stockholders'
Equity
Current liabilities $15,014,805 $12,745,715
Non-current liabilities 5,319,980 4,819,482
Stockholders' equity 5,858,054 5,137,565
----------- -----------
Total Liabilities and
Stockholders' Equity $26,192,839 $22,702,762
----------- -----------
----------- -----------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
CEDS
----
June 30, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Assets
Current assets $ 172,200 $ --
Property, plant and
equipment, net of
accumulated depreciation -- --
Other assets -- --
----------- -----------
Total Assets $ 172,200 $ 0
----------- -----------
----------- -----------
Liabilities and Stockholders'
Equity
Current liabilities $ 243,332 $ --
Non-current liabilities -- --
Stockholders' equity (71,132) --
----------- -----------
Total Liabilities and
Stockholders' Equity $ 172,200 $ 0
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
NHF
---
Six Months Ended
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $32,324,155 $27,696,970
Operating expenses 31,456,666 25,265,303
----------- -----------
Income before
income taxes 867,489 2,431,667
Income taxes 347,000 725,000
----------- -----------
Net income $ 520,489 $ 1,706,667
----------- -----------
----------- -----------
Net income per
share of common stock $ 7.89 $ 25.87
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
CEDS
----
Six Months Ended
June 30,
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $ 273,866 $ --
Operating expenses 346,665 --
----------- -----------
Income (loss)
before income taxes (72,799) 0
Income taxes -- --
----------- -----------
Net income (loss) $ (72,799) $ 0
----------- -----------
----------- -----------
Net income (loss) per
share of common stock $ (43.70) $ --
----------- -----------
----------- -----------
</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 August 15, 1995 to
Shareholders of Record at the close of business on July 14, 1995.
NOTE 4 - STOCK OPTIONS
On February 10, 1995, and April 13, 1995, 4,000 and 16,000 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 (used in)
operating activities is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited)
1995 1994
---------- -----------
<S> <C> <C>
Net income $ 419,675 $1,165,211
Adjustments to reconcile
net income to net cash
from operating activities:
Equity in income
of investee company (205,000) (768,000)
Depreciation and amortization 102,000 84,000
Changes in assets and
liabilities:
Accounts receivable
- Trade (248,628) 142,391
- Related parties (317,335) (286,275)
Notes receivable
- Related parties 4,450 204,450
Inventories (1,132) (19,066)
Prepaid expenses 116,601 (49,961)
Prepaid Federal tax 279,758 --
Accounts payable (79,169) (106,639)
Accrued workers'
compensation (40,804) (51,763)
Accrued single
business tax (7,500) 4,000
Accrued salaries
and wages 45,605 (404)
Accrued income tax 15,235 (246,000)
Other liabilities 30,919 (39,104)
---------- -----------
Net cash provided by
operating activities $ 114,675 $ 32,840
---------- -----------
---------- -----------
</TABLE>
NOTE 6 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,843,338 and 4,965,416 fully diluted for the six month
periods ended June 30, 1995 and June 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 the
fiscal year ended December 31, 1994.
NOTE 9 - OTHER MATTERS
In May 1995 the Company repurchased 18,000 shares 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 operations during the period included in the accompanying
consolidated financial statements for the six (6) months ended June 30, 1995.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
The Company has approximately $125,000 in money market accounts as of June
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 $15,235 as of
June 30, 1995.
The Company's current market value of its investment in preferred stocks
was approximately $338,000 at June 30, 1995 as compared to its cost of $355,398.
Current balance sheet amount is $319,984. This results in unrealized income of
approximately $18,016 as of June 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 of the Company. There were no
borrowings as of June 30, 1995.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations of
$329,668 for the six months ended June 30, 1995 as compared to $611,211 for the
same period in 1994. Net sales, year-to-date, as of June 30, 1995 were
$4,776,211; which represents an increase of 21.4% from 1994 sales through June
30, 1994 of $3,932,760. The Company has recognized equity in the income of its
subsidiaries, NHF and CEDS, of $205,000 for the six months ended June 30, 1995
compared to $768,000 for the same period in 1994.
The cost of sales for the six months ended June 30, 1995, as a percentage
of sales was 85.4% as compared to 76.0% 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 six months
will remain substantially the same as for the six months ended June 30, 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
-----------------------------------------------------
None
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: August 11, 1995
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 353
<SECURITIES> 320
<RECEIVABLES> 557
<ALLOWANCES> 0
<INVENTORY> 106
<CURRENT-ASSETS> 2529
<PP&E> 2447
<DEPRECIATION> 602
<TOTAL-ASSETS> 7541
<CURRENT-LIABILITIES> 501
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 6450
<TOTAL-LIABILITY-AND-EQUITY> 7541
<SALES> 4776
<TOTAL-REVENUES> 5003
<CGS> 4078
<TOTAL-COSTS> 4467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 535
<INCOME-TAX> 115
<INCOME-CONTINUING> 420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 420
<EPS-PRIMARY> .090
<EPS-DILUTED> .087
</TABLE>
