<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, 1996
-------------------------------
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.
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(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 March 31, 1996, the Company had 4,603,637 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>
March 31 December 31
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 432,692 $ 513,700
Marketable securities 140,213 152,713
Accounts receivable:
Trade 357,572 505,849
Related party 1,216,740 974,733
Notes receivable - related party 17,800 17,800
Inventories - parts and supplies 74,648 55,333
Prepaid expenses and other 86,696 78,879
Prepaid Federal income tax 46,457 105,457
Deferred tax asset 19,000 19,000
---------- ----------
Total Current Assets 2,391,818 2,423,464
Investment in New Haven Foundry 467,711 531,711
Other
48,419 48,419
Notes receivable - related party 35,600 35,600
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $767,593 and
$711,193 at March 31, 1996 and
December 31, 1995, respectively 3,033,105 2,607,593
---------- ----------
Total Assets $5,976,653 $5,646,787
---------- ----------
---------- ----------
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
March 31 December 31
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Accounts payable $ 310,786 $ 182,246
Accrued salaries and wages 62,940 47,232
Accrued workers' compensation 1,165 108,260
Accrued single business tax (500) 1,000
Notes payable 179,260 165,663
Other accrued liabilities 2,841 19,953
---------- ----------
Total Current Liabilities 556,492 524,354
DEFERRED TAX LIABILITY 141,000 141,000
OTHER POSTRETIREMENT BENEFITS 330,739 330,739
NOTES PAYABLE 481,690 183,770
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares authorized,
4,603,637 and 4,653,637 shares
issued and outstanding at March 31,
1996 and December 31, 1995, respec-
tively 23,018 23,268
Paid in for common stock in excess
of par value 7,447,578 7,499,980
Accumulated deficit (3,003,864) (3,056,324)
---------- ----------
Total Stockholders' Equity 4,466,732 4,466,924
Total Liabilities and
Stockholders' Equity $5,976,653 $5,646,787
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
NET SALES (including related party
sales and commissions of
$1,950,044, and $1,867,099
during the three months ended
March 31, 1996 and 1995, respectively) $2,454,700 $2,419,194
COST OF SALES 2,065,155 2,076,065
---------- ----------
Gross profit 389,545 343,129
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 210,156 196,309
RELATED PARTY SERVICES AND
SALES COMMISSIONS 1,471 6,431
---------- ----------
Income from operations 177,918 140,389
INTEREST AND DIVIDEND INCOME 11,149 12,572
INTEREST EXPENSE 13,607 445
---------- ----------
Net income before income taxes and
equity in income of investee companies 175,460 152,516
PROVISION FOR FEDERAL INCOME TAXES 59,000 54,000
---------- ----------
Income before equity in income
(loss) of investee companies 116,460 98,516
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES (64,000) 241,400
---------- ----------
Net income $ 52,460 $ 339,916
---------- ----------
---------- ----------
EARNINGS PER COMMON SHARE:
Primary $ 0.011 $ 0.073
Fully diluted $ 0.011 $ 0.069
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
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, 1996 4,653,637 $ 23,268 $7,499,980 $(3,056,324) $4,466,924
Repurchase of common stock (50,000) (250) (52,402) -- (52,652)
Net income -- -- -- 52,460 52,460
--------- --------- --------- --------- ---------
Balance - March 31, 1996 4,603,637 $ 23,018 $7,447,578 $(3,003,864) $4,466,732
--------- ---------- ---------- ----------- ----------
--------- ---------- ---------- ----------- ----------
</TABLE>
<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 4,655,637 $ 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 4,659,637 $ 23,298 $7,519,729 $ (879,493) $6,663,534
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 129,539 $ 37,114
INVESTING ACTIVITIES:
Proceeds from sale of securities 12,500 44,165
Purchase of plant and equipment (481,912) (270,586)
---------- ----------
Net cash used in investing activities (469,412) (226,421)
FINANCING ACTIVITIES:
Purchase of common stock (52,652) --
Proceeds from issuance of common stock -- 2,000
Principal payments under long-term
obligations (88,483) 5,861)
Proceeds from long-term obligations 400,000 --
Payment of dividends -- (69,828)
---------- ----------
Net cash provided by (used in) financing
activities 258,865 (73,689)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (81,008) (262,996)
CASH AND CASH EQUIVALENTS - Beginning 513,700 573,957
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 432,692 $ 310,961
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated Balance Sheet as of March 31, 1996 and the related
Consolidated Statements of Operations, Changes in Stockholders' Equity,
and Cash Flows for the three months ended March 31, 1996 and 1995 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, 1996 and
1995 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") using the equity method. Summarized financial information of
NHF is as follows:
<TABLE>
<CAPTION>
NHF
March 31, December 31,
1996 1995
-------- --------
<S> <C> <C>
Assets
Current assets $15,129,120 $13,626,618
Property, plant and equipment, net
of accumulated depreciation 11,791,835 11,982,268
Other assets -- 392,363
----------- -----------
Total Assets $26,920,955 $26,001,249
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
Current liabilities $18,064,176 $18,214,820
Non-current liabilities 7,815,041 6,603,140
Stockholders' equity 1,041,738 1,183,289
----------- -----------
Total Liabilities and Stockholders' Equity $26,920,955 $26,001,249
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
NHF
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
Net Sales $16,711,000 $16,629,000
Operating expenses 16,713,000 15,708,000
----------- -----------
Income (loss)
before income taxes (2,000) 921,000
Income taxes 140,000 375,000
----------- -----------
Net income (loss) $ (142,000) $ 546,000
----------- -----------
----------- -----------
Net income (loss) per
share of common stock $ (2.15) $ 8.27
----------- -----------
----------- -----------
</TABLE>
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<PAGE>
NOTE 3 - DIVIDENDS
The Company paid dividends for the first two quarters of 1995, but
suspended dividends thereafter.
NOTE 4 - STATEMENTS OF CASH FLOWS
A reconciliation of net income to net cash flows provided by operating
activities is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited)
1996 1995
--------- ---------
<S> <C> <C>
Net income $ 52,460 $ 339,916
Adjustments to reconcile net income to
net cash from operating activities:
Equity in (income) loss
of investee company 64,000 (241,400)
Depreciation and amortization 56,400 51,000
Changes in assets and liabilities:
Accounts receivable
- Trade 148,277 (84,193)
- Related parties (242,007) (288,469)
Inventories (19,315) (2,983)
Prepaid expenses (7,817) 212,199
Prepaid Federal tax 59,000 54,000
Accounts payable 128,540 (105,922)
Accrued workers' compensation (107,095) (49,351)
Accrued single business tax (1,500) 7,000
Accrued salaries and wages 15,708 61,941
Other liabilities (17,112) 83,376
--------- ---------
Net cash provided by
operating activities $ 129,539 $ 37,114
--------- ---------
--------- ---------
</TABLE>
NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,673,307 and 4,915,614 fully diluted for the three
month periods ended March 31, 1996 and March 31, 1995, respectively.
NOTE 6 - 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.
Years Annual Contribution
----- -------------------
1996 252,195
1997 191,878
1998 126,209
1999 and 2000 60,422
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<PAGE>
NOTE 7 - ENVIRONMENTAL MATTERS
NHF, the Company's 45%-owned equity investee, is party to an action
brought by PIRGIM and the United States of America ("U.S.") which
alleges that NHF discharged potentially contaminated water into a
stream which flows to settling ponds they maintain, in violation of the
Federal Clean Water Act. NHF estimates that a civil penalty
approximating $500,000 will be incurred by NHF to settle the litigation
and the Company has provided reserves for this amount.
NHF is party to an action brought by the U.S. and is also currently
negotiating with the Michigan Department of Environmental Quality
("MDEQ") regarding alleged violations of environmental laws pertaining
to air and waste issues, including used foundry sand on its property.
NHF is negotiating a consent decree with these agencies which
encompasses most of these alleged violations and is also working with
the MDEQ to resolve any remaining alleged violations.
Based on results of preliminary investigation, some small portions of
the foundry waste sand pile are known to contain levels of heavy metals
which exceed environmental standards established by the U.S.
Environmental Protection Agency ("EPA"). NHF has engaged environmental
consultants to assist in developing a remediation plan to submit to the
U.S. and MDEQ for approval. Other than those portions of the sand pile
known to contain levels of heavy metals which exceed environmental
standards, NHF believes the remainder of used sand is not in violation
of such standards.
NHF has identified several options to remediate the sand including on-
site treatment or capping in place. Costs associated with these
alternatives are currently estimated to range from $1,200,000 to
$6,000,000, and NHF has recorded a reserve of $1,500,000, of which
$1,250,000 was provided in the current year. The low estimate of the
range assumes that no additional portions of the sand pile will contain
heavy metals exceeding environmental standards. Although the ultimate
outcome of this matter is not known at this time, on the basis of
investigations performed to date by the Company and its environmental
consultants, NHF does not believe that future costs associated with
remedial action in excess of reserves provided with ultimately have a
materially adverse impact on the Company's financial position or future
results of operations.
NOTE 8 - NOTES PAYABLE
Notes payable consist of the following at March 31, 1996:
Note payable bank, due in monthly principle
installments of $7,583, plus interest at
prime in payment of loan guarantee for
investment in CEDS, uncollateralized,
maturing December 31, 1998. $257,833
Capital lease - related party, due in
monthly installments of $2,102, including
interest at 3.7%, maturing February 1997. 20,353
Note payable bank, due in monthly installments
of $8,300, including interest at 9% maturing
January 2000. The note is collateralized by
the general assets of the Company. 382,764
--------
660,950
Less current portion 179,260
--------
481,690
--------
--------
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<PAGE>
Maturities of notes payable obligations are as follows:
Year ended March 31:
1997: $179,260
1998: 165,277
1999: 157,078
2000: 88,866
2001: 70,469
--------
$660,950
--------
--------
The Company maintains a bank line of credit of $500,000 for working
capital requirements. The applicable interest rate is at the prime
lending rate, currently 8.5% at March 31, 1996. The line of credit is
secured by all accounts receivable, inventories and equipment of the
Company. Additionally, certain required financial ratios must be
maintained. The Company is in compliance with all covenant
requirements as of March 31, 1996. The Company had no borrowings
against the line as of March 31, 1996 and 1995.
NOTE 9 - OTHER MATTERS
In February and March 1996, the Company repurchased 30,000 and 20,000
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 three (3) months ended March 31, 1996.
LIQUIDITY & CAPITAL RESOURCES
The Company has approximately $200,000 in money market accounts as of
March 31, 1996 which are included in the cash and cash equivalents amount shown
on the Balance Sheet. The Company has prepaid Federal Income Taxes of $46,457
as of March 31, 1996.
The Company's current market value of its investment in preferred stocks
was approximately $152,400 at March 31, 1996 as compared to current balance
sheet amount of $140,213.
The Company has a consolidated line of credit of $500,000 with monthly
interest payments at the prime rate with the National Bank of Detroit. The line
is collateralized by substantially all assets. There were no borrowings as of
March 31, 1996.
RESULTS OF OPERATIONS
The Company is reporting year-to-date pre-tax profit on operations of
$175,460 for the three months ended March 31, 1996 as compared to a $152,516 for
the same period in 1995. Net sales, year-to-date, as of March 31, 1996 were
approximately $2,454,700; which represents an increase of 1.5% from 1995 sales
through March 31, 1995 of $2,419,194. The Company has recognized equity in the
loss of its investee company, NHF of $64,000 for the three months ended March
31, 1996 compared to income of $241,400 for the same period in 1995.
The cost of sales for the three months ended March 31, 1996 as a
percentage of sales was 84.1% as compared to 85.8% for the same period in 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 27, 1996
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
Exhibit 27 -- Financial Data Schedule
-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 7, 1996
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 433
<SECURITIES> 140
<RECEIVABLES> 358
<ALLOWANCES> 0
<INVENTORY> 75
<CURRENT-ASSETS> 2,392
<PP&E> 3,801
<DEPRECIATION> 768
<TOTAL-ASSETS> 5,977
<CURRENT-LIABILITIES> 556
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 4,444
<TOTAL-LIABILITY-AND-EQUITY> 5,977
<SALES> 2,455
<TOTAL-REVENUES> 2,402
<CGS> 2,065
<TOTAL-COSTS> 1
<OTHER-EXPENSES> 210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 111
<INCOME-TAX> 59
<INCOME-CONTINUING> 52
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52
<EPS-PRIMARY> .011
<EPS-DILUTED> .011
</TABLE>
