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, 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.
-----------------------------------------------------
(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 September 30, 1996, the Company had 4,553,637 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
-----------------------------------------
September 30 December 31
1996 1995
-------- --------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 31,015 $ 513,700
Marketable securities 0 152,713
Accounts receivable:
Trade 457,665 505,849
Related party 1,556,555 974,733
Notes receivable - related party 17,800 17,800
Inventories - parts and supplies 62,843 55,333
Prepaid expenses and other 28,494 78,879
Prepaid Federal income tax 111,343 105,457
Deferred tax asset 19,000 19,000
---------- ----------
Total Current Assets 2,284,715 2,423,464
Investment in New Haven Foundry 387,711 531,711
Other 46,235 48,419
Notes receivable - related party 26,700 35,600
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $896,393 and
$711,193 at September 30, 1996 and
December 31, 1995, respectively 3,731,294 2,607,593
---------- ----------
Total Assets $6,476,655 $5,646,787
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
September 30 December 31
1996 1995
-------- --------
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Accounts payable $ 555,548 $ 182,246
Accrued salaries and wages 90,516 47,232
Accrued workers' compensation 11,117 108,260
Accrued single business tax 0 1,000
Notes payable 634,939 165,663
Other accrued liabilities 3,870 19,953
--------- ---------
Total Current Liabilities 1,295,990 524,354
DEFERRED TAX LIABILITY 141,000 141,000
OTHER POSTRETIREMENT BENEFITS 330,739 330,739
NOTES PAYABLE 652,343 183,770
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares
authorized, 4,553,637 and
4,653,637 shares issued and
outstanding at September 30,
1996 and December 31, 1995,
respectively 22,768 23,268
Paid in for common stock in excess
of par value 7,396,824 7,499,980
Accumulated deficit (3,363,009) (3,056,324)
---------- ----------
Total Stockholders' Equity 4,056,583 4,466,924
Total Liabilities and
Stockholders' Equity $6,476,655 $5,646,787
========== ==========
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,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES (including related
party sales and commissions
of $5,405,943, and
$5,133,814 during the
six months ended September
30, 1996 and 1995,
respectively) $2,194,788 $2,232,815 $6,867,796 $7,009,036
COST OF SALES 2,489,844 1,777,947 6,443,442 5,856,398
---------- ---------- ---------- ----------
Gross profit (loss) (295,056) 454,868 424,354 1,152,638
GENERAL AND ADMINISTRATIVE
EXPENSES 218,603 241,680 644,332 622,117
RELATED PARTY SERVICES AND
SALES COMMISSIONS 0 6,174 1,471 14,930
---------- ---------- ---------- ----------
Income (loss) from
operations (513,659) 207,014 (221,449) 515,591
INTEREST AND DIVIDEND INCOME 4,068 6,844 20,396 28,771
INTEREST EXPENSE 18,157 375 44,632 1,211
---------- ---------- ---------- ----------
Net income (loss) before
income taxes and equity
in income of investee
companies (527,748) 213,483 (245,685) 543,151
PROVISION FOR FEDERAL
INCOME TAXES (178,000) 75,007 (83,000) 190,000
---------- ---------- ---------- ----------
Income (loss) before equity
in income (loss) of
investee companies (349,748) 138,476 (162,685) 353,151
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES (159,000) (366,000) (144,000) (161,000)
---------- ---------- ---------- ----------
Net income (loss) $(508,748) $(227,524) $(306,685) $ 192,151
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Primary $ 0.112 $ 0.004 $ (0.067) $ 0.041
Fully diluted $ 0.110 $ 0.004 $ (0.066) $ 0.040
</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, 1996
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK STOCK-
NUMBER IN EXCESS OF ACCUMULATED HOLDERS'
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 (100,000) (500) (103,156) -- (103,656)
Net income
(loss) -- -- -- (306,685) (306,685)
--------- --------- --------- --------- ---------
Balance -
September 30,
1996 4,553,637 $ 22,768 $7,396,824 $(3,363,009) $4,056,583
========= ========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK STOCK-
NUMBER IN EXCESS OF ACCUMULATED HOLDERS'
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,
$.0150 per share
- 1st qtr -- -- -- (69,889) (69,889)
$.0150 per share
- 2nd qtr -- -- -- (69,859) (69,859)
--------- --------- --------- --------- ---------
Balance -
September 30,
1995 4,653,637 $ 23,268 $7,489,281 $(1,097,006) $6,415,543
========= ========== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ (160,690) $ 58,018
INVESTING ACTIVITIES:
Proceeds from sale of securities 152,713 187,356
Purchase of plant and equipment (1,308,901) (395,398)
---------- ----------
Net cash used in investing activities (1,156,188) (208,042)
FINANCING ACTIVITIES:
Purchase of common stock (103,656) (38,478)
Proceeds from issuance of common stock -- 10,000
Principal payments under
long-term obligations (182,151) (17,746)
Proceeds from long-term obligations 692,000 --
Proceeds from line of credit (net) 428,000 --
Payment of dividends -- (209,576)
---------- ----------
Net cash provided by (used in)
financing activities 834,193 (255,800)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (482,685) (405,824)
CASH AND CASH EQUIVALENTS - Beginning 513,700 573,957
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 31,015 $ 168,133
========== ==========
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, 1996 and the
related Consolidated Statements of Operations, Changes in
Stockholders' Equity, and Cash Flows for the nine months ended
September 30, 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 nine months ended September 30, 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. In addition, the Company reported
a year to date loss on CEDS of $50,000 through September 30, 1995.
The Company divested its interest as of December 31, 1995. The
Company owned 40% of CEDS. Summarized financial information of NHF
is as follows:
NHF
---
September 30, December 31,
1996 1995
------ ------
Assets
Current assets $17,079,842 $13,626,618
Property, plant and equipment, net
of accumulated depreciation 12,297,692 11,982,268
Other assets -- 392,363
---------- ----------
Total Assets $29,377,534 $26,001,249
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities $20,461,234 $18,214,820
Non-current liabilities 8,054,011 6,603,140
Stockholders' equity 862,289 1,183,289
---------- ----------
Total Liabilities and Stockholders'
Equity $29,377,534 $26,001,249
=========== ===========
NHF
---
Nine Months Ended
September 30,
1996 1995
------ ------
Net Sales $46,391,000 $44,842,000
Operating expenses 46,332,000 44,998,000
---------- ----------
Income (loss)
before income taxes 59,000 (156,000)
Income taxes 380,000 90,000
---------- ----------
Net income (loss) $ (321,000) $ (246,000)
=========== ===========
Net income (loss) per
share of common stock $ (4.87) $ (3.73)
=========== ==========
-8-
<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:
Nine Months Ended
September 30,
(unaudited)
1996 1995
------ ------
Net income (loss) $(306,685) $ 192,151
Adjustments to reconcile net income to
net cash from operating activities:
Equity in (income) loss
of investee companies 144,000 161,000
Depreciation and amortization 185,200 153,000
Changes in assets and liabilities:
Accounts receivable
- Trade 48,184 (119,181)
- Related parties (581,822) (703,859)
Notes receivable - related parties 8,900 (41,650)
Inventories (7,510) 3,300
Prepaid expenses 50,385 169,708
Prepaid Federal tax (5,886) 279,758
Accounts payable 373,302 (111,515)
Accrued workers' compensation (97,143) (47,436)
Accrued single business tax (1,000) (6,000)
Accrued salaries and wages 43,284 30,838
Accrued income tax -- 75,242
Other liabilities (13,899) 22,662
---------- ----------
Net cash provided by
operating activities $ (160,690) $ 58,018
========== ==========
NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,624,385 and 4,801,593 fully diluted for the nine
month periods ended September 30, 1996 and September 30, 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
-9-
<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 1995. 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 September 30, 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. $212,334
Capital lease - related party, due in monthly
installments of $2,102, including interest at
3.7%, maturing February 1997. 8,021
Note Payable - City of Fort Atkinson, due in monthly
installments of $8,992, including interest at 4%
maturing September 2003. The note is collateralized
by the plant equipment at Fort Atkinson Industries. 288,981
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. 349,946
--------
859,282
Less current portion 206,939
--------
652,343
========
-10-
<PAGE>
Maturities of notes payable obligations are as follows:
Year ended September 30:
1997: $203,919
1998: 207,081
1999: 155,266
2000: 134,533
2001: 66,243
2002: 45,049
2003: 47,191
--------
$859,282
========
In addition, 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 9.0% at September 30, 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 September 30, 1996. The Company had
borrowings of $428,000 and $0 against the line as of September 30,
1996 and 1995, respectively.
NOTE 9 - OTHER MATTERS
In February, March and April 1996, the Company repurchased 30,000,
20,000 and 50,000 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, 1996.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
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 borrowings
as of September 30, 1996 of $428,000.
The Company received a $400,000 loan in January from National Bank of
Detroit to help fund its Fort Atkinson operation. The note is for five (5)
years at a fixed interest of 9% with monthly payments.
The Company received a $292,000 loan in September from the City of
Fort Atkinson to fund its Fort Atkinson operation. The note is for seven
(7) years at a fixed interest of 4% with monthly payments.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax loss on operations of
$245,685 for the nine months ended September 30, 1996 as compared to a
$543,151 profit for the same period in 1995. Net sales, year-to-date, as
of September 30, 1996 were approximately $6,867,796; which represents a
decrease of 2.0% from 1995 sales through September 30, 1995 of $7,009,036.
The Company has recognized a equity loss from its investee company, NHF of
$144,000 for the nine months ended September 30, 1996 compared to loss of
$111,000 for the same period in 1995. The Company recognized a equity loss
from CEDS of $50,000 for the nine (9) months ended September 30, 1995.
The cost of sales for the nine months ended September 30, 1996 as a
percentage of sales was 93.8% as compared to 83.6% for the same period in
1995. Primary reason was start up costs at its Fort Atkinson plant.
Management anticipates a modest profit the last three (3) months due
to increased efficiency at its Fort Atkinson Wisconsin plant.
-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: October 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 458
<ALLOWANCES> 0
<INVENTORY> 63
<CURRENT-ASSETS> 2,285
<PP&E> 4,628
<DEPRECIATION> 896
<TOTAL-ASSETS> 6,477
<CURRENT-LIABILITIES> 1,296
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 4,034
<TOTAL-LIABILITY-AND-EQUITY> 6,477
<SALES> 6,868
<TOTAL-REVENUES> 6,744
<CGS> 6,448
<TOTAL-COSTS> 1
<OTHER-EXPENSES> 644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (390)
<INCOME-TAX> (83)
<INCOME-CONTINUING> (307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (307)
<EPS-PRIMARY> (.067)
<EPS-DILUTED> (.066)
</TABLE>
