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, 1997
---------------------------
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, 1997, the Company had 4,573,637 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,
1997 1996
---------- ----------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 8,843 $ 2,086
Accounts receivable:
Trade 522,817 595,603
Related party 993,923 990,970
Notes receivable - related party 22,250 22,250
Inventories - parts and supplies 69,964 32,464
Prepaid expenses and other 74,147 84,133
Prepaid Federal income tax 0 264,300
Deferred tax asset 14,300 14,300
---------- ----------
Total Current Assets 1,706,244 2,006,106
Investment in New Haven Foundry 0 0
Other 43,864 59,135
Notes receivable - related party 4,450 17,800
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $1,226,705 and
$981,705 at September 30, 1997 and
December 31, 1996, respectively 4,081,461 4,112,295
---------- ----------
Total Assets $5,836,019 $6,195,336
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
September 30, December 31,
1997 1996
---------- ----------
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Notes payable $ 332,000 $ 582,000
Current portion of long-term debt 204,089 462,914
Accounts payable 424,602 513,071
Accrued salaries and wages 41,538 42,000
Accrued workers' compensation 12,650 6,654
Accrued single business tax 30,182 0
Accrued federal income tax 6,570 0
Other accrued liabilities 11,113 2,841
---------- ----------
Total Current Liabilities 1,062,744 1,609,480
DEFERRED TAX LIABILITY 207,200 207,200
OTHER POSTRETIREMENT BENEFITS 371,957 371,957
NOTES PAYABLE 447,909 344,231
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares authorized,
4,573,637 and 4,573,637 shares issued
and outstanding at September 30, 1997
and December 31, 1996, respectively 22,868 22,868
Paid in for common stock in excess
of par value 7,410,725 7,410,725
Accumulated deficit (3,687,384) (3,771,125)
---------- ----------
Total Stockholders' Equity 3,746,209 3,662,468
Total Liabilities and
Stockholders' Equity $5,836,019 $6,195,336
========== ==========
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,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES (including related
party sales and commissions
of $5,144,645, and $5,405,943
during the nine months ended
September 30, 1997 and 1996,
respectively) $1,885,119 $2,194,788 $8,032,290 $6,867,796
COST OF SALES 1,968,191 2,489,844 7,067,655 6,443,442
---------- ---------- ---------- ----------
Gross profit (83,072) (295,056) 964,635 424,354
GENERAL AND ADMINISTRATIVE
EXPENSES 240,465 218,603 728,525 644,332
RELATED PARTY SERVICES AND
SALES COMMISSIONS 0 0 10,808 1,471
---------- ---------- ---------- ----------
Income from operations (323,537) (513,659) 225,302 (221,449)
INTEREST AND DIVIDEND INCOME 662 4,068 2,327 30,396
INTEREST EXPENSE 27,570 18,157 88,888 44,832
---------- ---------- ---------- ----------
Net income before income
taxes and equity in income
of investee companies (350,445) (527,748) 138,741 (235,885)
PROVISION FOR FEDERAL
INCOME TAXES 116,000 178,000 55,000 83,000
---------- ---------- ---------- ----------
Income before equity in income
(loss) of investee companies (234,445) (349,748) 83,741 (162,685)
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES 0 (159,000) 0 (144,000)
---------- ---------- ---------- ----------
Net income $ (234,445) $ (508,748) $ 83,741 $ (306,685)
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Primary $ (0.051) $ (0.112) $ 0.018 $ (0.067)
Fully diluted $ (0.051) $ (0.110) $ 0.018 $ (0.066)
</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, 1997
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1997 4,573,637 $ 22,868 $7,410,725 $(3,771,125) $3,662,468
Net income -- -- -- 83,741 83,741
---------- ---------- ---------- ---------- ----------
Balance -
September 30, 1997 4,573,637 $ 22,868 $7,410,725 $(3,687,384) $3,746,209
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
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 -- -- -- (306,685) (306,685)
---------- ---------- ---------- ---------- ----------
Balance -
September 30, 1996 4,553,637 $ 22,768 $7,396,824 $(3,363,009) $4,056,583
========== ========== ========== ========== ==========
</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,
1997 1996
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 612,750 $(169,590)
INVESTING ACTIVITIES:
Proceeds from sale of securities -- 152 713
Purchase of plant and equipment (214,166) (1,308,901)
---------- ----------
Net cash used in investing activities (214,166) (1,156,188)
FINANCING ACTIVITIES:
Net proceeds from line of credit (net) (250,000) 428,000
Purchase of common stock -- (103,656)
Principal payments under
long-term obligations (155,147) (182,151)
Proceeds from long-term obligations -- 692,000
Proceeds from notes receivable 13,350 8,900
---------- ----------
Net cash provided by (used in)
financing activities (391,797) 843,093
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,757 (482,685)
CASH AND CASH EQUIVALENTS - Beginning 2,086 513,700
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 8,843 $ 31,015
========== ==========
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, 1997 and the
related Consolidated Statements of Operations, Changes in
Stockholders' Equity, and Cash Flows for the nine months ended
September 30, 1997 and 1996 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, 1997 and 1996
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: (No recognition of Income to
Margate will be recorded until NHF achieves positive
Stockholders' Equity.)
NHF
---
September 30, December 31,
1997 1996
---------- ----------
Assets
Current assets $14,570,468 $14,085,521
Property, plant and equipment, net
of accumulated depreciation 11,695,543 12,282,716
Other assets 0 392,000
---------- ----------
Total Assets $26,266,011 $26,760,237
========== ==========
Liabilities and Stockholders' Equity
Current liabilities $19,419,526 $17,407,355
Non-current liabilities 8,776,668 10,325,990
Stockholders' equity (1,930,183) (973,108)
---------- ----------
Total Liabilities and
Stockholders' Equity $26,266,011 $26,760,237
========== ==========
NHF
---
Nine Months Ended
September 30,
1997 1996
---------- ----------
Net Sales $40,146,000 $46,391,000
Operating expenses 40,870,000 46,332,000
---------- ----------
Income (loss)
before income taxes (724,000) 59,000
Income taxes 234,000 380,000
---------- ----------
Net income (loss) $ (958,000) $ (321,000)
========== ==========
Net income (loss) per
share of common stock $ (14.52) $ (4.87)
========== ==========
-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)
1997 1996
---------- ----------
Net income $ 83,741 $ (306,685)
Adjustments to reconcile net income to
net cash from operating activities:
Equity in (income) loss
of investee companies -- 144,000
Depreciation and amortization 245,000 185,200
Changes in assets and liabilities:
Accounts receivable
- Trade 72,786 48,184
- Related parties (2,953) (581,822)
Inventories (37,500) (7,510)
Prepaid expenses 9,986 50,385
Prepaid Federal tax 264,300 (5,886)
Other assets 15,271 2,184
Accounts payable (88,469) 373,302
Accrued workers' compensation 5,996 (97,143)
Accrued single business tax 30,182 (1,000)
Accrued salaries and wages (462) 43,284
Accrued income tax 6,570 --
Other liabilities 8,272 (16,083)
---------- ----------
Net cash provided (used) by
operating activities $ 612,720 $ (169,590)
========== ==========
NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net
income per shares was 4,593,637 and 4,624,385 fully diluted
for the nine month periods ended September 30, 1997 and
September 30, 1996, 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
----- -------------------
1997 191,878
1998 126,209
1999 and 2000 60,422
-9-
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.
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 $2,100,000 to $2,500,000, and NHF has recorded a
reserve of $2,500,000, of which $1,800,000 was provided in the
current year. The 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, 1997:
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. $121,333
Note payable Ft. Atkinson, due in
monthly installments of $3,992,
including interest at 4% through
July 2003. 251,301
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. 279,364
---------
651,998
Less current portion 204,089
---------
447,909
=========
-10-
<PAGE>
Maturities of notes payable obligations are as follows:
Year ended September 30:
1998: $204,089
1999: 155,266
2000: 134,533
2001: 66,243
Thereafter 91,867
--------
$651,998
========
The Company maintains a bank line of credit of $1,300,000 for
working capital requirements. The applicable interest rate is at
the prime lending rate, currently 8.5% at September 30, 1997.
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,
1997. The Company has borrowings against the line of $332,000
and $428,000 at September 30, 1997 and 1996, respectively.
NOTE 9 - OTHER MATTERS
The Company repurchased 100,000 shares of its common stock
in the open market. The shares have been returned to treasury.
-11-
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, 1997.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
- -------------------------------------------------
When used in this Form 10-QSB, the words "anticipate," "estimate,"
"expect," "project," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions including the possibility that the Company's
projected sales, revenues and contract negotiations are not realized.
Should one or more of these uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
The Company has a consolidated line of credit of $1,300,000 with
monthly interest payments at the prime rate with the National Bank of
Detroit. The line is collateralized by substantially all assets.
Borrowings as of September 30, 1997 was $332,000.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations of
$138,741 for the nine months ended September 30, 1997 as compared to a
$(245,685) loss for the same period in 1996. Net sales, year-to-date, as
of September 30, 1997 were approximately $8,032,290; which represents an
increase of 17.0% from 1996 sales through September 30, 1996 of $6,867,796.
The Company has recognized equity in the loss of its investee company, NHF
of $0 for the nine months ended September 30, 1997 compared to a loss of
$144,000 for the same period in 1996.
The cost of sales for the six months ended September 30, 1997 as a
percentage of sales was 88.0% as compared to 93.8% for the same period in
1996.
Selling, General and Administrative for the nine months ended
September 30, 1997 as a percentage of sales was 9.1% as compared to 9.4%
for the same period in 1996.
Sales for the third quarter were down compared to the first two (2)
quarters of 1997 due to union problems, inefficiencies and excess scrape at
the Company's main customer.
Management anticipates improved results for the fourth quarter of the
year based on projected increased sales and a new union contract at the
Company's main customer.
-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 was held on June 30, 1997
for the election of Directors.
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 23, 1997
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 1,517
<ALLOWANCES> 0
<INVENTORY> 70
<CURRENT-ASSETS> 1,706
<PP&E> 5,308
<DEPRECIATION> 1,227
<TOTAL-ASSETS> 5,836
<CURRENT-LIABILITIES> 1,063
<BONDS> 0
23
0
<COMMON> 0
<OTHER-SE> 3,723
<TOTAL-LIABILITY-AND-EQUITY> 5,836
<SALES> 8,032
<TOTAL-REVENUES> 8,035
<CGS> 7,068
<TOTAL-COSTS> 11
<OTHER-EXPENSES> 729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> 139
<INCOME-TAX> 55
<INCOME-CONTINUING> 84
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84
<EPS-PRIMARY> .018
<EPS-DILUTED> .018
</TABLE>
