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, 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 March 31, 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
-----------------------------------------
March 31 December 31
1997 1996
---------- ----------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 8,890 $ 2,086
Accounts receivable:
Trade 782,578 595,603
Related party 1,160,022 990,970
Notes receivable - related party 22,250 22,250
Inventories - parts and supplies 122,964 32,464
Prepaid expenses and other 124,545 84,133
Prepaid Federal income tax 168,300 264,300
Deferred tax asset 14,300 14,300
---------- ----------
Total Current Assets 2,403,849 2,006,106
Investment in New Haven Foundry 0 0
Other 46,235 59,135
Notes receivable - related party 13,350 17,800
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $1,063,705 and
$981,705 at March 31, 1997 and
December 31, 1996, respectively 4,171,522 4,112,295
---------- ----------
Total Assets $6,634,956 $6,195,336
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
March 31 December 31
1997 1996
---------- ----------
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Notes payable $ 861,000 $ 582,000
Current portion of long-term debt 202,916 462,914
Accounts payable 537,302 513,071
Accrued salaries and wages 47,935 42,000
Accrued workers' compensation 6,860 6,654
Accrued single business tax 0 0
Other accrued liabilities 2,054 2,841
---------- ----------
Total Current Liabilities 1,658,067 1,609,480
DEFERRED TAX LIABILITY 207,200 207,200
OTHER POSTRETIREMENT BENEFITS 371,957 371,957
NOTES PAYABLE 549,917 344,231
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 March 31, 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 (3,585,778) (3,771,125)
---------- ----------
Total Stockholders' Equity 3,847,815 3,662,468
Total Liabilities and
Stockholders' Equity $6,634,956 $6,195,336
========== ==========
See Notes to Consolidated Financial Statements
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
-----------------------------------------
(Unaudited)
Three Months Ended
March 31,
1997 1996
---------- ----------
NET SALES (including related party
sales and commissions of
$2,155,408, and $1,950,044
during the three months ended
March 31, 1997 and 1996, respectively) $3,136,841 $2,454,700
COST OF SALES 2,570,858 2,065,155
---------- ----------
Gross profit 565,983 389,545
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 256,132 210,156
RELATED PARTY SERVICES AND
SALES COMMISSIONS 0 1,471
---------- ----------
Income from operations 309,851 177,918
INTEREST AND DIVIDEND INCOME 876 11,149
INTEREST EXPENSE 29,380 13,607
---------- ----------
Net income before income taxes
and equity in income of
investee companies 281,347 175,460
PROVISION FOR FEDERAL INCOME TAXES 96,000 59,000
---------- ----------
Income before equity in income
(loss) of investee companies 185,347 116,460
EQUITY IN INCOME (LOSS) OF
INVESTEE COMPANIES 0 (64,000)
---------- ----------
Net income $ 185,347 $ 52,460
========== ==========
EARNINGS PER COMMON SHARE:
Primary $ 0.041 $ 0.011
Fully diluted $ 0.040 $ 0.011
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, 1997
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, 1997 4,573,637 $ 22,868 $7,410,725 $(3,771,125) $3,662,468
Net income -- -- -- 185,347 185,347
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1997 4,573,637 $ 22,868 $7,410,725 $(3,585,778) $3,847,815
========== ========== ========== ========== ==========
</TABLE>
<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>
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
Three Months Ended
March 31,
1997 1996
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ (81,107) $ 129,539
INVESTING ACTIVITIES:
Proceeds from sale of securities -- 12,500
Purchase of plant and equipment (141,227) (481,912)
---------- ----------
Net cash used in investing activities (141,227) (469,412)
FINANCING ACTIVITIES:
Net proceeds from short-term loan 279,000 --
Purchase of common stock -- (52,652)
Proceeds from issuance of common stock -- --
Principal payments under long-term
obligations (54,312) (88,483)
Proceeds from long-term obligations -- 400,000
Proceeds from notes receivable 4,450 --
---------- ----------
Net cash provided by (used in)
financing activities 229,138 258,865
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,804 (81,008)
CASH AND CASH EQUIVALENTS - Beginning 2,086 513,700
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 8,890 $ 432,692
========== ==========
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, 1997 and the
related Consolidated Statements of Operations, Changes in
Stockholders' Equity, and Cash Flows for the three months ended
March 31, 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 three months ended March 31, 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
---
March 31, December 31,
1997 1996
---------- ----------
Assets
Current assets $15,525,209 $14,085,521
Property, plant and equipment, net
of accumulated depreciation 12,133,736 12,282,716
Other assets 392,000 392,000
---------- ----------
Total Assets $28,050,945 $26,760,237
========== ==========
Liabilities and Stockholders' Equity
Current liabilities $19,934,995 $17,407,355
Non-current liabilities 8,805,005 10,325,990
Stockholders' equity (689,055) (973,108)
---------- ----------
Total Liabilities and
Stockholders' Equity $28,050,945 $26,760,237
========== ==========
NHF
---
Three Months Ended
March 31,
1997 1996
---------- ----------
Net Sales $15,589,000 $16,711,000
Operating expenses 15,100,000 16,713,000
---------- ----------
Income (loss)
before income taxes 489,000 (2,000)
Income taxes 205,000 140,000
---------- ----------
Net income (loss) $ 284,000 $ (142,000)
========== ==========
Net income (loss) per
share of common stock $ 4.31 $ (2.15)
========== =========
-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:
Three Months Ended
March 31,
(unaudited)
1997 1996
---------- ----------
Net income $ 185,347 $ 52,460
Adjustments to reconcile net income to
net cash from operating activities:
Equity in (income) loss
of investee company -- 64,000
Depreciation and amortization 82,000 56,400
Changes in assets and liabilities:
Accounts receivable
- Trade (186,975) 148,277
- Related parties (169,052) (242,007)
Inventories (90,500) (19,315)
Prepaid expenses (40,412) (7,817)
Prepaid Federal tax 96,000 59,000
Other assets 12,900 --
Accounts payable 24,231 128,540
Accrued workers' compensation 206 (107,095)
Accrued single business tax -- (1,500)
Accrued salaries and wages 5,935 15,708
Other liabilities (787) (17,112)
---------- ----------
Net cash used by
operating activities $ (81,107) $ 129,539
========== ==========
NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net
income per shares was 4,583,637 and 4,673,307 fully diluted for
the three month periods ended March 31, 1997 and March 31, 1996,
respectively.
NOTE 6 - CONTINGENT LIABILITY
NHF has received authorization from the Internal Revenue Service
to defer funding requirements for its hourly 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.
-9-
<PAGE>
Years Annual Contribution
----- -------------------
1997 191,878
1998 126,209
1999 and 2000 60,422
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 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, 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. $166,833
Note payable Ft. Atkinson, due in
monthly installments of $3,992,
including interest at 4% through
July 2003. 270,656
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. 315,344
--------
752,833
Less current portion 202,916
--------
549,917
========
-10-
<PAGE>
Maturities of notes payable obligations are as follows:
Year ended March 31:
1998: $202,916
1999: 196,251
2000: 129,635
2001: 112,900
Thereafter 111,131
--------
$752,833
========
The Company maintains a bank line of credit of $1,000,000 for
working capital requirements. The applicable interest rate is at
the prime lending rate, currently 8.5% at March 31, 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 March 31, 1997.
The Company has borrowings against the line of $861,000 and $0 at
March 31, 1997 and 1996, respectively.
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,
1997.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
The Company has prepaid Federal Income Taxes of $168,300 as of March
31, 1997.
The Company has a consolidated line of credit of $1,000,000 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 March 31, 1997 was $861,000.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations of
$281,647 for the three months ended March 31, 1997 as compared to a
$175,460 for the same period in 1996. Net sales, year-to-date, as of March
31, 1997 were approximately $3,136,841; which represents an increase of
27.8% from 1996 sales through March 31, 1996 of $2,454,700. The Company
has recognized equity in the loss of its investee company, NHF of $0 for
the three months ended March 31, 1997 compared to a loss of $64,000 for the
same period in 1996.
The cost of sales for the three months ended March 31, 1997 as a
percentage of sales was 82.0% as compared to 84.1% for the same period in
1996.
Selling, General and Administrative for the three months ended March
31, 1997 as a percentage of sales was 8.2% as compared to 8.6% for the same
period in 1996.
Management anticipates comparable results for the next three (3)
months of the year.
-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 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: May 1, 1997
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 1,943
<ALLOWANCES> 0
<INVENTORY> 123
<CURRENT-ASSETS> 2,404
<PP&E> 5,235
<DEPRECIATION> 1,064
<TOTAL-ASSETS> 6,635
<CURRENT-LIABILITIES> 1,658
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 3,825
<TOTAL-LIABILITY-AND-EQUITY> 6,635
<SALES> 3,137
<TOTAL-REVENUES> 3,138
<CGS> 2,571
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 281
<INCOME-TAX> 96
<INCOME-CONTINUING> 185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> .041
<EPS-DILUTED> .040
</TABLE>
