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, 1998
-----------------------------------
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.
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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 June 30, 1998, the Company had 4,573,637 shares of its $.005 Par
Value Common Stock outstanding.
<PAGE>
MARGATE INDUSTRIES, INC.
FORM 10-Q
INDEX
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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 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .11
PART II: OTHER INFORMATION. . . . . . . . . . . . . . . . . . . .12
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-2-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-----------------------------------------
June 30, December 31,
1998 1997
---------- ----------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $1,521,645 $ 110,822
Accounts receivable 1,980,007 1,864,240
Notes receivable 157,800 17,800
Inventories - parts and supplies 88,992 41,991
Prepaid expenses and other 42,236 37,394
Prepaid Federal income tax 100,166 41,000
Deferred tax asset 12,400 12,400
---------- ----------
Total Current Assets 3,903,246 2,125,647
Other 56,764 56,764
Notes receivable 455,550 -
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $1,463,134 and
$1,324,045 at June 30, 1998 and
December 31, 1997, respectively 3,805,414 4,038,979
---------- ----------
Total Assets $8,220,974 $6,221,390
========== ==========
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
June 30, December 31,
1998 1997
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(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Notes payable $ 741,077 $ 626,000
Current portion of long-term debt 93,481 213,832
Accounts payable 597,727 425,746
Accrued salaries and wages 75,474 63,924
Accrued workers' compensation 12,870 6,870
Other accrued liabilities 23,216 5,835
---------- ----------
Total Current Liabilities 1,543,845 1,342,207
DEFERRED TAX LIABILITY 439,700 235,700
OTHER POSTRETIREMENT BENEFITS 419,856 419,856
NOTES PAYABLE - Long-term 201,698 412,160
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares
authorized, 4,573,637 shares issued
and outstanding 22,868 22,868
Paid in for common stock in excess
of par value 7,410,725 7,410,725
Accumulated deficit (1,817,718) (3,622,126)
---------- ----------
Total Stockholders' Equity 5,615,875 3,811,467
---------- ----------
Total Liabilities and
Stockholders' Equity $8,220,974 $6,221,390
========== ==========
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,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $2,648,632 $3,010,330 $4,930,502 $6,147,171
COST OF SALES 2,355,278 2,528,606 4,467,320 5,099,464
---------- ---------- ---------- ----------
GROSS PROFIT 293,354 481,724 463,182 1,047,707
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 188,553 231,928 406,253 488,060
RELATED PARTY SERVICES AND
SALES COMMISSIONS 4,231 10,808 4,231 10,808
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 100,570 238,988 52,698 548,839
DIVIDEND AND INTEREST
INCOME (EXPENSE) NET 7,780 (31,149) (13,549) (59,653)
OTHER (EXPENSE) 0 0 (143,214) 0
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION FOR
EXTRAORDINARY ITEM 108,350 207,839 (104,065) 489,186
GAIN ON SALE OF 45%
INTEREST IN NEW
HAVEN FOUNDRY 0 0 2,075,000 0
INCOME BEFORE PROVISION
FOR INCOME TAXES 108,350 207,839 1,970,935 489,186
PROVISION FOR FEDERAL
INCOME TAXES 34,527 75,000 166,527 171,000
---------- ---------- ---------- ----------
NET INCOME $ 73,823 $ 132,839 $1,804,408 $ 318,186
========== ========== ========== ==========
BASIC EARNINGS
PER COMMON SHARE: $ 0.016 $ 0.029 $ 0.395 $ 0.070
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,573,637 4,573,637 4,573,637 4,573,637
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
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, 1998 4,573,637 $ 22,868 $7,410,725 $(3,622,126) $3,811,467
Net income -- -- -- 1,804,408 1,804,408
---------- ---------- ---------- ---------- ----------
Balance - June 30, 1998 4,573,637 $ 22,868 $7,410,725 $(1,817,718) $5,615,875
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 -- -- -- 318,186 318,186
---------- ---------- ---------- ---------- ----------
Balance - June 30, 1997 4,573,637 $ 22,868 $7,410,725 $(3,452,939) $3,980,654
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
Six Months Ended
June 30,
1998 1997
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $2,313,758 $ (5,664)
INVESTING ACTIVITIES:
Purchase of plant and equipment (91,649) (171,455)
---------- ----------
Net cash used in investing activities (91,649) (171,455)
FINANCING ACTIVITIES:
Net proceeds - line of credit 115,077 272,000
Principal payments under long-term
obligations (330,813) (101,035)
Decrease (increase) notes receivable (595,550) 8,900
---------- ----------
Net cash provided by (used in)
financing activities (811,286) 179,865
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,410,823 2,746
CASH AND CASH EQUIVALENTS - Beginning 110,822 2,086
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $1,521,645 $ 4,832
========== ==========
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 June 30, 1998 and the related
Consolidated Statements of Operations, Changes in Stockholders'
Equity, and Cash Flows for the six months ended June 30, 1998 and
1997 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, 1998 and 1997 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 - DIVIDENDS
The Company had paid dividends from 1992 through the second quarter
of 1995, but suspended dividends thereafter.
NOTE 3 - STATEMENTS OF CASH FLOWS
A reconciliation of net income to net cash flows provided by
operating activities is as follows:
Six Months Ended
June 30,
(unaudited)
1998 1997
---------- ----------
Net income $1,804,408 $ 318,186
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization 182,000 164,000
Loss on disposal of fixed assets 143,214 --
Changes in assets and
liabilities:
Accounts receivable (115,767) (632,394)
Inventories (47,001) (59,000)
Prepaid expenses (4,842) (96,184)
Prepaid Federal tax (59,166) 264,300
Other assets -- 15,271
Accounts payable 171,981 (125,515)
Accrued workers' compensation 6,000 2,996
Accrued salaries and wages 11,550 11,234
Deferred income tax 204,000 122,570
Other liabilities 17,381 8,872
---------- ----------
Net cash provided (used)
by operating activities $2,313,758 $ (5,664)
========== ==========
-8-
<PAGE>
NOTE 4 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,573,637 and 4,573,637 fully diluted for the six
month periods ended June 30, 1998 and 4,573,637 and 4,793,637 fully
diluted at June 30, 1997.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at June 30, 1998:
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. $ 53,083
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003. 223,212
Capital lease, due in monthly installments
of $705 including interest at 17.9% through
July 2001. 18,884
---------
295,179
Less current portion 93,481
---------
$ 201,698
Maturities of notes payable obligations are as follows:
Year ended June 30:
1999: $ 97,816
2000: 47,327
2001: 50,122
2002: 45,409
2003: 46 573
Thereafter 7,932
---------
$ 295,179
=========
The Company maintains a bank line-of-credit of $1,300,000 for working
capital requirements. The applicable interest rate is at 1/2% below
the prime lending rate, currently 8.5% at June 30, 1998. 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 June 30, 1998. The Company has
borrowings against the line of $741,077 and $854,000 at June 30, 1998
and 1997, respectively.
-9-
<PAGE>
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at June 30, 1998:
Notes receivable - Wesley Industries, Inc.
due in quarterly payments of $4,450 plus
interest at prime rate. $ 13,350
Note receivable - Wesley Industries, Inc.
due in quarterly payments of $35,000,
including imputed interest, commencing
June 1, 1998, with a final payment of
the remaining outstanding principal and
imputed interest balance on March 1, 2003. $600,000
NOTE 7 - SALE OF STOCK IN INVESTEE COMPANY
On March 24, 1998, the Company sold its remaining 45% interest in New
Haven Foundry to Wesley Industries, Inc. which owned the other 55%.
Terms of the agreement included a purchase price of $2,200,000 with
$1,500,000 paid at closing and the $700,000 balance including
interest due in the form of a promissory note payable in quarterly
installments of $35,000. The promissory note is secured by the
shares of the New Haven Foundry. In addition, the Company entered
into a new cleaning contract with New Haven Foundry which includes
a per piece price and a service fee of $2,600,000 paid in quarterly
installments of $140,000 over five (5) years.
-10-
<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 six (6) months ended June 30,
1998.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
- -------------------------------------------------
When used in this Form 10-Q, 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 1/2% below the prime rate with the National
Bank of Detroit. The line is collateralized by substantially all assets.
Borrowings as of June 30, 1998 were $741,077.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax loss on operations
before extraordinary item of ($104,065) for the six months ended June 30,
1998 as compared to profit of $489,186 for the same period in 1997. Net
sales for the period ended June 30, 1998 were approximately $4,920,502;
which represents a decrease of 19.8% from 1997 sales through June 30, 1997
of $6,147,171. The loss in 1998 includes a one-time loss of $143,214 for
the Michigan Casting Plant where the Company is not renewing its lease.
The production operations were previously consolidated with Yale Industries
in 1996.
The cost of sales for the six months ended June 30, 1998 as a
percentage of sales was 90.6% as compared to 83.0% for the same period in
1997.
Selling, General and Administrative for the three months ended June
30, 1998 as a percentage of sales was 8.2% as compared to 7.9% for the same
period in 1997.
Sales for the first six months were down compared to the first six
months of 1997 due primarily to the loss of a major customer at the Ft.
Atkinson plant.
Management anticipates improved results for the second half of the
year based on projected increased sales at the Ft. Atkinson plant.
-11-
<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 24, 1998
for the election of Directors.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
On March 30, 1998, the Registrant filed a Form 8-K reporting
under Item 2, the sale of a 45% ownership interest in the New
Haven Foundry to Wesley Industries, Inc.
-12-
<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 3, 1998
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,522
<SECURITIES> 0
<RECEIVABLES> 1,980
<ALLOWANCES> 0
<INVENTORY> 89
<CURRENT-ASSETS> 3,903
<PP&E> 5,268
<DEPRECIATION> 1,463
<TOTAL-ASSETS> 8,221
<CURRENT-LIABILITIES> 1,544
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 5,593
<TOTAL-LIABILITY-AND-EQUITY> 8,221
<SALES> 4,931
<TOTAL-REVENUES> 7,006
<CGS> 4,467
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,549
<INCOME-PRETAX> 1,971
<INCOME-TAX> 167
<INCOME-CONTINUING> 1,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,804
<EPS-PRIMARY> 0.395
<EPS-DILUTED> 0.395
</TABLE>
