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, 1998
--------------------------------
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, 1998, 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 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 11
PART II: OTHER INFORMATION . . . . . . . . . . . . . . . . . . 12
- ------- -----------------
-2-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------------------
March 31, December 31,
1998 1997
---------- ----------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $1,501,519 $ 110,822
Accounts receivable 1,549,270 1,864,240
Notes receivable 152,800 17,800
Inventories - parts and supplies 59,191 41,991
Prepaid expenses and other 81,455 37,394
Prepaid Federal income tax 113,000 41,000
Deferred tax asset 12,400 12,400
---------- ----------
Total Current Assets 3,469,635 2,125,647
Other 56,764 56,764
Notes receivable 465,000 -
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $1,371,134 and
$1,324,045 at March 31, 1998 and
December 31, 1997, respectively 3,828,586 4,038,979
---------- ----------
Total Assets $7,819,985 $6,221,390
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
March 31, December 31,
1998 1997
---------- ----------
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Notes payable $ 248,000 $ 626,000
Current portion of long-term debt 201,065 213,832
Accounts payable 502,301 425,746
Accrued salaries and wages 63,890 63,924
Accrued workers' compensation 9,870 6,870
Accrued federal income tax - -
Other accrued liabilities 20,508 5,835
---------- ----------
Total Current Liabilities 1,045,634 1,342,207
DEFERRED TAX LIABILITY 439,700 235,700
OTHER POSTRETIREMENT BENEFITS 419,856 419,856
NOTES PAYABLE - Long-term 372,743 412,160
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, 1998
and December 31, 1997, respectively 22,868 22,868
Paid in for common stock in excess
of par value 7,410,725 7,410,725
Accumulated deficit (1,891,541) (3,622,126)
---------- ----------
Total Stockholders' Equity 5,542,052 3,811,467
---------- ----------
Total Liabilities and
Stockholders' Equity $7,819,985 $6,221,390
========== ==========
See Notes to Consolidated Financial Statements
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
-----------------------------------------
(Unaudited)
Three Months Ended
March 31,
1996 1997
---------- ----------
NET SALES $2,281,870 $3,136,841
COST OF SALES 2,112,042 2,570,858
---------- ----------
GROSS PROFIT 169,828 565,983
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 217,700 256,132
RELATED PARTY SERVICES AND
SALES COMMISSIONS 0 0
---------- ----------
INCOME (LOSS) FROM OPERATIONS (47,872) 309,851
DIVIDEND AND INTEREST INCOME
(EXPENSE) NET (21,329) (28,504)
OTHER INCOME (LOSS) (143,214) 0
---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
EXTRAORDINARY ITEM (212,415) 281,347
GAIN ON SALE OF 45% INTEREST IN NEW
HAVEN FOUNDRY 2,075,000 0
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 1,862,585 281,347
PROVISION FOR FEDERAL INCOME TAXES 132,000 96,000
---------- ----------
INCOME (LOSS) $1,730,585 $ 185,347
========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
Primary $ 0.378 $ 0.041
WEIGHTED AVERAGE SHARES
OUTSTANDING (primary) 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>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 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 -- -- -- 1,730,585 1,730,585
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1998 4,573,637 $ 22,868 $7,410,725 $(1,891,541) $5,542,052
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 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 -- -- -- 185,347 185,347
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1997 4,573,637 $ 22,868 $7,410,725 $(3,585,778) $3,847,815
========== ========== ========== ========== ==========
</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,
1998 1997
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $2,443,702 $ (81,107)
INVESTING ACTIVITIES:
Purchase of plant and equipment (22,821) (141,227)
---------- ----------
Net cash used in investing activities (22,821) (141,227)
FINANCING ACTIVITIES:
Net proceeds (repayments) - line of
credit (net) (378,000) 279,000
Purchase of common stock -- --
Principal payments under
long-term obligations (52,184) (54,312)
Proceeds from long-term obligations -- --
Decrease (increase) notes receivable (600,000) 4,450
---------- ----------
Net cash provided by (used in)
financing activities (1,030,184) 229,138
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,390,697 6,804
CASH AND CASH EQUIVALENTS - Beginning 110,822 2,086
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $1,501,519 $ 8,890
========== ==========
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, 1998 and the related
Consolidated Statements of Operations, Changes in Stockholders'
Equity, and Cash Flows for the three months ended March 31, 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 three months ended
March 31, 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:
Three Months Ended
March 31,
(Unaudited)
1998 1997
---------- ----------
Net income $1,730,585 $ 185,347
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 90,000 82,000
Loss on disposal of fixed assets 143,214 --
Changes in assets and liabilities:
Accounts receivable 314,970 (356,027)
Inventories (17,200) (90,500)
Prepaid expenses (44,061) (40,412)
Prepaid Federal tax (72,000) 96,000
Other assets -- 12,900
Accounts payable 76,555 24,231
Accrued workers' compensation 3,000 206
Accrued salaries and wages (34) 5,935
Deferred income tax 204,000 --
Other liabilities 14,673 (787)
---------- ----------
Net cash provided (used) by
operating activities $2,443,702 $ (81,107)
========== ==========
-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 three
month periods ended March 31, 1998 and 4,573,637 and 4,793,637 fully
diluted at March 31, 1997.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at March 31, 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. $ 75,833
Note payable bank, due in monthly
installments of $8,300, including interest
at 8% maturing December 2000. The note
is collateralized by substantially all
Company assets. 241,507
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003. 236,096
Capital lease, due in monthly
installments of $705 including interest
at 17.9% through July 2001. 20,372
----------
573,808
Less current portion 201,065
----------
$ 372,743
==========
Maturities of notes payable obligations are as follows:
Year ended March 31:
1999: $ 202,355
2000: 135,386
2001: 119,769
2002: 46,732
2003: 45,958
Thereafter 23,608
----------
$ 573,808
==========
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 March 31, 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
-9-
<PAGE>
March 31, 1998. The Company has borrowings against the line of
$248,000 and $861,000 at March 31, 1998 and 1997, respectively.
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at March 31, 1997:
Notes receivable - Wesley Industries, Inc.
due in quarterly payments of $4,450 plus
interest at prime rate. $ 17,800
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 paid
$1,500,000 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 three (3) months ended March 31,
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 the prime rate with the National Bank of
Detroit. The line is collateralized by substantially all assets.
Borrowings as of March 31, 1998 was $248,000.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax loss on operations
before extraordinary item of ($214,415) for the three months ended March
31, 1998 as compared to profit of $281,647 for the same period in 1997.
Net sales for the period ended March 31, 1998 were approximately
$2,291,870; which represents a decrease of 26.9% from 1997 sales through
March 31, 1997 of $3,136,841. The loss in 1998 includes a one-time loss of
$143,214 for the Michigan Casting Plant which the Company is not renewing
its lease. The production operations were previously consolidated with
Yale Industries in 1996.
The cost of sales for the three months ended March 31, 1998 as a
percentage of sales was 92.6% as compared to 82.0% for the same period in
1997.
Selling, General and Administrative for the three months ended March
31, 1998 as a percentage of sales was 9.5% as compared to 8.2% for the same
period in 1997.
Sales for the first quarter were down compared to the first quarter of
1997 due primarily to the loss of a major customer at the Ft. Atkinson
plant.
Management anticipates improved results for the second quarter 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: April 27, 1998
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,502
<SECURITIES> 0
<RECEIVABLES> 1,684
<ALLOWANCES> 0
<INVENTORY> 59
<CURRENT-ASSETS> 3,470
<PP&E> 5,200
<DEPRECIATION> 1,371
<TOTAL-ASSETS> 7,820
<CURRENT-LIABILITIES> 1,046
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 5,519
<TOTAL-LIABILITY-AND-EQUITY> 7,820
<SALES> 2,282
<TOTAL-REVENUES> 4,357
<CGS> 2,112
<TOTAL-COSTS> 218
<OTHER-EXPENSES> 143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 1,863
<INCOME-TAX> 132
<INCOME-CONTINUING> 1,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,731
<EPS-PRIMARY> 0.378
<EPS-DILUTED> 0.378
</TABLE>
