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, 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 September 30, 1998, the Company had 4,503,637 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
-----------------------------------------
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $1,518,952 $ 110,822
Accounts receivable 1,994,155 1,864,240
Notes receivable 153,350 17,800
Inventories - parts and supplies 164,990 41,991
Prepaid expenses and other 24,865 37,394
Prepaid Federal income tax 104,046 41,000
Deferred tax asset 12,400 12,400
---------- ----------
Total Current Assets 3,972,758 2,125,647
Other 52,700 56,764
Notes receivable 430,074 -
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $1,553,134 and
$1,324,045 at September 30, 1998 and
December 31, 1997, respectively 3,749,496 4,038,979
---------- ----------
Total Assets $8,205,028 $6,221,390
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Notes payable $ 868,077 $ 626,000
Current portion of long-term debt 84,023 213,832
Accounts payable 493,069 425,746
Accrued salaries and wages 84,732 63,924
Accrued workers' compensation 15,870 6,870
Accrued federal income tax - -
Other accrued liabilities 22,825 5,835
---------- ----------
Total Current Liabilities 1,568,596 1,342,207
DEFERRED TAX LIABILITY 439,700 235,700
OTHER POSTRETIREMENT BENEFITS 419,856 419,856
NOTES PAYABLE - Long-term 205,446 412,160
STOCKHOLDERS' EQUITY
Common stock, $.005 par value per
share; 25,000,000 shares authorized,
4,503,637 and 4,573,637 shares issued
and outstanding at September 30, 1998
and December 31, 1997, respectively 22,518 22,868
Paid in for common stock in excess
of par value 7,363,428 7,410,725
Accumulated deficit (1,814,516) (3,622,126)
---------- ----------
Total Stockholders' Equity 5,571,430 3,811,467
---------- ----------
Total Liabilities and
Stockholders' Equity $8,205,028 $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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $2,523,248 $1,885,119 $7,453,750 $8,032,290
COST OF SALES 2,317,488 1,968,191 6,784,808 7,067,655
---------- ---------- ---------- ----------
GROSS PROFIT 205,760 (83,072) 668,942 964,635
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 207,368 240,465 613,621 728,525
RELATED PARTY SERVICES
AND SALES COMMISSIONS 0 0 4,231 10,808
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (1,608) (323,537) 51,090 225,302
DIVIDEND AND INTEREST INCOME
(EXPENSE) NET 8,690 (26,908) (4,859) (86,561)
OTHER (EXPENSE) 0 0 (143,214) 0
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION
FOR EXTRAORDINARY ITEM 7,082 (350,445) (96,983) 138,741
GAIN ON SALE OF 45% INTEREST
IN NEW HAVEN FOUNDRY 0 0 2,075,000 0
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 7,082 (350,445) 1,978,017 138,741
PROVISION FOR FEDERAL INCOME
TAXES 3,880 116,000 170,407 55,000
---------- ---------- ---------- ----------
INCOME (LOSS) $ 3,202 $ (234,445) $1,807,610 $ 83,741
========== ========== ========== ==========
BASIC EARNINGS PER
COMMON SHARE: $ 0.011 $ (0.051) $ 0.396 $ 0.018
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,552,658 4,573,637 4,566,557 4,573,637
</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, 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
Repurchase of common stock (70,000) (350) (47,297) 0 (47,647)
Net income -- -- -- 1,807,610 1,807,610
---------- ---------- ---------- ---------- ----------
Balance -
September 30, 1998 4,503,637 $ 22,518 $7,363,428 $(1,814,516) $5,571,430
========== ========== ========== ========== ==========
</TABLE>
<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>
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
Nine Months Ended
September 30,
1998 1997
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $2,241,578 $ 612,750
INVESTING ACTIVITIES:
Purchase of plant and equipment (125,731) (214,166)
---------- ----------
Net cash used in investing activities (125,731) (214,166)
FINANCING ACTIVITIES:
Net proceeds (repayments) -
line of credit (net) 242,077 (250,000)
Purchase of common stock (47,647) -
Principal payments under
long-term obligations (336,523) (155,147)
Proceeds from long-term obligations - -
Decrease (increase) notes receivable (565,624) 13,320
---------- ----------
Net cash provided by (used in)
financing activities (707,717) (391,827)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,408,130 6,757
CASH AND CASH EQUIVALENTS - Beginning 110,822 2,086
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $1,518,952 $ 8,843
========== ==========
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, 1998 and the
related Consolidated Statements of Operations, Changes in
Stockholders' Equity, and Cash Flows for the nine months ended
September 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 nine months ended September 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:
Nine Months Ended
September 30,
(unaudited)
1998 1997
---------- ----------
Net income $1,807,610 $ 83,741
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 272,000 245,000
Loss on disposal of fixed assets 143,214 --
Changes in assets and liabilities:
Accounts receivable (129,915) 69,833
Inventories (122,999) (37,500)
Prepaid expenses 12,529 9,986
Prepaid Federal tax (63,046) 270,870
Other assets 4,064 15,271
Accounts payable 67,323 (88,469)
Accrued workers' compensation 9,000 5,996
Accrued salaries and wages 20,808 (462)
Deferred income tax 204,000 -
Other liabilities 16,990 38,454
---------- ----------
Net cash provided (used) by
operating activities $2,241,578 $ 612,720
========== ==========
-8-
<PAGE>
NOTE 4 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 4,566,567 and 4,573,637 fully diluted for the nine
month periods ended September 30, 1998, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at September 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 January 1999. $ 30,333
Capital Lease - Yale - due in monthly
installments of $868.48 including interest
at 9.0% maturing September 2001. 24,337
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003. 216,705
Capital lease - Ft. Atkinson - due in
monthly installments of $705 including
interest at 17.9% through July 2001. 18,094
---------
289,469
Less current portion 84,023
---------
$ 205,446
Maturities of notes payable obligations are as follows:
Year ended September 30:
1999: $ 84,023
2000: 56,628
2001: 56,954
2002: 45,049
2003: 46,815
---------
$ 289,469
=========
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 September 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 September 30, 1998. The Company has
borrowings against the line of $868,077 and $332,000 at September 30,
1998 and 1997, respectively.
-9-
<PAGE>
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at September 30, 1998:
Notes receivable - Wesley Industries, Inc.
due in quarterly payments of $4,450 plus
interest at prime rate. $ 8,900
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. $574,524
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 $2,800,000 paid in quarterly
installments of $140,000 over five (5) years. The gain on sale is
reported on the consolidated income statement net of legal fees.
-10-
<PAGE>
<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, 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 September 30, 1998 were $868,077.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax loss on operations
before extraordinary item of ($96,983) for the nine months ended September
30, 1998 as compared to profit of $138,741 for the same period in 1997.
Net sales for the period ended September 30, 1998 were approximately
$7,453,750; which represents a decrease of 7.2% from 1997 sales through
September 30, 1997 of $8,032,290. 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 nine months ended September 30, 1998 as a
percentage of sales was 91.0% as compared to 88.0% for the same period in
1997.
Selling, General and Administrative for the nine months ended
September 30, 1998 as a percentage of sales was 8.2% as compared to 9.1%
for the same period in 1997.
Sales for the nine months were down compared to the first nine months
of 1997 due primarily to the loss of a major customer at the Ft. Atkinson
plant. Sales were also down due to the General Motors strike.
Management anticipates improved results for the fourth 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
-----------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
-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: November 2, 1998
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,519
<SECURITIES> 0
<RECEIVABLES> 1,994
<ALLOWANCES> 0
<INVENTORY> 165
<CURRENT-ASSETS> 3,973
<PP&E> 5,303
<DEPRECIATION> 1,553
<TOTAL-ASSETS> 8,205
<CURRENT-LIABILITIES> 1,569
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 5,548
<TOTAL-LIABILITY-AND-EQUITY> 8,205
<SALES> 7,454
<TOTAL-REVENUES> 9,529
<CGS> 6,785
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 1,978
<INCOME-TAX> 170
<INCOME-CONTINUING> 1,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,808
<EPS-PRIMARY> .396
<EPS-DILUTED> .396
</TABLE>
