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, 1999
-------------------------------
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, 1999, the Company had 1,515,414 shares of its $.015 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 - 12
PART II: OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 13
- -------- -----------------
-2-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------------------
Sept 30, 1999 Dec. 31, 1998
------------- -------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $1,576,294 $1,504,725
Accounts receivable 2,080,211 1,569,446
Current maturities of notes receivable 114,286 108,571
Inventories 92,000 43,000
Prepaid expenses and other 114,907 60,049
Prepaid Federal income tax - 21,700
Deferred tax asset 10,500 10,500
---------- ----------
Total Current Assets 3,988,198 3,317,991
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation and
amortization of $1,904,683 and $1,631,533 at
September 30, 1999 and December 31, 1998,
Respectively 3,731,444 3,763,902
NOTES RECEIVABLE - net of current maturities 353,571 440,000
OTHER 34,833 39,800
---------- ----------
Total Assets $8,108,046 $7,561,693
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
Sept. 30, 1999 Dec. 31, 1998
------------- -------------
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line-of-credit $ 420,432 $ 585,212
Currents portion of long-term debt 56,714 61,710
Accounts payable 360,455 212,306
Accrued salaries and wages 81,928 67,233
Accrued workers' compensation 12,000 4,651
Accrued federal income tax 133,307 -
Other accrued liabilities 128,029 15,041
---------- ----------
Total Current Liabilities 1,192,865 946,153
DEFERRED TAX LIABILITY 255,500 255,500
OTHER POSTRETIREMENT BENEFITS 452,075 452,075
NOTES PAYABLE - Long-term 148,730 191,599
STOCKHOLDERS' EQUITY:
Common stock - $.015 par value
Authorized - 5,000,000
Issued and outstanding -
1,514,414 and 1,489,214
at September 30, 1999 and December 31, 1998,
respectively 22,731 22,338
Paid-in for common stock in excess of
par value 7,391,173 7,345,038
Accumulated deficit (1,355,028) (1,651,010)
---------- ----------
Total Stockholders' Equity 6,058,876 5,716,366
---------- ----------
Total Liabilities and
Stockholders' Equity $8,108,046 $7,561,693
========== ==========
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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES $2,477,284 $2,523,248 $7,494,855 $7,453,750
COST OF SALES 2,130,728 2,317,488 6,485,888 6,784,808
---------- ---------- ---------- ----------
GROSS PROFIT 346,556 205,760 1,008,967 668,942
---------- ---------- ---------- ----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 235,579 207,368 633,829 613,621
---------- ---------- ---------- ----------
RELATED PARTY SERVICES
AND SALES COMMISSIONS 0 0 1,966 4,231
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 110,977 (1,608) 373,172 51,090
---------- ---------- ---------- ----------
DIVIDEND AND INTEREST INCOME
(EXPENSE) - NET 18,332 8,690 52,808 (4,859)
OTHER (EXPENSE) 12,501 0 25,002 (143,214)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISIONS FOR
EXTRAORDINARY ITEM 141,810 7,082 450,982 (96,983)
GAIN ON SALE OF 45% INTEREST
IN NEW HAVEN FOUNDRY - - - 2,075,000
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 141,810 7,082 450,982 1,978,017
PROVISION FOR FEDERAL
INCOME TAXES 48,000 3,880 155,000 170,407
---------- ---------- ---------- ----------
INCOME (LOSS) $ 93,810 $ 3,202 $ 295,982 $1,807,610
========== ========== ========== ==========
BASIC EARNINGS PER COMMON
SHARE $0.062 $0.002 $0.198 $1.188
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,514,605 1,517,553 1,497,741 1,522,186
</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, 1999
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, 1999 1,489,214 $ 22,338 $7,345,038 $(1,651,010) $5,716,366
Stock Issued 26,200 393 46,135 46,528
Net income -- -- -- 295,982 295,982
---------- ---------- ---------- ---------- ----------
Balance -
September 30, 1999 1,515,414 $ 22,731 $7,391,173 $(1,355,028) $6,058,876
========== ========== ========== ========== ==========
</TABLE>
<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* 1,524,548 $ 22,868 $7,410,725 $(3,622,126) $3,811,467
Repurchase of stock (22,334) (350) (47,297) (47,647)
Net income -- -- -- 1,807,610 1,807,610
---------- ---------- ---------- ---------- ----------
Balance -
September 30, 1998* 1,501,214 $ 22,518 $7,363,428 $(1,814,516) $5,571,430
========== ========== ========== ========== ==========
</TABLE>
* Shares have been adjusted to reflect one for three reverse split on
November 13, 1998.
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
Nine Months Ended
September 30,
1999 1998
------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 397,664 $2,241,578
INVESTING ACTIVITIES:
Purchase of plant and equipment (240,692) (125,731)
---------- ----------
Net cash used in investing activities (240,692) (125,731)
FINANCING ACTIVITIES:
Net proceeds (repayments) -
line of credit (net) (164,780) 242,077
Purchase of common stock 46,528 (47,647)
Principal payments under long-term
obligations (47,865) (336,523)
Decrease (increase) in notes receivable 80,714 (565,624)
---------- ----------
Net cash provided by (used in)
financing activities (85,403) (707,717)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 71,569 1,408,130
CASH AND CASH EQUIVALENTS - Beginning 1,504,725 110,822
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $1,576,294 $1,518,952
========== ==========
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, 1999 and the
related Consolidated Statements of Operations, Changes in
Stockholders' Equity, and Cash Flows for the nine months ended
September 30, 1999 and 1998 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, 1999 and 1998 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
On September 15, 1999 the Board Of Directors approved a 5% stock
dividend payable on November 15, 1999 to shareholders of record on
October 15, 1999.
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)
1999 1998
---------- ----------
Net income $ 295,982 $1,807,610
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 273,150 272,000
Loss on disposal of fixed assets 143,214
Changes in assets and liabilities:
Accounts receivable (510,765) (129,915)
Inventories (49,000) (122,999)
Prepaid expenses (54,858) 12,529
Prepaid Federal tax 21,700 (63,046)
Other assets 4,967 4,064
Accounts payable 148,149 67,323
Accrued workers' compensation 7,349 9,000
Accrued salaries and wages 14,695 20,808
Accrued Federal Income Tax 133,307 --
Deferred income tax 204,000
Other liabilities 112,988 16,990
---------- ----------
Net cash provided (used) by
operating activities $ 397,664 $2,241,578
========== ==========
-8-
<PAGE>
NOTE 4 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 1,497,741 and 1,522,186 for the nine month periods
ended September 30, 1999 and 1998, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at September 30, 1999:
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003. 176,741
Capital lease - Ft. Atkinson - due in monthly
installments of $705 including interest at 17.9%
through July 2001 12,446
Capital lease - Yale - due in monthly
installments of $828.48 including interest at
9.0% maturing September 2001. 16,257
---------
205,444
Less current portion 56,714
---------
$ 148,730
Maturities of notes payable obligations are as follows:
Year ended September 30:
2000: $ 56,714
2001: 56,869
2002: 45,047
2003: 46,814
---------
$ 205,444
=========
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 7.75% at September 30, 1999. 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, 1999. The Company has
borrowings against the line of $420,432 and $868,077 at September 30,
1999 and 1998, respectively.
-9-
<PAGE>
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at September 30, 1999:
Notes receivable - Wesley Industries, Inc. due
in quarterly payments of $35,000 commencing
June 1, 1998, including imputed interest, with a
final payment of the remaining outstanding
principal and imputed interest balance on
March 1, 2003. $ 467,857
Less current portion 114,286
---------
$ 353,571
=========
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 $2,800,000 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>
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 (9) months ended September 30,
1999.
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, 1999 was $420,432.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations
before extraordinary item of $450,982 for the nine months ended September
30, 1999 as compared to a loss of ($96,983) for the same period in 1998.
Net sales for the period ended September 30, 1999 were approximately
$7,494,855; which represents an increase of 0.6% from 1998 sales through
September 30, 1998 of $7,453,750. The loss in 1998 includes a one-time
loss of $143,214 due to the abandonment of leasehold improvements upon the
expiration of the building lease of the Michigan Casting plant. The
production operations were previously consolidated with Yale Industries in 1996.
The cost of sales for the nine months ended September 30, 1999 as a
percentage of sales was 86.5% as compared to 91.0% for the same period in 1998.
Selling, General and Administrative for the nine months ended
September 30, 1999 as a percentage of sales was 8.5% as compared to 8.2%
for the same period in 1998.
IMPACT OF THE YEAR 2000 ISSUE
- -----------------------------
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including,
-11-
<PAGE>
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. Based on an
assessment of its computer systems, the Company believes that it will not
encounter significant operational problems or be required to modify or
replace significant portions of its software so that its computer systems
will properly utilize dates beyond December 31, 1999. In particular, the
Company has installed current compliant software for its inventory and made
inquiries of its vendors to insure they are taking proper steps to insure
2000 compliance. However, if problems are encountered and modifications
and conversions are not timely made, the Year 2000 problem may have an
impact on the operations of the Company.
-12-
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any material pending legal
proceeding to which the Company is a party or to which any of its
property is subject.
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 10, 1999 for
the election of Directors and a proposal to reduce the authorized
capital of the corporation from 25,000,000 shares of Common Stock
to 5,000,000 shares of Common Stock and change the par value to
$.015. The following summarizes the vote at the meeting:
Election of Directors - With Terms Expiring at the Annual Meeting
---------------------------------------------------------------
in 2002:
-------
For Against Abstain
--- ------- -------
Dennis R. LeDuc 929,943 1,962 0
Amendment To Articles of Incorporation:
--------------------------------------
For Against Abstain
--- ------- -------
Reduction of Authorized Capital 932,676 79,095 0
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Report filed during the quarter on 5% stock dividend payable on
11/15/99
-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 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,576
<SECURITIES> 0
<RECEIVABLES> 2,080
<ALLOWANCES> 0
<INVENTORY> 92
<CURRENT-ASSETS> 3,988
<PP&E> 5,636
<DEPRECIATION> 1,905
<TOTAL-ASSETS> 8,108
<CURRENT-LIABILITIES> 1,193
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 6,036
<TOTAL-LIABILITY-AND-EQUITY> 8,108
<SALES> 7,495
<TOTAL-REVENUES> 7,495
<CGS> 6,486
<TOTAL-COSTS> 2
<OTHER-EXPENSES> 634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 451
<INCOME-TAX> 155
<INCOME-CONTINUING> 296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296
<EPS-BASIC> .198
<EPS-DILUTED> .198
</TABLE>
