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, 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 June 30, 1999, the Company had 1,489,214 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
-----------------------------------------
June 30, 1999 Dec. 31, 1998
------------- -------------
ASSETS (Unaudited)
- ------
CURRENT ASSETS
Cash and cash equivalents $1,625,128 $1,504,725
Accounts receivable 1,585,125 1,569,446
Current maturities of notes receivable 112,381 108,571
Inventories 107,900 43,000
Prepaid expenses and other 76,354 60,049
Prepaid Federal income tax - 21,700
Deferred tax asset 10,500 10,500
---------- ----------
Total Current Assets 3,517,388 3,317,991
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation and
amortization of $1,813,633 and $1,631,533
at June 30, 1999 and December 31, 1998,
respectively 3,694,580 3,763,902
NOTES RECEIVABLE - net of current maturities 382,857 440,000
OTHER 39,800 39,800
---------- ----------
Total Assets $7,634,625 $7,561,693
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
June 30, 1999 Dec. 31, 1998
------------- -------------
LIABILITIES & STOCKHOLDER'S EQUITY (Unaudited)
- ----------------------------------
CURRENT LIABILITIES
Line-of-credit $ 191,428 $ 585,212
Currents portion of long-term debt 56,285 61,710
Accounts payable 392,660 212,306
Accrued salaries and wages 88,209 67,233
Accrued workers' compensation 10,651 4,651
Accrued federal income tax 85,307 -
Other accrued liabilities 20,724 15,041
---------- ----------
Total Current Liabilities 845,264 946,153
DEFERRED TAX LIABILITY 255,500 255,500
OTHER POSTRETIREMENT BENEFITS 452,075 452,075
NOTES PAYABLE - Long-term 163,248 191,599
STOCKHOLDERS' EQUITY:
Common stock - $.015 par value
Authorized - 5,000,000
Issued and outstanding -
1,489,214 and 1,489,214
at June 30, 1999 and December 31, 1998,
respectively 22,338 22,338
Paid-in for common stock in excess of
par value 7,345,038 7,345,038
Accumulated deficit (1,448,838) (1,651,010)
---------- ----------
Total Stockholders' Equity 5,918,538 5,716,366
---------- ----------
Total Liabilities and
Stockholders' Equity $7,634,625 $7,561,693
========== ==========
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES $2,566,870 $2,648,632 $5,017,571 $4,930,502
COST OF SALES 2,200,015 2,355,278 4,355,160 4,467,320
---------- ---------- ---------- ----------
GROSS PROFIT 366,855 293,354 662,411 463,182
---------- ---------- ---------- ----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 215,973 188,553 398,250 406,253
---------- ---------- ---------- ----------
RELATED PARTY SERVICES
AND SALES COMMISSIONS 1,966 4,231 1,966 4,231
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 148,916 100,570 262,195 52,698
---------- ---------- ---------- ----------
DIVIDEND AND INTEREST INCOME
(EXPENSE) - NET 18,453 7,780 34,476 (13,549)
OTHER (EXPENSE) 12,501 0 12,501 (143,214)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISIONS FOR
EXTRAORDINARY ITEM 179,870 108,350 309,172 (104,065)
GAIN ON SALE OF 45% INTEREST
IN NEW HAVEN FOUNDRY - - - 2,075,000
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 179,870 108,350 309,172 1,970,935
PROVISION FOR FEDERAL
INCOME TAXES 63,000 34,527 107,000 166,527
---------- ---------- ---------- ----------
INCOME (LOSS) $ 116,870 $ 73,823 $ 202,172 $1,804,408
========== ========== ========== ==========
BASIC EARNINGS PER COMMON
SHARE $0.078 $0.048 $0.136 $1.184
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,489,214 1,524,548 1,489,214 1,524,548
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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
Net income -- -- -- 202,172 202,172
---------- ---------- ---------- ---------- ----------
Balance - June 30, 1999 1,489,214 $ 22,338 $7,345,038 $(1,448,838) $5,918,538
========== ========== ========== ========== ==========
</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* 1,524,548 $ 22,868 $7,410,725 $(3,622,126) $3,811,467
Net income -- -- -- 1,804,408 1,804,408
---------- ---------- ---------- ---------- ----------
Balance - June 30, 1998* 1,524,548 $ 22,868 $7,410,725 $(1,817,718) $5,615,875
========== ========== ========== ========== ==========
</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)
Six Months Ended
JUNE 30,
1999 1998
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 607,408 $2,313,758
INVESTING ACTIVITIES:
Purchase of plant and equipment (112,778) (91,649)
---------- ----------
Net cash used in investing activities (112,778) (91,649)
FINANCING ACTIVITIES:
Net proceeds (repayments) -
line of credit (net) (393,784) 115,077
Purchase of common stock - -
Principal payments under long-term
obligations (33,776) (330,813)
Decrease (increase) in notes receivable 53,333 (595,550)
---------- ----------
Net cash provided by (used in)
financing activities (374,227) (811,286)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 120,403 1,410,823
CASH AND CASH EQUIVALENTS - Beginning 1,504,725 110,822
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $1,625,128 $1,521,645
========== ==========
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 June 30, 1999 and the related
Consolidated Statements of Operations, Changes in Stockholders'
Equity, and Cash Flows for the six months ended June 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 six months ended
June 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
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)
1999 1998
---- ----
Net income $ 202,172 $1,804,408
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 182,100 182,000
Loss on disposal of fixed assets -- 143,214
Changes in assets and liabilities:
Accounts receivable (15,679) (115,767)
Inventories (64,900) (47,001)
Prepaid expenses (16,305) (4,842)
Prepaid Federal tax 21,700 (59,166)
Other assets -- --
Accounts payable 180,354 171,981
Accrued workers' compensation 6,000 6,000
Accrued salaries and wages 20,976 11,550
Accrued Federal Income Tax 85,307 --
Deferred income tax -- 204,000
Other liabilities 5,683 17,381
---------- ----------
Net cash provided (used) by
operating activities $ 607,408 $2,313,758
========== ==========
-8-
<PAGE>
NOTE 4 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 1,489,214 and 1,524,548 for the three month periods
ended June 30, 1999 and 1998, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at June 30, 1999:
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003. 186,883
Capital lease - Ft. Atkinson - due in
monthly installments of $705 including
interest at 17.9% through July 2001 14,305
Capital lease - Yale - due in monthly
installments of $828.48 including interest
at 9.0% maturing September 2001. 18,345
---------
219,533
Less current portion 56,285
---------
$ 163,248
Maturities of notes payable obligations are as follows:
Year ended June 30:
2000: $ 56,285
2001: 58,767
2002: 46,233
2003: 46,419
2004: 11,829
---------
$ 219,533
=========
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 7.5% at June 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 June 30, 1999. The Company has borrowings against
the line of $191,428 and $741,076 at June 30, 1999 and 1998, respectively.
-9-
<PAGE>
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at June 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. $ 495,238
Less current portion 112,381
---------
$ 382,857
=========
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 (6) months ended June 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 June 30, 1999 was $191,428.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations
before extraordinary item of $309,172 for the six months ended June 30,
1999 as compared to a loss of ($104,065) for the same period in 1998. Net
sales for the period ended June 30, 1999 were approximately $5,017,571;
which represents an increase of 1.8% from 1998 sales through June 30, 1998
of $4,930,502. 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 six months ended June 30, 1999 as a percentage
of sales was 86.8% as compared to 90.6% for the same period in 1998.
Selling, General and Administrative for the three months ended June 30,
1999 as a percentage of sales was 7.9% 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,
-11-
<PAGE>
including, 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
--------------------------------
No Reports on Form 8-K were filed during the quarter.
-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: July 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,625
<SECURITIES> 0
<RECEIVABLES> 1,585
<ALLOWANCES> 0
<INVENTORY> 108
<CURRENT-ASSETS> 3,517
<PP&E> 5,508
<DEPRECIATION> 1,814
<TOTAL-ASSETS> 7,635
<CURRENT-LIABILITIES> 845
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 5,896
<TOTAL-LIABILITY-AND-EQUITY> 7,635
<SALES> 5,018
<TOTAL-REVENUES> 5,018
<CGS> 4,355
<TOTAL-COSTS> 4,355
<OTHER-EXPENSES> 398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 309
<INCOME-TAX> 107
<INCOME-CONTINUING> 202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202
<EPS-BASIC> 0.136
<EPS-DILUTED> 0.136
</TABLE>
