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, 1999
-----------------------------------
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
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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
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As of March 31, 1999, the Company had 1,489,214 shares of its $.015 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 - 12
PART II: OTHER INFORMATION. . . . . . . . . . . . . . . . . . . .13
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-----------------------------------------
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $1,660,646 $1,504,725
Accounts receivable 1,665,021 1,569,446
Current maturities of notes receivable 110,476 108,571
Inventories 119,900 43,000
Prepaid expenses and other 101,827 60,049
Prepaid Federal income tax - 21,700
Deferred tax asset 10,500 10,500
---------- ----------
Total Current Assets 3,668,370 3,317,991
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation
and amortization of $1,722,583 and
$1,631,533 at March 31, 1999 and
December 31, 1998, respectively 3,672,852 3,763,902
NOTES RECEIVABLE - net of current maturities 411,667 440,000
OTHER 39,800 39,800
---------- ----------
Total Assets $7,792,689 $7,561,693
========== ==========
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
March 31, December 31,
1999 1998
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(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES
Line-of-credit $ 343,212 $ 585,212
Current portion of long-term debt 55,403 61,710
Accounts payable 585,495 212,306
Accrued salaries and wages 70,708 67,233
Accrued workers' compensation 7,651 4,651
Accrued federal income tax 22,300 -
Other accrued liabilities 21,141 15,041
---------- ----------
Total Current Liabilities 1,105,910 946,153
DEFERRED TAX LIABILITY 255,500 255,500
OTHER POSTRETIREMENT BENEFITS 452,075 452,075
NOTES PAYABLE - Long-term 177,536 191,599
STOCKHOLDERS' EQUITY
Common stock - $.015 par value
Authorized - 25,000,000
Issued and outstanding -
1,489,214 and 1,489,214 at
March 31, 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 (1,565,708) (1,651,010)
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Total Stockholders' Equity 5,801,668 5,716,366
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Total Liabilities and
Stockholders' Equity $7,792,689 $7,561,693
========== ==========
See Notes to Consolidated Financial Statements
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
-----------------------------------------
(Unaudited)
Three Months Ended
March 31,
1999 1998
------------ ------------
NET SALES $2,450,701 $2,281,870
COST OF SALES 2,155,145 2,112,042
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GROSS PROFIT 295,556 169,828
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SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 182,277 217,700
RELATED PARTY SERVICES AND
SALES COMMISSIONS 0 0
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INCOME (LOSS) FROM OPERATIONS 113,279 (47,872)
---------- ----------
DIVIDEND AND INTEREST INCOME
(EXPENSE) NET 16,023 (21,329)
OTHER (EXPENSE) 0 (143,214)
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INCOME (LOSS) BEFORE PROVISION FOR
EXTRAORDINARY ITEM 129,302 (212,415)
---------- ----------
GAIN ON SALE OF 45% INTEREST IN NEW
HAVEN FOUNDRY 0 2,075,000
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 129,302 1,862,585
PROVISION FOR FEDERAL INCOME TAXES 44,000 132,000
---------- ----------
INCOME (LOSS) $ 85,302 $1,730,585
========== ==========
BASIC EARNINGS PER COMMON SHARE: $ 0.057 $ 1.135
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,489,214 1,524,548
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 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 -- -- -- 85,302 85,302
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1999 1,489,214 $ 22,338 $7,345,038 $(1,565,708) $5,801,668
========== ========== ========== ========== ==========
</TABLE>
<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* 1,524,548 $ 22,868 $7,410,725 $(3,622,126) $3,811,467
Net income -- -- -- 1,730,585 1,730,585
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1998* 1,524,548 $ 22,868 $7,410,725 $(1,891,541) $5,542,052
========== ========== ========== ========== ==========
</TABLE>
* Shares have been adjusted to reflect one for three reverse split on
November 13, 1998.
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
(Unaudited)
Three Months Ended
March 31,
1999 1998
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 391,863 $2,443,702
INVESTING ACTIVITIES:
Purchase of plant and equipment - (22,821)
---------- ----------
Net cash used in investing activities 0 (22,821)
FINANCING ACTIVITIES:
Net proceeds (repayments) -
line of credit (net) (242,000) (378,000)
Purchase of common stock -- --
Principal payments under long-
term obligations (20,370) (52,184)
Proceeds from long-term obligations -- --
Decrease (increase) in notes receivable 26,428 (600,000)
---------- ----------
Net cash provided by (used in)
financing activities (235,942) (1,030,184)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 155,921 1,390,697
CASH AND CASH EQUIVALENTS - Beginning 1,504,725 110,822
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CASH AND CASH EQUIVALENTS - Ending $1,660,646 $1,501,519
========== ==========
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 March 31, 1999 and the related
Consolidated Statements of Operations, Changes in Stockholders'
Equity, and Cash Flows for the three months ended March 31, 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 three months ended
March 31, 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:
Three Months Ended
March 31,
(unaudited)
1999 1998
---------- ----------
Net income $ 85,302 $1,730,585
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 91,050 90,000
Loss on disposal of fixed assets -- 143,214
Changes in assets and liabilities:
Accounts receivable (95,575) 314,970
Inventories (76,900) (17,200)
Prepaid expenses (41,778) (44,061)
Prepaid Federal tax 21,700 (72,000)
Other assets -- --
Accounts payable 373,189 76,555
Accrued workers' compensation 3,000 3,000
Accrued salaries and wages 3,475 (34)
Accrued Federal Income Tax 22,300 --
Deferred income tax -- 204,000
Other liabilities 6,100 14,673
---------- ----------
Net cash provided (used) by
operating activities $ 391,863 $2,443,702
========== ==========
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<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 March 31, 1999 and 1998, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at March 31, 1999:
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003. 196,923
Capital lease - Ft. Atkinson - due in monthly
installments of $705 including interest at 17.9%
through July 2001 15,622
Capital lease - Yale - due in monthly
installments of $828.48 including interest at
9.0% maturing September 2001. 20,394
---------
232,939
Less current portion 55,403
---------
$ 177,536
=========
Maturities of notes payable obligations are as follows:
Year ended March 31:
2000: $ 55,403
2001: 58,543
2002: 49,429
2003: 45,958
2004: 23,606
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$ 232,939
=========
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 7.7% at March 31, 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 March 31, 1999. The Company has
borrowings against the line of $343,212 and $861,000 at March 31, 1999
and 1998, respectively.
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<PAGE>
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at March 31, 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. $ 522,143
Less current portion 110,476
---------
$ 411,667
=========
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. The gain on sale is reported on the consolidated
income statement net of legal fees.
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<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, 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 March 31, 1999 was $343,212.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations
before extraordinary item of $129,302 for the three months ended March 31,
1999 as compared to a loss of ($212,415) for the same period in 1998. Net
sales for the period ended March 31, 1999 were approximately $2,450,701;
which represents an increase of 7.4% from 1998 sales through March 31, 1998
of $2,281,870. The loss in 1998 includes a one-time loss of $143,214 for
the Michigan Casting Plant which the Company has not renewed its lease. The
production operations were previously consolidated with Yale Industries in 1996.
The cost of sales for the three months ended March 31, 1999 as a
percentage of sales was 87.9% as compared to 92.6% for the same period in 1998.
Selling, General and Administrative for the three months ended March
31, 1999 as a percentage of sales was 7.4% as compared to 9.5% 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, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities. Based on an assessment of its
-11-
<PAGE>
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
-----------------
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 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.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
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<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 30, 1999
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,661
<SECURITIES> 0
<RECEIVABLES> 1,665
<ALLOWANCES> 0
<INVENTORY> 120
<CURRENT-ASSETS> 3,668
<PP&E> 5,395
<DEPRECIATION> 1,723
<TOTAL-ASSETS> 7,793
<CURRENT-LIABILITIES> 1,106
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 5,779
<TOTAL-LIABILITY-AND-EQUITY> 7,793
<SALES> 2,451
<TOTAL-REVENUES> 2,451
<CGS> 2,155
<TOTAL-COSTS> 2,155
<OTHER-EXPENSES> 182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 129
<INCOME-TAX> 44
<INCOME-CONTINUING> 85
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85
<EPS-PRIMARY> .057
<EPS-DILUTED> .057
</TABLE>
