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, 2000
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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
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
129 N. Main Street Yale, Michigan 48097
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(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 ___
As of September 30, 2000, the Company had 1,879,542 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
PART II: Other Information . . . . . . . . . . . . . . . . .12
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2
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MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept. 30, 2000 Dec. 31,1999
-------------- ------------
_____________________________
ASSETS (Unaudited)
_____________________________
CURRENT ASSETS
Cash and cash equivalents $1,264,003 $1,620,120
Accounts receivable 1,936,621 1,210,337
Current maturities of notes receivable 602,698 428,305
Inventories 32,000 42,000
Prepaid expenses and other 173,085 79,119
Deferred tax asset 6,800 6,800
---------- ----------
Total Current Assets 4,015,207 3,386,681
PROPERTY, PLANT AND EQUIPMENT
Property Plant and Equipment, at cost: 5,874,580 5,733,217
Less: Accumulated Depreciation 2,274,243 1,998,414
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3,600,337 3,734,803
NOTES RECEIVABLE - net of current maturities 455,241 739,552
OTHER 34,833 34,833
Total Assets $8,105,618 $7,895,869
========== ==========
See Notes to Consolidated Financial Statements.
3
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MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
Sept. 30, 2000 Dec. 31,1999
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____________________________
(Unaudited)
____________________________
LIABILITIES & STOCKHOLDER'S EQUITY
----------------------------------
CURRENT LIABILITIES
Line-of-credit $ 50,000 $ 217,000
Current portion of long-term debt 49,449 57,618
Accounts payable 273,874 299,709
Accrued salaries and wages 227,623 91,042
Accrued federal income tax 193,348 153,000
Other accrued liabilities 234,800 87,217
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Total Current Liabilities 1,029,094 905,586
DEFERRED TAX LIABILITY 259,800 259,800
OTHER POSTRETIREMENT BENEFITS 571,282 493,282
NOTES PAYABLE - Long-term 91,862 133,981
STOCKHOLDERS' EQUITY:
Common stock - $.015 par value
Authorized - 5,000,000
Issued and outstanding -
1,879,542 and 1,597,280 at
September 30, 2000 and
December 31, 1999 respectively 28,193 23,955
Paid- in for common stock in excess
of par value 7,942,716 7,523,252
Accumulated deficit
(1,817,329) (1,443,987)
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Total Stockholders' Equity
6,153,580 6,103,220
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Total Liabilities and
Stockholders' Equity $8,105,618 $7,895,869
========== ==========
See Notes to Consolidated Financial Statements
4
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MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
NET SALES $2,755,795 $2,477,284 $8,521,263 $7,494,855
COST OF SALES 2,346,617 2,130,728 6,835,662 6,485,888
---------- ---------- ---------- ----------
GROSS PROFIT 409,178 346,556 1,685,601 1,008,967
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 266,660 235,579 801,864 635,795
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 142,518 110,977 883,737 373,172
DIVIDEND AND INTEREST 27,953 18,332 103,815 52,808
INCOME
OTHER INCOME (EXPENSE) 35,846 12,501 (92,961) 25,002
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 206,317 141,810 894,591 450,982
PROVISION FOR FEDERAL
INCOME TAXES 71,000 48,000 323,000 155,000
---------- ---------- ---------- ----------
NET INCOME $ 135,317 $ 93,810 $ 571,591 $ 295,982
========== ========== ========== ==========
BASIC EARNINGS PER $0.073 $0.062 $0.339 $0.198
COMMON SHARE
WEIGHTED AVERAGE
SHARES OUTSTANDING 1,863,460 1,514,605 1,685,301 1,497,741
See Notes to Consolidated Financial Statements
5
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MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Common Stock Paid In For
------------ Common Stock
Number In Excess of Accumulated Stockholders'
Of Shares Amount Par Value Deficit Equity
--------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 2000 1,597,280 $23,955 $7,523,252 $(1,443,987) $6,103,220
Stock Dividend 262 4 422 (426) -
Cash Dividend @ $.50
per share (944,507) (944,507)
Stock Issued 292,000 4,384 439,896 444,280
Stock Reacquired (10,000) (150) (20,854) (21,004)
Net income - - - 571,591 571,591
--------- ------- ---------- ----------- ----------
Balance - September 30, 2000 1,879,542 $28,193 $7,942,716 $(1,817,329) $6,153,580
========= ======= ========== =========== ==========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid In For
------------ Common Stock
Number In Excess of Accumulated Stockholders'
Of Shares Amount Par Value Deficit Equity
--------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1999 1,489,470 $22,338 $7,345,038 $(1,651,010) $5,716,366
Stock Issued 26,500 393 46,135 46,528
Net income - - - 295,982 295,982
--------- ------- ---------- ----------- ----------
Balance - September 30, 1999 1,515,970 $22,731 $7,391,173 $(1,355,028) $6,058,876
========= ======= ========== =========== ==========
</TABLE>
6
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MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
2000 1999
------------------------
------------------------
INCREASE IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 424,833 $ 397,664
INVESTING ACTIVITIES:
Purchase of plant and equipment (160,149) (240,692)
Proceeds from sale of equipment 7,800 -
Collections from notes receivables - Net 109,918 80,714
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Net cash used in investing activities (42,431) (159,978)
FINANCING ACTIVITIES:
Repayments - line of credit (net) (167,000) (164,780)
Proceeds from issuance of common stock 444,280 -
Repurchase of common stock (21,004) 46,528
Payment of Cash Dividend (944,507) -
Principal payments under long-term obligations (50,288) (47,865)
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Net cash used in financing activities (738,519) (166,117)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (356,117) 71,569
CASH AND CASH EQUIVALENTS - Beginning 1,620,120 1,504,725
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CASH AND CASH EQUIVALENTS - Ending $1,264,003 $1,576,294
========== ==========
See Notes to Consolidated Financial Statements
7
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MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- SIGNIFICANT ACCOUNTING POLICIES
The consolidated Balance Sheet as of September 30, 2000 and the
related Consolidated Statements of Income, Changes in
Stockholders' Equity, and Cash Flows for the nine months ended
September 30, 2000 and 1999 are unaudited. In the opinion of
management, all adjustments (consisting of solely recurring
adjustments and the adjustment described in Note 6 which follows)
necessary for a fair presentation of such interim financial
statements have been included. The results of operations for the
nine months ended September 30, 2000 and 1999 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 July 11, 2000, the Company announced a special cash dividend of
$0.50 per share on all outstanding shares of common stock for
those shareholders of record on July 24, 2000. The dividend was
paid on August 25, 2000.
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)
2000 1999
---- ----
Net income $ 571,591 $ 295,982
Adjustments to reconcile net income to
Net cash from operating activities:
Depreciation and amortization 291,435 273,150
Gain on sale of assets (4,620) -
Changes in assets and liabilities:
Accounts receivable (726,284) (510,765)
Inventories 10,000 (49,000)
Prepaid expenses (93,966) (54,858)
Prepaid federal tax - 21,700
Other assets - 4,967
Accounts payable 65,407 148,149
Accrued salaries and wages 45,339 14,695
Accrued federal income tax 40,348 133,307
Other postretirement benefits 78,000 -
Other liabilities 147,583 120,337
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Net cash provided by
operating activities $ 424,833 $ 397,664
8
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NOTE 4 - NOTES PAYABLE
Notes payable consist of the following at September 30, 2000:
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest at 4%
through July 2003 135,150
Capital lease - Ft. Atkinson - due in monthly
installments of $705 including interest at 17.9%
through July 2001. 6,161
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Total Notes Payable 141,311
Less current portion 49,449
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$ 91,862
Maturities of notes payable obligations are as follows:
Year ending June 30:
2001 $ 49,449
2002 45,047
2003 46,815
2004 -
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$ 141,311
=========
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 9.0% at September 30,
2000. The line-of-credit is secured by all accounts receivable,
inventories and equipment of the Company. The Company had borrowings
against the line of $50,000 as of September 30, 2000.
9
<PAGE>
NOTE 5 - NOTES RECEIVABLE
Notes receivable consist of the following at September 30, 2000:
Wesley Industries Inc.- collateralized note
receivable due in quarterly payments of $35,000
commencing June 1, 1998 including imputed
interest at 6%, with a final payment of the
remaining outstanding principal and
imputed interest balance on March 1, 2003 $353,572
NHF - unsecured note receivable, due in monthly
installments of $32,250 including interest at 8%
through February 2002. $503,012
Directors - Unsecured notes receivable, due in
quarterly payments of $3,000 commencing
September 30, 2000 including imputed interest at
6%, until paid in full $128,605
Officers - unsecured, due in monthly payments of
$12,250 in July, August, October, & November of 2000. $ 72,750
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$1,057,939
Less current portion $ 602,698
----------
$ 455,241
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NOTE 6 - Other Income (Expense)
The Company has expensed $200,000 on merger & acquisition costs
for the expected merger with B2B Euro Wireless.com. The agreement
is subject to shareholder approval and an effective registration
statement on Form S-4 relating to the transaction. Additional
information is contained in part 2 item 5 under other information
of this filing.
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 nine (9)
months ended September 30, 2000.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
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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
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The Company has a consolidated line of credit of $1,300,000 with
monthly interest payments at 1/2 below the prime rate with the Bank
One. The line is collateralized by substantially all assets. There
were borrowings of $50,000 as of September 30, 2000.
RESULTS OF OPERATIONS
---------------------
The Company is reporting year-to-date pre-tax profit on operations
item of $894,591 for the nine months ended September 30, 2000 as
compared to a profit of $450,982 for the same period in 1999. Net
sales for the period ended September 30, 2000 were approximately
$8,521,263; which represents an increase of 13.7% from 1999 sales
through September 30, 1999 of $7,494,855.
The cost of sales for the nine months ended September 30, 2000 as a
percentage of sales was 80.2% as compared to 86.5% for the same
period in 1999. Higher sales volume and cost improvements account for
this reduction.
Selling, General & Administrative for the nine months ended September 30,
2000 as a percentage of sales was 9.4% as compared to 8.5% for
the same period in 1999.
11
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PART II
Item 1. Legal Proceedings
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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
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None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Securities Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits required by Item 601 of Regulation S-B
are filed herewith:
Exhibit No. Description
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27 Financial Data Schedule
(b) The Company filed a form 8-K on October 5, 2000 reporting under
Item 5, the sending of a Notice of Default to Wesley Industries,
Inc. and New Haven Foundry, one of the Registrant's major
customers. To date, the default has not been cured.
12
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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 8, 2000
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