UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended DECEMBER 31, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from N/A to N/A
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Commission File Number 0-13817
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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 of (IRS Employer Identification
Incorporation or Organization Number)
129 NORTH MAIN STREET, YALE, MICHIGAN 48097
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (810) 387-4300
---------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.015 PAR VALUE
-----------------------------
Title of Class
Indicate by check mark whether 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
----- -----
At March 15, 2000, 1,597,280 shares of Common Stock, $.005 per share, were
outstanding. The aggregate market value of the Common Stock held by non-
affiliates of the Registrant on that date was approximately $1,967,521.
Documents incorporated by reference: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
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Page 1 of 42 pages Exhibits are indexed on page 18.
<PAGE>
PART I
ITEM 1. BUSINESS
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(a) GENERAL DEVELOPMENT OF BUSINESS. Margate Industries, Inc. (the
"Company"), was formed under the laws of the State of Delaware on April 4,
1984. The Company sold 4,000,000 Units, at $0.02 per Unit, for total
proceeds of $80,000 in a public offering which closed in May of 1985. Each
Unit consisted of one share of common stock of the Company and one Warrant
to purchase an additional share of common stock. The Warrants expired by
their terms unexercised.
On November 17, 1986, the Company issued 12,515,580 shares of its
$.001 par value common stock to the holders of 100% of the outstanding
common stock of New Haven Foundry, Inc., ("NHF") in a merger transaction in
which NHF became a wholly-owned subsidiary of the Company. The shares of
common stock issued to the shareholders of NHF represented approximately
70% of the Company's common stock outstanding after the completion of the
transaction. The shares of the Company's common stock issued to the
shareholders of NHF were registered under the Securities Act of 1933, as
amended, in a Registration Statement on Form S-4 (SEC File No. 33-5294),
which was initially filed on April 29, 1986 and declared effective on
October 8, 1987.
During 1987, the Company established a wholly-owned subsidiary,
Michigan Casting Corporation, ("MCC") which provides finishing services on
castings manufactured by NHF and other foundries.
In June of 1989, Brown City Casting Corporation ("BCCC"), a wholly-
owned subsidiary, commenced operations to provide finishing services on
castings produced by foundries in the Michigan area. In June, 1993, the
Company transferred its operations to Yale, Michigan and now conducts
business under the name of Yale Industries. BCCC ceased all operations in
Brown City, Michigan in June, 1993.
On July 19, 1990, the Company sold 55% of the common stock of NHF to
Wesley Industries, Inc., ("Wesley"), for $1,589,000 consisting of
$1,500,000 cash and an $89,000 five-year Promissory Note. Wesley was 50%-
owned by Mr. Delbert W. Mullens, currently a Director of the Company and
50%-owned by Ms. Lula Mullens. The promissory note called for interest at
2% over the prime rate, with no principal payments required until
September, 1991. The Company extended the term of the note and payments
begin in April, 1994. Upon repayment of the promissory note, Wesley had
the right to purchase an additional 20% of the shares of NHF held by the
Company for $800,000 or the then current book value, whichever is greater.
Upon such purchase, the Company could require Mr. Mullens to purchase the
remaining shares for $1,800,000 or the then current book value, whichever
is greater.
The terms of the sale also provided for an annual commission contract
between NHF and the Company and between NHF and Wesley relating to sales in
excess of $35,000,000 annually. The Company received $150,000 each year
plus 3% on the difference between actual sales in excess of $35,000,000 but
less than $40,000,000 plus 2% on actual sales that exceed $40,000,000.
This commissions contract would be in effect for a period of not less than
fifteen (15) years. Also, for a minimum period of fifteen (15) years, the
Company and its subsidiaries would provide cleaning services on all
castings produced by NHF on an exclusive basis, so long as the Company
retained an ownership interest in NHF.
Pursuant to the sale, Mr. Mullens was elected to the Company's Board
of Directors. Conversely, the Company had representatives that account for
forty five percent (45%) of the Directors/Voters on the NHF Board of
Directors. In addition, Mr. Mullens was restricted from transferring his
interest in NHF stock without the consent of the Company and also he had a
first right
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<PAGE>
of refusal to purchase the balance of the NHF common stock in the event the
Company wishes to sell or transfer any of its remaining NHF stock.
Pursuant to the agreement for the sale of NHF common stock, Mr.
Mullens had an option to purchase 33,334 shares of the Company's common
stock at $4.50 per share and an additional 33,334 shares at $7.50 per share
upon purchase of the first 33,334 shares. Mr. Mullens' shares subject to
option and the exercise price thereof were adjusted to reflect the reverse
stock splits described below.
Effective June 21, 1993, the Company initiated operations at Yale,
Michigan and relocated its corporate offices to that location. Yale
Industries provides specialized cleaning and testing of metal castings for
foundries and machine shops.
On January 12, 1994, pursuant to a vote at a Special Meeting of
Shareholders, the Company approved a one for five reverse split of the
outstanding shares of the Company and reduced the authorized shares of the
Company from 50,000,000 to 25,000,000. Unless otherwise indicated,
information in this Report reflects one for five reverse split of the
Company's Common Stock effective in January, 1994.
On February 1, 1995, the Company obtained forty percent (40%) interest
in Complete Engineering Development Services, Inc. (CEDS). Due to
disappointing results, the Board of Directors elected to divest its
interest in CEDS as of December 31, 1995.
In November 1995, the Company established a wholly-owned subsidiary,
Fort Atkinson Industries, which provides finishing services on castings
manufactured in the Iowa-Wisconsin area. Operations began on March 1,
1996.
In August 1996, the Company consolidated MCC with Yale Industries and
operates as one 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 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.
On November 13, 1998, following a vote at a Special Meeting of
Shareholders, the Company approved a one for three reverse split of the
outstanding shares of the Company. Unless otherwise indicated, information
in this report reflects the one for three reverse split of the Company's
Common Stock effective in November 1998.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company's
activities are confined to the finishing and testing of castings for the
automotive and other industries, hence the Company has no other industry
segments other than as stated herein. See Financial Statements for
additional information concerning the Company's business.
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<PAGE>
(c) NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
- -------
The Company engages in the business of performing finishing operations
on grey iron castings for the foundry industry.
Brown City doing business as Yale Industries, a Michigan corporation,
is engaged in the business of performing finishing operations for the
foundry industry. Such operations include the cleaning, grinding and
testing of castings prior to shipment to the end purchaser. Yale commenced
operations in June of 1987, and its facilities are currently located in
Yale, Michigan, approximately 30 miles from New Haven, Michigan where NHF's
facilities are located. NHF uses the services of Yale for approximately
80% of the castings and cylinder heads they manufacture for Chrysler
Corporation and others. The Company formed this subsidiary because a
separate company and facility provided NHF, and other foundries, certain
advantages over handling finishing functions in-house. Over the past
several years, automobile manufacturers have begun to require that
additional finishing work and water testing be done on castings prior to
shipment. These requirements have increased the amount of time and labor
spent on these services. Management has found that Yale, as a separate
company devoted to these activities, has been able to handle these
functions more cost effectively. In addition, since Yale is capable of
providing these services to other customers as well as NHF, Yale generates
additional revenues for the Company.
Fort Atkinson Industries is also engaged in the business of performing
finishing operations on castings for the foundry industry. The Company
believes there exists a significant potential for additional sales volume
for finishing operations from non-affiliated foundries and from NHF as it
continues to grow and diversify into the non-automotive industries.
(i) PRINCIPAL PRODUCTS PRODUCED AND SERVICE RENDERED AND
PRINCIPAL MARKETS. The principal service rendered by the Company is the
finishing, cleaning and testing of castings produced by NHF for the
automotive industry and other component manufacturers in the United States
and Canada.
(ii) STATUS OF NEW PRODUCTS OR INDUSTRY SEGMENTS. The Company
announced it began cleaning operations at Fort Atkinson in early 1996.
Except as to Fort Atkinson, there has been no public announcement of, and
no information otherwise has been made public about, a new product or
industry segment, which would require the investment of a material amount
of the Company's assets, or which otherwise is material.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company as
a service orientated entity is not dependant on the availability of raw
materials, however, the Company is dependant on the availability of
qualified, trained manpower. The raw materials utilized by NHF are
supplied by domestic suppliers and there does not appear to be any shortage
of the three major raw materials used by NHF namely coke, scrap steel and sand.
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS.
The Company does not own any patents, trademarks, licenses, franchises, or
concessions.
(v) SEASONAL NATURE OF BUSINESS. The Company's business is not
seasonal in nature.
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<PAGE>
(vi) WORKING CAPITAL ITEMS. Practices and conditions with
respect to specific working capital items are not relevant to an
understanding of the Company's business. Working capital is required for
inventories and accounts receivable, to meet rapid delivery requirements,
or to assure continuous allotments of goods from suppliers.
(vii) MAJOR CUSTOMERS. The following table sets forth
information concerning customers, or any group of customers under common
control, or customers which are affiliates of each other, to which sales
were made by the Company during the fiscal year ended December 31, 1999, in
an amount which equals 10% or more of the Company's revenue and the
Company's relationship to each:
RELATIONSHIP PERCENT
TO AMOUNT OF OF TOTAL
CUSTOMER COMPANY REVENUE REVENUE
-------- -------------------------------
New Haven Foundry, Inc. None $6,407,178 65.5%
The Company believes that if it should lose any of its present
customers, primarily NHF, such loss would have a material adverse effect on
the Company.
(viii) BACKLOG. Backlog is not relevant to an understanding
of the Company's business.
(ix) RENEGOTIATION OR TERMINATION OF GOVERNMENTAL CONTRACTS. No
portion of the Company's business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the Government.
(x) COMPETITION. The Company's domestic competition is limited
primarily to cleaning operations and captive foundries of the automobile
industry. For the most part, these domestic foundries have older
facilities and are not a significant threat to the Company's competitive
position. Internationally, the Company faces competition from similar
operations located in Europe, South America and Mexico. The Company's most
serious threat of competition is from state-of-the-art operations located
in Mexico and Brazil. These companies in Brazil present a competitive
threat because they are subsidized by their respective governments, have
labor cost advantages, and modern facilities.
(xi) RESEARCH AND DEVELOPMENT. The Company has not engaged and
does not currently engage in any research and development activities.
(xii) ENVIRONMENTAL PROTECTION. The Company is subject to
various federal, state, and local provisions regarding environmental
matters, the existence of which has not hindered nor adversely affected the
Company's business. Although the Company does not believe its business
operations presently impair environmental quality, compliance with federal,
state and local regulations which have been enacted or adopted regulating
the discharge of materials into the environment could have an adverse
effect upon the capital expenditures, earnings and competitive position of
the Company. Since inception, the Company has not made any material
capital expenditures for environmental control facilities and does not
expect to make any such expenditures during the current and following
fiscal years. However, the Company has agreed to administer the
expenditure of $253,000 which the city of Yale, Michigan received as a
community development block grant to perform an investigation to determine
the extent of contamination at the Yale plant site and to clean up
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<PAGE>
soil contamination left by previous owners and operators to a maximum of
$253,000. The Company estimates the costs of administering the grant to be
less than $50,000. As a result of its agreement to perform these
procedures, the city of Yale, Michigan would transfer the property to the
Company for use for casting, cleaning and foundry support operations within
two years subject to certain conditions set forth in Item 7 of this Report.
The Company has also received a hold harmless for any existing conditions
at the facility. The property was transferred to the Company in 1995.
(xiii) EMPLOYEES. As of December 31, 1999, the Company had
approximately 170 hourly employees and 22 salaried employees at Yale
Industries, Fort Atkinson Industries and Margate Industries. None of these
employees are presently represented by a union.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. The Company has no operations in foreign countries and no
portion of its sales or revenues is derived from customers in foreign
countries except Yale had sales of approximately $0 in 1999, $0 in 1998 and
$44,000 in 1997 to Ford of Canada.
ITEM 2. PROPERTIES
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Yale Industries' facilities, which consist of a plant and the
Company's corporate offices, are located in Yale, Michigan and are provided
by the city of Yale, Michigan in consideration of the Company administering
the expenditure of $253,000 for the investigation and cleanup at the plant
site. The Company believes its plant at Yale is suitable for its present
and future needs. The plant consists of approximately 70,000 square feet.
Fort Atkinson's facilities are located in Fort Atkinson, Wisconsin.
It leases facilities covering approximately 73,000 square feet. The
Company has leased this facility for a ten (10) year period beginning in
December 1995. Base rent is $11,312.50 per month. The Company believes
the plant is suitable for its present and future needs.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company knows of no pending or threatened legal proceeding to
which it is or will be a party which, if successful, might result in a
material adverse change in the business, properties, or financial condition
of the Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
-------------------------------------------------
No response required.
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<PAGE>
PART II
Item 5. MARKET PRICE AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
-------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
(a) PRINCIPAL MARKET OR MARKETS. The Company's common stock is
traded on the over-the-counter market and, commencing on January 28, 1987,
has been listed on the National Association of Securities Dealers, Inc.,
Automated Quotation System ("NASDAQ") under the symbol, "CGUL". The
following tables set forth the range for high and low bid quotations for
the Company's common stock, as reported by NASDAQ for the periods
indicated. These prices are believed to be representative inter-dealer
quotations, without retail markup, markdown or commissions, and may not
represent actual transactions.
BID PRICE
ADJUSTED FOR REVERSE
STOCK SPLIT ON 11/13/98
-----------------------
HIGH LOW
-------------------
Quarter ended March 31, 1999 $1.91 $0.71
Quarter ended June 30, 1999 $2.02 $1.43
Quarter ended September 30, 1999 $1.83 $1.58
Quarter ended December 31, 1999 $1.97 $1.13
Quarter ended March 31, 1998 $2.06 $1.13
Quarter ended July 30, 1998 $2.53 $1.50
Quarter ended September 30, 1998 $2.67 $1.31
Quarter ended December 31, 1998 $1.88 $1.25
Quarter ended March 31, 1997 $2.52 $1.89
Quarter ended June 30, 1997 $2.52 $2.16
Quarter ended September 30, 1997 $3.18 $2.07
Quarter ended December 31, 1997 $1.98 $1.23
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The approximate
number of holders of record or the Company's common stock at March 15, 2000
was 380 directly and 2,000 in street name.
(c) DIVIDENDS. The Company began paying quarterly dividends of
$.00625 per share in August of 1991. Subsequently in August, 1992 the
Board of Directors increased the dividend to $.0075 and in August, 1993,
the quarterly dividend was increased to $.01 per share. On November 15,
1993 the quarterly dividend was increased to $.0125. On February 15, 1995
the quarterly dividend was increased to $.0150. On September 21, 1995 the
quarterly dividend was suspended and will be decided at the Annual Meeting
in June of each year if, or when the Company will pay a dividend.
On November 15, 1999 the Company paid a 5% stock dividend to
shareholders of record as of December 15, 1999.
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The following table sets forth certain selected financial data with
respect to the Company.
(In Thousands, Except for Share Data)
Year Ended December 31
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1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net sales $ 9,789 $ 9,769 $10,472 $ 9,442 $ 9,311
Net income (loss) $ 332 $ 1,971 $ 149 $ (773) $(1,744)
Net income (loss)
per common share $ .22 $ 1.30 $ 0.10 $ (0.51) $ (1.11)
Stock dividend declared
per common share 5% $ 0 $ 0 $ 0 $ 0
Dividends declared
per common share $ 0 $ 0 $ 0 $ 0 $0.0900
Total assets $ 7,896 $ 7,562 $ 6,221 $ 6,195 $ 5,465
Long-term debt $ 125 $ 192 $ 412 $ 344 $ 184
Stockholders' equity $ 6,103 $ 5,716 $ 3,811 $ 3,662 $ 4,465
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS INCLUDING CERTAIN
PREDICTIONS AND PROJECTIONS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934. SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THIS SECTION AND UNDER "ITEM 1.
DESCRIPTION OF BUSINESS." ACTUAL EVENTS OR RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS INCLUDING ECONOMIC, COMPETITIVE, GOVERNMENTAL AND
TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S PROPERTIES, OPERATIONS,
MARKETS, PRODUCTS, SERVICES AND PRICES.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition
and results of operations during the periods included in the accompanying
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
The current and quick ratios, which provide an indication of the
Company's short-term assets in relation to its short-term obligations, for
the comparable periods are as follows:
1999 1998
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Working Capital $2,481,095 $2,371,838
Current Ratio 3.74 : 1 3.51 : 1
Quick Assets (Cash, Securities
and Receivables) $2,830,457 $3,074,171
Quick Ratio 3.13 : 1 3.25 : 1
As noted by the above computations, the current ratio has increased
from 3.51:1 to 3.74:1 and working capital has increased by $109,257 for the
period from December 31, 1998 to December 31, 1999. The quick ratio has
decreased from 3.25:1 to 3.13:1. The largest single factor contributing to
the increase in working capital is the profitability of the Company.
Trade receivables decreased by $500,619 from December 31, 1998 to
December 31, 1999. The decrease was due primarily to $700,000 of accounts
converted to a note receivable.
The Company has a facility line of credit of $1,300,000, with monthly
interest payments at 1/2 below the prime rate. This line of credit is
collateralized by substantially all the assets of the Company. Borrowings
as of December 31, 1999 were $217,000.
The Company believes its cash flow from operations is sufficient to
fund its current level of operations.
The Company has in the past and will in the future seek qualified
acquisitions in similar and related industries for expansion opportunities
and larger market penetration. The Company currently has no agreement or
arrangement to acquire any other business entity.
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RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 1999 VS. YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------
Sales increased by $20,018 or .2% from December 31, 1998 to December
31, 1999. The Company's net income before extraordinary item increased by
$357,937 over the prior year's net loss of $(20,098). Improved efficiency
and cost reductions are the primary reasons along with interest income.
Cost of sales as a percentage of sales was 87.5% for the year ending
December 31, 1999 as compared to 90.6% for the year ending December 31,
1998. The major reason for the decrease was increased efficiency in labor
costs.
Selling, general and administrative expenses decreased by $22,134 from
1998 to 1999.
Interest income (net of interest expense) for the year ending December 31,
1999 increased $52,201. The increase is the result of increased interest
income from notes receivable on the sale of NHF.
Related party services and sales commissions decreased from $4,232 in
1998 to $1,966 in 1999. The decrease was in sales volume from customers
from outside sales representatives.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------
Sales decreased by $703,136 or 6.7% from December 31, 1997 to December 31,
1998. The Company's net income increased by $1,822,117 over the prior year's
income of $148,999. The decrease in sales for 1998 is mostly attributable to
a loss of a major customer at the Fort Atkinson Plant.
Cost of sales as a percentage of sales was 90.6% for the year ending
December 31, 1998 as compared to 87.5% for the year ending December 31,
1997. The major reasons for the increase was higher labor costs and the
effect of fixed costs which will not decrease with reduced sales.
Selling, general and administrative expenses decreased by $166,701
from 1997 to 1998. This was mainly due to reduced sales and cost reductions.
Interest income (net of interest expense) for the year ending December 31,
1998 increased by $125,140 from 1997. This increase was a result of increased
interest income from notes receivable on the sale of NHF and a decrease in
interest expense from lower interest rates and use of operating funds.
Related party services and sales commissions decreased from $18,098 in
1997 to $4,232 in 1998. This decrease was in sales volume from customers
from outside sales representatives.
EFFECTS OF CHANGES IN PRICES
- ----------------------------
When possible, the Company attempts to adjust the selling prices of
its products in response to increases in its costs of labor, raw materials
and capital. However, the market served by the Company is competitive and
that competition may limit the allowance of price increases.
During 1999, 1998 and 1997 there were no significant changes in prices.
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The Company had commitments for the purchase of, or the installation
of, fixed assets at the Yale Industries facility. The Company had agreed
to purchase $1.5 million in assets between July 1, 1993 and June 30, 1995.
This commitment had been met as of December 31, 1994. The Company had an
option to buy the facility for $1.00. The Company met its commitments and
exercised the option in 1995.
YEAR 2000 READINESS
- -------------------
Year 2000 computer problems may arise after the date of this
Prospectus. Our business could be interrupted by any material year 2000-
related failure of our internal systems, the systems that carry Internet
traffic to our online loan marketplace, the systems of our lenders or
online partners, or the systems used by consumers to access our marketplace.
During 1999 we conducted a review of the year 2000 readiness of our
information technology systems. These systems include software that we
have internally developed and software and hardware that we have obtained
from third-party vendors and licensors. Our review identified a limited
number of remedial steps that we completed prior to January 1, 2000. In
1999, we performed full end-to-end testing of all key business functions in
a simulated operating environment to assure that our systems previously
verified to be year 2000 compliant remained compliant as changes were made
to them.
The aggregate costs associated with our year 2000 review and
remediation were approximately $500 in 1999. We estimate that any costs
related to year 2000 issues in 2000 will also be immaterial. As of the
date of this Prospectus, we have not experienced any year 2000-related
systems failures. We intend to continue to monitor our own systems for
ongoing year 2000 compliance and conduct testing to confirm the compliance
of our system, as well as to confer with our vendors about their ongoing
year 2000 compliance.
Based on our efforts to date, we believe that we will not experience
any material year 2000 problems. There are, however, possible scenarios
under which year 2000 problems, if they occur, could materially affect us.
The most reasonably likely worst cases among these scenarios, include: the
temporary inability of one or more of our key lenders to receive consumer
Qualification Forms from us or to reply to consumers with loan offers; the
temporary inability of our online partners to direct consumer traffic to
our marketplace; and a failure of, or a degradation in, the Internet
infrastructure that reduces traffic to, or the performance of, our Website.
We do not intend to develop contingency plans to address these or other
potential worst-case scenarios.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Information with respect to this item is contained in the financial
statements appearing on Item 14 of this Report. Such information is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
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ITEM 10. IDENTIFICATION OF OFFICERS AND DIRECTORS
----------------------------------------
The following table sets forth the names and ages of all Officers and
Directors of the Company, indicating all positions and offices with the
Company held by each such person, and any periods during which he has
served as such:
<TABLE>
<CAPTION>
Position Served
as Director
Name Age All Positions with the Company of Company
---- --- ------------------------------ ----------
<S> <C> <C> <C>
Frederick G. Schriever 75 Director of the Company, November 1987 to present
Ft. Atkinson, and Yale Industries
Delbert W. Mullens 55 Director of the Company, July 1990 to present
Ft. Atkinson, and Yale Industries
William H. Hopton 65 President and Director January 1986 to present
of the Company, Ft. Atkinson,
and Yale Industries
Denis R. LeDuc 52 Treasurer and Director June 1999 to present
of the Company, Ft. Atkinson,
and Yale Industries
David A. Widlak 51 Vice President, Secretary November 1987 to present
and Director of the Company,
Ft. Atkinson, and Yale Industries
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS
- ---------------------------------------------
FREDERICK G. SCHRIEVER former Chairman of the Company's Board of
Directors from November of 1987 to June 1999. President of Casting Sales,
Inc. from 1972 to present. Casting Sales, Inc. is a manufacturer's
representative of foundries and machining. Since 1955 to the present, Mr.
Schriever has also been President of Amber Tool and Engineering which holds
real estate and owns an interest in several machine shops. Since 1960 to
the present, he has been President of J.P. Bell Co., a company specializing
in machine levelers, Vice President of Casting Industries, Inc. and since
1996 Chairman of Machining Enterprise, Inc. a production machine shop. Mr.
Schriever received a Bachelor of Science Degree in Organic Chemistry in
1949 from the University of Michigan. Mr. Schriever devotes as much time
as necessary to the business of the Company and its subsidiaries.
DELBERT W. MULLENS has been a Director since July of 1990 and
President of NHF since September 1, 1992. He has been the President,
Director, and principal shareholder of Flint Coatings of Flint, Michigan,
a company engaged in painting automotive parts for major car manufacturers
including General Motors Corporation. Mr. Mullens is also Chairman of
Product-SDL Chemical, Inc. Mr. Mullens received a Bachelor of Science
Degree in Business Administration from Tennessee State University. Mr.
Mullens devotes as much time as is necessary to the business of the Company
and its subsidiaries.
WILLIAM H. HOPTON has been President of the Company since April of
1988, and a Director of the Company since January of 1986. Mr. Hopton also
served as the Company's vice President from January of 1986 to April of
1988. Since 1984, Mr. Hopton has been President of NHF. Effective
-12-
<PAGE>
September 1, 1992, Mr. Hopton retired as President of NHF but will provide
consulting services to NHF as needed. Also, as of that date, he is
devoting his business time to the management of Margate Industries, Inc.
Mr. Hopton received a B.A. Degree in Business Administration from the
University of Detroit in 1964.
DENIS R. LEDUC has been a Director since June 1999. He received his
Bachelor Degree from Wayne State University in 1969 (cum laude) and a juris
doctorate degree in law from the University of Michigan in 1972.
DAVID A. WIDLAK has been Secretary and a Director of the Company since
November of 1987. In February 1994 he was named Vice President. Also, Mr.
Widlak is a director of Community central Bank, of Mount Clemens, Michigan,
a publicly held company since November 1999. He received a Bachelors
Degree from Wayne State University in 1969 and a juris doctorate Degree in
Law from the University of Michigan in 1972. Mr. Widlak devotes as much
time as is necessary to the business of the Company and its subsidiaries.
The Directors of the Company and its subsidiaries hold office for a
three year term until the annual meeting of the shareholders and until
their successors have been elected and qualified in the year in which their
term expires. The terms of one or two Directors expire each year.
The Officers of the Company and its subsidiaries are elected by the
respective Board of Directors at the first meeting after each annual
meeting of shareholders and hold office until the next annual meeting of
directors or their earlier resignation or removal.
The date of the next annual meeting of the Company will be determined
by the Company's Board of Directors in accordance with Delaware law.
Except for Mr. Widlak, no Director holds a directorship in any company
with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 or subject to the requirements of Section
15(d) of such Act or any company registered as an investment company under
the Investment Company Act of 1940.
COMMITTEES, MEETINGS OF THE BOARD OF DIRECTORS. The Company has an
audit and compensation committee consisting of Delbert Mullens and Denis
Leduc, which consults with and reviews the reports of the Company's
independent auditors and the Company's internal financial staff. This
committee also makes recommendations to the Company's Board of Directors as
to compensation matters. The audit and compensation committee held one
meeting during the year. The Company's Board of Directors held four
regular meetings during the fiscal year ended December 31, 1999, at which
time all of the then Directors were present or consented in writing to the
actions taken at such meetings.
COMPLIANCE WITH SECURITIES EXCHANGE ACT REPORTING REQUIREMENTS. To
the Company's knowledge, during the fiscal year ended December 31, 1999,
the Company's Officers and Directors complied with all applicable Section
16(a) filing requirements. This statement is based solely on a review of
the copies of such reports furnished to the Company by its Officers and
Directors and their written representations that such reports accurately
reflect all reportable transactions.
-13-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
CASH COMPENSATION. The following table sets forth the total
remuneration paid during the Company's last fiscal year ended December 31,
1999 and the prior two years of the President and Vice President
<TABLE>
<CAPTION>
==========================================================================================================
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
- -----------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted LTIP Other
and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Award(s) SARs outs sation
Position Year (1) ($) ($) ($)(2) ($) (#)(3) ($) ($)(4)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William H. Hopton 1999 $ 90,000 $ -0- $ 14,000 80,000 $ 22,400
President and CEO 1998 $ 90,000 $ -0- $ 30,000 0 $ 22,000
1997 $ 87,500 $ -0- $ 24,000 0 $ 20,000
David Widlak 1999 $ 65,000 $ -0- $ 14,000 80,000 $ 20,000
Vice President 1998 $ 66,000 $ -0- $ 30,000 0 $ 20,000
1997 $ 62,500 $ -0- $ 24,000 0 $ 19,000
===========================================================================================================
</TABLE>
(1) Periods presented are for the year ended December 31.
(2) Represents Directors fees.
(3) Number of shares of Common Stock subject to options granted during the
year indicated.
(4) Represents employer contributions for insurance, disability insurance,
pension and car allowance.
COMPENSATION OF DIRECTORS
The Directors received $6,000 for each regular meeting they attend
plus expenses. The Chairman of the Board of Directors received $7,000 per
meeting. Special meetings were paid at $3,000, but have been reduced
currently to $1,500.
Effective at the June Board of Directors meeting, fees for Directors
were reduced to $4,000 for each regular meeting.
-14-
<PAGE>
OPTIONS GRANTED
The following table sets forth the options that have been granted to
the President and Vice President listed in the Executive Compensation Table
during the Company's last fiscal year ended December 31, 1999.
Option/SAR Grants in Last Fiscal Year (1999)
--------------------------------------------
Individual Grants
- ---------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Options/ Options/SARs Exercise
SARs Granted to or Base
Granted Employees Price Expiration
Name (#) in Fiscal year ($/Share) Date
---- ------- -------------- -------- ----------
William H. Hopton N/A N/A N/A N/A
President
David A. Widlak N/A N/A N/A N/A
Vice President
AGGREGATE OPTIONS EXERCISED IN 1998 AND OPTION VALUES AT DECEMBER 31, 1999
The following table sets forth certain information regarding options
to purchase shares of Common Stock exercised during the Company's 1999
fiscal year and the number and value of exercisable and unexercisable
options to purchase shares of Common Stock held as of the end of the
Company's 1999 fiscal year by the Executive Officers of the Company named
in the Summary Compensation Table:
Aggregated Options Exercised in 1999
and Option Values at December 31, 1999
- --------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value 12/31/99 12/31/99
Name on Exercise Realized(1) Exercisable Exercisable(2)
---- ----------- -------- ----------- -----------
William H. Hopton None $0 80,000 $14,400
President
David A. Widlak None $0 80,000 $14,400
Vice President
- --------------------------------------------------------------------------
(1) Value realized is equal to the difference between the fair market
value per share of Common Stock on the date of exercise and the option
exercise price per share multiplied by the number of shares acquired
upon exercise of an option.
(2) Value of exercisable/unexercisable in-the-money options is equal to
the difference between the fair market value per share of Common Stock
of $1.81 at December 31, 1999, and the option exercise price per share
multiplied by the number of shares subject to options.
-15-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth as of March 15, 2000, information with respect
to the ownership of the Company's $.005 par value common stock by each
person known by the Company to own beneficially more than 5% of the
outstanding common stock, and by each of its officers and directors and by
all officers and directors collectively as a group:
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- ------------------------------------------------------------------------
Frederick G. and Patricia W. Schriever 283,512 (2) 17.7%
Denis R. LeDuc 93,641 (3) 5.9%
David A. Widlak 76,058 (4) 4.8%
Delbert W. Mullens 12,565 (5) 0.7%
William H. Hopton 44,476 (6) 2.8%
All Officers and Directors 510,252 31.9%
of the Company & Subsidiaries
as a Group (5 Persons)
_____________________
(1) Each person has sole voting and investment power with respect to the
shares shown.
(2) In addition to the above, Mr. Schriever has 30,000 options (expiration
date 11/15/04).
(3) In addition to the above, Mr. LeDuc has 30,000 options (expiration
date 11/15/04).
(4) In addition to the above, Mr. Widlak has 80,000 options (expiration
date 11/15/04).
(5) In addition to the above, Mr. Mullens has 30,000 options (expiration
date 11/15/04).
(6) In addition to the above, Mr. Hopton has 80,000 options (expiration
date 11/15/04).
CHANGES IN CONTROL. On March 23, 2000, the Company entered into a
letter of intent with B2B Euro Wireless.com, Inc. ("B2B") wherein B2B would
become a wholly owned subsidiary of a new holding company ("Holding
Company") to be formed by the Company. Thereafter, the Holding Company
will acquire all of the outstanding shares of the Company and issue its
shares on a one-for-one basis with the Company's existing shareholders for
a total of approximately 1,800,000 shares and acquire all of the
outstanding shares of B2B for 15,200,000 shares of the Holding Company.
Accordingly, the Company's existing shareholders will own 89.4% on a fully
diluted basis. Following the transaction, the Board of Directors of the
Holding Company shall consist of one member designated by the Company and
the remaining Directors designated by B2B.
Consummation of the transaction is subject to completion of due
diligence by each of the parties, negotiation and execution of definitive
agreement, satisfaction of regulatory requirements, if any, and such other
conditions as the parties may require. Additionally, consummation of the
transaction by the Company shall be subject to shareholder approval and the
receipt of fairness opinion indicating the terms of the transaction are
fair to the Company's shareholders.
B2B intends to develop an online business-to-business e-commerce
platform and technology to maximize opportunities on the Internet. To date
B2B has conducted only limited operations.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1). The following Financial Statements are filed as part of this Report:
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets, December 31, 1999 and 1998 F-2
Consolidated Statements of Income, Years ended
December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity For the Years
ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows, Years ended
December 31, 1999, 1998 and 1997 F-5 - F-6
Notes to Consolidated Financial Statements F-7
(a) (3) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On September 15, 1999, the Company filed a Report on Form 8-K under
Item 5 with regard to the Board of Directors approving a 5% stock
dividend with a record date of October 15, 1999.
-18-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
________
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
________
DECEMBER 31, 1999
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
________
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
________
DECEMBER 31, 1999
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
- CONTENTS -
PAGE NUMBER
-----------
Independent Auditors' Report 1
Financial Statements:
Consolidated Balance Sheet 2
Consolidated Statement of Income 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statement of Cash Flows 5 & 6
Notes to Consolidated Financial Statements 7 - 21
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors
Margate Industries, Inc. and Subsidiaries
Yale, Michigan
We have audited the accompanying consolidated balance sheet of MARGATE
INDUSTRIES, INC. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MARGATE INDUSTRIES,
INC. AND SUBSIDIARIES at December 31, 1999 and 1998 and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
PERRIN, FORDREE & COMPANY, P.C.
Troy, Michigan
February 11, 2000
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
------
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents: $ 1,620,120 $ 1,504,725
Accounts receivable:
Trade 1,068,827 1,569,446
Other 141,510 -
Current portion of notes receivable 428,305 108,571
Inventories 42,000 43,000
Prepaid expenses and other 79,119 60,049
Prepaid federal income tax - 21,700
Deferred tax assets 6,800 10,500
----------- -----------
Total current assets 3,386,681 3,317,991
PROPERTY, PLANT AND EQUIPMENT - At cost,
net of accumulated depreciation and
amortization of $1,998,414 and $1,631,533 at
December 31, 1999 and 1998, respectively 3,734,803 3,763,902
OTHER ASSETS:
Long-term notes receivable 739,552 440,000
Deposits 34,833 39,800
----------- -----------
774,385 479,800
----------- -----------
$ 7,895,869 $ 7,561,693
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
CURRENT LIABILITIES:
Line-of-credit $ 217,000 $ 585,212
Current portion of long- term debt 42,009 47,948
Current portion of capital lease
obligations 15,609 13,762
Accounts payable:
Trade 269,383 212,306
Other 30,326 -
Accrued expenses:
Salaries and wages 91,042 67,233
Payroll taxes 43,535 -
Income taxes 153,000 -
Other 43,682 19,692
----------- -----------
Total current liabilities 905,586 946,153
LONG-TERM DEBT 124,489 166,498
CAPITAL LEASE OBLIGATIONS 9,492 25,101
DEFERRED TAX LIABILITIES 259,800 255,500
OTHER POST RETIREMENT BENEFITS 493,282 452,075
STOCKHOLDERS' EQUITY:
Common stock - $.015 par value:
Authorized - 5,000,000 shares
Issued and outstanding -
1,597,024 and 1,489,214
at December 31, 1999 and
1998, respectively 23,955 22,338
Paid-in for common stock in excess of
par value 7,523,252 7,345,038
Accumulated deficit (1,443,987) (1,651,010)
----------- -----------
6,103,220 5,716,366
----------- -----------
$ 7,895,869 $ 7,561,693
=========== ===========
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES (Including related party sales and
commissions of $-0-, $1,889,000 and
$7,010,000 in 1999, 1998 and 1997, respectively) $ 9,788,555 $ 9,768,537 $10,471,673
COST OF SALES 8,568,312 8,851,386 9,159,159
----------- ----------- -----------
GROSS PROFIT 1,220,243 917,151 1,312,514
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 813,439 835,573 1,002,274
RELATED PARTY SERVICES AND SALES
COMMISSIONS 1,966 4,232 18,098
----------- ----------- -----------
OPERATING INCOME 404,838 77,346 292,142
OTHER INCOME (EXPENSE):
Dividend and interest income 103,643 87,893 2,661
Interest expense (31,445) (67,896) (107,804)
Loss on abandonment of leasehold improvements - (143,214) -
Other income 37,503 15,773 -
----------- ----------- -----------
109,701 (107,444) (105,143)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 514,539 (30,098) 186,999
PROVISION (BENEFIT) FOR FEDERAL INCOME
TAXES 182,700 ( 10,000) 38,000
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 331,839 (20,098) 148,999
EXTRAORDINARY ITEM - gain on sale of equity
investee (net of applicable income tax expense of
$84,000) - 1,991,214 -
----------- ----------- -----------
NET INCOME $ 331,839 $ 1,971,116 $ 148,999
=========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $ .22 $ (.01) $ .10
EXTRAORDINARY ITEM - 1.31 -
----------- ----------- -----------
NET INCOME $ .22 $ 1.30 $ .10
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN FOR
-------------------- COMMON STOCK TOTAL
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance - December 31,
1996 1,524,546 $ 22,868 $7,410,725 $(3,771,125) $3,662,468
Net income - - - 148,999 148,999
---------- --------- ---------- ----------- ----------
Balance December 31,
1997 1,524,546 22,868 7,410,725 (3,622,126) 3,811,467
Shares reacquired (35,332) (530) (65,687) - (66,217)
Net income - - - 1,971,116 1,971,116
---------- --------- ---------- ----------- ----------
Balance - December 31,
1998 1,489,214 22,338 7,345,038 (1,651,010) 5,716,366
Shares issued to
directors 25,000 375 44,125 - 44,500
Stock issued for
services 6,000 90 10,425 - 10,515
Stock dividend - 5% 76,810 1,152 123,664 (124,816) -
Net income - - - 331,839 331,839
---------- --------- ---------- ----------- ----------
Balance - December 31,
1999 1,597,024 $ 23,955 $7,523,252 $(1,443,987) $6,103,220
========== ========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 9,489,334 $10,079,104 $10,276,690
Cash paid to suppliers and employees (8,758,215) (9,526,810) (9,896,955)
Interest and dividends received 98,404 79,322 2,491
Interest paid (32,104) (67,896) (107,804)
Income taxes refunded (paid) - (33,000) 215,870
----------- ----------- -----------
Net cash from operating activities 797,419 530,720 490,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equity investment - 1,475,214 -
Payments received on notes receivable 80,714 69,230 22,250
Deposits refunded 4,967 16,964 2,371
Purchase of property, plant and
equipment (337,782) (192,624) (246,250)
----------- ----------- -----------
Net cash from (to) investing activities (252,101) 1,368,784 (221,629)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (66,217) -
Proceeds (repayments) from line-of-credit -net (368,212) (40,788) 44,000
Principal payments under long-term obligations (61,711) (398,596) (203,927)
----------- ----------- -----------
Net cash to financing activities (429,923) (505,601) (159,927)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 115,395 1,393,903 108,736
CASH AND CASH EQUIVALENTS:
Balance - beginning of year 1,504,725 110,822 2,086
----------- ----------- -----------
Balance - end of year $ 1,620,120 $ 1,504,725 $ 110,822
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EQUIPMENT ACQUIRED UNDER CAPITAL
LEASE OBLIGATION $ - $ 25,913 $ 22,774
=========== =========== ===========
NOTE RECEIVABLE ACQUIRED FROM SALE
OF INVESTEE $ - $ 600,000 $ -
=========== =========== ===========
ISSUANCE OF STOCK DIVIDEND $ 124,816
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income $ 331,839 $ 1,971,116 $ 148,999
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation and amortization 366,881 350,399 342,340
(Gain) loss on sale of property, plant
and equipment - 143,214 -
Gain on sale of equity investee - (2,075,214) -
Deferred income tax provision 8,000 21,700 30,400
Stock issued for directors fees
and services 55,015 - -
Changes in assets and liabilities which
(increase) decrease cash flows:
Accounts receivable (340,891) 294,794 (277,667)
Inventories 1,000 (1,009) (9,527)
Prepaid expenses (19,070) (22,655) 46,739
Accounts payable 87,404 (213,440) (87,325)
Accrued income tax 174,700 19,300 223,300
Accrued expenses 91,334 10,296 25,134
Accrued retiree health benefits 41,207 32,219 47,899
----------- ----------- -----------
Net cash from operating activities $ 797,419 $ 530,720 $ 490,292
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Margate
Industries, Inc. (the Company) is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's
management which is responsible for their integrity and
objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied
in the preparation of the financial statements.
BUSINESS ACTIVITY
-----------------
Margate Industries, Inc. is a holding company for subsidiaries
involved in the cleaning of small and medium-sized grey iron
castings that are sold primarily to the North American automobile
industry.
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries Margate Land
Acquisition Company, Brown City Castings Corporation d/b/a Yale
Industries (Yale), and Fort Atkinson Industries, Inc. (FAI). All
intercompany accounts and transactions have been eliminated in
the accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
-------------------------
The Company considers all highly liquid investments purchased
with an original maturity date of three months or less to be cash
equivalents.
ACCOUNTS RECEIVABLE
-------------------
Management has elected to record bad debts using the direct
write-off method. Generally accepted accounting principles
require that the allowance method be used to reflect bad debts.
However, the effect of the use of the direct write-off method is
not materially different from the results that would have been
obtained using the allowance method.
INVENTORIES
-----------
Inventories, consisting primarily of grinding wheels, are stated
at the lower of cost or market, determined by the first-in,
first-our (FIFO) method
-7-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED:
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are recorded at cost. Costs of
maintenance and repairs that do not materially extend the life of
the asset are charged to expense when incurred.
Depreciation and amortization of plant and equipment is recorded
using the straight-line method over the estimated useful lives of
the assets. Depreciation and amortization expense totaled
$366,881, $350,399 and $342,340 in 1999, 1998 and 1997,
respectively. Estimated useful lives of assets in the various
classes of property, plant and equipment are as follows:
Buildings and improvements 40 years
Machinery and equipment 12 years
Furniture and fixtures 12 years
Automobiles 5 years
INCOME TAXES
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized
for differences between the basis of assets and liabilities for
financial statements and income tax purposes.
The deferred tax asset and liability represent the future tax
return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are
recovered or settled.
REVENUE RECOGNITION
-------------------
Revenues derived from the cleaning of castings are recognized as
services are provided.
Sales commissions are recognized as revenue when earned.
-8-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED:
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
-----------------
Certain amounts in 1997 and 1998 have been reclassified to
conform with the 1999 classification.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The Company provides cleaning services to New Haven Foundry (NHF)
for products manufactured by that company. Pursuant to the July
1990 agreement for the sale of NHF common stock, the Company
provided exclusive cleaning services on all castings produced by NHF.
Pursuant to the sale of the Company's equity interest in NHF
on March 24, 1998 a new cleaning contract superceded and replaced
the 1990 casting cleaning agreement. This new agreement grants
the Company the exclusive right to clean all production castings
produced by NHF for a minimum period of seven years commencing
March 24, 1998. In the event of the Management and Option
Agreement, as described in Note 15, being extended beyond its
six year term, the term of this agreement shall extend for one
year beyond the termination date of the Management and Option
Agreement. This contract may be terminated upon the exercise of
NHF's option to purchase the Yale Industries, Inc. facility in
accordance with the terms of the Management and Option Agreement.
Additionally, this contract may be terminated in the event that
the operations of the Yale facility are no longer being managed
by the Operations Manager as noted in the Management and Option
Agreement.
-9-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999
NOTE 2 - RELATED PARTY TRANSACTIONS - CONTINUED:
The terms of the 1990 sale also provided for a commission
contract between NHF and the Company. The Company received a
minimum of $150,000 per year, plus 3% of actual sales in excess
of $35,000,000 but less than $40,000,000, plus an additional 2%
on the actual sales that exceeded $40,000,000. Pursuant to the
sale of the Company's equity interest in NHF on March 24, 1998,
a new service fee contract superseded and replaced the 1990
commission agreement. The Company will receive quarterly service
fee payments of $140,000 beginning on April 1, 1998, until
January 1, 2003, for a total of $2,800,000 from NHF. The Company
earned commissions and service fees from NHF amounting to $560,000,
$564,807 and $610,378 in 1999, 1998 and 1997, respectively
Any unpaid balances of the aforementioned amounts are included on
the accompanying balance sheet.
NOTE 3 - NOTES RECEIVABLE:
Notes receivable - consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Wesley Industries, Inc. - collateralized note
receivable, as a result of the sale of 45% of
New Haven Foundry (refer to Note 15),
non-interest bearing, due in monthly
installments of $35,000 of principal payments
through March 2003. (Net of discount at
an effective interest rate of 6.0%). $ 467,857 $ 548,571
NHF - unsecured note receivable, as a result of
the conversion of a portion of NHF accounts
receivable into a note (refer to Note 18) , due in
monthly installments of $32,250, including
interest at 8%, through February 2002. 700,000 -
----------- -----------
1,167,857 548,571
Less current portion 428,305 108,571
----------- -----------
$ 739,552 $ 440,000
=========== ===========
</TABLE>
-10-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are summarized as follows as of
December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Building and improvements $ 1,736,227 $ 1,706,681
Machinery and equipment 3,732,444 3,472,698
Automotive equipment 123,649 77,297
Furniture and fixtures 140,897 138,759
----------- -----------
Total cost 5,733,217 5,395,435
Less accumulated depreciation and
amortization 1,998,414 1,631,533
----------- -----------
Net property, plant and
equipment $ 3,734,803 $ 3,763,902
=========== ===========
</TABLE>
NOTE 5 - LINE-OF-CREDIT:
The Company maintains a bank line-of-credit of $1,650,000 for
working capital requirements. The interest rate on this line is
at 1/2% below the bank's prime rate, which was 8% and 7.75% at
December 31, 1999 and 1998, respectively. The line-of-credit is
secured by all accounts receivable, inventories and equipment of
the Company. The Company had borrowings against the line of
$217,000 and $585,212 at December 31, 1999 and 1998,
respectively. The Company is required to maintain a working
capital balance of at least $1,500,000 and maintain a ratio of
its total liabilities to tangible net worth of at least .75 as
covenants under this credit agreement. For the years ended
December 31, 1999 and 1998 the Company was in compliance with its
covenants.
-11-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Note payable - bank, due in monthly
principal installments of $7,583, plus
interest at prime, uncollateralized,
maturing January, 1999. $ - $ 7,583
Note payable, due in monthly installments
of $3,992, including interest at 4% through
July 2003, collateralized by equipment. 166,498 206,863
----------- -----------
166,498 214,446
Less current portion 42,009 47,948
----------- -----------
$ 124,489 $ 166,498
=========== ===========
</TABLE>
Maturities of long term debt obligations are as follows:
Year ending December 31:
2000 $ 42,009
2001 43,720
2002 45,502
2003 35,267
--------
$166,498
========
NOTE 7 - CAPITAL LEASES:
The Company periodically acquires assets under capital lease
obligations. The capitalized cost of assets acquired under
capital lease obligations of $48,687 less accumulated
amortization of $7,544 and $3,487 at December 31, 1999 and 1998,
respectively, is included in machinery and equipment in the
accompanying financial statements. Amortization of these assets
is included in depreciation expense. Interest on these leases
ranges from 9% to 17.9%.
-12-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999
NOTE 7 - CAPITAL LEASES - CONTINUED:
The following is a schedule of future lease payments under
capital leases:
Year ending December 31:
2000 $ 18,402
2001 10,356
----------
Total lease payments 28,758
Less amounts representing interest 3,657
----------
Present value of future minimum payments 25,101
Less: current portion 15,609
----------
$ 9,492
==========
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments,
none of which are held for trading purposes, are as follows at
December 31, 1999 and 1998.
The carrying values of cash and equivalents approximate fair
values. The notes receivable in 1999 bear interest at a rate
that approximates prime and the notes receivable in 1998 are
discounted at an imputed rate that approximates an interest rate
between independent parties. Therefore, the carrying values of
these notes approximate fair value.
It is currently not practicable to estimate the fair value of the
long-term debt obligations. Because these note agreements
contain unique terms, conditions, covenants and restrictions
which were negotiated at arm's-length with the Company's lenders,
there is no readily determinable similar instrument on which to
base an estimate of fair value. Accordingly, no adjustment to
fair value has been determined.
The postretirement benefits obligation has been determined by an
outside actuary based on the actuarial present value of the
expected benefits' liability. As such, the carrying value
approximates the fair value of this financial instrument.
-13-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999
NOTE 9 - EARNINGS PER SHARE:
In November 1998, the Company announced a reverse stock split,
effectively reducing the number of shares outstanding by one-third
and increasing the par value from $0.005 to $.015 per share
of common stock. The weighted average number of shares, total
shares outstanding and earnings per share have been adjusted for
1998 and 1997. Earnings per share (EPS) for the years ended
December 31, 1999, 1998 and 1997 are computed as follows:
<TABLE>
<CAPTION>
Per-Share
---------
Income Shares Amount
------ ------ ------
<S> <C> <C> <C>
December 31, 1997
Income from continuing
operations $ 148,999 1,524,546 $ .10
========= ========= ==========
December 31, 1998
Income from continuing operations
before extraordinary items $ (20,098) 1,514,342 $ (.01)
========== ========= ==========
December 31, 1999
Income from continuing
operations $ 331,839 1,512,670 $ .22
========== ========= ==========
</TABLE>
For the years ending December 31, 1999,1998 and 1997, options on
280,000, 66,666 and 73,333 shares of common stock, respectively,
were not included in computing diluted EPS because their effects
were antidilutive.
NOTE 10 - INCOME TAXES:
As of December 31, 1999 and 1998, the components of deferred
income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Current deferred taxes:
Gross assets $ 13,800 $ 15,800
Gross liabilities (7,000) (5,300)
---------- ----------
Net current deferred tax assets 6,800 10,500
---------- ----------
Noncurrent deferred taxes:
Gross assets 167,700 169,900
Gross liabilities (427,500) (425,400)
---------- ----------
Net noncurrent deferred tax liabilities (259,800) (255,500)
---------- ----------
Total deferred tax liabilities $ (253,000) $ (245,000)
========== ==========
</TABLE>
-14-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS-CONTINUED
DECEMBER 31, 1999
NOTE 10 - INCOME TAXES-CONTINUED:
Deferred income taxes, included in the accompanying balance
sheet, result from temporary differences related to the following
items which are treated differently for financial reporting and
tax reporting purposes.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Depreciation and amortization $ (411,800) $ (403,900)
Installment gain on the sale of NHF (22,700) (26,800)
Other postretirement benefits 167,700 153,700
Accrued vacation 13,800 15,800
Capital and operating loss
carryforward - 16,200
---------- ----------
Total $ (253,000) $ (245,000)
========== ==========
</TABLE>
The components of the provision for income taxes are as follows
for the years ended December 31:
1999 1998 1997
------ ------ ------
Current tax expense $203,600 $ 68,500 $ 72,600
Deferred tax expense 8,000 21,700 30,400
Capital and operating loss
carryforwards (28,900) (16,200) -
Adjustment to valuation
allowance - - (65,000)
-------- -------- --------
Provision for income taxes $182,700 $ 74,000 $ 38,000
======== ======== ========
A reconciliation of the statutory tax rate to the effective tax
rates recorded as follows:
1999 1998 1997
------ ------ ------
Statutory rate 34% 34% 34%
Recognition of capital and
operating loss
carryforward (4) (30) -
Adjustment to valuation
allowance - (12)
Penalties 3
Other 3 - (2)
----- ----- -----
Effective rate 36% 4% 20%
===== ===== =====
-15-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 11 - STOCK OPTIONS:
In 1999, the Company adopted a fixed director and employee
stock-based compensation plan. Under the Plan, the Company
granted options for 280,000 shares of common stock, 130,000 to
employees and 150,000 to directors, vesting immediately. The
exercise price of each option is equal to the market price of
the Company's stock on the date of the grant. The term for all
of the options is 5 years, expiring on November 15, 2004.
Pursuant to the agreement for the sale of 55% of NHF (in 1990),
stock options were granted to the owner of Wesley Industries
for 33,333 shares at a price of $4.50 and 33,333 shares at a
price of $7.50. The options were exercisable at any time,
provided that the owner of Wesley Industries holds a minimum
55% ownership interest in NHF and the Company also holds an
ownership interest in NHF. Pursuant to the sale of the
Company's interest in NHF on March 24, 1998, the remaining
66,666 stock options were no longer exercisable as the Company
no longer maintained an ownership interest in NHF.
In 1997, the remaining 6,667 options for an employee stock
option plan expired.
The fair value of each option granted is estimated on the grant
date using the Black Scholes Model. The following assumptions
were used in estimating fair value:
Assumption Fixed Plan
---------- ----------
Dividend yield 0%
Risk-free interest rate 5.57%
Expected life 5 years
Expected volatility 20%
The Company applies APB Opinion 25 in accounting for its stock
compensation plans. Accordingly, no compensation has been
recognized for the Plan in 1999. Had cost been determined on the
basis of fair value pursuant to SFAS No. 123, net income and
basic earnings per share would have been reduced as follows:
Net income 1999
---------- --------
As reported $331,839
========
Pro forma $241,550
========
Basic earnings per share
------------------------
As reported $ 0.22
========
Pro forma $ 0.16
========
-16-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 11 - STOCK OPTIONS - CONTINUED:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- -------------------- --------------------
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding
at the beginning of the
year - $ - 66,666 $ 6.00 73,333 $ 5.58
Stock options granted 280,000 1.625 - - - -
Stock options exercised - - - - - -
Stock options canceled - - (66,666 ) - (6,667 ) -
-------- -------- -------- -------- -------- --------
Stock options outstanding
at the end of the year 280,000 $ 1.625 - $ - 66,666 $ 6.00
======== ======== ======== ======== ======== ========
Weighted average fair value
of options granted during 1999 $ .50
========
</TABLE>
-17-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 11 - STOCK OPTIONS - CONTINUED:
At December 31, 1999 all 280,000 options were outstanding and
exercisable with a remaining life of five years at a price of
$1.625 per share.
NOTE 12 - LEASE COMMITMENTS:
The Company leases the building for the Fort Atkinson subsidiary
under an operating lease agreement that expires in December,
2005. This lease requires the Company to pay all maintenance and
insurance expenses. The Company also leases certain vehicles
under two or three year agreements.
Minimum payments under these leases are as follows:
Year ending December 31:
2000 $153,367
2001 148,524
2002 136,323
2003 135,750
2004 135,750
Thereafter 135,750
--------
$845,464
========
Rental expense for these leases in 1999, 1998 and 1997, was
approximately $170,328, $257,800 and $271,000, respectively.
NOTE 13 - OTHER POSTRETIREMENT BENEFITS:
Salaried employees retiring from the Company are entitled to
postretirement health and life insurance benefits. The amount of
these benefits is based on years of credited service and the age
of the participant. The Company may amend or change the Plan
periodically.
The Company accounts for these benefits in accordance with
Statement of Accounting Standards No. 106, "Accounting for
Postretirement Benefits Other Than Pensions." A Plan amendment
effective January 1, 1998 resulted in a negative prior service
cost of $109,240 being amortized over 20 years. The amount of
annual amortization is $5,462.
-18-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 13 - OTHER POSTRETIREMENT BENEFITS - CONTINUED:
The following table sets forth the Plan's funded status as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Fully-eligible active Plan
participants $172,981 $133,499
Other active Plan participants 208,071 175,596
-------- --------
Accrued postretirement benefit
obligation in excess of Plan assets 381,052 309,095
Unrecognized net gain 13,914 39,202
Unrecognized prior service costs
from Plan amendment 98,316 103,778
-------- --------
Accrued postretirement benefit cost $493,282 $452,075
======== ========
</TABLE>
The Company's postretirement healthcare and life insurance plan
is unfunded as the Company provides benefits on a pay as incurred
basis. There were no cash benefits paid under this Plan for 1999
or 1998.
Net periodic postretirement benefit costs included the following
components for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Service cost - benefits earned $ 24,724 $ 19,159
Interest cost 21,931 19,366
Amortization of net gain (loss) 14 (844 )
Amortization of prior service costs (5,462 ) (5,462 )
-------- --------
Net periodic other postretirement
benefit cost $ 41,207 $ 32,219
======== ========
</TABLE>
-19-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 13 - OTHER POSTRETIREMENT BENEFITS - CONTINUED:
For measurement purposes, a 6.60% and 7.18% annual rate of
increase in the per capita cost of covered healthcare benefits
was assumed for 1999 and 1998, respectively. The rate was assumed
to drop to 5.25% by 2007 and remain at that level thereafter.
The healthcare cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the
assumed healthcare cost trend rate by 1 percentage point in each
year would increase the accumulated postretirement benefit
obligation as of December 31, 1999 and 1998 by $91,148 and
$77,155, respectively, and the aggregate of the service and
interest cost components of net periodic postretirement benefit
cost for the years then ended by $13,421 and $11,366, respectively.
The discount rate used in determining the accumulated
postretirement benefit obligation was 6.5% and 7.25% as of
December 31, 1999 and 1998, respectively.
NOTE 14 - EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) plan covering all employees that
satisfy the Plan's eligibility requirements. The Company is
required to match 25% (maximum 2%) of each employee's
contribution, not to exceed 8% of the participant's compensation.
The employer's contribution, including administrative expenses,
for the years ended December 31, 1999, 1998 and 1997, was
$19,116, $17,055 and $27,134, respectively.
The Company also maintains a Defined Contribution Plan covering
substantially all employees that satisfy the Plan's eligibility
requirements. Under the provisions of the Plan, Margate is
required to make an annual contribution of 5% of each
participant's eligible compensation. Plan contributions for the
years ended December 31, 1999, 1998 and 1997, were $30,751,
$28,522, and $20,718, respectively.
NOTE 15 - GAIN ON SALE OF NEW HAVEN FOUNDRY:
On March 24, 1998, the Company sold its 45% ownership interest in
New Haven Foundry to Wesley Industries, Inc. who owned the
remaining 55% interest. The sales price totaled $2,100,000 of
which $1,500,000 was received in cash and a $600,000 note
receivable, payable over five years. Legal fees relating to this
transaction amounted to $24,786, which resulted in a $2,075,214
gain on sale as the equity interest in NHF was written down to
zero in 1996.
-20-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999
NOTE 15 - GAIN ON SALE OF NEW HAVEN FOUNDRY-CONTINUED:
As noted under related party transactions (Note 2), this sale
resulted in a new casting cleaning and service fee agreement.
Additionally, there is also a Management and Option Agreement
("Agreement") entered into between Yale Industries, Inc., Margate
Industries, Inc., New Haven Foundry and Wesley Industries, Inc .
as a result of this sale. This agreement established an
Operations Manager responsible for the production operations at
Yale and reports to NHF. This agreement also granted Wesley the
right to purchase 100% of the stock of Yale or substantially all
of the assets related to the Yale business, at Wesley's option,
at any time within six years of this agreement. The purchase
price under this option shall be Yale's earnings before interest
and taxes (EBIT) as defined in the agreement for the 12 month
period recently ended, multiplied by five, and in no event shall
the purchase price under the option be less than $4,000,000 or
more than $5,000,000 in cash, plus in the event of an asset
purchase, the assumption of liabilities of Yale.
NOTE 16 - CONCENTRATIONS OF CREDIT RISK:
The Company has cash deposits in financial institutions in excess
of the amount insured by agencies of the federal government in
the approximate amounts of $1,466,000 and $1,400,000 for the
years ended December 31,1999 and 1998 respectively.
The Company performs grinding and blasting services in the states
of Michigan and Wisconson. Credit is granted to certain
customers, which is made up of entirely commercial
establishments. The Company performs periodic credit evaluations
of customers' financial condition and generally does not require
collateral. Amounts due from one customer represented
approximately 49% and 78% of trade accounts receivable as
of December 31, 1999 and 1998, respectively. Also, sales to this
customer represented 61%, 72% and 62% of total Company revenues
for the years ended December 31, 1999, 1998 and 1997,
respectively. Sales to another major cutomer represented 17% of
total Company revenues for the year ended December 31, 1997.
NOTE 17 - COMMITMENTS:
The Company has a commitment to purchase a dust collection system
for its Fort Atkinson facility in the year 2000, with an
estimated cost between $500,000 and $700,000.
NOTE 18 - SUBSEQUENT EVENTS:
In February, 2000, $700,000 of the major customer's accounts
receivable relating to amounts outstanding at December 31, 1999
were converted to a note. Accordingly, the balance sheet at
December 31,1999 has been adjusted to reflect this change. Refer
to Note 4 for the terms and conditions of this financial instrument.
-21-
<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.
Dated: March 27, 2000 By: /s/ William H. Hopton
-----------------------------
William H. Hopton
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Frederick G. Schriever Director March 27, 2000
- ----------------------------
Frederick G. Schriever
/s/ Delbert W. Mullens Director March 27, 2000
- ----------------------------
Delbert W. Mullens
/s/ William H. Hopton President, Chief Financial March 27, 2000
- ---------------------------- Officer, Treasurer and Director
William H. Hopton
/s/ David A. Widlak Secretary and Director March 27, 2000
- ----------------------------
David A. Widlak
/s/ Denis R. LeDuc Treasurer and Director March 27, 2000
- ----------------------------
Dennis R. LeDuc
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,620
<SECURITIES> 0
<RECEIVABLES> 1,499
<ALLOWANCES> 0
<INVENTORY> 42
<CURRENT-ASSETS> 3,387
<PP&E> 5,733
<DEPRECIATION> 1,998
<TOTAL-ASSETS> 7,896
<CURRENT-LIABILITIES> 906
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 6,079
<TOTAL-LIABILITY-AND-EQUITY> 7,896
<SALES> 9,789
<TOTAL-REVENUES> 9,789
<CGS> 8,568
<TOTAL-COSTS> 2
<OTHER-EXPENSES> 813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 515
<INCOME-TAX> 183
<INCOME-CONTINUING> 332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332
<EPS-BASIC> .22
<EPS-DILUTED> .22
</TABLE>
