FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-13817
MARGATE INDUSTRIES, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-8963939
- ------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
129 N. Main Street Yale, Michigan 48097
- -------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (810) 387-4300
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of March 31, 2000, the Company had 1,597,280 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
- ------- -----------------
-2-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------------------
March 31, 2000 Dec. 31, 1999
-------------- -------------
ASSETS (Unaudited)
- ------
CURRENT ASSETS
Cash and cash equivalents $1,538,794 $1,620,120
Accounts receivable 1,307,646 1,210,337
Current maturities of notes receivable 551,860 428,305
Inventories 32,000 42,000
Prepaid expenses and other 83,127 79,119
Prepaid Federal income tax - -
Deferred tax asset 6,800 6,800
---------- ----------
Total Current Assets 3,520,227 3,386,681
PROPERTY, PLANT AND EQUIPMENT
At cost net of accumulated depreciation and
and amortization of $2,093,559 and $1,998,414
at March 31, 2000 and December 31, 1999,
Respectively 3,673,452 3,734,803
NOTES RECEIVABLE - net of current maturities 633,723 739,552
OTHER 34,833 34,833
---------- ----------
Total Assets $7,862,235 $7,895,869
========== ==========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
-----------------------------------------
March 31, 2000 Dec. 31, 1999
-------------- -------------
LIABILITIES & STOCKHOLDER'S EQUITY (Unaudited)
- ----------------------------------
CURRENT LIABILITIES
Line-of-credit $ 117,000 $ 217,000
Currents portion of long-term debt 62,027 57,618
Accounts payable 255,330 299,709
Accrued salaries and wages 64,866 91,042
Accrued federal income tax 73,000 153,000
Other accrued liabilities 109,203 87,217
---------- ----------
Total Current Liabilities 681,426 905,586
DEFERRED TAX LIABILITY 259,800 259,800
OTHER POSTRETIREMENT BENEFITS 493,282 493,282
NOTES PAYABLE - Long-term 118,944 133,981
STOCKHOLDERS' EQUITY:
Common stock - $.015 par value
Authorized - 5,000,000
Issued and outstanding -
1,591,780 and 1,597,280
at March 31, 2000 and December 31, 1999,
respectively 23,873 23,955
Paid-in for common stock in excess of
par value 7,510,674 7,523,252
Accumulated deficit (1,225,764) (1,443,987)
---------- ----------
Total Stockholders' Equity 6,308,783 6,103,220
---------- ----------
Total Liabilities and
Stockholders' Equity $7,862,235 $7,895,869
========== ==========
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
----------------------------------------
(Unaudited)
Three Months Ended
March 31
2000 1999
NET SALES $2,535,089 $7,450,701
COST OF SALES 1,999,200 2,155,145
---------- ----------
GROSS PROFIT 535,889 295,556
---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 218,195 182,277
---------- ----------
RELATED PARTY SERVICES AND SALES
COMMISSIONS 0 0
---------- ----------
INCOME (LOSS) FROM OPERATIONS 317,694 113,279
---------- ----------
DIVIDEND AND INTEREST INCOME
(EXPENSE) - NET 34,578 16,023
OTHER (EXPENSE) (19,049) 0
---------- ----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 333,223 129,302
PROVISION FOR FEDERAL INCOME TAXES 115,000 44,000
---------- ----------
INCOME (LOSS) $ 218,223 $ 85,302
========== ==========
BASIC EARNINGS PER COMMON SHARE $ 0.137 $ 0.057
WEIGHTED AVERAGE SHARES OUTSTANDING 1,595,445 1,489,214
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 2000 1,597,280 $ 23,955 $7,523,252 $(1,443,987) $6,103,220
Stock Issued 4,500 68 8,276 8,344
Stock Reacquired (10,000) (150) (20,854) (21,004)
Net income -- -- -- 218,223 218,223
---------- ---------- ---------- ---------- ----------
Balance - March 31, 2000 1,591,780 $ 23,873 $7,510,674 $(1,225,764) $6,308,783
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1999 1,489,214 $ 22,338 $7,345,038 $(1,651,010) $5,718,366
Net income -- -- -- 85,302 85,302
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1999 1,489,214 $ 22,338 $7,345,038 $(1,545,708) $5,801,668
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------
(Unaudited)
Three Months ended
March 31,
2000 1999
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES $ 93,482 $ 391,863
INVESTING ACTIVITIES:
Purchase of plant and equipment (33,794) --
---------- ----------
Net cash used in investing activities (33,794) --
FINANCING ACTIVITIES:
Net proceeds (repayments) -
line of credit (net) (100,000) (242,000)
Sales of common stock 8,344 --
Repurchase of common stock (21,004) --
Principal payments under long-term
obligations (10,628) (20,370)
Decrease (increase) in notes receivable (17,726) 26,428
---------- ----------
Net cash provided by (used in)
financing activities (141,014) (235,942)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (81,326) 155,921
CASH AND CASH EQUIVALENTS - Beginning 1,620,120 1,504,725
---------- ----------
CASH AND CASH EQUIVALENTS - Ending $1,538,794 $1,660,646
========== ==========
See Notes to Consolidated Financial Statements.
-7-
<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated Balance Sheet as of March 31, 2000 and the related
Consolidated Statements of Operations, Changes in Stockholders'
Equity, and Cash Flows for the three months ended March 31, 2000 and
1999 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have
been included. The results of operations for the three months ended
March 31, 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 September 15, 1999 the Board of Directors approved a 5% stock
dividend payable on November 15, 1999 to shareholders of record on
October 15, 1999.
NOTE 3 - STATEMENTS OF CASH FLOWS
A reconciliation of net income to net cash flows provided by operating
activities is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
2000 1999
---------- ----------
<S> <C> <C>
Net income $ 218,223 $1,730,585
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 95,145 91,050
Changes in assets and liabilities:
Accounts receivable (97,309) (95,575)
Inventories 10,000 (76,900)
Prepaid expenses (4,008) (44,061)
Prepaid Federal tax -- (72,000)
Accounts payable (44,379) 76,555
Accrued salaries and wages (26,176) (34)
Accrued Federal Income Tax (80,000) --
Other liabilities 21,986 14,673
---------- ----------
Net cash provided (used) by
operating activities $ 93,482 $1,624,293
========== ==========
</TABLE>
NOTE 4 - EARNINGS PER SHARE
The weighted average number of shares used to compute the net income
per shares was 1,595,445 and 1,489,214 for the three month periods
ended March 31, 2000 and 1999, respectively.
-8-
<PAGE>
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at March 31, 2000:
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest at
4% through July 2003. 159,590
Capital lease - Ft. Atkinson - due in monthly
installments of $705 including interest at 17.9%
through July 2001 9,443
Capital lease - Yale - due in monthly installments
of $828.48 including interest at 9.0% maturing
September 2001. 11,938
---------
180,971
Less current portion 62,027
---------
$ 118,944
Maturities of notes payable obligations are as follows:
Year ended March 31:
2001 $ 62,027
2002 49,378
2003 45,958
2004 23,608
--------
$180,971
========
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 8% at March 31, 2000. The line-of-
credit is secured by all accounts receivable, inventories and
equipment of the Company. Additionally, certain required financial
ratios must be maintained. The Company is in compliance with all
covenant requirements as of March 31, 2000. The Company has
borrowings against the line of $117,000 and $343,212 at March 31, 2000
and 1999, respectively.
-9-
<PAGE>
NOTE 6 - NOTES RECEIVABLE
Notes receivable consist of the following at March 31, 2000:
Notes receivable - Wesley Industries, Inc. due in
quarterly payments of $35,000 commencing June 1, 1998,
including imputed interest, with a final payment of
the remaining outstanding principal and imputed
interest balance on March 1, 2003. $ 412,000
NHF - unsecured note receivable, as a result of the
conversion of a portion of NHF accounts receivable
into a note, due in monthly installments of
$32,250, including interest at 8% through February 2002. 673,583
NHF - unsecured note receivable, as a result of the
conversion of a portion of NHF accounts receivable into
a note, due in one payment including interest on
July 25, 2000. 100,000
----------
$1,185,583
Less current portion $ 551,860
----------
$ 633,723
==========
NOTE 7 - SALE OF STOCK IN INVESTEE COMPANY
On March 24, 1998, the Company sold its remaining 45% interest in New
Haven Foundry to Wesley Industries, Inc. which owned the other 55%.
Terms of the agreement included a purchase price of $2,200,000 paid
$1,500,000 at closing and the $700,000 balance including interest due
in the form of a promissory note payable in quarterly installments of
$35,000. The promissory note is secured by the shares of the New
Haven Foundry. In addition, the Company entered into a new cleaning
contract with New Haven Foundry which includes a per piece price and
a service fee of $2,800,000 paid in quarterly installments of $140,000
over five (5) years. The gain on sale is reported on the consolidated
income statement net of legal fees.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition
and results of operation during the periods included in the accompanying
consolidated financial statements for the three (3) months ended March 31, 2000.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
- -------------------------------------------------
When used in this Form 10-Q, the words "anticipate," "estimate,"
"expect," "project," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions including the possibility that the Company's
projected sales, revenues and contract negotiations are not realized.
Should one or more of these uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
The Company has a consolidated line of credit of $1,300,000 with
monthly interest payments at the prime rate with the National Bank of
Detroit. The line is collateralized by substantially all assets.
Borrowings as of March 31, 2000 were $117,000.
RESULTS OF OPERATIONS
- ---------------------
The Company is reporting year-to-date pre-tax profit on operations
before extraordinary item of $333,223 for the three months ended March 31,
2000 as compared to a profit of $129,302 for the same period in 1999. Net
sales for the period ended March 31, 2000 were approximately $2,535,089;
which represents an increase of 3.4% from 1999 sales through March 31, 1999
of $2,450,701.
The cost of sales for the three months ended March 31, 2000 as a
percentage of sales was 78.9% as compared to 87.9% for the same period in 1999.
Selling, General and Administrative for the three months ended March 31,
2000 as a percentage of sales was 8.6% as compared to 8.5% for the same
period in 1999.
-11-
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any material pending legal
proceeding to which the Company is a party or to which any of its
property is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
As noted in Item 5 below, the Company entered into a letter of
intent with B2B Euro Wireless.com, Inc. on March 23, 2000. The
transaction is expected to be submitted to shareholder vote for
approval at the Company's Special Meeting to be held sometime in
the future.
Item 5. Other Information
-----------------
On March 23, 2000, Margate Industries, Inc. (the "Registrant" or
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 Registrant. Thereafter, the Holding Company
will acquire all of the outstanding shares of the Registrant and
issue its shares on a one-for-one basis with the existing Margate
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 existing Margate
shareholders will own approximately 10.6% of the Holding Company
and the B2B 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 Margate 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 Margate shareholders.
-12-
<PAGE>
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 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
----------- -----------
27 Financial Data Schedule
(b) The Company filed a form 8-K on March 23, 2000 to report a letter
of intent entered into with B2B Euro Wireless.com, Inc.
-13-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized.
MARGATE INDUSTRIES, INC.
By: /s/ William H. Hopton
-----------------------------
William H. Hopton
Date: May 2, 2000
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,539
<SECURITIES> 0
<RECEIVABLES> 1,729
<ALLOWANCES> 0
<INVENTORY> 32
<CURRENT-ASSETS> 3,520
<PP&E> 5,767
<DEPRECIATION> 2,094
<TOTAL-ASSETS> 7,862
<CURRENT-LIABILITIES> 681
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 6,285
<TOTAL-LIABILITY-AND-EQUITY> 7,862
<SALES> 2,535
<TOTAL-REVENUES> 2,535
<CGS> 1,999
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 333
<INCOME-TAX> 115
<INCOME-CONTINUING> 218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218
<EPS-BASIC> .137
<EPS-DILUTED> .127
</TABLE>
