10-Q/A 1 q901a-2.txt AMENDMENT NO. 2 TO FORM 10-Q DATED SEPTEMBER 30, 2001 FORM 10-Q/A-2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------------------ 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 September 30, 2001, the Company had 1,879,542 shares of its $.015 Par Value Common Stock outstanding. 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 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . .12 - 14 PART II: OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 15 ------- ----------------- 2 MARGATE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements. 3 MARGATE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)

See Notes to Consolidated Financial Statements 4 MARGATE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (unaudited)

See Notes to Consolidated Financial Statements 5 MARGATE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)

6 MARGATE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

See Notes to Consolidated Financial Statements 7 MARGATE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES The consolidated Balance Sheet as of September 30, 2001 and the related Consolidated Statements of Income, Changes in Stockholders' Equity, and Cash Flows for the nine months ended September 30, 2001 and 2000 are unaudited. In the opinion of management, all adjustments consisting of solely recurring adjustments necessary for a fair presentation of such interim financial statements have been included. The results of operations for the nine months ended September 30, 2001 and 2000 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. Certain amounts in 2000 have been reclassified to conform with the 2001 financial statement presentation. NOTE 2 - DIVIDENDS On July 11, 2000, the Company announced a special cash dividend of $0.50 per share on all outstanding shares of common stock for those shareholders of record on July 24, 2000. The dividend was paid on August 25, 2000. NOTE 3 - STATEMENTS OF CASH FLOWS A reconciliation of net income to net cash flows provided by operating activities is as follows:

8 NOTE 4 - NOTES PAYABLE Notes payable consist of the following at September 30, 2001: Note payable Ft. Atkinson, due in monthly installments of $3,992, including interest at 4% through July 2003 88,179 Less current portion 41,363 ----------- Long-term portion 46,816 Maturities of notes payable obligations are as follows: Year ending September 30: 2002 $ 41,363 2003 46,816 2004 - ----------- $ 88,179 =========== 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 6.75% at September 30, 2001. The line-of-credit is secured by all accounts receivable, inventories and equipment of the Company. The Company had no borrowings against the line as of September 30, 2001. 9 NOTE 5 - NOTES RECEIVABLE Notes receivable consist of the following at September 30, 2001: Wesley Industries Inc.- collateralized note receivable due in quarterly payments of $35,000 commencing June 1, 1998 including imputed interest at 6%, with a final payment of the remaining outstanding principal and imputed interest balance on March 1, 2003. $ 231,245 NHF - unsecured note receivable, due in monthly installments of $32,250 including interest at 8% through February 2002. $ 174,339 Officers - Unsecured notes receivable, due in quarterly payments of $ 3,000 commencing September 30, 2000 including imputed interest at 6%, through 2007 $ 98,858 USA Teleport - Secured by 30,000 shares of stock, due in one lump sum of $100,000 in six (6) months (March 31, 2002) at the then existing prime interest rate $ 100,000 ----------- Total Notes Receivable $ 604,442 Less current portion $ 441,567 ----------- Long-term portion $ 162,875 =========== Maturities of notes receivable are as follows: Year ending September 30: 2002 $ 441,567 2003 87,255 2004 19,884 2005 21,111 2006 22,413 2007 12,212 ----------- $ 604,442 =========== 10 NOTE 6 - DEFERRED SERVICE FEES In April 2001, the cleaning contract with New Haven Foundry, Inc, a subsidiary of Wesley Industries was revised. The quarterly Service Fee payments payable under paragraph C of the Cleaning Contract through and including the January 1, 2002 payment shall be deferred to The following payment dates: SERVICE FEE DEFERRED PAYMENT DATE PAYMENT DATE ------------ ------------ July 1, 2000 July 1, 2003 October 1, 2000 October 1, 2003 January 1, 2001 January 1, 2004 April 1, 2001 April 1, 2004 July 1, 2001 July 1, 2004 October 1, 2001 October 1, 2004 January 1, 2002 January 1, 2005 Due to current economic conditions in the auto industry and the conversion in demand from grey iron to aluminum cylinder heads, New Haven Foundry has experienced a decline in sales. As a result of these trends, the Company feels it is unlikely that the above scheduled payments will be received. Accordingly, fees in the amount of $700,000 have been written off as an expense in the current period. Efforts to receive these funds will continue, and it should be noted that the amount due the Company as a note receivable from NHF is expected to be received in accordance with this separate contract (Note 5). NOTE 7 - ORGANIZATIONAL COSTS As previously reported to the public, the Company has terminated negotiations for a proposed merger with USA Teleport, Inc. The costs listed are the Company's cost expended in the due diligent efforts related to this proposed transaction. NOTE 8 - PLAN CLOSURE Due to the continued economic recession, particularly in the auto industry, the Company closed the facility at Ft. Atkinson. This plant accounted for approximately 25% of the Company's overall revenue. As a result of this plant closure, fixed assets were sold or written-off, resulting in a recognized loss of $645,647. 11 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 operations during the periods included in the accompanying consolidated financial statements for the nine (9) months ended September 30, 2001. THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MARGATE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27a OF THE SECURITIES ACT OF 1933 AND SECTION 21e OF THE SECURITIES EXCHANGE ACT OF 1934. MARGATE'S ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, STRENGTH OF THE AUTOMOTIVE INDUSTRY, CHANGES IN AUTOMOBILE AND TRUCK PRODUCTION, STRONG COMPETITION, DEPENDENCE ON NHF AND ITS PRODUCTION LEVELS, ENVIRONMENTAL MATTERS, LABOR PROBLEMS, AND ABILITY TO DIVERSIFY AND FIND SUITABLE ACQUISITIONS. IN ADDITION, THE WORDS "BELIEVE," "MAY," "WILL," "ESTIMATE," "CONTINUE," "ANTICIPATE," "INTEND," "EXPECT," AND SIMILAR EXPRESSIONS, AS THEY RELATE TO MARGATE, MARGATE'S BUSINESS OR MARGATE'S MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. GENERAL Margate performs finishing, cleaning and testing operations on grey iron castings for the automotive industry. Margate currently conducts its operations through its wholly owned subsidiary, Brown City Casting Corporation, doing business under the name Yale Industries. Because of continued downturn in the economy the Company discontinued operations at Fort Atkinson on August 31, 2001. Yale performs cleaning, grinding and testing of castings prior to shipment to end purchasers. Yale's primary customer is the New Haven Foundry ("NHF"), which produces castings for the automotive industry and other component manufacturers in the United States and Canada. Mr. Delbert Mullins, a Director, is also a Director and principal shareholder of Wesley Industries, Inc., which owns NHF. Our customers for which we perform finishing operations include Waupaca Foundry, Inc., Navistar International, and Grede Foundries. Margate has benefited in recent years for the increased finishing and testing requirements on automotive suppliers, leading many of those suppliers to move their finishing operations from in-house to outside providers, such as Margate. However, with the current slowdown in the economy some foundries, such as Waupaca, have decreased total production and stopped outsourcing some of their cleaning operations. Also, because of the conversion of grey iron cylinder heads to aluminum NHF has drastically reduced its production. RECENT DEVELOPMENTS As stated above, because of continued sales reductions at Fort Atkinson in Wisconsin the Company ceased operations effective August 31, 2001. 12 On June 12, 2001, Margate entered into a letter of intent with USA Teleport, Inc. ("USA Teleport") wherein USA Teleport would merge, on a tax-free basis, with and into a wholly owned subsidiary of Margate formed for the purposes of the merger. In addition, Margate loaned USA Teleport $100,000 secured by shares of USA Teleport. Margate and USA Teleport agreed to automatically terminate the letter of intent if a definitive agreement could not be reached by September 30, 2001. (Previously August 31, but extended by mutual consent of both parties). Because an agreement was not reached by September 30, and given the current national economic conditions, Margate chose not to continue pursuing this merger. On October 24, 2001, Margate received notification that New Haven Foundry, a major customer, has laid-off its entire hourly workforce and ceased operations for an indefinite period of time. Margate believes the loss of this business will have a negative impact on our results over the short term. Margate will attempt to retain a portion of this business being contracted to other foundries. New Haven Foundry currently represents 67% of Margate's revenues through the first nine months of 2001. LIQUIDITY AND CAPITAL RESOURCES: Cash balances totaled $1,467,909 at September 30, 2001 compared to $1,099,083 at December 31, 2000. The increase in cash for the period is to be contrasted to a reduction in the accounts receivable, $700,000 of which was due to the write-off of amounts due from NHF. Overall, total assets decreased approximately $1.9 million during the year, which was largely due to the write-off of fixed assets of approximately $646,000 and the write-off of acquisition costs of approximately $150,000 in conjunction with a decrease in accounts receivable of approximately $1.2 million. During the period ended September 30, 2001, long-term debt decreased by approximately $40,000, reflecting current payments paid during the period. Margate assesses its liquidity in terms of overall ability to generate sufficient cash to support business needs and to fund growth. We rely primarily upon cash flow from operations and our line of credit to finance our operations. Margate has a line of credit of $1,300,000 for working capital requirements, with monthly interest payments at 1/2 below the prime rate currently 6.75% at September 30, 2001. This line of credit is collateralized by substantially all assets of Margate including accounts receivable, inventories and equipment. The Company has no borrowing against this line as of September 30, 2001. Margate believes its cash flows from operations are sufficient to fund its current level of operations. 13 RESULTS OF OPERATIONS The Company is reporting a year-to-date pre-tax loss on operations of $1,776,266 for the nine months ended September 30, 2001, as compared to a profit of $894,591 for the same period in 2000, and a loss of $1,815,705 compared to a profit of $206,317 for the three months ended September 30, 2001 and 2000, respectively. Sales for the period ended September 30, 2001 were approximately $5,013,530, which represents a decrease of 41.2% from sales through September 30, 2000 of $8,521,263. Management believes the decrease is directly attributable to the general economic slowdown in the automotive industry and the automakers conversion of grey iron cylinder heads to aluminum. The cost of sales for the nine months ended September 30, 2001 as a percentage of sales was 95.9% as compared to 80.2% for the same period in 2000. The major reason for the increase was the decrease in sales of 41.2% over the same period last year. Selling, General & Administrative Expenses for the nine months ended September 30, 2001 as a percentage of sales was 13.2% as compared to 9.4% for the same period in 2000. Basically the Company's SG&A are fixed. For the nine month period ended September 30, 2001 SG&A costs were $663,302 compared to $801,864 for the same period ended September 30, 2000. EFFECTS OF CHANGES IN PRICES When possible, Margate attempts to adjust the selling prices of its services in response to increases in its costs of labor, raw materials and capital. However, the market served by Margate is highly competitive and that competition has limited our ability to increase overall prices. During 2001, 2000 and 1999 there were no significant changes in prices. 14 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 ----------------------------------------------------- None Item 5. Other Information ----------------- This amendment is being filed because the Company incorrectly filed under Form 10-QSB for the quarter ended September 30, 2001. There is no material change in the filing for the stated period. 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 ----------- ----------- None (b) A report on Form 8-K was filed on October 1, 2001 reporting the termination of negotiations for a proposed merger between Margate and USA Teleport under Item 5. 15 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: December 26, 2001 16

MARGATE INDUSTRIES INC 10-Q/A