U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission File Number 0-15910
Control Chief Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
New York 16-0955704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 141, 200 Williams Street, Bradford, Pennsylvania 16701
(Address of principal executive offices)
(814) 368-4132
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of issuer's Common Stock, par
value $.50 per share, as of September 30, 1997 was 811,553 shares.
Transitional Small Business Format (Check one): Yes [ ] No[X]
Control Chief Holdings, Inc. and Subsidiaries
Table of Contents
PART I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Retained Earnings
Consolidated Statements of Cash Flows
Notes to Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
<TABLE>
<PAGE>
PART I
ITEM 1 - FINANCIAL INFORMATION
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, June 30,
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 36,073 $ 132,007
Receivables
Trade, less allowance for doubtful
accounts of $59,750 1,590,134 1,387,739
Other 7,845 6,730
Inventories
Raw materials and subassemblies 980,782 1,122,751
Work in process 415,441 251,950
Prepaid income taxes - 89,368
Other prepaid items 27,847 20,512
Deferred income taxes 55,737 55,737
---------- ----------
Total current assets 3,113,859 3,066,794
---------- ----------
Property and Equipment, at cost
Leasehold improvements 144,244 121,422
Machinery and other equipment 1,534,727 1,568,280
---------- ----------
Total cost 1,678,971 1,689,702
Less accumulated depreciation 1,142,611 1,175,486
---------- ----------
Undepreciated cost 536,360 514,216
---------- ----------
Other Assets
Property of continuing operations
held for sale, less accumulated
depreciation of $214,458 at
June 30, 1996 7,722 53,927
Note receivable-SPC Technologies, Inc. 95,834 96,147
Trade receivable-Aden Electronics Limited 75,555 71,304
Cash surrender value of officers' life
insurance less policy loans of
$73,320 and $71,113 9,318 11,525
---------- ----------
Total other assets 188,429 232,903
---------- ----------
$3,838,648 $3,813,913
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
September 30, June 30,
1997 1997
---------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 100,000 $ 245,000
Current maturities of long-term debt 155,464 203,976
Accounts payable trade 435,879 452,085
Accrued items
Salaries, wages, commissions and
related payroll taxes 361,674 363,748
Income taxes 61,132 -
Other 6,360 6,408
---------- ----------
Total current liabilities 1,120,509 1,222,705
---------- ----------
Other Liabilities
Long-term debt, less current maturities 419,156 456,582
Deferred income taxes 22,310 23,910
---------- ----------
Total other liabilities 441,466 480,492
---------- ----------
Stockholders' Equity
Common stock, authorized 5,000,000
shares of $.50 par value; issued
and outstanding 811,553 shares 405,776 405,776
Capital in excess of par value 1,223,701 1,223,701
Retained earnings 647,196 481,239
---------- ----------
Total stockholders' equity 2,276,673 2,110,716
---------- ----------
$3,838,648 $3,813,913
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Revenues
Net sales $1,925,565 $1,722,807
Gain on sale of land and building 127,088 -
Other income 22,302 13,453
---------- ----------
Total revenues 2,074,955 1,736,260
---------- ----------
Costs and expenses
Cost of products sold 1,076,149 960,493
Selling general and administrative 559,590 525,450
Research and development 67,148 48,112
Interest expense 16,633 28,683
---------- ----------
Total costs and expenses 1,719,520 1,562,738
---------- ----------
Earnings from continuing operations
before income taxes 355,435 173,522
---------- ----------
Federal and state income taxes
Currently payable 150,500 75,300
Deferred (1,600) (1,200)
---------- ----------
148,900 74,100
---------- ----------
Earnings from continuing operations 206,535 99,422
Discontinued operations
Loss, net of taxes - (24,918)
---------- ----------
Net earnings 206,535 74,504
Retained earnings at beginning of period 481,239 182,630
Cash dividends paid (40,578) -
---------- ----------
Retained earnings at end of period $ 647,19 $ 257,134
========== ==========
Earnings (loss) per common share
Continuing operations $.25 $.12
Discontinued operations - (.03)
---- ----
$.25 $.09
==== ====
Dividends paid per common share $.05 $ -
Weighted average number of common
shares outstanding 811,553 811,553
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from continuing operating
activities
Earnings from continuing operations $ 206,535 $ 99,423
Adjustments to reconcile earnings
from continuing operations to net
cash provided by (used in) operating
activities:
Depreciation and amortization 23,235 23,246
Deferred income taxes (1,600) (1,200)
Gain on sale of land and building (127,088) -
Change in assets and liabilities:
(Increase) decrease in receivables (203,510) (41,027)
(Increase) decrease in inventories (21,522) (65,596)
(Increase) decrease in prepaid items
and other assets 79,990 59,488
Increase (decrease) in accounts payable
and accruals 42,804 13,619
---------- ----------
Net cash provided by (used in)
continuing operating activities (1,156) 87,953
---------- ----------
Cash flows from discontinued activities
Loss from discontinued operations - (24,918)
Adjustments to reconcile earnings
from continuing operations
to net cash provided by (used in)
operating activities:
Depreciation and amortization - 9,719
Deferred income taxes - -
(Increase) decrease in net assets of
discontinued operation - 52,692
---------- ----------
Net cash provided by discontinued
activities - 37,493
---------- ----------
Total net cash provided (used) (1,156) 125,446
---------- ----------
Cash flows from investing activities
Proceeds from sale of land and building 150,000 -
Purchase of property, plant and equipment (22,088) (7,194)
Receipts of principal on note receivable 313 567
---------- ----------
Net cash provided by (used in)
investing activities 128,225 (6,627)
---------- ----------
Cash flows from financing activities
Net borrowing (repayments) of
short-term debt (145,000) (15,953)
Net borrowing (repayments) of
long-term debt (37,425) (51,528)
Dividends paid (40,578) -
---------- ----------
Net cash provided by (used in)
financing activities (223,003) (67,481)
---------- ----------
Effect of exchange rate changes on cash - 4,572
---------- ----------
Net increase (decrease) in cash (95,934) 55,910
Cash at beginning of period 132,007 123,285
---------- ----------
Cash at end of period $ 36,073 $ 179,195
========== ==========
Cash paid during the period for:
Interest $ 16,633 $ 33,946
Income taxes - -
<FN>
See accompanying notes to financial statements.
</TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries after elimination of significant intercompany
transactions. The accompanying financial information for prior periods
has also been restated for comparability due to discontinued operations
(see Note 4). The consolidated balance sheet as of September 30, 1997,
and the related consolidated statements of operations and retained
earnings and cash flows for the three month periods ended September 30,
1997 and 1996 are unaudited. The preparation of financial statements in
conformity with generally accepted accounting principles requires the
use of management's estimates. In the opinion of management, all
adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative
of results for a full year.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the
Company's annual financial statements and notes. Accordingly, these
statements should be read in conjunction with the consolidated
financial statements and notes thereto appearing in the Annual Report
of the Company for the fiscal year ended June 30, 1997.
2. Earnings Per Common Share
Earnings per common share are computed based on the weighted average
shares of common stock outstanding during the period of computation.
Although the Company has issued dilutive common stock equivalents in
the form of incentive stock options, the dilutive effect of these
securities in the aggregate is less than three percent of earnings per
common share.
3. Cash Dividends Paid
The Board of Directors of the Company approved a cash dividend
totaling $40,578 ($.05 per share) payable on September 26, 1997 to
holders of record at the close of business on September 8, 1997.
4. Discontinued Operations
On May 23, 1997, the Company's Board of Directors approved the transfer
of its foreign subsidiary, Control Chief (UK) Limited, to one of its
former employees who is now operating the Company under the name Aden
Electronics Limited. The transfer was done in lieu of a closure and
liquidation of the subsidiary due to its lack of profitability. The
disposal of Control Chief (UK) Limited was effective as of June 30,
1997. This business unit has been accounted for as a discontinued
operation in the accompanying financial statements and amounts for
prior periods have been restated.
Effective May 14, 1996, the Company adopted a formal plan to
discontinue its wood products operations and to sell off the related
assets of Bradford Classics Woodworking, Inc., d/b/a Tuna Valley Wood
Products, a wholly-owned subsidiary of the Company that was located in
Bradford, Pennsylvania. This business unit has been accounted for as a
discontinued operation in the accompanying financial statements and
amounts for prior periods have been restated. On September 14, 1996,
the inventory and fixed assets of Tuna Valley were sold for their
approximate carrying amounts at June 30, 1996.
There was no activity relating to discontinued operations for the three
month period ended September 30, 1997. A summary of certain operating
results of the discontinued operations for the three month period ended
September 30, 1996 is follows:
1996
--------
Net sales
Control Chief (UK) Limited $245,355
Bradford Classics Woodworking, Inc. -
--------
$245,355
========
Control Chief (UK) Limited
Earnings from operations before
income taxes $ 3,417
Income taxes -
--------
Net earnings 3,417
--------
Bradford Classics Woodworking, Inc.
Loss from operations before income
tax benefit (33,116)
Loss on sale of assets (14,519)
--------
(47,635)
Income tax benefit 19,300
--------
Net loss (28,335)
--------
Total loss from discontinued
operations, net of taxes ($24,918)
=========
Included under the caption Other Assets in the accompanying balance
sheets at September 30, 1997 and June 30, 1997, are trade receivables
of $75,555 and $71,304, respectively, representing amounts that are due
from Aden Electronics Limited. The Company anticipates recovering
payments of this trade receivable over an extended period of time
beginning in 1997.
<PAGE>
PART I
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Changes
On May 23, 1997, the Board of Directors of the Company approved the
transfer of its foreign subsidiary, Control Chief (UK) Limited, to one
of its former employees who is now operating the Company under the name
Aden Electronics Limited. The transfer was done in lieu of a closure
and liquidation of the subsidiary due to its lack of profitability.
The disposal of Control Chief (UK) Limited was effective as of June 30,
1997.
In May, 1997, the Company moved the operations of its Lewis Run, PA
facility to its nearby facility located in Bradford, PA. In July,
1997, the Lewis Run facility was sold.
Due to declining profits and failure to increase its customer base and
market share, on May 14, 1996 a decision was made by the Board of
Directors to cease the operations of Bradford Classics Woodworking,
Inc., d/b/a Tuna Valley Wood Products ("Tuna Valley"), a wholly-owned
subsidiary of the Company, and conduct an orderly liquidation of the
subsidiary. On September 14, 1996, the inventory and fixed assets of
Tuna Valley were sold for their approximate carrying amounts at June
30, 1996. Proceeds from the auction were used towards the payment of
remaining secured and unsecured creditors as of June 30, 1996.
The Financial Information found in Part I, Item 1, presents the results
of continuing operations of the Company's remaining operating
subsidiary, Control Chief Corporation. The results of operations for
Control Chief (UK) Limited and Bradford Classics Woodworking, Inc. are
reflected in the financial statements as discontinued operations.
Liquidity
The Company funds its need for liquidity and capital resources through
cash from operations, short-term and long-term borrowing. Effective
January 15, 1997, the Company refinanced the line of credit and term
loan agreements it had with National City Bank. In connection
therewith, the Company has granted National City a general security
interest in its assets, excluding real property.
The Company has a commercial demand line of credit in the amount of
$750,000, with a variable interest rate equal to the lender's prime
rate. The line of credit is being used to finance accounts receivable
and inventory of the Company. The line of credit is subject to an
annual review by the Bank each November. At September 30, 1997, a
total of $100,000 was outstanding under the line of credit at the rate
of interest of 8.50%.
In addition to the line of credit, the Company has a commercial term
loan, dated January 15, 1997, which had an original principal amount of
$650,000. This term loan bears interest at 8.47% and is being repaid
in forty-eight (48) monthly principal and interest installments of
$16,050. At September 30, 1997, a total of $556,292 was outstanding
under this term loan.
In addition to the line of credit and term loan with National City
Bank, the Company has a term loan with GMAC Financing. The balance
outstanding at September 30, 1997 was $18,729.
The Company's working capital at September 30, 1997 was $1,993,350,
which reflects an increase of $149,261, or 8%, over its working capital
of $1,844,089 at June 30, 1996. The Company's current ratio was 2.78
at September 30, 1997 compared to 2.51 at June 30, 1997.
The Company believes its current working capital position is sufficient
for its operations, and it does not anticipate any significant amounts
that are needed for capital expenditures in the near future. The
Company will, however, continue to improve and upgrade its facility and
obtain new equipment as the need arises.
Results of Operations
Net sales from continuing operations for the quarter ended September
30, 1997 increased overall by $202,758 or 11.8% as compared to the same
quarter last year. This increase is reflective of the continued demand
for the Company's products, increases in its spare parts sales and
services, and is reflective of a growing economy.
Cost of products sold increased by $115,656 or 12% for the quarter
ended September 30, 1997 as compared to the same quarter last year.
This overall increase in the cost of products sold is consistent with
the overall increase in the net sales for the comparable periods
indicating the Company's margins were approximately the same.
Selling, general and administrative costs increased by $34,140 or 6.5%
for the quarter ended September 30, 1997 as compared with the same
period last year. This overall increase reflects continued investment
in areas of marketing, sales staffing and travel. Management is
expanding the sales and marketing of the Company's products to domestic
and foreign markets.
Research and development costs increased by $19,036 or 40% for the
quarter ended September 30, 1997 as compared to the same period last
year. This increase reflects the Company's continuing commitment to
invest funds in research and development to stay abreast of
technological changes, enhance its current products and develop new
product lines. It is the Company's policy not to release public
information relating to its research and development programs until new
or enhanced products are ready for market. The premature public
notification of product development, in the opinion of management,
stands to potentially reduce the anticipated return on its research and
development investment by notifying competitors of a significant
portion of the Company's marketing strategy.
Interest and financing expense decreased by $12,050 or 42% for the
quarter ended September 30, 1997 as compared to the same period last
year. This decrease is due to an overall reduction in the Company's
short-term and long-term debt resulting from refinancing, increased
earnings and an improvement in the Company's working capital.
Earnings from continuing operations before income taxes were $355,435
for the quarterly period ended September 30, 1997, representing an
increase of $181,913 or 105% over the same period last year. Included
in the increase is a gain in the amount of $127,088 from the sale, in
July, 1997, of the Company's facility located in Lewis Run,
Pennsylvania. Excluding the gain, the increase was $54,825 or 31.6%
over the same period last year.
The provision for income taxes for the quarterly period ended September
30, 1997 on pre-tax income from continuing operations was $148,900 or
41.9%. The provision for income taxes for the quarterly period ended
September 30, 1996 on pre-tax income from continuing operations was
$74,100 or 42.7%.
Overall earnings, after income taxes, from continuing operations were
$206,535 for the quarterly period ended September 30, 1997 as compared
to earnings, after income taxes, from continuing operations of $99,422
for the quarterly period ended September 30, 1996.
The Company's earnings per common share from continuing operations was
$.25 for the three month period ended September 30, 1997. This
represents an increase of $.13 per common share from continuing
operations for the quarter over the previous three month period ended
September 30, 1996. Overall, net earnings per common share increased by
$.16 per share over the same period last year.
Net trade receivables at September 30, 1997 increased by $202,395 or
14.6% as compared to the balance at June 30, 1997. The increase is due
to the increase in net sales during the quarter.
Inventories increased slightly by $21,522 or 1.6% at September 30, 1997
as compared to June 30, 1997.
Prepaid items decreased by $82,033 as compared to the balance at June
30, 1997. This overall decrease in prepaid items results from a
reduction in prepaid income taxes at June 30, 1997 that has been offset
by an increase in the tax provision for the quarterly period ended
September 30, 1997. The Company also maintains the practice of
prepaying certain expenses such as insurance, professional fees and
taxes at the beginning and during the fiscal year. This is typical of
previous years.
There were no major additions of fixed assets during the quarterly
period ended September 30, 1997.
Account payable and accrued items, exclusive of income taxes, decreased
by $18,328 at September 30, 1997 or 2.2% as compared to the balance at
June 30, 1997.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibit 27.
b) None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Control Chief Holdings, Inc.
(Registrant)
Date: November 13, 1997 By:\s\ Douglas S. Bell
Douglas S. Bell
Chairman of the Board,
Chief Executive Officer and
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 36,073
<SECURITIES> 0
<RECEIVABLES> 1,657,729
<ALLOWANCES> 59,750
<INVENTORY> 1,396,223
<CURRENT-ASSETS> 3,113,859
<PP&E> 1,678,971
<DEPRECIATION> 1,142,611
<TOTAL-ASSETS> 3,838,648
<CURRENT-LIABILITIES> 1,120,509
<BONDS> 0
0
0
<COMMON> 405,776
<OTHER-SE> 1,870,897
<TOTAL-LIABILITY-AND-EQUITY> 3,838,648
<SALES> 1,925,565
<TOTAL-REVENUES> 2,074,955
<CGS> 1,076,149
<TOTAL-COSTS> 1,076,149
<OTHER-EXPENSES> 626,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,633
<INCOME-PRETAX> 355,435
<INCOME-TAX> 148,900
<INCOME-CONTINUING> 206,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,535
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
