U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission File Number 0-15910
Control Chief Holdings, Inc.
(Name of small business issuer 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
Telephone 814-368-4132
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class: on which registered:
Common Stock - $.50 par value The Nasdaq Small-Cap Market
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months, and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB [X].
Issuer's revenues for the fiscal year ended June 30, 1998 were
$8,812,025.
At August 21, 1998, the aggregate market value of voting common stock
held by non-affiliates of the registrant computed at the last trade
price of such stock of $5.00 was $2,385,120. As of August 21, 1998, the
issuer had outstanding 1,004,832 shares of Common Stock, $.50 par
value.
Documents incorporated by reference
Portions of the registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held November 13, 1998 are incorporated by
reference into Part III of this Form 10-KSB.
<PAGE>
CONTROL CHIEF HOLDINGS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
For the Year Ended June 30, 1998
Part I
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Common Equity and Related Stockholder Matters
Item 6 Management's Discussion and Analysis or Plan of Operation
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Part III
Item 9 Directors, Executive Officers, Promoters and Control
Persons;Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and
Management
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Control Chief Holdings, Inc. ("the Company") was incorporated in the
State of New York on June 12, 1968 and functions as a holding company.
For the years ended June 30, 1998 and 1997, the Company was the sole
shareholder of Control Chief Corporation. In addition, for the year
ended June 30, 1997, the Company was the sole shareholder of Control
Chief (UK) Limited, and Bradford Classics Woodworking, Inc. There were
no significant changes in the corporate structure during the year
ending June 30, 1998. Changes in the corporate structure occurring
during the previous year ending June 30, 1997 were as follows: Due to
declining profits and failure to increase its customer base and market
share, a decision was made by the Board of Directors on May 16, 1996 to
cease the operations of Bradford Classics Woodworking, Inc. and conduct
an orderly liquidation of the subsidiary. On September 14, 1996, an
auction was held at the subsidiary's location and the remaining assets
and inventory was sold. Proceeds from the auction were used to pay the
remaining secured and unsecured creditors of Bradford Classics. In
addition, 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 facility located in Lewis Run, Pennsylvania to its
nearby facility located in Bradford, Pennsylvania. In July 1997, the
Lewis Run facility was sold. The Financial Statements in Part II, Item
7, presents the results of continuing operations of the Company's
remaining operating subsidiary, Control Chief Corporation. The results
of operations for Bradford Classics Woodworking, Inc. and Control Chief
(UK) Limited are included in the financial statements as discontinued
operations for the year ended June 30, 1997.
PRINCIPAL PRODUCTS AND SERVICES AND METHODS OF DISTRIBUTION
Control Chief Corporation, ("Control Chief"), is a Pennsylvania
corporation. Control Chief designs, engineers and produces remote
control devices for material handling equipment and other industrial
applications. These controls use either radio or infrared waves as
communications media to transmit control data from portable units to
receivers mounted on various types of apparatus. Control Chief was
among the first in its industry to apply infrared technologies to
industrial remote control applications. All models of products are
microprocessor-based systems. Remote controls provide the customer a
cost-effective means to achieve greater operational safety and
flexibility. These devices are utilized worldwide in concert with
various material handling equipment, industrial machines, process
equipment and mobile apparatus. Control Chief markets its products
through a network of independent manufacturers' representatives located
in key geographical centers throughout the United States, Canada,
Central and South America. Additionally, products are sold through
direct efforts, distributors, private labeling agreements and
licensees.
<PAGE>
PRODUCT DEVELOPMENT
The Company continues to enhance current product designs and develop
new designs within its established product lines. In order to remain
competitive in the market, the Company does not announce to the general
public continuing research and development programs. Research and
development programs are established to keep its products current with
state of the art devices. New product designs and product line
expansion are anticipated for the future and are being developed. These
programs have not been released to the public and if prematurely
released would potentially reduce the anticipated return on its
research investment. Research and development expenditures for the
Company's remote control applications totaled $204,172 and $182,931 for
the fiscal years ended June 30, 1998 and 1997, respectively.
COMPETITION
The Company experiences competition for its remote controls from
several suppliers of similar products. Throughout the world there are
numerous remote control manufacturers. Several of the largest
manufacturers in the world are located in Germany and France. The
Company believes that it is among the three largest suppliers of remote
control devices in the domestic market.
Control Chief Corporation competes principally on the basis of
technology and quality. The Company believes that by its use of radio
and infrared technologies it better serves the needs and requirements
of the industrial market. Management believes that none of its
competitors provide a more diverse product line.
Currently, worldwide competition is extremely price conscious with many
companies entering and exiting the market. While significant market
shares have not fluctuated with the traditional suppliers to the
market, new entrants have depressed prices. Management believes its
products are competitively priced taking into consideration the
Company's reputation as a long time, a high quality manufacturer of
reliable, durable state of the art devices.
RAW MATERIAL
The principal raw materials used in the manufacture of remote control
devices are electronic components produced by various manufacturers. No
particular manufacturer accounts for a substantial portion of the
required electronic components. All components used are readily
available in the current market and it is not anticipated that there
will be any significant shortages in the foreseeable future.
MAJOR CUSTOMERS
Control Chief Corporation is not dependent for remote control sales on
a single customer or group of customers, the loss of which would have
a material adverse effect upon the operations of the Company.
PATENTS, TRADEMARKS AND LICENSES
Control Chief Corporation does not hold patents on its current line of
products. The trademarks, "Control Chief," "Crane Chief," "Remote" and
"TeleChief" are registered for their lines of remote control products.
Control Chief Corporation enters into exclusive marketing and sales
agreements for designated territories in the normal course of business.
These agreements typically arrange for exclusive sales and marketing
rights to specific geographical areas as well as private labeling,
marketing assistance, manufacturing rights and software licensing.
GOVERNMENTAL APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
Control Chief Corporation manufactures some products which transmit
data via radio waves. As a result, these products must be approved by
the Federal Communications Commission (FCC). Currently, these products
offered for sale have been approved by the FCC.
RESEARCH AND DEVELOPMENT
Company-sponsored research and development expenditures for Control
Chief Corporation for the fiscal years ending June 30, 1998 and 1997
were $204,172 and $182,931, respectively.
The Company utilizes a consultant to evaluate, maintain, manage and
report on issues of compliance with Federal, State and local provisions
which have been enacted or adopted regulating the discharge of
materials into the environment. The cost of this service on an ongoing
basis is not material.
EMPLOYEES
As of August 21, 1998, 72 individuals were employed by the Company full
time. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
Location Function Square Feet Ownership
200 Williams Street Manufacturing, Sales, 20,000 Leased
Bradford, PA Engineering and
Corporate Offices
455 William Pitt Way Engineering and 1,734 Leased
Pittsburgh, PA Sales Offices
(1) None of the above properties are encumbered in connection with the
collateralization of the Company's indebtedness.
(2) The Company's office and manufacturing space are adequate for its
existing requirements and its projected business needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders
during the fourth quarter of the fiscal year ended June 30, 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The NASDAQ, Small-Cap Market,
listing under the Symbol DIGM. The symbol DIGM relates to the Company's
former name "Digimetrics, Inc.", which was changed in November 1992 to
its present name, "Control Chief Holdings, Inc."
On February 6, 1998, the Company declared a one-for-four stock split
payable in the form of a stock dividend to shareholders of record as of
that same date. The stock split was done in order to enable the Company
to meet recent changes in The NASDAQ, Small Cap Market, listing
requirements.
The stock dividend was based upon shares owned and issued under the
Company's present name "Control Chief Holdings, Inc." Stock
certificates held by shareholders under the Company's former name
"Digimetrics, Inc." are required to be exchanged for Control Chief
Holdings certificates in order to receive the stock dividend.
Shareholders who have not previously exchanged all of their stock in
"Digimetrics" should notify Investor Relations at the Company's
transfer agent, Registrar and Transfer Company, at 1-800-368-5948. The
"Digimetrics" stock needs to be exchanged prior to issuance of the
stock dividend. If the "Digimetrics" stock has been lost or misplaced,
the transfer agent will assist in having the stock reissued.
The following is the range of trade information for the quarterly
periods ending September 30, 1996 through June 30, 1998. The trade
prices,which have been adjusted for the effect of one-for-four stock
split that occurred in February 1998, are based on actual historical
sales information as supplied by NASDAQ and represent "real-time" sales
and price information for securities traded in The NASDAQ Small-Cap
Market.
High Low
Trade Trade
For the Quarter Ended Price Price
06/30/98 5.13 4.25
03/31/98 5.00 4.00
12/31/97 4.50 3.40
09/30/97 4.20 2.40
06/30/97 3.20 2.20
03/31/97 3.50 2.40
12/31/96 2.25 2.25
09/30/96 2.50 2.25
As of August 21, 1998, the Company's records indicated that there were
approximately 1,000 registered holders of the 1,004,832 shares of
common stock that were outstanding as of that date.
<PAGE>
In addition to the above, the following is a summary of the Company's
history of per share cash dividends paid, which has also been adjusted
for the effect of one-for-four stock split:
Cash Dividends Paid
September 25, 1992 $.032 per share
September 24, 1993 $.056 per share
September 26, 1994 $.056 per share
September 25, 1995 $.056 per share
September 26, 1997 $.040 per share
February 19, 1998 $.040 per share
September 25, 1998 $.050 per share
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
As we bring to a close what is the best year in the history of Control
Chief, it would be very easy to get complacent with our success. Please
feel comfortable in knowing that the management and board of the
Company have no plans of resting on our past successes.
With the economy beginning to show signs of slowing, the Asian flu
still running its course, and uncertainties with economies throughout
the world, we believe that now, more than ever, we must continue with
the plans we have to develop our Company into a forward looking,
progressive business capable of growing into the future.
We have and will continue to make decisions that will prepare our
Company for the future. We will continue our commitment to change and
progress.
Selected Financial Information
The following table summarizes certain selected financial information
with respect to the Company, and is qualified in its entirety by
reference to the Consolidated Financial Statements of the Company and
the Notes thereto. Additionally, this table has been restated as the
result of discontinued operations and the one-for-four stock split.
Refer to the Notes to Consolidated Financial Statements for further
information.
Financial Highlights
Financial (in thousands, except current ratio and per share data)
Years ended June 30, 1998 1997 1996 1995 1994
Net sales $8,688 $7,207 $6,832 $6,077 $5,855
Earnings (loss) from
continuing operations 614 386 206 15 156
Working capital 2,217 1,915 1,349 1,162 1,505
Total assets 4,246 3,814 4,036 4,413 3,823
Long-term debt 260 457 385 572 679
Capital expenditures 230 342 68 87 123
Current ratio 2.64 2.57 1.75 1.69 2.39
Per Common Share
Years ended June 30, 1998 1997 1996 1995 1994
Earnings (loss) from:
Continuing operations $.61 $.38 $.20 $.02 $.15
Discontinued operations - (.09) (.42) .12 (.08)
------ ------ ------ ------ ------
Net earnings (loss) $.61 $.29 ($.22) $.14 $.07
====== ====== ====== ====== ======
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data, as a percentage
of net sales, for the years ended June 30, 1998, 1997 and 1996:
1998 1997 1996
------ ------ ------
Revenues
Net sales 100.0% 100.0% 100.0%
Gain on sale of land and building 1.3% - -
Other income 0.1% 0.4% 0.2%
------ ------ ------
Total revenues 101.4% 100.4% 100.2%
------ ------ ------
Costs and expenses
Cost of products sold 58.2% 55.5% 57.7%
Selling general and administrative 28.7% 31.8% 33.5%
Research and development 2.3% 2.5% 2.3%
Interest expense 0.7% 1.2% 1.6%
------ ------ ------
Total costs and expenses 89.9% 91.1% 95.1%
------ ------ ------
Earnings from continuing operations
before income taxes 11.5% 9.3% 5.0%
Provision for income taxes 4.4% 3.9% 2.0%
------ ------ ------
Earnings from continuing operations 7.1% 5.4% 3.0%
Loss from discontinued operations,
net of taxes - (1.2)% (6.3)%
------ ------ ------
Net earnings (loss) 7.1% 4.2% (3.3)%
====== ====== ======
Year ended June 30, 1998 compared to year ended June 30, 1997
Net sales from continuing operations for the fiscal year ended June 30,
1998, increased by $1,480,801 or 20.6% as compared to the fiscal year
ended June 30, 1997. This increase was primarily attributable to
increases in sales with new customers and sales of parts and service.
The Company does not experience a significant fluctuation of business
attributable to seasonal buying habits of its customers.
Cost of products sold increased by $1,049,568 or 26.2% as compared to
the same period last year. This increase in cost of products compares
with the corresponding increase in net sales for the year.
Selling, general and administrative costs increased by $201,977 or
8.8%. The increase in selling, general and administrative costs, when
compared to the overall increase in net sales, reflects relatively
stable costs in these areas.
Research and development costs increased by $21,241 or 11.6%. The
majority of this increase relates to the addition of staff exclusively
devoted to research and development. The Company expects to invest
funds annually of $175,000 or greater in the foreseeable future to stay
abreast of changes in technology and improve and expand its product
lines.
Interest expense decreased by $27,152 or 30.9%. This decrease in
interest expense results from the Company's reduced bank indebtedness
and an improvement in the Company's cash flow. The Company's weighted
average short-term interest rates, based upon weighted average
borrowing, were approximately 8.8% in 1998 and 7.7% in 1997.
Net earnings from continuing operations increased by $227,980 or 59.1%.
The provision for income taxes at June 30, 1998 on pretax earnings from
continuing operations of $999,058 was $385,271 or 38.6% of pretax
income. This compares to a provision for income taxes at June 30, 1997
of $282,444 on pretax earnings from continuing operations of $668,251
or 42.3%. The decrease in the provision for income taxes of 3.7% for
the current fiscal year as compared to the previous fiscal year is
primarily due to an increase in the general business tax credit for the
year, and the utilization of a carry forward net operating loss
deduction for state income taxes. Overall earnings increased from a net
profit of $298,609 for the fiscal year ended June 30, 1997 to a net
profit of $613,787 for the fiscal year ended June 30, 1998. This
significant increase was attributable to the overall increase in net
sales and gross profit for the fiscal year ended June 30, 1998.
Year ended June 30, 1997 compared to year ended June 30, 1996
Net sales from continuing operations for the fiscal year ended June 30,
1997, increased by $374,621 or 5.5% as compared to the fiscal year
ended June 30, 1996. This increase was primarily attributable to
increases in sales of parts and service. As a result of competitive and
market pressures, sales of the Company's systems remained relatively
constant.
Cost of products sold increased by $59,869 or 1.5% as compared to the
same period last year. This minor increase in cost of products as
compared to the corresponding increase in net sales for the comparable
period is a result of lower material and overhead costs related to the
product sales mix.
Selling, general and administrative costs increased by $4,884 or .2%.
This insignificant increase in selling, general and administrative
costs as compared to the overall increase in net sales reflects a
relatively stable work force and related costs in these areas.
Research and development costs increased by $28,291 or 18.3%. The
majority of this increase relates to the addition of staff exclusively
devoted to research and development. The Company expects to stay
abreast of changes in technology and improve and expand its product
lines in the electronic components and devices segment.
Interest expense decreased by $24,584 or 21.9%. This decrease in
interest expense reflects the Company's reduced bank indebtedness and
the improvement in the Company's cash flow. The Company's weighted
average short-term interest rates based upon weighted average
borrowing, were approximately 7.7% in 1997 and 8.7% in 1996.
Net earnings from continuing operations increased by $180,032 or 87.5%.
The provision for income taxes at June 30, 1997 on pretax earnings from
continuing operations of $668,251 was $282,444 or 42.3% of pretax
income. This compares to a provision for income taxes at June 30, 1996
of $139,165 on pretax earnings from continuing operations of $344,940
or 40.3%. The increase in the provision for income taxes of 2% for the
current fiscal year as compared to the previous fiscal year primarily
reflects an increase in state income taxes. Overall earnings increased
from a net loss of $223,597 for the fiscal year ended June 30, 1996 to
a net profit of $298,609 for the fiscal year ended June 30, 1997. This
significant increase was attributable to the decrease in loss from
discontinued operations, net of taxes of $429,372 for the fiscal year
ended June 30, 1996 as compared to a loss from discontinued operations,
net of taxes of $87,198 for the fiscal year ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its needs for liquidity and capital resources through
cash from operations, short-term and long-term borrowing.
Effective January 15, 1997, the Company refinanced its line of credit
and term loan agreements with National City Bank of Pennsylvania. The
Company obtained a new commercial demand line of credit in the amount
of $750,000, with a variable interest rate equal to the lender's prime
rate. An initial borrowing on the new line of credit was used to pay
off the balance of the old line of credit existing at December 31,
1996. 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 June 30, 1998, a total of
$150,000 was outstanding under Control Chief's line of credit at the
rate of interest of 8.50%.
In addition to the line of credit loan, the Company obtained a new
commercial term loan, dated January 15, 1997, in the amount of
$650,000. The proceeds of this loan were used to pay off the existing
term loan at December 31, 1996, and to finance the purchase of new
equipment. The new term loan bears interest at 8.47% and is being
repaid in forty-eight (48) monthly principal and interest installments
of $16,050. At June 30, 1998, a total of $418,242 was outstanding under
this term loan.
The Company's working capital continued to increase in fiscal 1998. At
June 30, 1998, the Company's net working capital was $2,214,141 as
compared to net working capital of $1,915,393 at June 30, 1997 and net
working capital of $1,348,737 at June 30, 1996. The Company's current
ratio improved in fiscal year 1998. At June 30, 1998, the Company's
current ratio was 2.61 as compared to 2.57 at June 30, 1997, and 1.75
at June 30, 1996.
The Company's cash expenditures for property, plant and equipment
amounted to $229,603 in fiscal year 1998 and $342,245 in fiscal year
1997. For fiscal 1998, these capital expenditures primarily related to
costs associated with facility expansion and improvements ($52,000),
purchase of computer equipment ($64,000) and additional transportation
equipment ($66,000).
The Company currently does not have a material commitment for any
further capital expenditures and believes its current working capital
is sufficient for its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after
December 31, 1997 and requires reporting of comprehensive income in a
full set of general purpose financial statements. Comprehensive income
is defined in the Statement as all changes in equity during a period
except those resulting from investments by owners and distributions to
owners. Components of comprehensive income for the Company are not
expected to have a material effect on the Company's financial position
or results of operations as currently being reported.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 is effective
for fiscal years beginning after December 31, 1997 and requires
disclosures of segments under a "management approach" whereby segments
are reported publicly as they are internally. The Company expects
little effect of this new standard on interim and year-end financial
statements.
YEAR 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a
result, any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including among other things, a
temporary inability to process transactions, prepare invoices, or
engage in similar normal business activities.
The Company's management has empowered its computer and communication
systems group to review, assess, and address the potential problems
within the Company's operations which could result from the Year 2000
century change. The Company's computer and communications systems group
("the group") has started to coordinate the identification of, and will
coordinate the implementation of, changes to computer hardware and
software applications to insure Year 2000 compliance, and the integrity
and reliability of the Company's informational, operational and
manufacturing systems. The group has also started to coordinate the
identification of potential Year 2000 problems related to the Company's
non-informational technology systems and material third parties.
Concurrently, the Company has been implementing a new company-wide
information system that will address the great majority of the
Company's Year 2000 internal operational issues. The new computer
system will replace the Company's mainframe computer that is scheduled
to be retired in the first quarter of 1999. The new system will also
replace the majority of the Company's information technology ("IT")
in its internal operations, including applications used in
manufacturing, payroll processing, client order processing, inventory
management, financial business and various administrative functions.
The costs of these upgrades and conversions are not included in the
Company's current or future estimated Year 2000 costs as these upgrades
and conversions were planned prior to its Year 2000 compliance plans.
Implementation has not been accelerated because of the Year 2000
problem.
It is estimated that the group is approximately 90% complete as to its
assessment of its IT systems and that costs to complete its final
assessment, remediation and testing of these IT systems are immaterial
with respect to the Company's overall operating costs. The Company
estimates that the cost of this phase of its plan to date has not
exceeded $10,000.
The non-informational technology systems are approximately 40% complete
through the assessment phase with final assessment plans and any
appropriate remediation and testing to be completed by June 30, 1999.
The group has reviewed and tested the embedded chips and
microprocessors in the products it manufactures and has determined that
these do not create a Year 2000 problem. The group has not concluded
its final assessment of embedded chips in its manufacturing equipment
and of other non-informational technology systems but does not
anticipate any major date sensitive problems. It is estimated that the
cost to date of this phase of its compliance plan has not exceeded
$2,000. Further, the Company does not expect to incur material costs to
complete this phase of its plan.
The group is approximately 10% complete as to the assessment of
compliance of material third parties. The group has received written
assurance from its financial institution that its systems will be Year
2000 compliant. The group has identified its other material third
parties such as customers, major suppliers, manufacturers'
representatives, utility and communication companies, that if not Year
2000 compliant might have a material adverse effect on the Company's
manufacturing business, results of operations and financial position.
The group is completing a questionnaire to survey those critical
material third parties as to their Year 2000 readiness. This survey is
scheduled for completion by the end of the first quarter of calendar
year 1999. In addition, alternative suppliers will be identified for
those vendors not expected to be Year 2000 compliant. Costs to date
have been immaterial with respect to the Company's overall operating
expenditures. Additional costs to complete this phase are not expected
to exceed approximately $5,000.
Should the Company have a systems failure due to the century change, or
a material third party with whom the Company deals with or relies upon
to deliver materials for manufacturing be unable to assure Year 2000
compliance or timely supply materials, the Company believes that the
most significant impact would likely be a delay of thirty to ninety
days beyond scheduled delivery dates of its custom products. The
Company anticipates that it would be able to support its spare parts
and repair business for approximately thirty days without major
interruptions based upon historical demand and inventory quantities.
The group has not yet drafted a formal contingency plan with respect to
the Year 2000 problem. The group intends to complete a formal
contingency plan to present to the Company's directors and management
during the second calendar quarter of 1999.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
relating to its Year 2000 compliance. Such statements reflect the
current views of the Company and are subject to certain risks and
uncertainties, that include, but are not limited to, assumptions
with regard to Year 2000 compliance by suppliers, manufacturers
representatives, customers, lenders, service providers and other
third parties, anticipated Year 2000 compliance costs and the
extent and duration of any business interruption caused by Year
2000 issues. Accordingly, actual results may differ materially from
the results described in the "forward-looking statements".
While the Company believes it is taking all appropriate steps to assure
Year 2000 compliance, it is dependent on key business partner
compliance to some extent. The Year 2000 problem is pervasive and
complex as virtually every computer operation will be affected in some
way. Consequently, no assurance can be given that Year 2000 compliance
can be achieved without costs that might affect future results or cause
reporting information not to be necessarily indicative of future
operating results or future financial condition.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Contents of Financial Statements
Report of Independent Certified Public Accountants
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Retained Earnings
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
DIEFENBACH DELIO KEARNEY & DEDIONISIO
CERTIFIED PUBLIC ACCOUNTANTS
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Control Chief Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Control
Chief Holdings, Inc. and Subsidiaries as of June 30, 1998 and 1997, and
the related consolidated statements of operations and retained
earnings, and cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Control Chief Holdings, Inc. and Subsidiaries as of June 30, 1998
and 1997, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with
generally accepted accounting principles.
DIEFENBACH DELIO KEARNEY & DEDIONISIO
CERTIFIED PUBLIC ACCOUNTANTS
Erie, Pennsylvania
August 7, 1998
<TABLE>
<PAGE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of June 30,
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $22,067 $132,007
Accounts receivables, less allowances
of $50,000 and $59,750 1,624,073 1,465,773
Inventories 1,639,008 1,374,701
Other current assets 284,405 165,617
---------- ----------
Total current assets 3,569,553 3,138,098
---------- ----------
Equipment and leasehold improvements, net 668,818 514,216
---------- ----------
Other assets 8,073 11,525
---------- ----------
Total assets $4,246,444 $3,813,913
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $150,000 $245,000
Current maturities of long-term debt 170,755 155,464
Accounts payable 547,266 452,085
Accrued items 484,082 370,156
---------- ----------
Total current liabilities 1,352,103 1,222,705
---------- ----------
Long-term debt, less current maturities 260,317 456,582
---------- ----------
Deferred income taxes 29,664 23,910
---------- ----------
Stockholders' equity
Common stock, $.50 par value, authorized
5,000,000 shares, issued 1,014,095 shares
in 1998 and 1,014,441 in 1997, of which
9,263 shares were held in the treasury
in 1998 507,048 507,221
Capital in excess of par value 1,120,586 1,122,256
Retained earnings 1,013,877 481,239
---------- ----------
2,641,511 2,110,716
Less treasury shares at cost 37,151 -
---------- ----------
Total stockholders' equity 2,604,360 2,110,716
---------- ----------
Total liabilities and stockholders' equity $4,246,444 $3,813,913
========== ==========
<FN>
The accompanying notes are and integral part of these statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended June 30,
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Net sales $8,687,797 $7,206,996
Gain on sale of land and building 111,428 -
Other income 12,800 28,588
---------- ----------
Total revenues 8,812,025 7,235,584
---------- ----------
Costs and expenses
Cost of products sold 5,052,960 4,003,392
Selling general and administrative 2,495,101 2,293,124
Research and development 204,172 182,931
Interest expense 60,734 87,886
---------- ----------
Total costs and expenses 7,812,967 6,567,333
---------- ----------
Earnings from continuing operations
before income taxes 999,058 668,251
Provision for income taxes 385,271 282,444
---------- ----------
Earnings from continuing operations 613,787 385,807
Loss from discontinued operations,
net of taxes - (87,198)
---------- ----------
Net earnings 613,787 298,609
Retained earnings, beginning of year 481,239 182,630
Cash dividends paid (81,149) -
---------- ----------
Retained earnings, end of year $1,013,877 $481,239
========== ==========
Basic earnings (loss) per common share:
Earnings from continuing operations $.61 $.38
Loss from discontinued operations - (.09)
----- -----
Net earnings per common share $.61 $.29
===== =====
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Earnings from continuing operations $613,787 $385,807
Adjustments to reconcile earnings from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 99,353 188,995
Deferred income taxes 8,157 1,784
(Gain) loss on sale of fixed assets (111,428) 881
Change in assets and liabilities:
Increase in receivables (158,300) (56,438)
(Increase) decrease in inventories (264,307) 58,170
(Increase) decrease in prepaid items
and other assets (117,739) 3,561
Increase (decrease) in accounts payable
and accruals 209,107 (109,442)
--------- ---------
Net cash provided by operating activities
of continuing operations 278,630 473,318
Net cash provided by discontinued operations - 310,092
--------- ---------
Net cash provided by operating activities 278,630 783,410
--------- ---------
Cash flows from investing activities
Proceeds from sale of fixed assets 141,003 100
Purchase of equipment and leaseholds (229,603) (342,245)
Receipts of principal on note receivable 59,615 1,912
--------- ---------
Net cash used in investing activities (28,985) (340,233)
--------- ---------
Cash flows from financing activities
Net repayments of short-term debt (95,000) (409,895)
Proceeds from long-term borrowing - 671,995
Repayments of long-term debt (180,974) (649,290)
Purchase of treasury stock (619) -
Purchase and retirement of
fractional common shares (1,843) -
Cash dividends paid (81,149) -
--------- ---------
Net cash used in financing activities (359,585) (387,190)
--------- ---------
Effect of exchange rate changes on cash - (47,265)
--------- ---------
Net increase (decrease) in cash (109,940) 8,722
Cash and cash equivalents, beginning of year 132,007 123,285
--------- ---------
Cash and cash equivalents, end of year $22,067 $132,007
========= =========
Cash paid during the year for:
Interest $61,033 $90,348
Income taxes 439,823 -
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
1. Summary of Significant Accounting Policies
Company Operations
The Company currently operates exclusively in a single industry in the
United States as a manufacturer of remote control devices for material
handling equipment and other industrial applications. Previously, the
Company had a similar operation that was located in the United Kingdom.
However, effective June 30, 1997, this operation was discontinued (See
Note 15). In addition, the Company's operations also included a wood
products business. However, effective May 16, 1996, this operation was
discontinued (See Note 15). During the years ended June 30, 1998 and
1997, the Company's continuing operations in the United States had
export sales totaling $370,643 and $384,342, respectively.
Basis of Presentation
The financial statements include the accounts of Control Chief
Holdings, Inc. and its subsidiaries (the"Company"). All significant
intercompany accounts are eliminated upon consolidation. 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, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from the estimates.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable,
and accrued liabilities approximate fair value due to the short term
maturities of these assets and liabilities. The interest rates on
substantially all of the Company's short-term and long-term borrowing
reflects current market rates. Accordingly, the carrying amounts of the
Company's short-term and long-term borrowing also approximate fair
value. The fair values of financial instruments classified as other
assets also approximate their carrying values.
Revenues Recognition and Concentration of Credit Risk
Product sales are recorded at the time of shipment. Service revenues
are recorded when the related services are performed. Long-term
contracts are not entered into by the Company. The Company markets its
products through a network of independent manufacturers'
representatives. The Company grants credit to its customers, most of
whom are in the manufacturing industry, principally located throughout
the United States, in addition to having customers who are located in
Canada, United Kingdom, Central and South America. Periodic credit
evaluations of customers are performed, and generally the Company does
not require advance payments or collateral. Credit losses to customers
have not been material.
Cash Equivalents and Supplemental Cash Flow Information
The Company considers all highly liquid money market instruments with
original maturities of three months or less to be cash equivalents.
During the year ended June 30, 1998, the Company acquired 9,133 shares
of its common stock valued at $36,532 for the treasury as payment of a
note receivable.
Warranties
The Company's products are generally under warranty against defects in
material and workmanship, the duration of which varies. Actual
experience has indicated those costs under warranty expense have not
been significant and are therefore charged against earnings in the year
incurred.
Inventories
Inventories are valued at the lower of cost, average cost (first-in,
first-out), which includes material, labor, and manufacturing overhead,
or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation
is computed over the estimated useful lives of the assets using the
straight-line method. Expenditures for maintenance and repairs are
charged against earnings in the year incurred; major replacements,
renewals and betterments are capitalized and depreciated over their
estimated useful lives. The cost and accumulated depreciation of assets
sold or retired are removed from the respective accounts and any gain
or loss is reflected in earnings.
Income Taxes
The Company uses the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements, using statutory rates in
effect for the year in which the differences are expected to reverse.
General business credits are accounted for by the flow through method.
Research and Development
Research and development costs are expensed as incurred. Research and
development expense amounted to $204,172 in 1998, and $182,931 in 1997.
Stock-Based Compensation
Stock options granted by the Company are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). In accordance with APB 25, no stock-based
compensation expense has been recognized in the accompanying
financial statements, since the exercise price of the Company's
employee stock options equals the market price of the underlying stock
on the date of an option grant.
Earnings Per Common Share
Earnings per common share are computed based on the weighted average
number of shares of common stock outstanding during the year. The
weighted average number of shares was 1,013,861 in 1998 and 1,014,441
in 1997. In 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share," which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per common share as calculated in
accordance with this Statement does not differ from primary earnings
per share reported in prior periods. Diluted earnings per share is very
similar to the previously defined fully diluted earnings per share.
Although the Company has issued potentially dilutive common stock
equivalents in the form of stock options, the dilutive effect of these
securities in the aggregate is less than 3 percent of earnings per
common share.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after
December 31, 1997 and requires reporting of comprehensive income in a
full set of general purpose financial statements. Comprehensive income
is defined in the Statement as all changes in equity during a period
except those resulting from investments by owners and distributions to
owners. Components of comprehensive income for the Company are not
expected to have a material effect on the Company's financial position
or results of operations as currently being reported.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 is effective
for fiscal years beginning after December 31, 1997 and requires
disclosures of segments under a "management approach" whereby segments
are reported publicly as they are internally. The Company expects
little effect of this new standard on interim and year-end financial
statements.
2. Stock Split and Cash Dividends
On February 6, 1998, the Company declared a one-for-four stock split
payable in the form of a stock dividend to shareholders of record as of
that same date. All references to common shares have been retroactively
restated to reflect the stock split. The Company's Board of Directors
authorized the stock split in order to enable the Company to meet the
recent changes in the NASDAQ, Small Cap Market, listing requirements.
In addition, the Board of Directors of the Company approved a cash
dividend totaling $40,578 payable on September 26, 1997 to holders' of
record at the close of business on September 8, 1997, and approved a
cash dividend totaling $40,571 payable on February 19, 1998 to holders
of record at the close of business on February 6, 1998.
3. Inventories
Inventories at June 30, by major classification are as follows:
1998 1997
---------- ----------
Work in process $281,767 $251,950
Raw materials and subassemblies 1,357,241 1,122,751
---------- ----------
$1,639,008 $1,374,701
========== ==========
4. Other Current Assets
Other current assets at June 30, consist of the following:
1998 1997
-------- --------
Prepaid income taxes $210,679 $89,368
Other prepaid items 20,392 20,512
Deferred income taxes 53,334 55,737
-------- --------
$284,405 $165,617
======== ========
5. Equipment and Leasehold Improvements
Equipment and leaseholds at June 30, consist of the following:
1998 1997
--------- ---------
Machinery and equipment $1,669,962 $1,568,280
Leasehold improvements 195,487 121,422
--------- ---------
1,865,449 1,689,702
Less accumulated depreciation 1,196,631 1,175,486
--------- ---------
$668,818 $514,216
========= =========
6. Other Assets
Other assets at June 30, consist of the following:
1998 1997
-------- --------
Cash surrender value of officers'
life insurance, less policy loans
of $77,724 and $71,113 $8,073 $11,525
Property held for sale,
less accumulated depreciation - 53,927
Note receivable - 96,147
-------- --------
$8,073 $161,599
======== ========
7. Short-Term Debt
At June 30, 1998 and 1997, short-term debt consisted of borrowing under
a line of credit with a bank, secured by substantially all of the
assets of the Company, excluding real estate, with a floating interest
rate at prime (8.50% at June 30, 1998 and 1997). During the years ended
June 30, 1998 and 1997, the line of credit reached month-end maximums
of $415,000 and $684,895 respectively. Weighted average borrowing
amounted to $145,770 in 1998 and $375,660 in 1997, with average
interest rates of 8.81% in 1998 and 7.65% in 1997 calculated by
dividing the interest expense during the year for such borrowing by the
weighted average short-term borrowing. At June 30, 1998 and 1997, the
Company had additional borrowing available under the line of credit of
$600,000 and $505,000, respectively. The line of credit agreement is
subject to an annual review in November 1998.
8. Accrued Items
Accrued items at June 30, consist of the following:
1998 1997
-------- --------
Accrued income taxes $58,602 $ -
Accrued salaries, wages, commissions
and related payroll taxes 419,359 363,748
Other accrued items 6,121 6,408
-------- --------
$484,082 $370,156
======== ========
9. Long-Term Debt
Long-term debt at June 30, consists of the following:
1998 1997
-------- --------
8.47% term loan, amortized over four years,
due January 2001, payable in monthly
installments of $16,050, including interest $418,242 $591,884
9.50% term loan, amortized over three years,
due April 2000, payable in monthly
installments of $611, including interest 12,830 20,162
-------- --------
Total 431,072 612,046
Less current maturities 170,755 155,464
-------- --------
Long-term debt $260,317 $456,582
======== ========
The above indebtedness is secured by substantially all of the assets of
the Company. The aggregate maturities of all long-term debt during each
of the three years ending June 30, 2001, are $170,755, $183,314 and
$77,003, respectively.
10. Operating Leases
The Company has entered into several operating lease agreements,
primarily relating to real estate and equipment. These leases are
noncancelable and expire at various dates through July 2003. Leases
that expire generally are expected to be renewed or replaced by other
leases. Future minimum rental payments for the succeeding five years
under these operating leases are as follows:
Year ended June 30,
1999 109,576
2000 98,153
2001 87,065
2002 86,476
2003 3,333
Total rent expense under operating leases amounted to $124,529 in 1998
and $110,512 in 1997.
11. Employee Savings Plan
The Company has a savings plan, available to substantially all
employees, which permits participants to make contributions by salary
reduction pursuant to section 401(k) of the Internal Revenue Code. The
Company has a discretionary match that is limited to 6% of compensation
and may, at its discretion, make additional contributions to the plan.
In connection with the discretionary match, the Company's contribution
to the plan was $16,227 in 1998 and $16,058 in 1997. There were no
additional discretionary contributions to the plan for 1998 and 1997.
12. Income Taxes
For the years ended June 30, 1998 and 1997, pretax earnings from
continuing operations were $999,058 and $668,251, respectively. The
provision for taxes on earnings from continuing operations consists of
the following:
1998 1997
-------- --------
Currently payable
Federal $295,785 $209,213
State 81,329 71,447
Deferred 8,157 1,784
-------- --------
$385,271 $282,444
======== ========
The difference between the provision for income taxes and the amounts
computed by applying the U.S. federal income tax rate in effect for the
years ended June 30, 1998 and 1997 consists of the following:
1998 1997
-------- --------
Statutory federal income tax $339,680 $227,205
State income taxes, net of
federal tax benefit 53,677 47,155
General business tax credit (16,628) (9,719)
Other items 8,542 17,803
-------- --------
$385,271 $282,444
======== ========
At June 30, the net deferred tax asset (liability) component consists
of the following:
1998 1997
-------- --------
Allowance for doubtful accounts $20,297 $24,255
Compensated absences (vacation pay) 33,037 31,482
Depreciation (29,664) (23,910)
-------- --------
$23,670 $31,827
======== ========
Balance Sheet Classification
Current asset $53,334 $59,453
Noncurrent liability (29,664) (23,910)
-------- --------
$23,670 $31,827
======== ========
13. Common Stock Options
The Company has a stock option plan which provides for granting to
officers, directors, key employees and advisors options to purchase
shares of the Company's Common Stock. Under the plan, the option price
is not less than the market price of the Company's Common Stock on the
date of the grant. The options become exercisable at varying dates and
generally expire five years or ten years from the date of the grant. At
June 30, 1998, options to purchase 40,250 shares of Common Stock were
available for grant under the Company's stock option plan. A summary of
the Company's stock option activity for the years ended June 30, 1998
and 1997 is as follows:
Number of
shares ---------Option Price---------
under Weighted
option Per share Average Aggregate
------- --------- -------- ---------
Outstanding-June 30, 1996 11,125 $1.73-2.55 $2.03 $22,539
Granted during the year 1,875 2.34 2.34 4,365
Exercised during the year - - - -
Forfeitures and expirations (375) 2.34 2.34 (879)
------ --------- ----- --------
Outstanding-June 30, 1997 12,625 1.73-2.55 2.06 26,025
Granted during the year 4,875 3.80 3.80 18,525
Exercised during the year - - - -
Forfeitures & expirations (7,750) 1.73-2.55 1.86 (14,388)
------ ---------- ----- --------
Outstanding-June 30, 1998 9,750 $2.34-3.80 $3.09 $30,162
====== ========== ===== ========
Exercisable-June 30, 1998 9,750 $2.34-3.80 $3.09 $30,162
====== ========== ===== =======
Exercisable-June 30, 1997 12,625 $2.16-3.19 $2.53 $26,025
====== ========== ===== =======
During the years ended June 30, 1998 and 1997, the weighted average
fair value of options granted amounted to $1.52 per share and $0.55 per
share, respectively. At June 30, 1998, the weighted average remaining
contractual life of outstanding options was 6.3 years.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires use of option valuation models
that were not developed for use in valuing employee stock options.
Pro forma information regarding net earnings and earnings per share,
required by SFAS No. 123, has been determined as if the Company had
accounted for its employee stock options under the fair value method of
SFAS No. 123. The fair value of options granted in 1998 and 1997 was
estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions: risk free interest rate of 6.00%;
a volatility factor of the expected market price of the Company's
Common Stock of 0.30; a weighted average expected option life of five
years and ten years; and a 2.00% dividend yield. For purposes of pro
forma disclosures, the estimated fair value of options is amortized to
expense over the options' vesting period.
For the years ended June 30, 1998 and 1997, the Company's reported and
pro forma net earnings and earnings per share are as follows:
1998 1997
-------- ---------
As reported:
Net earnings $613,787 $298,609
Net earnings per common share $.61 $.29
Pro forma:
Net earnings $609,343 $297,988
Net earnings per common share $.60 $.29
14. Related Party Transactions
The Company leases its corporate headquarter facility located in
Bradford, Pennsylvania from a principal stockholder and Director. This
lease agreement expires July 2002 and is renewable at the then fair
rental value for a five year period. In addition to the annual rental,
the Company is responsible for the real estate taxes, insurance and
other occupancy expenses applicable to the leased premises. Rent
expense under this operating lease was $80,00 for 1998 and 1997. The
minimum rental commitment under this agreement is included with the
Company's other operating leases as described in Note 10 of the
financial statements.
The Company also receives certain legal and insurance services from
enterprises which are related to the Company because of common
Directors or Officers of the Company. The total service provided by
these related parties was $169,862 in 1998 and $194,585 in 1997.
At June 30, 1998 and 1997, the Company owed National City Bank of
Pennsylvania, a related party through a Director of the Company also
being an Officer of National City Bank, $150,000 and $245,000,
respectively, under a line of credit borrowing agreement that bears
interest at the prime rate. In addition, at June 30, 1998 and 1997, the
Company owed National City Bank $418,242 and 591,884, respectively,
under a term loan that bears interest at 8.47%. A description of these
loans is described in Notes 7 and 9 of the financial statements.
National City Bank is also the Company's principal depository.
<PAGE>
15. Discontinued Operations
Effective May 14, 1996, the Company adopted a formal plan to
discontinue its wood products operations, Bradford Classics
Woodworking, Inc., d/b/a Tuna Valley Wood Products, a wholly-owned
subsidiary of the Company located in Bradford, Pennsylvania.
Previously, this business unit was accounted for as a discontinued
operation. On September 14, 1996, the inventory and fixed assets of
Bradford Classics were sold for their approximate carrying amounts as
of June 30, 1996.
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 and was accounted for as a discontinued operation for the year
ended June 30, 1997.
There were no net assets of the discontinued operations in the
accompanying consolidated balance sheets at June 30, 1998 and 1997. In
addition, there were no operating results of the discontinued
operations for the year ended June 30, 1998. A summary of certain
operating results of the discontinued operations for the years ended
June 30, 1997 is as follows:
1997
----------
Net sales
Bradford Classics Woodworking, Inc. $ -
Control Chief (UK) Limited 1,034,215
----------
$1,034,215
==========
Bradford Classics Woodworking, Inc.
Loss from operations before income tax benefit ($42,444)
Income tax benefit 18,748
----------
Net loss (23,696)
----------
Control Chief (UK) Limited
Loss from operations before income tax benefit (55,174)
Write-down of net assets of discontinued operations (278,011)
Income tax benefit 269,683
----------
Net loss (63,502)
----------
Total loss from discontinued operations,
net of taxes ($87,198)
==========
The income tax benefit of $269,683 of Control Chief (UK) Limited
includes an additional reduction in federal and state income taxes that
occurs because the Company was entitled to report a tax loss in the
amount of $657,313 for the year ended June 30, 1997, which is in excess
of the financial reporting loss of $333,189 for the year.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required by Item 9 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1998
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1998.
ITEM 10. EXECUTIVE COMPENSATION
Information required by Item 10 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1998
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by Item 11 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1998
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 12 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1998
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed herewith or incorporated by reference
herein. (For incorporation references, see Exhibit Index attached
hereto.)
Exhibit
3-1 Certificate of Incorporation of Digimetrics, Inc.
3-2 By-laws of Digimetrics, Inc.
3-3 Certificate of Amendment of the Certificate of Incorporation of
Digimetrics, Inc.
4-1 Specimen of Common Stock Certificate.
10-1 Digimetrics/Control Chief Amended and Restated Profit-Sharing
Plan Adoption Agreement and Plan Document.
10-2 Agreement for Purchase and Sale between C. Lawrence Shields and
Dorothy V. Shields for the real estate located at 200 Williams
Street, Bradford, PA.
10-3 Lease Agreement dated July 15, 1992 between C. Lawrence Shields
and Dorothy V. Shields for the real estate located at 200
Williams Street, Bradford, PA.
10-4 1994 Stock Option Plan.
21-1 Subsidiaries of the Registrant.
23-1 Consent of Independent Auditors.
27-1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Control Chief Holdings, Inc.
(Registrant)
Date: September 25, 1998 By:/S/Douglas S. Bell
Douglas S. Bell
Chairman of the Board,
Chief Executive Officer and President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature Title Date
/s/Douglas S. Bell Chief Executive Officer September 25, 1998
Douglas S. Bell and Director
/s/Stephen J. Pachla Chief Financial Officer September 25, 1998
Stephen J. Pachla
/s/Christopher G.Hauser Director September 25, 1998
Christopher G.Hauser
/s/Arvid R.Nelson Director September 25, 1998
Arvid R.Nelson
/s/N.James Sekel Director September 25, 1998
N.James Sekel
/s/C.Lawrence Shields Director September 25, 1998
C. Lawrence Shields
<PAGE>
INDEX OF EXHIBITS
No. Exhibit Location
3-1 Certificate of Incorporation Incorporated by reference
of Digimetrics, Inc. from Digimetrics, Inc.'s
Registration Statement on
Form 10 File No. 0-15919
("Form 10")
3-2 By-laws of Digimetrics, Inc. Incorporated by reference
from Digimetrics, Inc.'s
Form 10
3-3 Certificate of Amendment of Incorporated by reference
the Certificate of Incorporation from Form 10-KSB for the
of Digimetrics, Inc. fiscal year ended June 30,
1993 as Exhibit 3-3
4-1 Specimen of Common Stock Incorporated by reference
Certificate from Digimetrics, Inc.'s
Form 10
10-1 Digimetrics/Control Chief Incorporated by reference
Amended and Restated Profit- from Form 10-KSB for the
Sharing Plan Adoption Agreement fiscal year ended June 30,
and Plan Document 1994 as Exhibit 10-2
10-2 Agreement for Purchase and Incorporated by reference
Sale between C. Lawrence from Form 8-K filed on
Shields and Dorothy V. Shields July 27, 1992 as Exhibit 2-1
for the real estate at 200
Williams Street, Bradford, PA
10-3 Lease Agreement dated July 15, Incorporated by reference
1992 between C. Lawrence Shields from Form 8-K filed on
and Dorothy V. Shields for the July 27, 1992 as Exhibit 2-2
real estate at 200 Williams
Street, Bradford, PA
10-4 1994 Stock Option Plan Incorporated by reference
from 1994 Proxy, Exhibit A
21-1 Subsidiaries of the Registrant Filed herewith
23-1 Consent of Independent Auditors Filed herewith
27-1 Financial Data Schedule Filed herewith
<PAGE>
SUBSIDIARIES OF THE REGISTRANT Exhibit 21-1
Control Chief Corporation
100% - Owned by Control Chief Holdings, Inc.
Incorporated in the State of Pennsylvania
<PAGE>
CONSENT OF INDEPENDENT AUDITORS Exhibit 23-1
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 dated April 25, 1995 pertaining to
the 1994 Stock Option Plan of Control Chief Holdings, Inc. of our
report dated August 7, 1998 appearing in item seven on Form 10-KSB.
DIEFENBACH DELIO KEARNEY & DEDIONISIO
CERTIFIED PUBLIC ACCOUNTANTS
Erie, Pennsylvania
August 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-KSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,067
<SECURITIES> 0
<RECEIVABLES> 1,674,073
<ALLOWANCES> 50,000
<INVENTORY> 1,639,008
<CURRENT-ASSETS> 3,569,553
<PP&E> 1,865,449
<DEPRECIATION> 1,196,631
<TOTAL-ASSETS> 4,246,444
<CURRENT-LIABILITIES> 1,352,103
<BONDS> 0
0
0
<COMMON> 507,048
<OTHER-SE> 2,097,312
<TOTAL-LIABILITY-AND-EQUITY> 4,246,444
<SALES> 8,687,797
<TOTAL-REVENUES> 8,812,025
<CGS> 5,052,960
<TOTAL-COSTS> 5,052,960
<OTHER-EXPENSES> 2,699,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,734
<INCOME-PRETAX> 999,058
<INCOME-TAX> 385,271
<INCOME-CONTINUING> 613,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 613,787
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
