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 December 31, 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 February 1, 1998 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 4 Submission of Matters to a Vote of Security Holders
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
<TABLE>
PART I
ITEM 1 - FINANCIAL INFORMATION
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, June 30,
1997 1997
---------- -----------
<S> <C> <C>
(Unaudited)
ASSETS
Current Assets
Cash $82,530 $132,007
Receivables
Trade, less allowance for doubtful
accounts of $60,035 and $59,750 1,593,133 1,387,739
Other 11,753 6,730
Inventories
Raw materials and subassemblies 1,150,053 1,122,751
Work in process 523,937 251,950
Prepaid income taxes - 89,368
Other prepaid items 23,194 20,512
Deferred income taxes 55,737 55,737
---------- ----------
Total current assets 3,440,337 3,066,794
---------- ----------
Property and Equipment, at cost
Leasehold improvements 174,429 121,422
Machinery and other equipment 1,578,488 1,568,280
---------- ----------
Total cost 1,752,917 1,689,702
Less accumulated depreciation 1,165,823 1,175,486
---------- ----------
Undepreciated cost 587,094 514,216
---------- ----------
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. 95,355 96,147
Trade receivable-Aden Electronics Limited 65,336 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 177,731 232,903
---------- ----------
$4,205,162 $3,813,913
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<CAPTION>
December 31, June 30,
1997 1997
----------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ - $245,000
Current maturities of long-term debt 155,464 203,976
Accounts payable trade 718,160 452,085
Accrued items
Salaries, wages, commissions and
related payroll taxes 422,511 363,748
Income taxes 40,701 -
Other 4,881 6,408
---------- ----------
Total current liabilities 1,341,717 1,222,705
---------- ----------
Other Liabilities
Long-term debt, less current maturities 355,873 456,582
Deferred income taxes 20,710 23,910
---------- ----------
Total other liabilities 376,583 480,492
---------- ----------
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 857,385 481,239
---------- ----------
Total stockholders' equity 2,486,862 2,110,716
---------- ----------
$4,205,162 $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 Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales $2,097,402 $1,963,949 $4,022,967 $3,686,756
Gain on sale of
land and building - - 127,088 -
Other income 13,262 1,839 35,564 15,292
--------- --------- --------- ---------
Total revenues 2,110,664 1,965,788 4,185,619 3,702,048
--------- --------- --------- ---------
Expenses
Cost of products sold 1,109,971 1,128,197 2,186,120 2,088,690
Selling general and
administrative 584,923 557,058 1,144,513 1,082,508
Research and development 40,268 33,157 107,416 81,269
Interest expense 12,213 22,627 28,846 51,310
--------- --------- --------- ---------
Total expenses 1,747,375 1,741,039 3,466,895 3,303,777
--------- --------- --------- ---------
Earnings from continuing
operations before
income taxes 363,289 224,749 718,724 398,271
--------- --------- --------- ---------
Income taxes
Currently payable 154,700 66,300 305,200 141,600
Deferred (1,600) (1,400) (3,200) (2,600)
--------- --------- --------- ---------
153,100 64,900 302,000 139,000
--------- --------- --------- ---------
Earnings from continuing
operations 210,189 159,849 416,724 259,271
Discontinued operations
Loss, net of taxes - (39,047) - (63,965)
--------- --------- --------- ---------
Net earnings 210,189 120,802 416,724 195,306
Retained earnings at
beginning of period 647,196 257,134 481,239 182,630
Cash dividends paid - - (40,578) -
--------- --------- --------- ---------
Retained earnings at
end of period $857,385 $377,936 $857,385 $377,936
========= ========= ========= =========
Earnings (loss) per common share
Continuing operations $.26 $.12 $.51 $.29
Discontinued operations - (.03) - (.05)
----- ----- ----- -----
$.26 $.09 $.51 $.24
===== ===== ===== =====
Dividends paid
per common share $ - $ - $.05 $ -
===== ===== ===== =====
Weighted average number
of common shares
outstanding 811,553 811,553 811,553 811,553
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
December 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from continuing operating activities
Earnings from continuing operations $416,724 $259,271
Adjustments to reconcile earnings from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 46,446 49,837
Deferred income taxes (3,200) (2,600)
Gain on sale of land and building (127,088) -
Change in assets and liabilities:
Increase in receivables (210,418) (269,200)
Increase in inventories (299,288) (27,823)
Decrease in prepaid items and other assets 94,861 90,592
Increase in accounts payable and accruals 364,012 155,412
-------- --------
Net cash provided by
continuing operating activities 282,050 255,489
-------- --------
Cash flows from discontinued activities
Loss from discontinued operations - (63,965)
Adjustments to reconcile earnings from
continuing operations to net cash provided
by (used in) operating activities:
Depreciation and amortization - 19,626
Decrease in net assets of
discontinued operations - 20,448
Net cash used in discontinued activities - (23,891)
-------- --------
Total net cash provided 282,050 231,598
-------- --------
Cash flows from investing activities
Proceeds from sale of land and building 150,000 -
Purchase of property, plant and equipment (96,033) (46,277)
Receipts of principal on note receivable 792 857
-------- --------
Net cash provided by (used in)
investing activities 54,759 (45,420)
-------- --------
Cash flows from financing activities
Net repayments of short-term debt (245,000) (169,895)
Net repayments of long-term debt (100,709) (105,329)
Dividends paid (40,578) -
-------- --------
Net cash used in financing activities (386,287) (275,224)
-------- --------
Effect of exchange rate changes on cash - (12,159)
-------- --------
Net decrease in cash (49,477) (101,205)
Cash at beginning of period 132,007 123,285
-------- --------
Cash at end of period $82,530 $22,080
======== ========
Cash paid during the period for:
Interest $28,846 $48,172
Income taxes 175,131 -
<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 December 31, 1997, and the
related consolidated statements of operations and retained earnings and cash
flows for the three and six month periods ended December 31, 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 3 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 finacial
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
for their approximate carrying amounts at June 30, 1996.
There was no activity relating to discontinued operations for the three
and six month periods ended December 31, 1997. A summary of certain
operating results of the discontinued operations for the three and six
month periods ended December 31, 1996 is as follows:
Three Months Six Months
Ended Ended
December 31, December 31,
1996 1996
--------- ---------
Net sales
Control Chief (UK) Limited $281,939 $527,294
Bradford Classics Woodworking, Inc. - -
--------- ---------
$281,939 $527,294
========= =========
Control Chief (UK) Limited
Loss from operations before income taxes ($23,601) ($20,184)
Income taxes - -
--------- ---------
Net loss ($23,601) ($20,184)
--------- ---------
Bradford Classics Woodworking, Inc.
Loss from operations before
income tax benefit (26,046) (59,162)
Loss on sale of assets - (14,519)
--------- ---------
(26,046) (73,681)
Income tax benefit 10,600 29,900
--------- ---------
Net loss (15,446) (43,781)
--------- ---------
Total loss from discontinued
operations, net of taxes ($39,047) ($63,965)
========= =========
Included under the caption Other Assets in the accompanying balance sheets
at December 31, 1997 and June 30, 1997, are trade receivables of $65,336
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.
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 toward 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 December 31, 1997 there was no borrowing
outstanding under the line of credit.
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 loan bears interest at 8.47% and is being repaid in forty-eight (48)
monthly principal and interest installments of $16,050. At December 31, 1997,
a total of $494,841 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 December 31, 1997 was $16,496.
The Company's working capital at December 31, 1997 was $2,098,620, which
reflects an increase of $254,531, or 14%, over its working capital of
$1,844,089 at June 30, 1997. The Company's current ratio was 2.56 at
December 31, 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 December 31, 1997
increased $133,453 or 6.8% as compared to the same quarter last year. For
the six-month period ended December 31, 1997, net sales from continuing
operations increased $336,211 or 9.1% as compared to the six-month period
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 decreased by $18,226 or 1.6% for the quarter ended
December 31, 1997 as compared to the same quarter last year. This slight
decrease in the cost of products sold is due to gross margins of the product
mix that comprised the overall increase in the net sales for the quarterly
period when compared to the prior year's product sales. For the six-month
period ended December 31, 1997, cost of products sold increased by $97,430
or 4.7% as compared to the six-month period last year. This overall
increase in the net sales of products sold coincides with the overall
increase in the net sales for the period.
Selling, general and administrative costs increased $27,865 or 5% for the
quarter ended December 31, 1997 as compared with the same period last year.
For the six-month period ended December 31, 1997, selling, general and
administrative costs increased $62,005 or 5.7% as compared to the six-month
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 $7,111 or 21% for the quarter
ended December 31, 1997 as compared to the same period last year. For the
six-month period ended December 31, 1997, research and development costs
increased $26,147 or 32.2% as compared to the six-month 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 the 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 expense decreased $10,414 or 46% for the quarter ended
December 31, 1997 as compared to the same period last year. For the
six-month period ended December 31, 1997, interest expense decreased
$22,464 or 43.8% as compared to the six-month period last year. This
decrease is due to an overall reduction in the Company's short-term and
long-term debt from refinancing, increased earnings and an improvement in
the Company's working capital.
Earnings from continuing operations before income taxes were $363,289 for
the quarterly period ended December 31, 1997, representing an increase of
$138,540 or 61.6% over the same period last year. For the six-month period
ended December 31, 1997, earnings from continuing operations before income
taxes were $718,724, representing an increase of $320,453 or 80.5% as
compared to the six-month 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 in Lewis Run, Pennsylvania. Excluding the gain, the increase was
$193,365 or 48.6% over the same period last year.
The provision for income taxes for the quarterly period ended
December 31, 1997 on pretax income from continuing operations was $153,100
or 42.1%. The provision for income taxes for the quarterly period ended
December 31, 1996 on pretax income from continuing operations was $64,900
or 28.9%. For the six-month period ended December 31, 1997, the provision
for income taxes on pretax income from continuing operations was $302,000
or 42%. For the six-month period ended December 31, 1996, the provision for
income from continuing operations was $139,000 or 34.9%.
Overall earnings, after income taxes, from continuing operations were
$210,189 for the quarterly period ended December 31, 1997 as compared to
earnings, after income taxes, from continuing operations of $159,849 for
the quarterly period ended December 31, 1996. For the six-month period ended
December 31, 1997, earnings from continuing operations were $416,724 as
compared to earnings from continuing operations of $259,271 for the
six-month period ended December ended December 31, 1996.
The Company's earnings per common share from continuing operations were $.26
for the three-month period ended December 31, 1997. This represents an
increase of $.14 per common share from continuing operations for the quarter
over the previous three month period ended December 31, 1996. Overall, net
earnings per common share increased by $.17 per share over the same quarter
last year. For the six-month period ended December 31, 1997, earnings per
common share from continuing operations were $.51 per common share as
compared to $.29 per common share for the same period last year. Overall,
net earnings per common share increased by $.27 per share over the same
six-month period last year.
Net trade receivables at December 31, 1997 increased by $205,394 or 14.8%
as compared to the balance at June 30, 1997. The increase is due to the
increase in net sales during the quarter.
Inventories increased by $299,289 or 21.8% at December 31, 1997 as compared
to June 30, 1997.
Prepaid items decreased by $86,686 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 six-month period ended December 31, 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 six-month period
ended December 31, 1997.
Account payable and accrued items, exclusive of income taxes, increased by
$323,311 at December 31, 1997 or 39.3% as compared to the balance at
June 30, 1997. This increase coincides with the increase in inventories.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
a) An annual meeting of the Shareholders of the Company was held on
November 14, 1997.
b) Election of seven Directors.
Director For Against
-------- --- -------
Douglas S. Bell 674,373 505
Robert E. Crofford 674,573 305
Christopher G. Hauser 674,380 498
Arvid R. Nelson 674,573 305
C. Lawrence Shields 674,398 480
Patrick G. Shields 674,548 330
N. James Sekel 674,573 305
c) Approve appointment of Diefenbach, Delio, Kearney and DeDionisio as
independent certified public accountants of the Company.
For Against Abstain
--- ------- -------
673,936 400 542
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: February 12, 1998 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 85,530
<SECURITIES> 0
<RECEIVABLES> 1,664,921
<ALLOWANCES> 60,035
<INVENTORY> 1,673,990
<CURRENT-ASSETS> 3,440,337
<PP&E> 1,752,917
<DEPRECIATION> 1,165,823
<TOTAL-ASSETS> 4,205,162
<CURRENT-LIABILITIES> 1,341,717
<BONDS> 0
0
0
<COMMON> 405,776
<OTHER-SE> 2,081,086
<TOTAL-LIABILITY-AND-EQUITY> 4,205,162
<SALES> 2,097,402
<TOTAL-REVENUES> 2,110,664
<CGS> 1,109,971
<TOTAL-COSTS> 1,109,971
<OTHER-EXPENSES> 625,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,213
<INCOME-PRETAX> 363,289
<INCOME-TAX> 153,100
<INCOME-CONTINUING> 210,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,189
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
