U. S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] 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 November 13, 1998 was 999,739 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 or Plan of Operation
Part II Other Information
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
<TABLE>
Part I - Financial Information
Item 1. Financial Statements
Control Chief Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
<CAPTION>
September 30, June 30,
1998 1998
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 96,437 $ 22,067
Accounts receivables, less allowance for
doubtful accounts of $50,057 and $50,000 1,554,402 1,624,073
Inventories 1,543,833 1,639,008
Other current assets 160,893 284,405
---------- ----------
Total current assets 3,355,565 3,569,553
---------- ----------
Equipment and leasehold improvements, net 669,540 668,818
---------- ----------
Other assets 8,073 8,073
---------- ----------
Total assets $4,033,178 $4,246,444
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ - $ 150,000
Current maturities of long-term debt 170,755 170,755
Accounts payable trade 589,195 547,266
Accrued items 314,366 484,082
---------- ----------
Total current liabilities 1,074,316 1,352,103
---------- ----------
Long-term debt, less current maturities 219,100 260,317
---------- ----------
Deferred income taxes 29,364 29,664
---------- ----------
Stockholders' equity
Common stock, $.50 par value,
authorized 5,000,000 shares,
issued 1,014,095 shares, of which
14,356 shares in 1998 and 9,263 shares
in 1997 were held in the treasury 507,048 507,048
Capital in excess of par value 1,120,586 1,120,586
Retained earnings 1,144,083 1,013,877
---------- ----------
2,771,717 2,641,511
Less treasury shares at cost 61,319 37,151
---------- ----------
Total stockholders' equity 2,710,398 2,604,360
---------- ----------
$4,033,178 $4,246,444
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Control Chief Holdings, Inc. and Subsidiary
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Revenues
Net sales $2,381,527 $1,925,565
Gain on sale of land and building - 127,088
Other income 400 22,302
--------- ---------
Total revenues 2,381,927 2,074,955
--------- ---------
Costs and expenses
Cost of products sold 1,414,734 1,076,149
Selling general and administrative 577,064 559,590
Research and development 74,266 67,148
Interest expense 9,870 16,633
--------- ---------
Total costs and expenses 2,075,934 1,719,520
--------- ---------
Earnings before income taxes 305,993 355,435
Federal and state income taxes
Currently payable 126,100 150,500
Deferred (300) (1,600)
--------- ---------
125,800 148,900
--------- ---------
Net earnings 180,193 206,535
Retained earnings at beginning of period 1,013,877 481,239
Cash dividends paid (49,987) (40,578)
--------- ---------
Retained earnings at end of period $1,144,083 $647,196
========= =========
Basic earnings per common share $ .18 $ .20
Dividends paid per common share $ .05 $ .04
Weighted average number of
common shares outstanding 1,001,552 1,014,441
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
Control Chief Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net earnings $180,193 $206,535
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 21,803 23,235
Deferred income taxes (300) (1,600)
Gain on sale of land and building - (127,088)
Change in assets and liabilities:
(Increase) decrease in receivables 69,671 (203,510)
(Increase) decrease in inventories 95,175 (21,522)
Decrease in other current assets 123,512 79,990
Increase (decrease) in accounts
payable and accruals (127,787) 42,804
--------- ---------
Net cash provided by (used in)
operating activities 362,267 (1,156)
--------- ---------
Cash flows from investing activities
Proceeds from sale of land and building - 150,000
Purchase of equipment and
leasehold improvements (22,525) (22,088)
Receipts of principal on note receivable - 313
--------- ---------
Net cash provided by (used in)
investing activities (22,525) 128,225
--------- ---------
Cash flows from financing activities
Net repayments of short-term debt (150,000) (145,000)
Net repayments of long-term debt (41,217) (37,425)
Purchase of treasury stock (24,168) -
Dividends paid (49,987) (40,578)
--------- ---------
Net cash used in financing activities (265,372) (223,003)
--------- ---------
Net increase (decrease) in cash 74,370 (95,934)
Cash at beginning of period 22,067 132,007
--------- ---------
Cash at end of period $ 96,437 $ 36,073
========= =========
Cash paid during the period for:
Interest $ 9,870 $ 16,633
Income taxes 60,682 -
<FN>
See accompanying notes to financial statements.
</TABLE>
Control Chief Holdings, Inc. and Subsidiary
Notes to Financial Statements
1. Basis of Presentation
The financial statements include the accounts of the Control Chief
Holdings, Inc. and its wholly-owned subsidiary, Control Chief
Corporation, (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. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial
information for the periods indicated, have been included. 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 on Form 10-KSB for the fiscal year ended June 30, 1998.
2. Earnings Per Common Share
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings per Share." Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. 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 earnings per
share amounts would be the same as basic earnings per common share.
3. Cash Dividends Paid
The Board of Directors of the Company approved a cash dividend
totaling $49,987 ($.05 per share) payable on September 25, 1998 to
holders of record at the close of business on September 7, 1998.
<PAGE>
Part I - Financial Information
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis may be understood more fully by
reference to the consolidated financial statements, notes to the
consolidated financial statements, and management's discussion and
analysis or plan of operations contained in the Control Chief Holdings,
Inc. and Subsidiary annual report on Form 10-KSB for the fiscal year
ended June 30, 1998.
General
Control Chief Holdings, Inc. ("the Company") functions as a holding
company and is the sole shareholder of Control Chief Corporation
("Control Chief"). 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, and
Central and South America. Additionally, products are sold through
direct efforts, distributors, private labeling agreements and
licensees.
Forward-Looking Information
Management's Discussion and Analysis or Plan of Operation includes
certain forward-looking statements which reflect management's current
views with respect to future operating performance, ongoing cash
requirements, and the Year 2000 Issue. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking
statements. These forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Factors that
could cause or contribute to such differences include those discussed
elsewhere herein. Readers are cautioned not to place undue reliance on
these forward-looking statements.
Risk Factors That May Affect Future Results
The Company's results of operations may be affected in the future by a
variety of factors including: competitive pricing pressures, new
product offerings by the Company and competitors, new technologies,
product cost changes, changes in the overall economic climate,
availability of raw materials, and product mix. The Company experiences
competition for its remote controls from several suppliers of similar
products. Throughout the world there are numerous remote control
manufacturers. The Company competes principally on the basis of
technology and quality. 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. The
Company believes its products are competitively priced taking into
consideration the Company's reputation as a long time, high quality
manufacturer of reliable, durable state of the art devices.
Results of Operations
The following table sets forth certain financial data, as a percentage
of net sales, for the three months ended September 30, 1998 and 1997.
Three Months Ended
September 30,
1998 1997
Revenues
Net Sales 100.0% 100.0%
Gain on sale of land and building - 6.6%
Other income - 1.2%
------ ------
Total revenues 100.0% 107.8%
------ ------
Costs and expenses
Cost of products sold 59.4% 55.9%
Selling, general and administrative 24.2% 29.0%
Research and development 3.1% 3.5%
Interest expense 0.4% 0.9%
------ ------
Total costs and expenses 87.1% 89.3%
------ ------
Earnings before income taxes 12.9% 18.4%
Provision for income taxes 5.3% 7.7%
------ ------
Net earnings 7.6% 10.7%
====== ======
NET SALES. Net sales increased to $2,381,527 for the three months ended
September 1998 from $1,925,565 for the three months ended September
1997, an increase of 23.7%. Such increase reflects the continued demand
for the Company's products in addition to increases in its spare parts
sales and services.
COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold increased
by $338,585 for the three months ended September 1998 as compared to
the same period last year. This overall increase in the cost of
products sold is consistent with the overall increase in net sales for
the comparable periods. Gross margin increased for the three months
ended September 1998 to $966,793 from $849,416 for the three months
ended September 1997. However, the gross margin percentage decreased by
3.5% from 44.1% in 1997 to 40.6% in 1998. The decrease in gross margin
percentage is attributable to the product mix and price competition.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and
administrative costs increased by $17,474 or 3.1% for the three months
ended September 1998 as compared to the same period last year. However,
these costs decreased as a percentage of net sales from 29.0% in 1997
to 24.2% in 1998.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
increased by $7,118 or 10.6% for the three months ended September 1998
as compared to the same period last year. This increase reflects the
Company's continuing commitment to invest funds in research and
development to stay abreast of technological changes, enhance its
current products and develop new product lines. It is the Company's
policy not to release public information relating to its research and
development programs until new or enhanced products are ready for
market. The premature public notification of product development, in
the opinion of management, stands to potentially reduce the anticipated
return on its research and development investment by notifying
competitors of a significant portion of the Company's marketing
strategy.
INTEREST EXPENSE. Interest expense decreased by $6,763 or 40.1% for the
three months ended September 1998 as compared to the same period last
year. This decrease reflects the overall reduction in the Company's
short-term debt due to an improvement in the Company's working capital
and cash flow, and the decrease in long-term debt due to normal
principal payments.
EARNINGS BEFORE INCOME TAXES. Earnings before income taxes were
$305,993 for the three months ended September 1998 as compared to
$355,435 for the three months ended September 1997. Included in the
pretax earnings for 1997 is a gain in the amount of $127,088 from the
sale, in July 1997, of the Company's facility located in Lewis Run,
Pennsylvania. Excluding the gain, earnings before income taxes reflect
and increase of $77,646 for the three months ended September 1998 over
1997.
INCOME TAXES. The Company's effective income tax rate was 41.1% in 1998
and 41.9% in 1997.
NET EARNINGS. Overall earnings, after income taxes, were $180,193 for
the three months ended September 1998 as compared to earnings, after
income taxes, of $206,535 for the three-month period ended September
1997.
EARNINGS PER COMMON SHARE. The Company's earnings per common share was
$.18 for the three months ended September 1998, which represents a
decrease of $.02 per common share over the three months ended September
1997.
Liquidity, Capital Resources and Financial Condition
The Company has a $750,000 line of credit with National City Bank of
Pennsylvania (the "Bank"). The revolving credit line is collateralized
by substantially all of the assets of the Company, with a variable
interest rate equal to the Bank's prevailing prime rate. The line of
credit is used to finance accounts receivable and inventory of the
Company. At September 30, 1998, there was no borrowing outstanding
under this financing arrangement. The line of credit is subject to an
annual review by the Bank each November.
In addition to the line of credit, the Company has a commercial term
loan, dated January 1997, in the original amount of $650,000 with
National City Bank. The term loan bears interest at 8.47% and is being
repaid in forty-eight (48) monthly principal and interest installments
of $16,050. At September 30, 1998, a total of $378,859 was outstanding
under this term loan.
The Company also has a term loan with GMAC Financing. The balance
outstanding at September 30, 1998 was $10,996.
The Company's liquidity improved during the period. At September 30,
1998, the Company had net working capital of $2,281,249, compared to
$2,217,450 at June 30, 1998. The Company's current ratio also improved
during the first three months of fiscal 1999, with current assets at
3.12 times current liabilities at September 30, 1998, compared to 2.64
at June 30, 1998.
During the three-month period ended September 1998, the Company's cash
expenditures for equipment totaled $22,525. In addition, during the
first three months of fiscal 1999, the Company repaid $191,217 of bank
indebtedness, paid cash dividends totaling $49,987, and purchased
common stock for its treasury in the amount of $24,168.
Current financial resources, including working capital and the existing
line of credit, and anticipated funds from operations are expected to
be sufficient to meet cash requirements throughout fiscal 1999,
including scheduled long-term debt repayment and planned capital
expenditures. There can be no assurance, however, that unplanned
capital replacement or other future events will not require the Company
to seek additional debt or equity financing and, if so required, that
it will be available on terms acceptable to the Company.
During the three months ended September 1998, the Company's net cash
provided by operations was $362,267 as compared to net cash used in
operations of $1,156 for the three months ended September 1997.
Impact of Year 2000 Issue
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 directed its computer and communication
systems group ("the 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 has not hired outside consultants
to assess the Company's Year 2000 compliance. The group has started to
coordinate the identification of, and will coordinate the
implementation of, changes to computer hardware and software
applications necessary 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 has been
scheduled to be retired in the first quarter of calendar year 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, approximately
$123,600 to date and estimated to total $165,000 in the aggregate, 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 and their 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 does
not separately track the internal costs incurred for the Year 2000
project and that such costs are principally the related payroll costs
for its information systems group. The Company estimates that the cost
of this phase of its plan to date has not exceeded $10,000.
The assessment phase with respect to non-informational technology
systems are approximately 40% complete with final assessment plans and
any appropriate remediation and testing scheduled 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 Company in response to its
customers issues a standard Year 2000 warranty letter. 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 Year
2000 compliance by 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 might have
a material adverse effect on the Company's manufacturing business,
results of operations and financial position if they are not
Year 2000 compliant. The group is completing a questionnaire to survey
those 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.
If significant numbers of the Company's customers are not Year 2000
compliant, it may reduce or delay such customer demands for the
Company's products. To the extent the Company discovers any Year 2000
problem, the Company may incurr additional significant costs in order
to remedy such deficiencies.
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.
Part II - Other Information
Item 5. Other information
SHAREHOLDER PROPOSALS - DEADLINE FOR INCLUSION IN PROXY MATERIALS.
As set forth in the Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders, any proposal by a stockholder of the Company
intended to be presented at the 1999 Annual Meeting of Stockholders
must be received by the Company on or before June 14, 1999 to be
included in the proxy materials of the Company relating to such
meeting.
SHAREHOLDER PROPOSALS - DISCRETIONARY VOTING OF PROXIES. In
accordance with recent amendments to Rule 14a-4 under the Securities
Exchange Act of 1934, if notice of a proposal by a shareholder of the
Company intended to be presented at the 1999 Annual Meeting of
Shareholders is received by the Company after June 14, 1999, the
persons authorized under the Company's management proxies may
exercise discretionary authority to vote or act on such proposal if
the proposal is raised at the 1999 Annual Meeting of Shareholders.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 Financial Data Schedule.
b) The Company filed no Reports on Forms 8-K during the reporting
period.
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Control Chief Holdings, Inc.
(Registrant)
Date: November 13, 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 96,437
<SECURITIES> 0
<RECEIVABLES> 1,604,459
<ALLOWANCES> 50,057
<INVENTORY> 1,543,833
<CURRENT-ASSETS> 3,355,565
<PP&E> 1,895,474
<DEPRECIATION> 1,225,934
<TOTAL-ASSETS> 4,033,178
<CURRENT-LIABILITIES> 1,074,316
<BONDS> 0
0
0
<COMMON> 507,048
<OTHER-SE> 2,264,669
<TOTAL-LIABILITY-AND-EQUITY> 4,033,178
<SALES> 2,381,527
<TOTAL-REVENUES> 2,381,927
<CGS> 1,414,734
<TOTAL-COSTS> 1,414,734
<OTHER-EXPENSES> 651,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,870
<INCOME-PRETAX> 305,993
<INCOME-TAX> 125,800
<INCOME-CONTINUING> 180,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,193
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
