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, 1999
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, 1999 were
$7,733,125. At August 23, 1999, the aggregate market value of voting
common stock held by non-affiliates of the registrant based on the
average bid and asked price of $5.125 was $2,881,649. Shares of common
stock held by each officer and director and by each person who owns 5%
or more of the outstanding common stock of the Company have been
excluded because such persons may be deemed to be affiliates. As of
August 23, 1999, the issuer had outstanding 999,614 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 19, 1999 are incorporated by
reference into Part III of this Form 10-KSB.
CONTROL CHIEF HOLDINGS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
For the Year Ended June 30, 1999
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
PART I
Forward-Looking Information
This Form 10-KSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For
this purpose any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may,"
"will," "expect," "believe," "anticipate," "estimate" or "continue" or
comparable terminology is intended to identify forward-looking
statements. These statements by their nature involve substantial risks
and uncertainties, and actual results may differ materially depending
on a variety of factors, many of which are not within the Company's
control. These factors include but are not limited to economic
conditions generally and in the industries in which the Company's
customers participate; competition within the Company's industry,
including competition from much larger competitors; technological
advances which could render the Company's products less competitive or
obsolete; failure by the Company successfully to develop new products
or to anticipate current or prospective customers' products needs;
price increases or supply limitations for components purchased by the
Company for use in its products; and delays, reductions, or
cancellations of orders previously placed with the Company.
ITEM 1. DESCRIPTION OF BUSINESS
General
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, 1999 and 1998, the Company was the sole
shareholder of Control Chief Corporation. There were no significant
changes in the corporate structure during the years ended June 30, 1999
and 1998. For the year ended June 30, 1997, the Company was the sole
shareholder of Control Chief Corporation, Control Chief (UK) Limited,
and Bradford Classics Woodworking, Inc. Changes in the corporate
structure during the year ending June 30, 1997 were as follows: The
Company ceased the operations of Bradford Classics Woodworking, Inc.
and conducted an orderly liquidation of the subsidiary. The Company
also transferred its foreign subsidiary, Control Chief (UK) Limited, to
one of its former employees who is now operating the former subsidiary
under the name Aden Electronics Limited. The transfer was done in lieu
of a closure and liquidation of the subsidiary. In May 1997, the
Company moved the operations of its facility located in Lewis Run,
Pennsylvania to its nearby facility located in Bradford, Pennsylvania,
and later sold the Lewis Run facility.
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.
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 $284,727 and $204,172 for
the fiscal years ended June 30, 1999 and 1998, 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 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," "Raymote" 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, 1999 and 1998
were $284,727 and $204,172, respectively.
Employees
As of August 23, 1999, 58 individuals were employed by the Company full
time. The Company considers its relations with its employees to be
satisfactory. None of the Company's employees are covered by collective
bargaining agreements.
ITEM 2. DESCRIPTION OF PROPERTY
Location Function Square Feet Ownership
200 Williams Street Manufacturing, 20,000 Leased
Bradford, PA Sales, Engineering
and Corporate Offices
455 William Pitt Way Vacant Office 1,734 Leased
Pittsburgh, PA
(1) None of the above properties are encumbered in connection with the
collateralization of the Company's indebtedness.
(2) Effective May 7, 1999, the Company closed its Pittsburgh, PA
office facility. Prior to its closing, the office had been
utilized as an engineering and sales office. The Company desires
to sublease this office space, the lease of which terminates in
December 1999.
(3) 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, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ Small-Cap Market 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." The following table sets forth the
range of high and low closing sales prices for each quarter within the
last two fiscal years as reported by NASDAQ, which prices have been
adjusted for the effect of the one-for-four stock split that occurred
in February 1998. Prices may not be reflective of actual transactions
occurring during the periods.
For the Quarter Ended High Low
06/30/99 6.50 4.06
03/31/99 5.12 4.25
12/31/98 5.25 4.62
09/30/98 5.25 4.50
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
As of August 23, 1999, the Company's records indicated that there were
approximately 1,000 registered holders of the 999,614 shares of common
stock that was outstanding as of that date.
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 the one-for-four stock split:
Cash Dividends Paid
September 25, 1998 $.050 per share
February 19, 1998 $.040 per share
September 26, 1997 $.040 per share
September 25, 1995 $.056 per share
September 26, 1994 $.056 per share
September 24, 1993 $.056 per share
September 25, 1992 $.032 per share
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company 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. All models of products are microprocessor-based
systems. These devices are utilized in concert with material
handling equipment, industrial machines, process equipment and mobile
apparatus. Products are sold through a network of independent
manufacturers' representatives located in key geographical centers
throughout the United States, Canada, Central and South America.
Additionally, products are marketed and sold through direct efforts,
distributors, private labeling agreements and licensees.
Selected Financial Information
The following table summarizes certain selected financial information
and is qualified in its entirety by reference to the Consolidated
Financial Statements of the Company and the Notes thereto.
Financial Highlights
(in thousands, except the current ratio and per share data)
Years ended June 30, 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net sales $7,733 $8,688 $7,207 $6,832 $6,077
Earnings from
continuing operations 547 614 386 206 15
Working capital 2,337 2,217 1,915 1,349 1,162
Total assets 4,203 4,246 3,814 4,036 4,413
Long-term debt 10 260 457 385 572
Capital expenditures 247 230 342 68 87
Current ratio 3.19 2.64 2.57 1.75 1.69
Per Common Share
Years ended June 30, 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Basic earnings (loss) from:
Continuing operations $.55 $.61 $.38 $.20 $.02
Discontinued operations - - (.09) (.42) .12
------ ------ ------ ------ ------
Net earnings (loss) $.55 $.61 $.29 ($.22) $.14
====== ====== ====== ====== ======
Diluted earnings (loss) from:
Continuing operations $.54 $.60 $.38 $.20 $.02
Discontinued operations - - (.09) (.42) .12
------ ------ ------ ------ ------
Net earnings (loss) $.54 $.60 $.29 ($.22) $.14
====== ====== ====== ====== ======
Dividends paid
per share $.050 $.080 $ - $.056 $.056
====== ====== ====== ====== ======
Results of Operations
The following table sets forth certain financial data, as a percentage
of net sales, for the years ended June 30, 1999, 1998 and 1997:
1999 1998 1997
------- ------- -------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 50.2% 54.3% 51.7%
------- ------- -------
Gross margin 49.8% 45.7% 48.3%
------- ------- -------
Operating expenses
Selling expenses 20.4% 19.7% 21.5%
General and administrative 14.0% 12.9% 14.2%
Research and development 3.6% 2.3% 2.6%
------- ------- -------
Total operating expenses 38.0% 34.9% 38.3%
------- ------- -------
Earnings from operations 11.8% 10.8% 10.0%
Other income (expense)
Interest expense (0.5%) (0.7%) (1.2%)
Gain on sale of land and building - 1.3% -
Other income 0.5% 0.1% 0.4%
------- ------- -------
Earnings from continuing operations
before income taxes 11.8% 11.5% 9.2%
Provision for income taxes 4.7% 4.4% 3.9%
------- ------- -------
Earnings from continuing operations 7.1% 7.1% 5.3%
Loss from discontinued operations,
net of taxes - - (1.2%)
------- ------- -------
Net earnings 7.1% 7.1% 4.1%
======= ======= =======
Year ended June 30, 1999 compared to the year ended June 30, 1998
NET SALES. Net sales for the fiscal year ended June 30, 1999,
decreased by $954,672 or 11% as compared to the year ended June 30,
1998. This decrease is attributed to the completion during the previous
year of a major order with a new customer. Sales and demand for the
Company's spare parts and services remained fairly constant. Generally,
the Company does not experience a significant fluctuation of business
attributable to seasonal buying habits of its customers.
COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold also
decreased by $830,950 or 17.6% as compared to the year ended June 30,
1998. This decrease in cost of products sold compares with the
corresponding decrease in net sales for the year and management's cost
reduction measures during the second half of the fiscal year. Gross
margin was $3,846,756 or 49.8% of sales in 1999 compared to $3,970,478
or 45.7% of sales in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling expenses
decreased $141,306 or 8.2% in 1999 compared to 1998. The decrease in
selling expenses corresponds with the decrease in net sales for the
year. General and administrative costs decreased by $34,621 or 3% in
1999 compared to 1998.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
increased by $80,555 or 39.4%. 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 $200,000 or greater in
the foreseeable future to stay abreast of changes in technology and
improve and expand its product lines.
OTHER INCOME AND EXPENSE. Interest expense decreased by $26,999 or
44.4%. The decrease in interest expense resulted from the Company's
reduced bank debt and an improvement in the Company's cash flow. The
Company's average short-term interest rates were 8.6% in 1999 and 8.8%
in 1998. The Company's recognized no gains from the sales of assets in
1999. In 1998, the Company recognized a gain of $111,428 from the sale
of land and building that was associated with the relocation of the
Company's operations in Lewis Run, Pennsylvania to its nearby facility
in Bradford, Pennsylvania.
INCOME TAXES. The Company's effective income tax rate was 39.7% in
1999 and 38.5% in 1998.
NET EARNINGS. Overall net earnings were $546,699 for 1999 as compared
to $613,787 for 1998. Expressed as a percentage of net sales, net
earnings were 7% of net sales for both 1999 and 1998.
EARNINGS PER COMMON SHARE. Basic earnings per common share was $.55 per
share in 1999 as compared to $.61 per share in 1998.
Year ended June 30, 1998 compared to the year ended June 30, 1997
NET SALES. 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 AND GROSS MARGIN. 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 EXPENSES. Selling, general and
administrative expenses 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. Research and development costs
increased by $21,241 or 11.6%.
OTHER INCOME AND EXPENSE. Interest expense decreased by $27,152 or
30.9%. This decrease in interest expense results from the Company's
reduced bank debt. 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.
INCOME TAXES. The Company's effective income tax rate was 38.5% in
1998 and 42.2% in 1997.
NET EARNINGS. Overall net earnings were $613,787 for 1998 as compared
to $298,609 for 1997. Expressed as a percentage of net sales, net
earnings were 7% of net sales for 1998 and 4.1% of net sales for 1997.
EARNINGS PER COMMON SHARE. Basic earnings per common share was $.61 per
share in 1998 as compared to $.29 per share in 1997.
Effects of Inflation
The Company believes that its revenues and results of operations have
not been significantly affected by inflation during the three years
ended June 30, 1999.
Liquidity, Capital Resources and Financial Condition
The Company funds its needs for liquidity and capital resources through
cash from operations, short-term and long-term borrowing.
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 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, 1999, no amount was
outstanding under the line of credit. At June 30, 1998, a total of
$150,000 was outstanding under the line of credit at the rate of
interest of 8.5%.
In addition to the line of credit loan, the Company has a term loan,
dated January 15, 1997, in the original amount of $650,000. 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 June 30,
1999, a total of $161,228 was outstanding under this term loan.
The Company's working capital continued to increase in fiscal 1999. At
June 30, 1999, the Company's net working capital was $2,336,884 as
compared to net working capital of $2,217,450 at June 30, 1998 and net
working capital of $1,915,393 at June 30, 1997. The Company's current
ratio improved in fiscal year 1999. At June 30, 1999, the Company's
current ratio was 3.18 as compared to 2.64 at June 30, 1998, and 2.56
at June 30, 1997.
The Company's cash expenditures for property, plant and equipment
amounted to $247,246 in fiscal year 1999 and $229,603 in fiscal year
1998. For fiscal 1999, these capital expenditures primarily related to
machinery and equipment ($80,000), transportation equipment ($36,000)
and computer equipment and furniture ($131,400). 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 in the foreseeable future.
Environmental Matters
The Company has been identified as a potentially responsible party by
the Pennsylvania Department of Environmental Protection concerning
substances that may be present in the groundwater at the site of its
former facility located in Lewis Run, Pennsylvania. Such substances may
be defined as "hazardous substances" pursuant to the Pennsylvania
Hazardous Sites Cleanup Act (HSCA) and, as the former owner of the
property, the Company may be liable for the costs of conducting an
investigation and response at the site as defined by the HSCA.
A determination has not been made as to whether or not the Company is
a responsible party, including an estimate of the cost of environmental
remediation, the number of parties involved at the site, the
determination of the extent of contamination, and the length of time
that remediation my require.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133. "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This Statement
requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for
depending on the use of the derivatives and whether it qualifies for
hedge accounting. This statement is effective for fiscal years
beginning after June 15, 1999, with earlier adoption encouraged. The
Company will adopt this accounting standard as required in fiscal 2000,
however the Company does not expect the adoption of this Statement to
have a material impact on the Company's financial position or results
of operations.
Impact of the Year 2000 on the Company's Information Technology Systems
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
coordinated the identification of, and coordinated 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 coordinated the identification of potential Year 2000
problems related to the Company's non-informational technology systems
and material third parties.
Concurrently, the Company has completed implementation of a new
company-wide information system. This system addresses and solves the
great majority of the Company's Year 2000 internal operational issues.
The new computer system has replaced the Company's mainframe computer.
The new system has also replaced the majority of the Company's
information technology ("IT") in its internal operations, which
includes 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 $175,000 in the aggregate, are not included in the
Company's Year 2000 costs as these upgrades and conversions were
planned prior to its Year 2000 compliance plan and their implementation
has not been accelerated because of the Year 2000 problem.
It is believed the group is substantially complete as to its assessment
of the Company's IT systems. The Company does not separately track the
internal costs incurred for the Year 2000 project and since 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 $15,000.
The assessment phase with respect to non-informational technology
systems is approximately 85% complete with final assessment plans and
any appropriate remediation and testing scheduled to be completed by
September 30, 1999. The group has reviewed and tested the embedded
chips and microprocessors in the products it has previously
manufactured and in the products it currently manufactures and has
determined that these do not create a Year 2000 problem. The Company in
response to its customers' requests, issues a standard Year 2000
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 $3,000. Further, the Company does not
expect to incur material costs to complete this phase of its plan.
The group is approximately 90% 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 and 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 has completed and mailed a questionnaire to survey
those material third parties as to their Year 2000 readiness.
Approximately 500 requests were sent during the first calendar quarter
of 1999. To date, the Company has received approximately a 85% response
from the material third parties. These responses have indicated that
these third parties were either Year 2000 compliant or in the process
of completing their compliance plans and testing. A follow-up
questionnaire was sent during the third quarter of calendar year 1999.
In addition, alternative suppliers are being 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 $3,500.
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
problems, the Company may incur additional significant costs in order
to remedy such deficiencies.
The group is finalizing its formal contingency plan with respect to the
Year 2000 problem in conjunction with the Company's disaster plan. It
is anticipated that this plan will primarily address how the Company
should prepare for problems that may result from material third parties
not being Year 2000 compliant.
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
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, 1999 and 1998, 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, 1999
and 1998, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Diefenbach Delio Kearney & DeDionisio
Certified Public Accountants
Erie, Pennsylvania
August 3, 1999
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 1998
---------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 684,912 $ 22,067
Accounts receivables, less allowances
of $40,000 and $50,000 984,967 1,624,073
Inventories 1,581,353 1,639,008
Other current assets 152,952 284,405
---------- ----------
Total current assets 3,404,184 3,569,553
Equipment and leasehold improvements, net 790,616 668,818
Other assets 7,841 8,073
---------- ----------
Total assets $4,202,641 $4,246,444
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ - $ 150,000
Current maturities of long-term debt 173,018 170,755
Accounts payable 421,783 547,266
Accrued items 472,499 484,082
---------- ----------
Total current liabilities 1,067,300 1,352,103
---------- ----------
Long-term debt, less current maturities 10,319 260,317
---------- ----------
Deferred income taxes 48,712 29,664
---------- ----------
Stockholders' equity
Common stock, $.50 par value,
authorized 5,000,000 shares,
issued 1,014,095 shares,
of which 14,481 and 9,263
shares were held in the treasury
in 1999 and 1998, respectively 507,048 507,048
Capital in excess of par value 1,120,586 1,120,586
Retained earnings 1,510,589 1,013,877
---------- ----------
3,138,223 2,641,511
Less treasury shares at cost 61,913 37,151
---------- ----------
Total stockholders' equity 3,076,310 2,604,360
---------- ----------
Total liabilities and
stockholders' equity $4,202,641 $4,246,444
========== ==========
The accompanying notes are and integral part of these statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended June 30,
1999 1998
---------- ----------
Net sales $7,733,125 $8,687,797
Cost of products sold 3,886,369 4,717,319
---------- ----------
Gross margin 3,846,756 3,970,478
---------- ----------
Operating expenses
Selling expenses 1,572,527 1,713,833
General and administrative 1,082,288 1,116,909
Research and development 284,727 204,172
---------- ----------
Total operating expenses 2,939,542 3,034,914
---------- ----------
Earnings from operations 907,214 935,564
Other income (expense)
Interest expense (33,735) (60,734)
Gain on sale of land and building - 111,428
Other income 33,239 12,800
---------- ----------
Earnings before income taxes 906,718 999,058
Provision for income taxes 360,019 385,271
---------- ----------
Net earnings 546,699 613,787
Retained earnings, beginning of year 1,013,877 481,239
Cash dividends paid (49,987) (81,149)
---------- ----------
Retained earnings, end of year $1,510,589 $1,013,877
========== ==========
Earnings per common share
Basic $ .55 $ .61
Diluted $ .54 $ .60
Dividends paid per common share $ .05 $ .08
The accompanying notes are an integral part of these statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
1999 1998
--------- ---------
Cash flows from operating activities
Net earnings $ 546,699 $ 613,787
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 125,448 99,353
Provision for bad debts 47,346 91,864
Deferred income taxes 24,589 8,157
(Gain) loss on sale of fixed assets - (111,428)
Change in assets and liabilities:
(Increase) decrease in receivables 591,760 (250,164)
(Increase) decrease in inventories 57,655 (264,307)
(Increase) decrease in prepaid items
and other assets 126,144 (117,739)
Increase (decrease) in accounts payable
and accruals (137,066) 209,107
--------- ---------
Net cash provided by operating activities 1,382,575 278,630
--------- ---------
Cash flows from investing activities
Proceeds from sale of fixed assets - 141,003
Purchase of equipment and
leasehold improvements (247,246) (229,603)
Receipts of principal on note receivable - 59,615
--------- ---------
Net cash used in investing activities (247,246) (28,985)
--------- ---------
Cash flows from financing activities
Net borrowing (repayments) of
short-term debt (150,000) (95,000)
Long-term borrowing 18,056 -
Repayments of long-term debt (265,791) (180,974)
Purchase of treasury stock (24,762) (619)
Purchase and retirement of
fractional common shares - (1,843)
Cash dividends paid (49,987) (81,149)
--------- ---------
Net cash used in financing activities (472,484) (359,585)
--------- ---------
Net increase (decrease) in cash 662,845 (109,940)
Cash and cash equivalents:
Beginning of year 22,067 132,007
--------- ---------
End of year $ 684,912 $ 22,067
========= =========
Cash paid during the year for:
Interest $ 35,417 $ 61,033
Income taxes 147,597 439,823
The accompanying notes are an integral part of these statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
1. Summary of Significant Accounting Policies
Company Operations
The Company 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. During the years
ended June 30, 1999 and 1998, the Company's operations had export sales
totaling $332,960 and $370,643, respectively.
Principles of Consolidation
The financial statements include the accounts of Control Chief
Holdings, Inc. and its wholly-owned subsidiary, Control Chief
Corporation. All significant intercompany accounts are eliminated upon
consolidation. Certain prior year amounts have been reclassified to
conform with the current year presentation.
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
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the time of purchase to be cash
equivalents.
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 bank borrowings are adjusted
regularly to reflect current market rates. Accordingly, the carrying
amounts of the Company's short-term and long-term borrowings also
approximate fair value.
Supplemental Cash Flow Information
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.
Inventories
Inventories are valued at the lower of average cost (first-in, first-out
method) or market. Inventories include material, direct labor, and
overhead and consist of the following at June 30, 1999 and 1998:
1999 1998
---------- ----------
Work in process $ 160,725 $ 281,767
Raw materials and subassemblies 1,420,628 1,357,241
---------- ----------
$1,581,353 $1,639,008
========== ==========
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.
Advertising Costs
Advertising, including trade shows, promotions and literature costs are
expensed as incurred. The total for these expenses were $93,632 in 1999
and $65,823 in 1998.
Research and Development
Research and development costs are expensed as incurred. Research and
development expense amounted to $284,727 in 1999, and $204,172 in 1998.
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
Basic earnings per share are computed by dividing net earnings by the
weighted average number of common shares outstanding. Diluted earnings
per share assumes the exercise of stock options using the treasury
stock method, if dilutive. The following table reflects the calculation
of basic and diluted earnings per share.
Net Per Share
Earnings Shares Amount
--------- ---------- ---------
Fiscal year 1999 - Basic $ 546,699 1,000,185 $ .55
Fiscal year 1999 - Diluted $ 546,699 1,012,909 $ .54
Fiscal year 1998 - Basic $ 613,787 1,013,861 $ .61
Fiscal year 1998 - Diluted $ 613,787 1,023,033 $ .60
Accounting Estimates
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.
Impairment of Long Lived Assets
Management periodically reviews the carrying value of long-term assets
for potential impairment by comparing the carrying value of these
assets to the estimated undiscounted future cash flows expected to
result form the use of these assets. Should the sum of the related
expected future cash flows be less than the carrying value, an
impairment loss would be recognized. An impairment loss would be
measured by the amount by which the carrying value of the asset exceeds
the fair value of the asset with fair value being determined using
discounted cash flows. To date, management has determined that no
impairment of these assets exists.
Reclassifications
Certain amounts in the Company's 1998 financial statements have been
reclassified to conform to the 1999 presentation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." SFAS No. 130 is effective for fiscal years
beginning after December 15, 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. SFAS No. 130 is
effective for the Company in fiscal 1999, but the adoption of the new
rules for components of comprehensive income does not have an effect on
the Company's financial position or results of operations.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and
requires disclosures of segments under a "management approach" whereby
segments are reported publicly as they are internally. Because 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, this new standard
has no effect on the Company's interim and year-end financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires companies
to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the
value of those derivatives would be accounted for depending on the use
of derivatives and whether it qualifies for hedge accounting. This
Statement is effective for fiscal years beginning after June 15, 1999,
with earlier adoption encouraged. The Company will adopt this
accounting standard as required in fiscal 2000, however the Company
does not expect the adoption of this Statement to have a material
impact on the Company's financial position or results of operations.
2. Cash Dividends and Stock Split
For the fiscal year ended June 30, 1999, 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. For the fiscal year ended June 30, 1998,
the Board of Directors of the Company approved a cash dividend totaling
$40,578 ($.04 per share) payable on September 26, 1997 to holders' of
record at the close of business on September 8, 1997, and also approved
a cash dividend totaling $40,571 ($.04 per share) payable on February
19, 1998 to holders of record at the close of business on February 6,
1998.
In addition to the above, 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 Company's Board of
Directors authorized the stock split in order to enable the Company to
meet the changes in the NASDAQ, Small Cap Market, listing requirements.
All references to common shares have been retroactively restated to
reflect the stock split.
3. Other Current Assets
Other current assets at June 30, consist of the following:
1999 1998
-------- --------
Prepaid income taxes $ 54,100 $210,679
Other prepaid items 51,059 20,392
Deferred income taxes 47,793 53,334
-------- --------
$152,952 $284,405
======== ========
4. Equipment and Leasehold Improvements
Equipment and leaseholds at June 30, consist of the following:
1999 1998
---------- ----------
Machinery and equipment $1,917,208 $1,669,962
Leasehold improvements 195,487 195,487
---------- ----------
2,112,695 1,865,449
Less accumulated depreciation 1,322,079 1,196,631
---------- ----------
$ 790,616 $ 668,818
========== ==========
5. Other Assets
Other assets at June 30, consist of the following:
1999 1998
--------- ---------
Cash surrender value of officers'
life insurance, less policy
loans of $80,923 and $77,724 $ 7,841 $ 8,073
========= =========
6. Short-Term Debt
The Company has $750,000 available under a line of credit agreement
with a bank. Borrowings under the line bear interest at the prime rate
(7.75% and 8.50% at June 30, 1999 and 1998, respectively), and are
secured by substantially all of the assets of the Company. During the
years ended June 30, 1999 and 1998, the line of credit reached month-
end maximums of $150,000 and $415,000 respectively. Weighted average
borrowing amounted to $4,986 in 1999 and $145,770 in 1998, with average
interest rates of 8.62% in 1999 and 8.81% in 1998 calculated by
dividing the interest expense during the year for such borrowing by the
weighted average short-term borrowing. At June 30, 1999, the Company
had no amount outstanding under the line of credit. At June 30, 1998,
the Company had $150,000 outstanding under the line of credit. The line
of credit agreement is subject to an annual review in November each
year.
7. Accrued Items
Accrued items at June 30, consist of the following:
1999 1998
-------- --------
Accrued income taxes $ 89,856 $ 58,602
Accrued commissions 83,009 122,058
Accrued salaries, wages, and withholdings 294,895 295,768
Other accrued items 4,739 7,654
--------- ---------
$472,499 $484,082
========= =========
8. Long-Term Debt
Long-term debt at June 30, consists of the following:
1999 1998
--------- ---------
8.47% term loan, amortized over
four years, due May 2000, payable
in monthly installments of $16,050,
including interest $161,228 $418,242
2.90% term loan, amortized over
three years, due April 2002, payable
in monthly installments of $524,
including interest 16,610 -
9.50% term loan, amortized over
three years, due April 2000, payable
in monthly installments of $611,
including interest 5,499 12,830
--------- ---------
Total 183,337 431,072
Less current maturities 173,018 170,755
--------- ---------
Long-term debt $ 10,319 $260,317
========= =========
The above indebtedness is secured by substantially all of the assets of
the Company. The aggregate amounts of long-term debt which will become
due during each of the next three years ending June 30, are: 2000 -
$173,018; 2001 - $6,291; 2002 - $4,028.
9. 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 remaining four years
under these operating leases are as follows:
Year ended June 30,
2000 $96,855
2001 87,065
2002 86,476
2003 3,333
Total rent expense under operating leases amounted to $118,030 in 1999
and $124,529 in 1998.
10. Income Taxes
For the years ended June 30, 1999 and 1998, pretax earnings from
operations were $906,718 and $999,058, respectively. The provision for
taxes on earnings from operations consists of the following:
1999 1998
-------- --------
Currently payable
Federal $245,822 $295,785
State 89,608 81,329
Deferred 24,589 8,157
-------- --------
$360,019 $385,271
======== ========
The difference between the provision for income taxes and the amounts
computed by applying the federal income tax rate in effect for the
years ended June 30, 1999 and 1998 consists of the following:
1999 1998
-------- --------
Statutory federal income tax $308,234 $339,680
State income taxes, net of
federal tax benefit 59,305 53,677
General business tax credit (28,473) (16,628)
Other items 20,953 8,542
-------- --------
$360,019 $385,271
======== ========
At June 30, the net deferred tax asset (liability) component consists
of the following:
1999 1998
--------- ---------
Allowance for doubtful accounts $ 16,237 $ 20,297
Compensated absences (vacation pay) 31,556 33,037
Depreciation (48,712) (29,664)
--------- ---------
$ (919) $ 23,670
========= =========
Balance Sheet Classification
Current asset $ 47,793 $ 53,334
Noncurrent liability (48,712) (29,664)
--------- ---------
$ (919) $ 23,670
========= =========
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 $19,066 in 1999 and $16,227 in 1998. There were no
additional discretionary contributions to the plan for 1999 and 1998.
12. Common Stock Options
The Company has an incentive stock option plan for the granting of
options to purchase up to 50,000 shares of the Company's common stock,
of which 41,000 shares have been reserved for granting to employees and
9,000 shares have been reserved for granting to nonemployee Directors.
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, 1999, options to purchase
33,625 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, 1999 and 1998 is as follows:
Number
of shares ---------Option Price---------
under Weighted
option Per share Average Aggregate
--------- ---------- ------- ---------
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 and 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
Granted during the year 4,375 4.88 4.88 21,350
Exercised during the year - - - -
Forfeitures and expirations (1,625) 2.34-3.80 3.46 (5,629)
-------- ---------- ------ --------
Outstanding-June 30, 1999 12,500 $2.34-4.88 $3.67 $45,883
======== ========== ====== ========
Exercisable-June 30, 1999 12,500 $2.34-4.88 $3.67 $45,883
======== ========== ====== ========
Exercisable-June 30, 1998 9,750 $2.34-3.80 $3.09 $30,162
======== ========== ====== ========
The Company has elected to continue following the accounting guidance
of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" for measurement and recognition of stock-based
transactions with employees and directors. No compensation cost
has been recognized for options issued under the plan when the exercise
price of the options are at least equal to the fair market value of the
common stock at the date of grant. Had compensation cost for the stock
options been determined based on the fair value at the grant date,
consistent with the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation," the Company's 1999 and 1998 net earnings and
earnings per share would have been changed to the pro forma amounts
indicated below:
1999 1998
-------- --------
As reported:
Net earnings $546,699 $613,787
Earnings per common share
Basic $.55 $.61
Diluted $.54 $.60
Pro forma:
Net earnings $540,607 $609,343
Earnings per common share
Basic $.54 $.60
Diluted $.53 $.60
The fair value of each option is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions and results:
1999 1998
--------- ---------
Dividend yield 1% 2%
Risk free interest rate 5.5% 6%
Weighted average expected
option life 6.25 years 6.3 years
Expected volatility 33.76% 30%
Expected fair value of
options on grant date $10,153 $7,406
13. 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 1999 and 1998. The
minimum rental commitment under this agreement is included with the
Company's other operating leases as described in Note 9 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 $205,462 in 1999 and $169,862 in 1998.
At June 30, 1999 and 1998, 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, $-0- and $150,000,
respectively, under a line of credit borrowing agreement that bears
interest at the prime rate. In addition, at June 30, 1999 and 1998, the
Company owed National City Bank $161,228 and $418,242, respectively,
under a term loan that bears interest at 8.47%. A description of these
loans is described in Notes 6 and 8 of the financial statements.
National City Bank is also the Company's principal depository.
14. Environmental Matters
The Company has been identified as a potentially responsible party by
the Pennsylvania Department of Environmental Protection concerning
substances that may be present in the groundwater at the site of its
former facility located in Lewis Run, Pennsylvania. Such substances may
be defined as "hazardous substances" pursuant to the Pennsylvania
Hazardous Sites Cleanup Act (HSCA) and, as the former owner of the
property, the Company may be liable for the costs of conducting an
investigation and response at the site as defined by the HSCA. A
determination has not been made as to whether or not the Company is a
responsible party, including an estimate of the cost of environmental
remediation, the number of parties involved at the site, the
determination of the extent of contamination, and the length of time
that remediation my require.
15. Year 2000 Issue (Unaudited)
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. 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, send invoices or engage in similar
normal business activities. The Company has completed an evaluation of
the Year 2000 compliance of its information technology, and management
of the Company has determined that any exposure that the Company may
have relative to Year 2000 conversion costs is not significant to the
overall financial statement presentation.
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 1999
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1999.
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 1999
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1999.
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 1999
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1999.
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 1999
Annual Meeting of Shareholders and to be filed with the Commission not
later than 120 days after the end of fiscal year 1999.
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 Digimetics, 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.
10-5 Douglas S. Bell Employment Agreement.
21-1 Subsidiaries of the Registrant.
23-1 Consent of Independent Auditors.
27-1 Financial Data Schedule.
(b) Reports on Form 8-K.
The Registrant filed a current report on Form 8-K, dated July 12, 1999,
pertaining to the transfer by C. Lawrence and Dorothy V. Shields of
320,368 shares of Control Chief Holdings, Inc. common stock to Douglas
S. and Janine M. Bell.
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 24, 1999 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 24, 1999
Douglas S. Bell and Director
/s/ Stephen J. Pachla Chief Financial Officer September 24, 1999
Stephen J. Pachla
/s/ Christopher G. Hauser Director September 24, 1999
Christopher G. Hauser
/s/ Arvid R. Nelson Director September 24, 1999
Arvid R. Nelson
/s/ N. James Sekel Director September 24, 1999
N. James Sekel
/s/ C. Lawrence Shields Director September 24, 1999
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 the Incorporated by reference
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 July
Shields and Dorothy V. Shields 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 July
and Dorothy V. Shields for the 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
10-5 Douglas S. Bell Employment Filed herewith
Agreement
21-1 Subsidiaries of the Registrant Filed herewith
23-1 Consent of Independent Auditors Filed herewith
27-1 Financial Data Schedule Filed herewith
DOUGLAS S. BELL EMPLOYMENT AGREEMENT Exhibit 10-5
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of May 21, 1999 between Control Chief
Holdings, Inc. (the "Company"), a New York corporation with an office
at 200 Williams Street, Bradford, Pennsylvania 16701, and Douglas S.
Bell (the "Executive"), an individual residing at 101 Russell
Boulevard, Bradford, Pennsylvania 16701.
In consideration of the mutual promises, benefits and covenants
herein contained, the parties hereby agree as follows:
1. Employment. The Company hereby employs the
Executive, and the Executive hereby accepts employment by the
Company, as President and Chief Executive Officer of the Company.
The Executive shall perform the duties and responsibilities
customarily associated with such position and report to the Board of
Directors of the Company. The Executive shall have and perform such
other responsibilities, as the Board of Directors of the Company
shall from time to time determine. Executive hereby accepts the
employment described herein, and agrees to perform such duties
faithfully, competently and to the best of his ability and agrees to
abide by the terms and conditions of this Agreement. During his
employment hereunder, Executive shall devote all of his undivided
business time and attention to the performance of his duties on
behalf of the Company except as may be approved by the Company's
Board of Directors. Executive covenants and agrees that in
performing his duties hereunder he will comply with all applicable
Company policies and standards, including safety, professional,
ethical and quality standards and all security policies in effect and
applicable to employees of the Company in general from time to time.
2. Term. The term of this Agreement ("Term") shall
commence as of June 1, 1999 and shall continue until May 31, 2009
(the "Term") unless earlier terminated pursuant to Section 6 hereof
or extended by mutual agreement of the parties. In the event of any
such termination, the Company shall have no further liability to
Executive hereunder, other than for earned but unpaid compensation.
3. Compensation. For all services to be rendered by the
Executive in any capacity to the Company during the Term, the Company
shall pay the Executive a salary at the rate of $250,000 per year.
The Executive's salary shall be payable in arrears in equal bi-weekly
installments in accordance with the general policies of the Company
and subject to such deductions and withholdings at may be required by
law or agreed-to by the Executive. The Executive will be eligible
for annual salary reviews and may receive increases and/or bonuses
with the approval of the Company's Board of Directors.
4. Benefits. Executive shall be entitled all of the
fringe benefits or other perquisites that are accorded to employees
of the Company generally in accordance with established rules,
guidelines, waiting periods, premiums and co-payments.
5. Expenses. The Company shall reimburse the Executive
for all reasonable, ordinary and necessary business expenses (as the
Company reasonably determines to be proper) incurred by him during
the term of this Agreement and in the performance of his duties
hereunder upon presentation of vouchers in accordance with the
Company's customary procedures.
6. Termination.
(a) Death or Disability. This Agreement shall
terminate in the event of the death or disability of the Executive
during the Term. In such event, the Company shall pay to the
Executive or the Executive's estate or other legal representative the
salary due to the Executive up to the date of termination. As used
herein "disability" shall mean any illness, disability or incapacity
by reason of which the Executive is unable to perform, with
reasonable accommodation, a substantial portion of his duties for a
period of six (6) substantially consecutive months.
(b) Termination by Company. The Company shall have
the right to terminate the employment of Executive hereunder at any
time for "cause" and, such termination shall be effective immediately
upon notice thereof. For purposes of this Agreement, "cause" shall
mean any act of dishonesty, disloyalty or any failure to abide by the
reasonable instructions of the Company's Board of Directors,
Executive's conviction of a felony, voluntary resignation (other than
retirement in accordance with a policy adopted by the Company's Board
of Directors) or any material breach by Executive of any provision of
this Agreement. In the event of termination pursuant to this
subparagraph 6(b), the Executive's right to receive any unaccrued
payments and benefits pursuant to this Agreement shall, effective
upon termination of employment, terminate in all respects.
(c) Termination by Executive. In the event of a sale
of all or substantially all of the assets or business (including a
sale by merger) of the Company to any person other than any current
shareholder of the Company (or any officer, director, shareholder,
subsidiary or affiliate of any current shareholder of the Company),
Executive shall have the right to terminate his employment hereunder
within 30 days after the consummation of such transaction on written
notice to the Company. Upon any such termination, Executive shall
have no further obligations to the Company under this Agreement
except for his obligations under Sections 7, 8 and 9 hereof.
7. Non-Competition.
(a) In consideration of Executive's employment
pursuant to this Agreement and for other good and valuable
consideration, the receipt and adequacy of which is hereby
acknowledged, Executive covenants and agrees with the Company that,
so long as he is employed by the Company and for a period of
36 months thereafter, he shall not, directly or indirectly, either
for himself or for any other business, firm, individual, corporation,
limited liability company, partnership or other entity, (i) induce
any customer or supplier of the Company to terminate its association
with the Company, or (ii) induce any employee, agent, representative
or other person associated with the Company to terminate his or her
association with the Company, or (iii) own, manage, operate, control,
participate in the ownership, management, operation or control of
(excluding the ownership of less than 2.5% of the stock of a publicly
traded corporation), or be employed by any business or entity which
competes with any product or service of the Company or any successor
or assign of the Company, made, sold or in a state of research or
development by the Company.
(b) Executive acknowledges that any breach or
threatened breach by Executive of any of the provisions in Section 7
above or Sections 8 or 9 below cannot be remedied solely by the
recovery of damages, and agrees that in the event of any breach or
threatened breach the Company may pursue both injunctive relief,
without posting any bond or other security, and any and all other
remedies available at law and in equity for any such breach or
threatened breach, including the recovery of damages. If any
provision of this Sections 7, 8 or 9 is found to be unreasonably
broad, it shall nevertheless be enforceable to the extent reasonably
necessary to protect the Company.
8. Ownership of Ideas and Confidentiality.
(a) Executive shall promptly disclose to the Company
all ideas, discoveries, designs, improvements, innovations and
inventions by Executive while functioning as an employee of the
Company pursuant to this Agreement (collectively referred to herein
as "inventions"), whether patentable or not, either relating to the
existing or contemplated business, products, plans, processes, or
procedures of the Company, or suggested by or resulting from
Executive's work at the Company, or resulting wholly or in part from
the use of the Company's time, material, facilities or ideas, which
Executive made or conceived or may make or conceive, whether or not
during working hours, alone or with others, at any time during the
term of this Agreement and Executive agrees that all such inventions
shall be works made for hire and shall be the exclusive property of
the Company.
(b) Executive hereby assigns to the Company all his
right, title and interest in and to all inventions resulting from
Executive's services hereunder, and all patents which may be obtained
on them, in this and all foreign countries. At the Company's
expense, but without charge to it, Executive agrees to execute,
acknowledge and deliver to the Company any specific assignments to
any such inventions or other relevant documents and take any such
further action as may be considered necessary by the Company at any
time to obtain or defend letters patent in any and all countries or
to obtain documents relating to registration, ownership or transfer
of copyrights, or to vest title in such inventions in the Company or
its assigns or to obtain for the Company any other legal projection
for such inventions.
(c) Executive shall not either during the term of
this Agreement or at any time thereafter disclose or authorize anyone
else to disclose or use or make known for him or another's benefit
any confidential information, knowledge, or data of the Company,
whether or not patentable, in any way acquired during employment by
the Company. Confidential information, knowledge or data of the
Company shall, for purposes of this Agreement, include but not be
limited to matters not readily available to the public which are:
(i) of a technical nature such as but not limited to
methods, know-how, formulae, compositions, drawings,
blueprints, compounds, processes, discoveries, machines,
inventions, computer programs, and similar items;
(ii) of a business nature such as but not limited to
information about sales or lists of customers, prices,
costs, purchasing, profits, markets, product strengths and
weaknesses; or
(iii) pertaining to future developments such as but
not limited to research and development, or future
marketing or merchandising plans or ideas.
Immediately upon termination or expiration of this Agreement,
Executive shall deliver to the Company all copies of data,
information and knowledge, including without limitation all
documents, correspondence, specifications, blueprints, notebooks,
reports, sketches, formulae, computer programs, sales and other
manuals, price lists, samples, and all other materials and copies
thereof relating in any way to the business of the Company in any way
obtained by Executive during the period of his employment with the
Company.
9. Miscellaneous.
(a) Notices. Any and all notices provided for herein
shall be in writing and shall be physically delivered or mailed by
registered mail to the other party at the address set forth above or
such other address as either party may furnish in writing to the
other.
(b) Validity. If any part of this Agreement shall be
found to be invalid or unenforceable, that part shall be deemed to be
severable and the remaining portions of this Agreement shall remain
in full force and effect. The parties further agree that a court of
competent jurisdiction shall have authority to reduce the area or
duration of the offending provision to the extent necessary to cause
such provision, in its amended form, to be valid and enforceable.
(c) Transferability. The rights and benefits of the
Company under this Agreement shall be transferable and all covenants
and agreements hereunder shall inure to the benefit of and be
enforceable by or against its successors or assigns.
(d) Applicable Law; Jurisdiction. This Agreement and the
rights and obligations of the parties hereunder shall be construed
and interpreted in accordance with the laws of the State of New York
without reference to its conflict of laws rules. Both the Company
and the Executive hereby irrevocably consent to the nonexclusive
jurisdiction and venue of the courts of the Commonwealth of
Pennsylvania and of any federal court located in such state in
connection with any action or proceeding arising out of or relating
to this Agreement.
(e) Survival. The Executive's obligations under
Sections 7, 8 and 9 hereof shall survive the expiration or
termination of this Agreement, as provided above.
(f) Effect of Waiver. The waiver by either party of a
breach of any provision of this Agreement shall not operate as or be
construed as a waiver of any subsequent or other breach thereof.
(g) Entire Agreement; Amendments. This Agreement
constitutes the entire agreement of the parties hereto with respect
to the matters contained herein, and supersedes all prior agreements,
arrangements or understandings of the parties, whether written or
oral, with respect thereto. No modification, amendment or waiver of
any of the provisions of this Agreement shall be effective unless in
writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CONTROL CHIEF HOLDINGS, INC.
By:/s/ Christopher G. Hauser
Christopher G. Hauser
Title: Secretary
EXECUTIVE
/s/ Douglas S. Bell
Douglas S. Bell
SUBSIDIARIES OF THE REGISTRANT Exhibit 21-1
Control Chief Corporation
100% - Owned by Control Chief Holdings, Inc.
Incorporated in the State of Pennsylvania
CONSENT OF INDEPENDENT AUDITORS Exhibit 23-1
We consent to the incorporation by
reference in the Registration Statement on Form S-8 dated April 25,
1995 pertaining to the Control Chief Holdings, Inc. Stock Option Plan
of 1994, of our report dated August 3, 1999, with respect to the
consolidated financial statements included in this Form 10-KSB of
Control Chief Holdings, Inc.
/s/ Diefenbach Delio Kearney & DeDionisio
Certified Public Accountants
Erie, Pennsylvania
August 3, 1999
<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-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 684,912
<SECURITIES> 0
<RECEIVABLES> 1,024,967
<ALLOWANCES> 40,000
<INVENTORY> 1,581,353
<CURRENT-ASSETS> 3,404,184
<PP&E> 2,112,695
<DEPRECIATION> 1,322,079
<TOTAL-ASSETS> 4,202,641
<CURRENT-LIABILITIES> 1,067,300
<BONDS> 0
0
0
<COMMON> 507,048
<OTHER-SE> 2,569,262
<TOTAL-LIABILITY-AND-EQUITY> 4,202,641
<SALES> 7,733,125
<TOTAL-REVENUES> 7,766,364
<CGS> 3,886,369
<TOTAL-COSTS> 3,886,369
<OTHER-EXPENSES> 2,939,542
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,735
<INCOME-PRETAX> 906,718
<INCOME-TAX> 360,019
<INCOME-CONTINUING> 546,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546,699
<EPS-BASIC> .55
<EPS-DILUTED> .54
</TABLE>
