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, 1999
[ ] 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 12, 1999 was 999,333 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
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Control Chief Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, June 30,
1999 1999
----------- ----------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 605,135 $ 684,912
Accounts receivables, less allowance for
doubtful accounts of $83,275 and $40,000 1,144,720 984,967
Inventories 1,572,407 1,581,353
Other current assets 87,903 152,952
---------- ----------
Total current assets 3,410,165 3,404,184
---------- ----------
Equipment and leasehold improvements, net 827,761 790,616
---------- ----------
Other assets 7,841 7,841
---------- ----------
Total assets $4,245,767 $4,202,641
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 134,982 $ 173,018
Accounts payable trade 390,725 421,783
Accrued items 452,307 472,499
---------- ----------
Total current liabilities 978,014 1,067,300
---------- ----------
Long-term debt, less current maturities - 10,319
---------- ----------
Deferred income taxes 51,912 48,712
---------- ----------
Stockholders' Equity
Common stock, $.50 par value, authorized
5,000,000 shares, issued 1,014,095 shares,
of which 14,762 and 14,481 shares,
respectively, were held in the treasury 507,048 507,048
Capital in excess of par value 1,120,586 1,120,586
Retained earnings 1,651,525 1,510,589
---------- ----------
3,279,159 3,138,223
Less treasury shares at cost 63,318 61,913
---------- ----------
Total stockholders' equity 3,215,841 3,076,310
---------- ----------
$4,245,767 $4,202,641
========== ==========
See accompanying notes to financial statements.
Control Chief Holdings, Inc. and Subsidiary
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
Three Months Ended
September 30,
1999 1998
---------- ----------
Net sales $1,978,407 $2,381,527
Cost of products sold 948,734 1,391,603
---------- ----------
Gross margin 1,029,673 989,924
---------- ----------
Operating expenses
Selling expenses 314,370 387,415
General and administrative 326,771 212,780
Research and development 73,773 74,266
---------- ----------
Total operating expenses 714,914 674,461
---------- ----------
Earnings from operations 314,759 315,463
Other income (expense)
Interest expense (3,201) (9,870)
Other income 15,241 400
---------- ---------
Earnings before income taxes 326,799 305,993
Provision for income taxes 136,300 125,800
---------- ----------
Net earnings 190,499 180,193
Retained earnings, beginning of period 1,510,589 1,013,877
Cash dividends paid (49,563) (49,987)
---------- ----------
Retained earnings, end of period $1,651,525 $1,144,083
========== ==========
Earnings per common share
Basic $ .19 $ .18
Diluted $ .19 $ .18
Dividends paid per common share $ .05 $ .05
Weighted average number of common
shares outstanding
Basic 999,495 1,001,552
Diluted 1,011,995 1,011,302
See accompanying notes to financial statements.
Control Chief Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
1999 1998
--------- ---------
Cash flows from operating activities
Net earnings $ 190,499 $ 180,193
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 31,132 21,803
Provision for bad debts 36,000 -
Deferred income taxes 3,200 (300)
Change in assets and liabilities:
(Increase) decrease in receivables (195,753) 69,671
Decrease in inventories 8,946 95,175
Decrease in other current assets 65,049 123,512
Decrease in accounts payable and accruals (51,250) (127,787)
--------- ---------
Net cash provided by operating activities 87,823 362,267
--------- ---------
Cash flows from investing activities
Purchase of equipment
and leasehold improvements (68,278) (22,525)
--------- ---------
Net cash used in investing activities (68,278) (22,525)
--------- ---------
Cash flows from financing activities
Net repayments of short-term debt - (150,000)
Net repayments of long-term debt (48,355) (41,217)
Purchase of treasury stock (1,405) (24,168)
Dividends paid (49,563) (49,987)
--------- ---------
Net cash used in financing activities (99,322) (265,372)
--------- ---------
Net increase (decrease) in cash (79,777) 74,370
Cash at beginning of period 684,912 22,067
--------- ---------
Cash at end of period $ 605,135 $ 96,437
========= =========
Cash paid during the period for:
Interest $ 3,201 $ 9,870
Income taxes 21,825 60,682
See accompanying notes to financial statements.
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, 1999.
2. 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.
3. Cash Dividends Paid
The Board of Directors of the Company approved a cash dividend
totaling $49,563 ($.05 per share) payable on September 24, 1999 to
holders of record at the close of business on September 6, 1999.
4. 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. To date, the Company has incurred
approximately $1,200 in professional fees which have been charged to
operations as an expense.
<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, 1999.
Forward-Looking Information
This Form 10-QSB 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-QSB 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;
environmental investigation, remediation and monitoring costs relating
to the Company's former facility in Lewis Run, PA; 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.
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. All models of products
are microprocessor-based systems. These devices are utilized 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. Products are also sold through direct
efforts, distributors, private labeling agreements and licensees.
<PAGE>
Results of Operations
The following table sets forth certain financial data, as a percentage
of net sales, for the three months ended September 30, 1999 and 1998:
Three Months Ended
September 30,
1999 1998
------- -------
Net sales 100.0% 100.0%
Cost of products sold 48.0% 58.5%
------- -------
Gross margin 52.0% 41.5%
------- -------
Operating expenses
Selling expenses 15.9% 16.3%
General and administrative 16.5% 8.9%
Research and development 3.7% 3.1%
------- -------
Total operating expenses 36.1% 28.3%
------- -------
Earnings from operations 15.9% 13.2%
Other income (expense)
Interest expense (0.1%) (0.4%)
Other income 0.7% 0.0%
------- -------
Earnings before income taxes 16.5% 12.8%
Provision for income taxes 6.9% 5.3%
------- -------
Net earnings 9.6% 7.5%
======== ========
NET SALES. Net sales decreased to $1,978,407 for the three months ended
September 1999 from $2,381,527 for the three months ended September
1998, a decrease of 16.9%.
COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold decreased
by $73,045 for the three months ended September 1999 as compared to the
same period last year. This overall decrease in the cost of products
sold is consistent with the overall decrease in net sales for the
comparable periods. Gross margin increased for the three months ended
September 1999 to $1,029,673 from $989,924 for the three months ended
September 1998. Gross margin as a percentage of net sales increased by
10.5% from 41.5% in 1998 to 52.0% in 1999. The increase in gross margin
percentage is attributable to the product mix, pricing changes and cost
savings.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and
administrative costs increased by $40,946 or 6.8% for the three months
ended September 1999 as compared to the same period last year. These
costs increased as a percentage of net sales from 25.2% in 1998 to
32.4% in 1999. The increase in general and administrative costs is
primarily attributable to the Company establishing a reserve to date of
approximately $90,000 for potential environmental expenses.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
decreased by $493 or 0.7% for the three months ended September 1999 as
compared to the same period last year. The amount expended under
research and development 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.
OTHER INCOME (EXPENSE). Other income increased by $14,841 for the three
months ended September 30, 1999 as compared to the same period last
year. The increase primarily relates to the Company's interest
earnings from its cash management account and earnings from finance
charges on past due customer accounts. Interest expense decreased by
$6,669 or 67.5% for the three months ended September 1999 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
$326,799 for the three months ended September 1999 as compared to
$305,993 for the three months ended September 1998, reflecting and
increase of $20,806 for the three months ended September 1999 over
1998.
INCOME TAXES. The Company's effective income tax rate was 41.7% in 1999
and 41.1% in 1998.
NET EARNINGS. Overall earnings, after income taxes, were $190,499 for
the three months ended September 1999 as compared to earnings, after
income taxes, of $180,193 for the three-month period ended September
1998, reflecting an increase of 5.7%
EARNINGS PER COMMON SHARE. The Company's basic and diluted earnings per
common share was $.19 for the three months ended September 1999 as
compared to $.18 per common share for the three months ended September
1998.
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 September 30, 1999, no amount was
outstanding under the line of credit.
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 September
30, 1999, a total of $116,116 was outstanding under this term loan.
The Company also has a term loan with Chrysler Financial. The balance
outstanding at September 30, 1999 was $8,863.
The Company's overall liquidity improved during the period. At
September 30, 1999, the Company had net working capital of $2,432,151,
compared to $2,336,884 at June 30, 1999. The Company's current ratio
also improved during the first three months of fiscal 2000, with
current assets at 3.48 times current liabilities at September 30, 1999,
compared to 3.19 at June 30, 1999.
During the three-month period ended September 1999, the Company's cash
expenditures for equipment totaled $68,278. In addition, during the
first three months of fiscal 2000, the Company repaid $48,355 of bank
indebtedness, paid cash dividends totaling $49,563, and purchased
common stock for its treasury in the amount of $1,405.
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 2000,
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 1999, the Company's net cash
provided by operations was $87,823 as compared to net cash provided by
operations of $362,267 for the three months ended September 1998.
Approximately $200,000 of the overall decrease in net cash provided by
operations for the current three months was attributable to an increase
in accounts receivable. The additional decrease of approximately
$75,000 for the three months ended September 30, 1999 as compared to
the same period last year was mainly attributable to an increase in the
provision for bad debts and an overall decrease in inventories, other
current assets and accounts payable and accruals.
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. To date, the Company has incurred
approximately $1,200 in professional fees which have been charged to
operations as an expense.
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 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
has not exceeded $20,000.
The assessment phase with respect to non-informational technology
systems is complete, including final assessment plans and appropriate
remediation and testing. 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 concluded its final assessment of embedded chips
in its manufacturing equipment and of other non-informational
technology systems and 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 $5,000.
The group has also completed its 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. These responses have indicated that these third parties were
either Year 2000 compliant or in the process of completing their
compliance plans and testing. In addition, alternative suppliers have
been 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.
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.
<PAGE>
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 2000 Annual Meeting
of Stockholders, any proposal by a stockholder of the Company intended
to be presented at the 2000 Annual Meeting of Stockholders must be
received by the Company on or before June 19, 2000 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 2000 Annual Meeting of Shareholders is
received by the Company after June 19, 2000, 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 2000 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 12, 1999 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-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 605,135
<SECURITIES> 0
<RECEIVABLES> 1,227,995
<ALLOWANCES> 83,275
<INVENTORY> 1,572,407
<CURRENT-ASSETS> 3,410,165
<PP&E> 2,181,202
<DEPRECIATION> 1,353,441
<TOTAL-ASSETS> 4,245,767
<CURRENT-LIABILITIES> 978,014
<BONDS> 0
0
0
<COMMON> 507,048
<OTHER-SE> 2,708,793
<TOTAL-LIABILITY-AND-EQUITY> 4,245,767
<SALES> 1,978,407
<TOTAL-REVENUES> 1,993,648
<CGS> 948,734
<TOTAL-COSTS> 948,734
<OTHER-EXPENSES> 714,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,201
<INCOME-PRETAX> 326,799
<INCOME-TAX> 136,300
<INCOME-CONTINUING> 190,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190,499
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
