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, 2000
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, 2000 were
$7,381,892. At August 25, 2000, the aggregate market value of voting
common stock held by non-affiliates of the registrant based on the
average bid and asked price of $4.00 was $2,257,896. 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 25, 2000, the issuer had outstanding 992,336 shares of Common
Stock, $.50 par value.
Documents incorporated by reference: None
CONTROL CHIEF HOLDINGS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
For the Year Ended June 30, 2000
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;
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.
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, 2000 and 1999, 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, 2000
and 1999.
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 $197,001 and $284,727 for
the fiscal years ended June 30, 2000 and 1999, 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 related 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","
"TeleChief"," "TeleMini"," "Train Chief"," "Scout" and
"Controlchief.com" 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 provide 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, the Federal Communications
Commission (FCC) must approve these products. Currently, the FCC has
approved these products offered for sale.
Research and Development
Company-sponsored research and development expenditures for Control
Chief Corporation for the fiscal years ending June 30, 2000 and 1999
were $197,001 and $284,727, respectively.
Employees
As of August 25, 2000, 52 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 Engineering
Sales and Corporate
Offices
(1) None of the above properties are encumbered in connection with the
collateralization of the Company's indebtedness.
(2) The Company's office and manufacturing space are adequate for its
existing requirements and its projected business needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders
during the fourth quarter of the fiscal year ended June 30, 2000.
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
06/30/00 4.75 4.00
03/31/00 5.56 3.97
12/31/99 4.50 4.06
09/30/99 5.50 4.75
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
As of August 25, 2000, the Company's records indicated that there were
approximately 900 registered holders of the 992,336 shares of common
stock that were 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 24, 1999 $.050 per share
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 and 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, 2000 1999 1998 1997 1996
Net sales $7,382 $7,733 $8,688 $7,207 $6,832
Earnings (loss) from
continuing operations 394 547 614 386 206
Working capital 2,677 2,337 2,217 1,915 1,349
Total assets 4,325 4,203 4,246 3,814 4,036
Long-term debt 5 10 260 457 385
Capital expenditures 167 247 230 342 68
Current ratio 4.14 3.19 2.64 2.57 1.75
Per Common Share
Years ended June 30, 2000 1999 1998 1997 1996
Basic earnings (loss) from:
Continuing operations $.40 $.55 $.61 $.38 $.20
Discontinued operations - - - (.09) (.42)
---- ---- ---- ----- -----
Net earnings (loss) $.40 $.55 $.61 $.29 ($.22)
==== ==== ==== ==== =====
Diluted earnings (loss) from:
Continuing operations $.39 $.54 $.60 $.38 $.20
Discontinued operations - - - (.09) (.42)
---- ---- ---- ----- -----
Net earnings (loss) $.39 $.54 $.60 $.29 ($.22)
==== ==== ==== ===== =====
Dividends paid per share $.050 $.050 $.080 $ - $.056
===== ===== ===== ===== =====
Results of Operations
The following table sets forth certain financial data, as a percentage
of net sales, for the years ended June 30, 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of products sold 48.4% 50.2% 54.3%
---- ---- ----
Gross margin 51.6% 49.8% 45.7%
---- ---- ----
Operating expenses
Selling expenses 17.5% 20.4% 19.7%
General and administrative 16.9% 14.0% 12.9%
Environmental remediation-related expenses 5.5% - -
Research and development 2.7% 3.6% 2.3%
---- ---- ----
Total operating expenses 42.6% 38.0% 34.9%
---- ---- ----
Earnings from operations 9.0% 11.8% 10.8%
Other income (expense)
Interest expense (0.1%) (0.5%) (0.7%)
Gain on sale of land and building - - 1.3%
Other income 0.2% 0.5% 0.1%
---- ---- ----
Earnings before income taxes 9.1% 11.8% 11.5%
Provision for income taxes 3.7% 4.7% 4.4%
---- ---- ----
Net earnings 5.4% 7.1% 7.1%
====== ====== ======
Year ended June 30, 2000 compared to the year ended June 30, 1999
NET SALES. Net sales for the fiscal year ended June 30, 2000,
decreased by $351,233 or 4.5% as compared to the year ended June 30,
1999. This decrease relates to a decrease during the year in the sales
of new products. 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 $310,624 or 8% as compared to the year ended June 30,
1999. This decrease in cost of products sold compares with the
corresponding decrease in net sales for the year, and the Company's
continued focus on cost control, improved pricing and shifts toward
premium products. Gross margin was $3,806,147 or 51.6% of sales in 2000
compared to $3,846,756 or 49.8% of sales in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling expenses
decreased $278,507 or 17.7% in 2000 compared to 1999. The decrease in
selling expenses corresponds with the decrease in net sales for the
year and cost reduction measures during the fiscal year. General and
administrative costs increased by $166,017 or 15.3% in 2000 compared to
1999.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
decreased by $87,726 or 30.8%. 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.
ENVIRONMENTAL REMEDIATION-RELATED EXPENSES. Environmental remediation-
related expenses increased by $404,069. For the year ended June 30,
2000, the Company incurred approximately $59,065 in professional fees
and accrued $345,000 in estimated expenses relating to environmental
remediation matters. The Company did not incur any environmental
remediation-related expenses during the year ended June 30, 1999. See
"Environmental Matters" below for a discussion of trends and
uncertainties relating to these environmental remediation-related
expenses.
OTHER INCOME AND EXPENSE. Interest expense decreased by $23,175 or
68.7%. 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 other income, net of other expense decreased by $15,327
during the year.
INCOME TAXES. The Company's effective income tax rate was 41.1% in
2000 and 39.7% in 1999.
NET EARNINGS. Overall net earnings were $394,488 for 2000 as compared
to $546,699 for 1999. Expressed as a percentage of net sales, net
earnings were 5.4% for 2000 and 7.1% for 1999.
EARNINGS PER COMMON SHARE. Basic earnings per common share was $.40
per share in 2000 as compared to $.55 per share in 1999. Diluted
earnings per common share was $.39 per share in 2000 as compared to
$.54 per share in 1999.
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.
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, 2000.
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, 2000 and 1999, no amount
was outstanding under the line of credit.
In addition to the line of credit, the Company had a term loan, dated
January 15, 1997, in the original amount of $650,000. The term loan
bears interest at 8.47% and was being repaid in forty-eight (48)
monthly principal and interest installments of $16,050. However, the
term loan was paid in full in February 2000. At June 30, 1999, $161,228
was outstanding under this term loan.
The Company's working capital continued to increase in fiscal 2000. At
June 30, 2000, the Company's net working capital was $2,677,243 as
compared to net working capital of $2,336,884 at June 30, 1999 and net
working capital of $2,217,450 at June 30, 1998. The Company's current
ratio improved in fiscal year 2000. At June 30, 2000, the Company's
current ratio was 4.14 as compared to 3.19 at June 30, 1999, and 2.64
at June 30, 1998.
The Company's cash expenditures for property, plant and equipment
amounted to $167,000 in fiscal year 2000 and $247,000 in fiscal year
1999. For fiscal 2000, these capital expenditures primarily related to
leasehold improvements ($37,000), machinery and equipment ($75,000),
transportation equipment ($17,000) and computer equipment and furniture
($38,000). For fiscal 1999, these capital expenditures primarily
related to machinery and equipment ($80,000), transportation equipment
($36,000) and computer equipment and furniture ($131,000). The Company
currently does not have a commitment for any further material capital
expenditures and believes its current working capital is sufficient for
its operations in the foreseeable future.
Environmental Matters
The Company formerly owned and operated a manufacturing facility in the
Borough of Lewis Run, Pennsylvania. The facility and surrounding
property were sold in 1997. Subsequent to the sale, the purchaser of
the property conducted certain environmental testing, and detected
contamination of the soil and groundwater on the property. In addition,
the Pennsylvania Department of Environmental Protection ("DEP") sampled
the nearby municipal well, used as a secondary source of water supply
for the Borough of Lewis Run, and detected contamination in the well.
It is also important to note that several remediations of adjacent,
upgradient properties have recently been conducted by current and
former owners of those properties to address contamination at those
locations.
Following extensive negotiations, the Company entered into a Consent
Order and Agreement ("Agreement") with the DEP on February 1, 2000. The
Agreement, entered into pursuant to Pennsylvania's Land Recycling and
Environmental Remediation Standards Act, the Clean Streams Law, and the
Safe Drinking Water Act, requires the Company to conduct an
investigation of the contamination on and adjacent to its former
property, and to evaluate remedial alternatives to address the
contamination found. The Agreement also requires that the Company
identify and evaluate both interim and permanent options to replace or
treat the water from the municipal well. Should the DEP determine that
a supplemental water supply is needed, as in the case of a drought, for
instance, the Company has agreed that it will, upon notification by the
DEP, use its best efforts to implement the interim option selected. The
Company did not commit in the Agreement to remediate contamination
found on the property or to implement any permanent solution to replace
the municipal well. One of the purposes of the investigation, in fact,
is to try and determine if the source of some or all of the
contamination is one or more of the upgradient properties.
The Company's consultant recently submitted to the DEP a revised Work
Plan for the investigation, and expects approval shortly. The soil,
groundwater, and surface water investigation is projected to be
conducted this fall, with the report to be presented to the DEP early
next year. For the year ended June 30, 2000, the Company incurred
approximately $59,069 in professional fees relating to this matter,
which has been charged to operations as an expense. The Company has
also accrued $345,000 as its best estimate of its obligation of
conducting the investigation on and adjacent to its former property,
including the possible cost of remedial alternatives to address
contamination found, and included this amount in "other accrued
liabilities" on the consolidated balance sheet as of June 30, 2000.
However, it is reasonably possible that the Company's recorded accrual
estimate may change and the Company could incur additional obligations
or share such obligations with other potential responsible parties in
the future. Until the investigation is completed, it is not possible to
assess the Company's overall potential liabilities, if any, for cleanup
or the likelihood of an unfavorable outcome.
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 adopted this accounting standard as required in fiscal 2000,
however the adoption of this Statement did not have any impact on the
Company's financial position or results of operations.
Impact of the Year 2000 on the Company's Information Technology Systems
As described in their Form 10-KSB for the year ended June 30, 1999, the
Company developed plans to address the impact on its computer systems
in the Year 2000. Since entering the year 2000, the Company has not
experienced any major disruptions to its business nor is it aware of
any significant Year 2000-related disruptions impacting its customers
and suppliers. Furthermore, the Company did not experience any material
impact on inventories at calendar year end. The Company has continued
to monitor its critical systems since entering the year 2000 and there
has been no significant impact due to Year 2000 exposures from the
Company's internal systems as well as from the activities of their
suppliers and customers. The Company estimates that the total cost of
implementing its compliance plans has not exceeded $30,000 and is
immaterial with respect to the Company's overall operating
expenditures.
ITEM 7. FINANCIAL STATEMENTS
Contents of Financial Statements
Report of Independent Certified Public Accountants
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
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, 2000 and 1999, and
the related consolidated statements of operations, stockholders'
equity, 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, 2000
and 1999, 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
July 21, 2000
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of June 30,
2000 1999
----- -----
ASSETS
Current assets
Cash and cash equivalents $670,481 $684,912
Marketable securities, at fair value 244,255 --
Accounts receivable, less allowances
of $50,000 in 2000 and $40,000 in 1999 862,107 984,967
Inventories 1,482,127 1,581,353
Other current assets 270,055 152,952
------ ------
Total current assets 3,529,025 3,404,184
------ ------
Equipment and leasehold improvements, net 785,347 790,616
Other assets 10,879 7,841
------ ------
Total assets $4,325,251 $4,202,641
========= =========
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of June 30,
2000 1999
----- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 6,061 $173,018
Accounts payable 161,093 421,783
Other accrued liabilities 684,628 472,499
------ ------
Total current liabilities 851,782 1,067,300
------ ------
Long-term debt, less current maturities 4,662 10,319
------ ------
Deferred income taxes 78,065 48,712
------ ------
Stockholders' equity
Common stock, $.50 par value,
authorized 5,000,000 shares, issued
issued 1,015,220 in 2000 and
1,014,095 shares in 1999 507,610 507,048
Capital in excess of par value 1,123,279 1,120,586
Retained earnings 1,855,075 1,510,589
Treasury stock, 21,885 shares in 2000
and 14,481 shares in 1999, at cost (89,793) (61,913)
Accumulated other comprehensive income
Unrealized gain (loss) on
available-for-sale securities (5,429) --
Total stockholders' equity 3,390,742 3,076,310
------- ------
Total liabilities and stockholders' equity $4,325,251 $4,202,641
========= ==========
The accompanying notes are an integral part of these statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
2000 1999
------ ------
Net sales $7,381,892 $7,733,125
Cost of products sold 3,575,745 3,886,369
------ ------
Gross margin 3,806,147 3,846,756
------ ------
Operating expenses
Selling expenses 1,294,020 1,572,527
General and administrative 1,248,305 1,082,288
Research and development 197,001 284,727
Environmental remediation-related expenses 404,069 --
------ ------
Total operating expenses 3,143,395 2,939,542
------ ------
Earnings from operations 662,752 907,214
Other income (expense)
Interest expense (10,560) (33,735)
Other income and expense, net 17,912 33,239
------ ------
Earnings before income taxes 670,104 906,718
Provision for income taxes 275,616 360,019
------ ------
Net earnings $ 394,488 $ 546,699
========= =========
Earnings per common share
Basic $.40 $.55
Diluted $.39 $.54
Dividends paid per common share $.05 $.05
The accompanying notes are an integral part of these statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended June 30,
Accumulated
Capital in Other Total
Common excess of Retained Treasury Comprehensive Stockholders'
Stock Par Value Earnings Stock Income Equity
______ _________ ________ _______ ____________ ____________
Balance,
June 30,
1998 $507,048 $1,120,586 $1,013,877 ($37,151) $ - $2,604,360
Net earnings - - 546,699 - - 546,699
Dividends paid - - (49,987) - - (49,987)
Purchase of
5,218 shares
of common
stock for
the treasury - - - (24,762) - (24,762)
______ ________ _________ ______ ______ _______
Balance,
June 30,
1999 507,048 1,120,586 1,510,589 (61,913) - 3,076,310
Net earnings - - 394,488 - - 394,488
Unrealized gain
(loss) on
available for
sale securities,
net of deferred
tax benefit of
$3,710 - - - - (5,429) (5,429)
-----
Comprehensive
income - - - - - 389,059
-----
Dividends paid - - (50,002) - - (50,002)
Issuance of
1,125 shares of
common stock 562 2,693 - - - 3,255
Purchase of
7,404 shares
of common stock
for the treasury - - - (27,880) - (27,880)
Balance_______ _________ _________ ________ _______ _________
June 30,
2000 $507,610 $1,123,279 $1,855,075 ($89,793) ($5,429) $3,390,742
======== ========= ========== ======== ======== =========
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,
2000 1999
------- ------
Cash flows from operating activities
Net earnings $ 394,488 $ 546,699
Adjustments to reconcile net earnings to
Net cash provided by operating activities:
Depreciation 172,045 125,448
Provision for bad debts 90,430 47,346
Deferred income taxes (132,874) 24,589
Loss (gain) on sale of marketable securities 46,606 --
Change in operating assets and liabilities:
Accounts receivable 32,430 591,760
Inventories 99,226 57,655
Prepaid items 48,834 125,912
Accounts payable and accrued liabilities (48,561) (137,066)
------ -------
Net cash provided by operating activities 702,624 1,382,343
------ ------
Cash flows from investing activities
Purchase of marketable securities (453,394) --
Sales of marketable securities 153,394 --
Purchase of equipment and
leasehold improvements (166,776) (247,246)
Change in other assets (3,038) 232
------ ------
Net cash used in investing activities (469,814) (247,014)
------ ------
Cash flows from financing activities
Net borrowing (repayments) of short-term debt -- (150,000)
Long-term borrowing -- 18,056
Repayments of long-term debt (172,614) (265,791)
Proceeds from issuance of common stock 3,255 --
Purchase of treasury stock (27,880) (24,762)
Dividends paid (50,002) (49,987)
------ ------
Net cash used in financing activities (247,241) (472,484)
------ ------
Net increase (decrease) in cash (14,431) 662,845
Cash and cash equivalents, beginning of year 684,912 22,067
------ ------
Cash and cash equivalents, end of year $ 670,481 $ 684,912
========= =========
Cash paid during the year for:
Interest $ 11,207 $ 35,417
Income taxes 507,972 147,597
The accompanying notes are an integral part of these statements.
CONTROL CHIEF HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
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, 2000 and 1999, the Company's operations had export sales
totaling $194,901 and $332,960, 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 inter-company accounts are eliminated upon
consolidation. Certain prior year amounts have been reclassified to
conform to 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. The Company does
not enter into long-term contracts. 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 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, marketable securities, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. Summary of Significant Accounting Policies - Continued
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, 2000 and 1999:
2000 1999
------ ------
Work in process $ 122,141 $ 160,725
Raw materials and subassemblies 1,359,986 1,420,628
------ ------
$1,482,127 $1,581,353
========== =========
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 $117,809 in
2000 and $95,539 in 1999.
Research and Development
Research and development costs are expensed as incurred. Research and
development expense amounted to $197,001 in 2000, and $284,727 in 1999.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. Summary of Significant Accounting Policies - Continued
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 $ 394,488 995,464 $.40
Fiscal year 1999-Diluted $ 394,488 1,005,800 $.39
Fiscal year 1999-Basic $ 546,699 1,000,185 $.55
Fiscal year 1999-Diluted $ 546,699 1,011,759 $.54
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 from 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. Summary of Significant Accounting Policies - Continued
Comprehensive Income
Effective for fiscal years beginning after December 15, 1997, Statement
of Financial Accounting Standards No. 130 establishes new rules for the
reporting and display of comprehensive income and its components.
Unrealized gains and losses on the Company's investments in equity
securities are representable of a component of comprehensive income.
Accordingly, the Company has adopted this new reporting standard.
Cash Dividends
During the fiscal year ended June 30, 2000, the Board of Directors of
the Company approved a cash dividend totaling $50,002 ($0.05 per share)
payable on September 24, 1999 to holders of record at the close of
business on September 6, 1999. During 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.
Environmental Remediation Costs
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably
estimable. Accruals for estimates losses from environmental remediation
obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their
receipt is deemed probable.
Change in Fiscal Year To December 31, Effective June 30, 2000
On June 29, 2000, the Executive Committee of the Board of Directors of
the Company changed its fiscal year end from June 30 to December 31,
effective June 30, 2000. Accordingly, the Company will report a
transition period from July 1, 2000 through December 31, 2000. The
Company elected to change its fiscal year in order to more closely
corresponds to its current business cycle.
New 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"). SFAS No. 133
provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. In requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. For a derivative not designated as a hedging instrument,
changes in the fair value of the derivative are recognized in earnings
in the period of change. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000, with earlier application permitted. The
Company does not expect the adoption of SFAS No. 133 to have a material
impact on the Company's financial position or results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. Marketable Securities
The Company classifies its marketable securities as available-for-sale
securities. Available-for-sale securities are measured at fair value,
with net unrealized gains and losses reported in equity. At June 30,
2000, the net unrealized loss, net of a deferred income tax benefit of
$3,710, was $5,429. During the year ended June 30, 2000 the Company
sold securities having a cost basis of $200,000 for $153,394, resulting
in a realized capital loss of $46,606.
3. Other Current Assets
Other current assets at June 30, consist of the following:
2000 1999
----- -----
Prepaid income taxes $ -- $ 54,100
Other prepaid items 56,325 51,059
Deferred income taxes 213,730 47,793
----- -----
$270,055 $152,952
======= =======
4. Equipment and Leasehold Improvements
Equipment and leaseholds at June 30, consist of the following:
2000 1999
------ -------
Machinery and equipment $1,802,440 $1,917,208
Leasehold improvements 232,877 195,487
------ ------
2,035,317 2,112,695
Less accumulated depreciation 1,249,970 1,322,079
------ ------
$ 785,347 $ 790,616
========= =========
5. Other Assets
Other assets at June 30, consist of the following:
2000 1999
----- -----
Cash surrender value of officers'
life insurance, less policy loans of $80,923 $10,879 $ 7,841
======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. Short-Term Debt
The Company has $750,000 borrowing available under a line of credit
agreement with a bank. Borrowings under the line bear interest at the
prime rate (9.50% and 7.75% at June 30, 2000 and 1999, respectively),
and are secured by substantially all of the assets of the Company.
There were no borrowings under the line of credit during the year ended
June 30, 2000. During the year ended June 30, 1999, the line of credit
reached a month-end maximum of $150,000. The weighted average borrowing
amounted to $4,986 in 1999, with an average interest rate of 8.62%
calculated by dividing the interest expense during the year for such
borrowing by the weighted average short-term borrowing. No amounts were
outstanding under the line of credit at June 30, 2000 and 1999. The
line of credit agreement is subject to an annual review in November
each year.
7. Other Accrued Liabilities
Other accrued liabilities at June 30, consist of the following:
2000 1999
----- -----
Accrued income taxes $ 80,024 $ 89,856
Accrued commissions 77,976 83,009
Accrued salaries, wages, and withholdings 176,350 294,895
Accrued environmental remediation costs 345,000 --
Other accrued items 5,278 4,739
----- -----
$684,628 $472,499
======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. Long-Term Debt
Long-term debt at June 30, consists of the following:
2000 1999
----- -----
8.47% term loan, amortized over four years,
due May 2000 $ -- $161,228
2.90% term loan, collateralized by vehicles,
amortized over three years, due April 2002,
payable in monthly installments of $524,
including interest 10,723 16,610
9.50% term loan, amortized over three years,
due April 2000 -- 5,499
----- -----
Total 10,723 183,337
Less current maturities 6,061 173,018
----- -----
Long-term debt $ 4,662 $ 10,319
======== ========
The amount of long-term debt that will become due during the years
ending June 30, 2001 and 2002 is $6,061 and $4,662, respectively.
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 years under
these operating leases are as follows:
Year ended June 30,
-------------------
2001 $ 90,930
2002 86,476
2003 3,333
Total rent expense under operating leases amounted to $92,862 in 2000
and $118,030 in 1999.
10. 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 $18,041 in 2000 and $19,066 in 1999. There were no
additional discretionary contributions to the plan for 2000 and 1999.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. Related Party Transactions
The Company leases its corporate headquarter facility located in
Bradford, Pennsylvania from a 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 2000 and 1999. 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 cleaning services
(effective for 2000) from enterprises that are related to the Company
because of common Directors or Officers of the Company. The total
service provided for the legal services was $4,310 in 2000 and $1,465
in 1999. The total service provided for the cleaning services was
$25,648 in 2000.
12. Environmental Matters
The Company formerly owned and operated a manufacturing facility in the
Borough of Lewis Run, Pennsylvania. The facility and surrounding
property were sold in 1997. Subsequent to the sale, the purchaser of
the property conducted certain environmental testing, and detected
contamination of the soil and groundwater on the property. In addition,
the Pennsylvania Department of Environmental Protection ("DEP") sampled
the nearby municipal well, used as a secondary source of water supply
for the Borough of Lewis Run, and detected contamination in the well.
In addition, several remediations of adjacent, upgradient properties
have recently been conducted by current and former owners of those
properties to address contamination at those locations.
The Company entered into a Consent Order and Agreement ("Agreement")
with the DEP on February 1, 2000. The Agreement requires the Company to
conduct an investigation of the contamination on and adjacent to its
former property, and to evaluate remedial alternatives to address the
contamination found. The Agreement also requires that the Company
identify and evaluate both interim and permanent options to replace or
treat the water from the municipal well. Should the DEP determine that
a supplemental water supply is needed, as in the case of a drought, for
instance, the Company has agreed that it will, upon notification by the
DEP, use its best efforts to implement the interim option selected. The
Company did not commit in the Agreement to remediate contamination
found on the property or to implement any permanent solution to replace
the municipal well. One of the purposes of the investigation, in fact,
is to try and determine if the source of some or all of the
contamination is one or more of the upgradient properties.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. Environmental Matters - Continued
The Company's consultant recently submitted to the DEP a revised Work
Plan for the investigation, and expects approval shortly. The soil,
groundwater, and surface water investigation is projected to be
conducted this fall, with the report to be presented to the DEP early
next year. For the year ended June 30, 2000, the Company incurred
approximately $59,069 in professional fees relating to this matter,
which has been charged to operations as an expense. The Company has
also accrued $345,000 as its best estimate of its obligation of
conducting the investigation on and adjacent to its former property,
including the possible cost of remedial alternatives to address
contamination found, and included this amount in "other accrued
liabilities" on the consolidated balance sheet as of June 30, 2000.
However, it is reasonably possible that the Company's recorded accrual
estimate may change and the Company could incur additional obligations
or share such obligations with other potential responsible parties in
the future. Until the investigation is completed, it is not possible to
assess the Company's overall potential liabilities, if any, for cleanup
or the likelihood of an unfavorable outcome.
13. Income Taxes
For the years ended June 30, 2000 and 1999, earnings before income
taxes were $670,104 and $906,718, respectively. The provision for
income taxes consists of the following:
2000 1999
----- -----
Current
Federal $305,198 $245,822
State 103,292 89,608
Deferred (benefit), net (132,874) 24,589
----- -----
$275,616 $360,019
======== ========
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, 2000 and 1999 consists of the following:
2000 1999
----- -----
Statutory federal income tax $227,835 $308,234
State income taxes,
net of federal tax benefit 44,183 59,305
General business tax credit (11,059) (28,473)
Other items 14,657 20,953
----- ------
$275,616 $360,019
======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. Income Taxes - Continued
At June 30, the net deferred tax asset (liability) component consists
of the following:
2000 1999
----- -----
Unrealized loss on
available-for-sale securities $ 3,710 $ --
Allowance for doubtful accounts 20,297 16,237
Accrued compensation 30,756 31,556
Accrued environmental remediation costs 140,048 --
Capital loss carry forward 18,919 --
Depreciation of equipment and leaseholds (78,065) (48,712)
----- -----
$135,665 $ (919)
======== ========
Balance Sheet Classification
Current asset $213,730 $ 47,793
Noncurrent liability (78,065) (48,712)
----- -----
$135,665 $ (919)
======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. 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, 2000, options to purchase
40,750 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, 2000 and 1999 is as follows:
Number of ------ Option Price -----
Shares under Weighted
option Per share Average Aggregate
----- ------ ----- ------
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
Granted during the year 375 4.31 4.31 1,616
Exercised during the year (1,125) 2.33-3.80 2.89 (3,255)
Forfeitures and expirations (3,625) 2.33-4.88 3.50 (12,680)
----- ------- ---- -----
Outstanding-June 30, 2000 8,125 $2.33-4.88 $3.88 $31,564
====== ========= ===== =======
Exercisable-June 30, 2000 8,125 $2.33-4.88 $3.88 $31,564
Exercisable-June 30, 1999 12,500 $2.34-4.88 $3.67 $45,883
During the years ended June 30, 2000 and 1999, the weighted average
fair value of options granted amounted to $1.87 and $2.32 per share,
respectively. At June 30, 2000, the weighted average remaining
contractual life of outstanding options was 6.3 years.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires use of option valuation models
that were not developed for use in valuing employee stock options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. Common Stock Options - Continued
Pro forma information regarding net income and earnings per share,
required by SFAS No. 123, has been determined as if the Company had
accounted for its employee stock options under the fair value method of
SFAS No. 123. The fair value for options granted was estimated at the
date of the grant using a Black-Scholes option pricing model with the
following assumptions for 2000 and 1999 respectively: risk-free
interest rate of 6.2% and 5.5%; volatility factor of the expected
market price of the Company's Common Stock of 0.39 and 0.34; dividend
yield of 1.2% and 1.0%; and a weighted average expected option life of
9 years. For purposes of pro forma disclosures, the estimated fair
value of options is amortized to expense over the options' vesting
period. For the years ended June 30, 2000 and 1999, the Company's
reported and pro forma net earnings and earnings per share are as
follows:
2000 1999
----- -----
As reported:
Net earnings $394,488 $546,699
Earnings per common share
Basic $ 40 $.55
Diluted $.39 $.54
Pro forma:
Net earnings $394,066 $540,607
Earnings per common share
Basic $.40 $ .54
Diluted $.39 $ .53
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
Directors
The names and certain information concerning the directors are set
forth below. Each director will serve until the next Annual Meeting of
the Shareholders or until his successor shall be elected and shall
qualify.
Principal Occupation of Director of
Employment During the Company
Name Past Five Years Age Since
---------------------------------------------------------------------
C. Lawrence Chairman from 1986 to 1994. 73 1983
Shields In 1971, Mr. Shields founded
Control Chief Corporation where
he served as President and
Director until May 1990.
Mr. Shields is the father-
in-law of Mr. Douglas Bell,
Chairman and a Director of
the Company.
Douglas S. Bell Elected Chairman of the Board 51 1988
of Directors and President and
Chief Executive Officer of the
Company in November of 1994.
Mr. Bell has held various executive
positions and served as a Director
of the Company's wholly owned
subsidiary, Control Chief
Corporation. Mr. Bell is a
graduate of Clarion University
of Pennsylvania and is the
son-in-law of Mr. C. Lawrence
Shields, a Director of the Company.
Christopher Elected Secretary in May of 47 1994
G. Hauser 1994. Partner in the law firm
of McDowell, Wick, Daly, Gallup,
Hauser & Hartle since 1985.
Mr. Hauser is a graduate of
Washington & Jefferson College
and The Dickinson School of Law.
Director of
Principal Occupation of Employment Company
Name During the Past Five Years Age Since
---------------------------------------------------------------------
Craig A. President of Servco Services, 45 1999
Hartburg Inc., a Bradford, PA based
Company. Mr. Hartburg is a
graduate of the University of
Pittsburgh with a BA Degree
in economics and political
science.
Michael A. Executive Vice President of 52 1999
Zurat the Company since October of 1998.
Formerly Senior Vice President
and Vice President of manufacturing
and technical sales of Allegany
Bradford Corporation. Member of
the Board of Directors of State
Line Supply Co. Attended Lock
Haven University. Honorably
discharged from the United States
Marine Corps. with a Bronze Star
Medal w/combat V.
Executive Officers
The executive officers of the Company are set forth in the table below.
All executive officers are elected at the annual meeting or interim
meetings of the Board of Directors. No arrangements or understanding
exists between any executive officer and any other person pursuant to
which he was elected as an executive officer.
Name Age Position and Period Served
---- --- --------------------------
Douglas S. Bell 51 Director of the Company since 1988. Chairman
of the Board, President, and Chief Executive
Officer. Director and an executive officer
with Control Chief Corporation.
Michael A. Zurat 52 Elected Executive Vice President of the
Company in October of 1998. Director of the
Company since 1999. Director and an executive
officer with Control Chief Corporation.
Stephen J. Pachla 49 Elected Treasurer of the Company in November
1994. Treasurer of Control Chief Corporation
since November 1994.
Christopher G. Hauser 47 Director and Secretary of the Company
since May 1994.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended June 30,
2000, 1999 and 1998, the remuneration of the Company's Chief Executive
Officer, Douglas S. Bell. There were no other executive officers whose
aggregate remuneration exceeded $100,000 during each of the fiscal
years ended.
Summary Compensation Table
Douglas S. Bell, CEO 2000 1999 1998
Annual Compensation
Salary ($) $229,313 $134,600 $100,000
Bonus ($) 0 0 22,500
Other Annual Compensation ($) 0 0 0
Long Term Compensation
Restricted Stock Awards ($) 0 0 0
Options/SARs (#) 0 0 0
LTIP Payouts ($) 0 0 0
All Other Compensation ($)(1) 2,751 1,935 1,246
(1) Represents payments made under the nondiscriminatory 401(K)
feature of the Profit Sharing Plan for fiscal years ended June 30.
The following tabulation shows as to the named Executive Officer the
amount of options granted, the amount of shares acquired since that
date through the exercise of options granted since that date or prior
thereto and the amount of shares subject to all unexercised options
held as of June 30, 2000. During the fiscal year ended June 30, 2000,
no options were granted.
Options/SAR Grants in Fiscal Year June 30, 2000:
Individual Grants
Douglas S. Bell, CEO
Options/SARs Granted (#) 0
Percentage of Total Options/SARs Granted
to Employees in Fiscal Year N/A
Exercise or Base Price ($ / Share) N/A
Expiration Date N/A
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year
End Option/SAR Values:
Douglas S. Bell, CEO
Shares Acquired on Exercise (#) 0
Value Realized ($) 0
Number of Unexercised Options/SARs at
June 30, 2000 (#)
Exercisable 1,250
Unexercisable 0
Value of Unexercised In-the-Money
Options/SARs at Fiscal Year End ($)
Exercisable 4,750
Unexercisable 0
Employment Agreement
Mr. Douglas S. Bell and the Company entered into an employment
agreement as of May 21, 1999, pursuant to which Mr. Bell serves as
Chief Executive Officer and President of the Company. Under the
employment agreement, which has a term of ten years, Mr. Bell receives
an annual base salary of $225,000. In addition, Mr. Bell may receive
performance-based annual increases and/or bonuses. Mr. Bell is also
entitled to employee benefits generally made available to other
officers of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Securities Owned By Management
The following table sets forth, as of August 25, 2000, the beneficial
ownership of the Company's Common Stock by each director, the Company's
Chief Executive Officer, any executive officer whose annual aggregate
remuneration exceeded $100,000, all executive officers and directors as
a group, and each shareholder known to management of the Company to own
beneficially more than 5% of the outstanding Common Stock. All persons
listed below have sole voting and investment power with respect to
their common stock unless otherwise indicated.
Shares Total Percentage
Shares Subject Shares of Out-
Of Stock To Beneficially standing
Name Owned Options Owned Stock
---- -------- ------- ------------ ----------
Douglas S. Bell(1)(2)(3) 427,050 1,250 428,300 43.2%
C. Lawrence Shields(5)(6) 625 750 1,375 0.1%
Christopher G. Hauser(5)(6) 0 750 750 0.1%
Craig A. Hartburg(4) 156 375 531 0.0%
-------- ------- ------------ ----------
All Directors, Officers
And Nominees as a group
(6 persons, including
those named above) 427,862 5,250 433,112 43.6%
--------- ------- ------------ ---
(1) Held with wife as joint tenants with rights of survivorship.
(2) Includes 5,156 shares of common stock held by Mr. Bell as
trustee for custodial accounts for his minor child.
(3) Includes 1,250 shares of common stock subject to acquisition
by exercise of outstanding options granted in 1997.
(4) Includes 375 shares of common stock subject to acquisition by
exercise of outstanding options granted in 1999.
(5) Includes 375 shares of common stock subject to acquisition by
exercise of outstanding options granted in 1996.
(6) Includes 375 shares of common stock subject to acquisition by
exercise of outstanding options granted in 1995.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Christopher G. Hauser, a Director and Secretary of the Company,
received approximately $4,300 during the fiscal year ended June 30,
2000 from the Company as fees relating to general legal services
provided to the Company. These fees are based on standard rates for the
type of services provided to the Company. The Company plans to continue
to use the legal services of Mr. Hauser's firm.
The Company leases from Mr. C. Lawrence Shields and Mrs. Dorothy V.
Shields its 20,000 square foot office building and approximately 2.5
acres of land located at 200 Williams Street, Bradford, PA. For the
fiscal year ended June 30, 2000, the Company paid $95,593 in rental
fees and real estate taxes. Mr. C. Lawrence Shields is a Director and
past Chairman of the Board of the Company.
For the fiscal year ended June 30, 2000, the Company paid to Servco
Services, Inc. $25,648 for cleaning services. Mr. Craig A. Hartburg, a
Director of the Company, is the President of Servco Services, Inc. The
Company plans to continue to use the cleaning services of Servco
Services, Inc. in similar amounts.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed herewith or incorporated by reference
herein. (For incorporation references, see Exhibit Index attached
hereto.)
Exhibit
3-1 Certificate of Incorporation of Digimetrics, Inc.
3-2 By-laws of Digimetrics, Inc.
3-3 Certificate of Amendment of the Certificate of
Incorporation of Digimetrics, Inc.
4-1 Specimen of Common Stock Certificate.
10-1 Digimetrics/Control Chief Amended and Restated Profit-Sharing
Plan Adoption Agreement and Plan Document.
10-2 Agreement for Purchase and Sale between C. Lawrence Shields
and Dorothy V. Shields for the real estate located at 200
Williams Street, Bradford, PA.
10-3 Lease Agreement dated July 15, 1992 between C. Lawrence
Shields and Dorothy V. Shields for the real estate located at
200 Williams Street, Bradford, PA.
10-4 1994 Stock Option Plan.
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 June 30, 2000,
pertaining to the change in the Registrant's fiscal year end form June
30 to December 31, effective June 30, 2000. A transition report on Form
10-KSB covering the transition period from July 1, 2000 through
December 31, 2000 will be filed by March 31, 2001.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Control Chief Holdings, Inc.
(Registrant)
Date: September 25, 2000 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
Douglas S. Bell Officer and September 25, 2000
Director
/s/ Stephen J. Pachla Chief Financial
Stephen J.Pachla Officer September 25, 2000
/s/ Craig A. Hartburg Director September 25, 2000
Craig A. Hartburg
/s/ Christopher G. Hauser Director September 25, 2000
Christopher G. Hauser
/s/ C. Lawrence Shields Director September 25, 2000
C. Lawrence Shields
/s/ Michael A. Zurat Director September 25, 2000
Michael A. Zurat
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 fro
From Digimetrics, Inc.'s
Form 10
3-3 Certificate of Amendment Incorporated by reference
of the Certificate of from Form 10-KSB for the
Incorporation of fiscal year ended June 30,
Digimetrics, Inc. 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 from Form 10-KSB for the
Profit-Sharing Plan fiscal year ended June 30,
Adoption and Plan 1994 as Exhibit 10-2
Document
10-2 Agreement for Purchase and Incorporated by reference
Sale between C. Lawrence and Form 8-K filed on July 27,
Dorothy V. Shields for the 1982 as Exhibit 2-1
real estate at 200 Williams
Street, Bradford, PA
10-3 Lease Agreement dated July 15, Incorporated by reference
1992 between C. Lawrence and Form 8-K filed on July 27,
Dorothy V. Shields for the 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 Incorporated by reference
Agreement From Form 10-KSB for the
fiscal year ended June 30,
1999 as Exhibit 10-5
21-1 Subsidiaries of the Registrant Filed herewith
23-1 Consent of Independent Auditors Filed herewith
27-1 Financial Data Schedule Filed herewith
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 July 21, 2000, 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
September 20, 2000
