U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 January 31, 2000 was 993,757 shares.
Transitional Small Business Format (Check one): Yes [ ] No [ X ]
Control Chief Holdings, Inc. and Subsidiary
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 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Part I - Financial Information
Item 1. Financial Statements
Control Chief Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, June 30,
1999 1999
----------- ----------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 790,451 $ 684,912
Accounts receivable, less allowance for
doubtful accounts of $131,233 and $40,000 951,645 984,967
Inventories 1,567,986 1,581,353
Other current assets 99,544 152,952
---------- ----------
Total current assets 3,409,626 3,404,184
---------- ----------
Equipment and leasehold improvements, net 809,699 790,616
---------- ----------
Other assets 7,841 7,841
---------- ----------
Total assets $4,227,166 $4,202,641
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 75,672 $ 173,018
Accounts payable trade 325,075 421,783
Accrued items 407,281 472,499
---------- ----------
Total current liabilities 808,028 1,067,300
---------- ----------
Long-term debt, less current maturities - 10,319
---------- ----------
Deferred income taxes 55,112 48,712
---------- ----------
Stockholders' equity
Common stock, $.50 par value, authorized
5,000,000 shares, issued 1,014,095 shares,
of which 20,338 shares at December 31, 1999
and 14,481 shares at June 30, 1999 were
held in the treasury 507,048 507,048
Capital in excess of par value 1,120,586 1,120,586
Retained earnings 1,819,072 1,510,589
---------- ----------
3,446,706 3,138,223
Less treasury shares at cost 82,680 61,913
---------- ----------
Total stockholders' equity 3,364,026 3,076,310
---------- ----------
$4,227,166 $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 Six Months Ended
December 31, December 31,
1999 1998 1999 1998
--------- --------- --------- ---------
Net sales $1,964,752 $2,239,188 $3,943,159 $4,620,715
Cost of products sold 960,940 1,143,525 1,909,674 2,535,128
--------- --------- --------- ---------
Gross margin 1,003,812 1,095,663 2,033,485 2,085,587
--------- --------- --------- ---------
Operating expenses
Selling expenses 323,810 345,362 638,180 732,777
General and
administrative 359,299 264,958 686,070 477,738
Research and
development 43,979 66,162 117,752 140,428
--------- --------- --------- ---------
Total operating expenses 727,088 676,482 1,442,002 1,350,943
--------- --------- --------- ---------
Earnings from operations 276,724 419,181 591,483 734,644
Other income (expense)
Interest expense (2,246) (8,053) (5,447) (17,923)
Other income 19,308 7,240 34,549 7,640
--------- --------- --------- ---------
Earnings before taxes 293,786 418,368 620,585 724,361
Provision for taxes 125,800 172,800 262,100 298,600
--------- --------- --------- ---------
Net earnings 167,986 245,568 358,485 425,761
Retained earnings,
beginning of period 1,651,086 1,144,083 1,510,589 1,013,877
Cash dividends paid - - (50,002) (49,987)
========== ========== ========== ==========
Retained earnings,
end of period $1,819,072 $1,389,651 $1,819,072 $1,389,651
========== ========== ========== ==========
Per common share:
Basic net earnings $ 0.16 $ 0.24 $ 0.35 $ 0.42
Diluted net earnings $ 0.16 $ 0.24 $ 0.35 $ 0.42
Dividends $ - $ - $ 0.05 $ 0.05
See accompanying notes to financial statements.
Control Chief Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
December 31,
1999 1998
-------- --------
Cash flows from operating activities
Net earnings $358,485 $425,761
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 61,610 43,598
Provision for bad debts 91,233 57
Deferred income taxes 6,400 (500)
Changes in operating
assets and liabilities:
Accounts receivable (57,911) 185,261
Inventories 13,367 175,539
Other current assets 53,408 191,650
Accounts payable and accruals (161,926) (61,137)
-------- --------
Net cash provided by (used in)
operating activities 364,666 960,229
-------- --------
Cash flows from investing activities
Purchase of equipment and
leasehold improvements (80,693) (70,247)
-------- ---------
Net cash provided by (used in)
investing activities (80,693) (70,247)
-------- --------
Cash flows from financing activities
Net repayments of short-term debt - (150,000)
Net repayments of long-term debt (107,665) (83,359)
Purchase of treasury stock (20,767) (24,168)
Dividends paid (50,002) (49,987)
-------- --------
Net cash used in financing activities (178,434) (307,514)
--------- --------
Net increase (decrease) in cash 105,539 582,468
Cash at beginning of period 684,912 22,067
-------- --------
Cash at end of period $790,451 $604,535
======== ========
Cash paid during the period for:
Interest $ 5,447 $ 6,010
Income taxes 201,469 797
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. ("the Company") and its wholly-owned subsidiary, Control
Chief Corporation, ("Control Chief"). 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. Certain reclassifications of prior year's amounts have been made
to conform with the current year's presentation.
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. The following table reflects the calculation
of basic and diluted earnings per share.
Three Months Ended Net Number of Per Share
December 31, Earnings Shares Amount
------------------ -------- --------- ---------
1999 - Basic $167,986 994,414 $ 0.16
1999 - Diluted $167,986 1,006,914 $ 0.16
1998 - Basic $245,568 999,739 $ 0.24
1998 - Diluted $245,568 1,009,489 $ 0.24
Six Months Ended Net Number of Per Share
December 31, Earnings Shares Amount
------------------ -------- --------- ---------
1999 - Basic $358,485 996,954 $ 0.35
1999 - Diluted $358,485 1,009,454 $ 0.35
1998 - Basic $425,761 1,000,645 $ 0.42
1998 - Diluted $425,761 1,010,395 $ 0.42
3. Cash Dividends Paid
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.
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). Subsequent to December 31, 1999,
in January 2000, the Company signed a consent order and agreement with
the DEP. The Compnay has agreed to conduct an investigation to
identify and evaluate actions that could be undertaken. A
determination still 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 may require. Through the six-month period ended
December 31, 1999, the Company has incurred approximately $25,400 in
professional fees relating to this matter which has been charged to
operations as an expense. Additionally, the Company has set up a
reserve and accrued estimated professional fees relating to this matter
of approximately $90,500 through the six-month period ended December
31, 1999, which have also 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.
Results of Operations
The following table sets forth certain financial data, as a percentage
of net sales, for the three and six- month periods ended December 31,
1999 and 1998.
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------ ------ ------ ------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 48.9% 51.1% 48.4% 54.9%
------ ------ ------ ------
Gross margin 51.1% 48.9% 51.6% 45.1%
Operating expenses 37.0% 30.2% 36.6% 29.2%
------ ------ ------ ------
Earnings from operations 14.1% 18.7% 15.0% 15.9%
Other income (expense) 0.8% - 0.7% (0.2%)
------ ------ ------ ------
Earnings before income taxes 14.9% 18.7% 15.7% 15.7%
Provision for income taxes 6.4% 7.7% 6.6% 6.5%
------ ------ ------ ------
Net earnings 8.5% 11.0% 9.1% 9.2%
====== ====== ====== ======
The Company reported net earnings of $167,986 or $ 0.16 per basic and
diluted share for the quarter ended December 31, 1999, including
charges of approximately $55,400 for professional fees relating to a
DEP contingency. The DEP contingency relates to a matter with the
Pennsylvania Department of Environmental Protection (DEP) which is more
fully described under "Environmental Matters" in this Form 10-QSB.
Net sales decreased $274,436 or 12.2 percent for the quarter ended
December 31, 1999, and were $1,964,752.
For the first six months ending December 31, 1999, reported net
earnings were $358,485, or $ 0.35 per basic and diluted share, which
includes charges of approximately $115,900 for professional fees
relating to the DEP contingency.
For the first six months ending December 31, 1999, net sales decreased
$677,556 or 14.7 percent for a total of $3,943,159. While quarterly
and year to date sales reflect a decrease over the same periods of last
year, the Company continues to improve its gross margin percentage.
Earnings from operations were 14.1 percent of net sales for the current
quarter compared to 18.7 percent in the same quarter a year ago and 15
percent of net sales for the six months ended December 31, 1999,
compared to 15.9 of net sales for the six months ended December 31,
1998.
Gross margin was 51.1 percent of net sales for the current quarter
compared to 48.9 percent in the same quarter of the prior year. For the
six-month period ended December 31, 1999, gross margin was 51.6
percent, versus 45.1 percent in the same period a year ago. Gross
margin improvement for the three and six-month periods ended December
31, 1999 reflects the Company's continued focus on cost control,
improved pricing and shifts toward premium products. For the six-month
period ended December 31, 1999, operating margin was 15.0 percent
versus 15.9 percent in the July-December 1998 period.
The Company's effective income tax rate was 42.8 percent and 42.2
percent for the three and six-month periods ended December 31, 1999,
respectively, as compared to 41.3 percent and 41.2 percent for the
three and six-month periods ended December 31, 1998, respectively.
Overall, net earnings reported as a percentage of net sales was 8.5
percent for the current quarter compared to 11.0 percent in the same
quarter of the prior year and 7.1 percent for the full fiscal year
ended June 30, 1999.
For the first six months ending December 31, 1999, reported net
earnings as a percentage of net sales were 9.1 percent versus 9.2
percent for the six-month period ended December 31, 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 December 31, 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 December 31,
1999, a total of $60,151 was outstanding under this term loan.
The Company also has financed the purchase of vehicles through two
separate term loans. The balance outstanding under these loans was
$15,521 at December 31, 1999.
The Company's liquidity improved during the period. At December 31,
1999, the Company had net working capital of $2,601,598, compared to
$2,336,884 at June 30, 1999. The Company's current ratio also improved
with current assets 4.2 times greater than current liabilities at
December 31, 1999, compared to 3.2 at June 30, 1999.
During the six-month period ended December 1999, the Company's cash
expenditures for equipment totaled $80,693. In addition, during the six
months ended December 31, 1999, the Company repaid $107,665 of bank
indebtedness, paid cash dividends totaling $50,002 and purchased common
stock for its treasury in the amount of $20,767.
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 six months ended December 31, 1999, the Company's net cash
provided by operations was $364,666 as compared to net cash provided by
operations of $960,229 for the six months ended December 1998.
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). Subsequent to December 31, 1999,
in January 2000, the Company signed a consent order and agreement with
the DEP. The Company has agreed to conduct an investigation to
identify and evaluate actions that could be undertaken. A
determination still 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 may require. Through the six-month period ended
December 31, 1999, the Company has incurred approximately $25,400 in
professional fees relating to this matter which has been charged to
operations as an expense. Additionally, the Company has set up a
reserve and accrued estimated professional fees relating to this matter
of approximately $90,500 through the six-month period ended December
31, 1999, which have also been charged to operations as an expense.
Year 2000 Update
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 operation, including among other things, a
temporary inability to process transactions, prepare invoices, or
engage in similar normal business activities.
As described in the Form 10-KSB for the year ended June 30, 1999, the
Company developed plans to address the possible exposures related to
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 will continue to monitor its critical
systems over the next several months but does not anticipate any
significant impacts due to Year 2000 exposures from its internal
systems as well as from the activities of its suppliers and customers.
The Company estimates that the total cost of implementing its
compliance plans has not exceeded $30,000 and are immaterial with
respect to the Company's overall operating expenditures.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
a) An annual meeting of the Shareholders of the Company was
held on November 19, 1999
b) Election of six Directors.
Director For Against
-------- -------- --------
Douglas S. Bell 855,085 23,611
Craig A. Hartburg 877,878 818
Christopher G. Hauser 877,878 818
N. James Sekel 877,878 818
C. Lawrence Shields 877,878 818
Michael A. Zurat 877,878 818
c) Approve appointment of Diefenbach Delio Kearney DeDionisio
as independent certified public accountants of the Company.
For Against Abstain
-------- -------- -------
840,090 193 38,413
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 proposals 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: February 14, 2000 By:\s\ Douglas S. Bell
Douglas S. Bell
Chairman of the Board,
Chief Executive Officer and
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 790,451
<SECURITIES> 0
<RECEIVABLES> 1,082,878
<ALLOWANCES> 131,233
<INVENTORY> 1,567,986
<CURRENT-ASSETS> 3,409,626
<PP&E> 2,201,402
<DEPRECIATION> 1,391,703
<TOTAL-ASSETS> 4,227,166
<CURRENT-LIABILITIES> 808,028
<BONDS> 0
0
0
<COMMON> 507,048
<OTHER-SE> 2,856,978
<TOTAL-LIABILITY-AND-EQUITY> 4,227,166
<SALES> 3,943,159
<TOTAL-REVENUES> 3,977,708
<CGS> 1,909,674
<TOTAL-COSTS> 1,909,674
<OTHER-EXPENSES> 1,442,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,447
<INCOME-PRETAX> 620,585
<INCOME-TAX> 262,100
<INCOME-CONTINUING> 358,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 358,485
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
