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 June 30, 2002
[ ] 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 July 31, 2002 was 986,837 shares.
Transitional Small Business Format (Check one): Yes [ ] No [X]
Control Chief Holdings, Inc. and Subsidiaries
Table of Contents
Page | |
Part I Financial Information | |
Item 1 Financial Statements | |
Consolidated Balance Sheets | 3 |
Consolidated Statements of Operations and Retained Earnings | 4 |
Consolidated Statements of Cash Flows | 5 |
Notes to Financial Statements | 6 |
Item 2 Management's Discussion and Analysis or Plan of Operation | 6 |
Part II Other Informations | |
Item 6 Exhibits and Reports on Form 8-K | 10 |
Signatures | 10 |
Exhibit 99.1 | 11 |
Part I - Financial Information
Item 1. Financial Statements
Control Chief Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, | December 31, | |
2002 | 2001 | |
Assets | (Unaudited) | |
Current assets | ||
Cash and cash equivalents | $ 915,469 | $1,047,031 |
Marketable securities, at fair value | 124,751 | 149,048 |
Accounts receivables, less allowance for | ||
doubtful accounts of $36,000 and $36,000 | 717,650 | 684,045 |
Inventories | ||
Work in process | 103,390 | 74,414 |
Raw materials and subassemblies | 1,248,712 | 1,147,901 |
Prepaid income taxes | 152,756 | 172,641 |
Other prepaid items | 28,882 | 30,034 |
Deferred income taxes | 113,879 | 104,423 |
Total current assets | 3,405,489 | 3,409,537 |
Equipment and leasehold improvements, net | 623,051 | 630,473 |
Total assets | $4,028,540 | $4,040,010 |
Liabilities and Stockholders' Equity | ||
Current liabilities | ||
Current maturities of long-term debt | $ 13,860 | $ 15,431 |
Accounts payable trade | 142,855 | 85,159 |
Accrued salaries, wages and withholdings | 117,913 | 184,735 |
Accrued commissions | 32,509 | 42,603 |
Other accrued items | 15,612 | 517 |
Total current liabilities | 322,749 | 328,445 |
Long-term debt | 22,768 | 29,494 |
Deferred income taxes | 60,500 | 72,173 |
Stockholders' equity | ||
Common stock, $.50 par value, authorized | ||
5,000,000 shares, issued 1,015,220 shares | 507,610 | 507,610 |
Capital in excess of par value | 1,123,279 | 1,123,279 |
Retained earnings | 2,198,125 | 2,171,066 |
Treasury stock, 28,383 shares, at cost | (116,033) | (116,033) |
Accumulated other comprehensive income | ||
Unrealized gain (loss) on available-for-sale securities | (90,458) | (76,024) |
Total stockholders' equity | 3,622,523 | 3,609,898 |
Total liabilities and stockholders' equity | $4,028,540 | $4,040,010 |
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 | ||||
June 30, | June 30, | ||||
2002 | 2001 | 2002 | 2001 | ||
Net sales | $1,183,427 | $1,299,954 | $2,357,318 | $2,618,396 | |
Cost of products sold | 612,712 | 617,242 | 1,177,107 | 1,301,552 | |
Gross margin | 570,715 | 682,712 | 1,180,211 | 1,316,844 | |
Operating expenses | |||||
Selling expenses | 295,630 | 334,366 | 571,469 | 649,518 | |
General and administrative | 260,489 | 264,020 | 498,928 | 518,652 | |
Research and development | 26,232 | 33,600 | 60,805 | 65,519 | |
Environmental remediation (credit) | - | (5,989) | - | (5,989) | |
Total operating expenses | 582,351 | 625,997 | 1,131,202 | 1,227,700 | |
Earnings (loss) from operations | (11,636) | 56,715 | 49,009 | 89,144 | |
Other income (expense) | |||||
Interest expense | (718) | (235) | (1,852) | (287) | |
Other income (expense), net | 4,429 | 10,414 | (14,035) | 48,525 | |
Earnings (loss) before income taxes | (7,925) | 66,894 | 33,122 | 137,382 | |
Provision for income taxes (credit) | (9,220) | 29,335 | 6,063 | 61,223 | |
Net earnings | 1,295 | 37,559 | 27,059 | 76,159 | |
Retained earnings, beginning of period | 2,196,830 | 2,189,656 | 2,171,066 | 2,210,272 | |
Cash dividends paid | - | - | - | (59,216) | |
Retained earnings, end of period | $2,198,125 | $2,227,215 | $2,198,125 | $2,227,215 | |
Earnings per common share | |||||
Basic | $ .01 | $ .04 | $ .03 | $ .08 | |
Diluted | $ .01 | $ .04 | $ .03 | $ .08 | |
Dividends paid per common share | $ - | $ - | $ - | $ .06 | |
Weighted average number of common shares outstanding | |||||
Basic | 986,837 | 986,930 | 986,837 | 986,930 | |
Diluted | 991,962 | 994,305 | 991,962 | 994,305 |
See accompanying notes to financial statements.
Control Chief Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended | ||
June 30, | ||
2002 | 2001 | |
Cash flows from operating activities | ||
Net earnings | $ 27,059 | $ 76,159 |
Adjustments to reconcile net earnings to net cash | ||
provided by (used in) operating activities: | ||
Depreciation and amortization | 74,920 | 84,981 |
Provision (credit) for bad debts | - | - |
Deferred income taxes | (11,266) | 7,032 |
Loss on disposal of equipment | 15,963 | - |
Change in assets and liabilities: | ||
(Increase) decrease in receivables | (33,605) | 51,885 |
(Increase) decrease in inventories | (129,787) | 90,030 |
(Increase) decrease in prepaid items | 21,037 | (46,456) |
Increase (decrease) in accounts payable and accruals | (4,125) | (112,821) |
Net cash provided by (used in) operating activities | (39,804) | 150,810 |
Cash flows from investing activities | ||
Purchase of equipment and leasehold improvements | (83,461) | (40,682) |
Net cash used in investing activities | (83,461) | (40,682) |
Cash flows from financing activities | ||
Proceeds from long-term borrowing | - | 17,023 |
Repayments of long-term debt | (8,297) | (3,713) |
Dividends paid | - | (59,216) |
Net cash used in financing activities | (8,297) | (45,906) |
Net increase (decrease) in cash | (131,562) | 64,222 |
Cash at beginning of period | 1,047,031 | 802,758 |
Cash at end of period | $ 915,469 | $ 866,980 |
Cash paid during the period for: | ||
Interest | $ 1,852 | $ 287 |
Income taxes | 7,406 | 110,831 |
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 Control Chief Holdings, Inc. and its wholly owned subsidiary, Control Chief Corporation, (the "Company"). All significant intercompany accounts are eliminated upon consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-QSB, and do not contain certain information included in the Company's annual financial statements and notes. Accordingly, these statements should be read in conjunction with the consolidated financial statements and notes thereto appearing in the annual report of the Company on Form 10-KSB for the year ended December 31, 2001.
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.
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 year ended December 31, 2001.
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 c ompetitive 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
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." 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 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 June 30, 2002 and 2001.
Three Months Ended | Six Months Ended | |||
June 30, | June 30, | |||
2002 | 2001 | 2002 | 2001 | |
Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
Cost of products sold | 51.8% | 47.5% | 50.0% | 49.7% |
Gross margin | 48.2% | 52.5% | 50.0% | 50.3% |
Operating expenses | ||||
Selling expenses | 24.9% | 25.7% | 24.3% | 24.8% |
General and administrative | 22.0% | 20.3% | 21.2% | 19.8% |
Research and development | 2.3% | 2.6% | 2.5% | 2.5% |
Environmental remediation (credit) | - | (0.5%) | - | (0.2%) |
Total operating expenses | 49.2% | 48.1% | 48.0% | 46.9% |
Earnings (loss) from operations | (1.0%) | 4.4% | 2.0% | 3.4% |
Other income (expense), net | 0.4% | 0.8% | (0.6%) | 1.8% |
Earnings (loss) before income taxes | (0.7%) | 5.2% | 1.4% | 5.2% |
Provision for income taxes (credit) | (0.8%) | 2.3% | 0.2% | 2.3% |
Net earnings (loss) | 0.1% | 2.9% | 1.2% | 2.9% |
NET SALES. Net sales were $1,183,427 for the three months ended June 30, 2002. This compares to net sales of $1,299,954 for the three months ended June 30, 2001. The decrease in net sales totaled $116,527 or 8.9%. For the six months ended June 30, 2002 and 2001, net sales were $2,357,318 and $2,618,396, respectively, representing a decrease of $261,078 or 10.0% in net sales for the six month ended June 30, 2002. The decrease in net sales reflects a downturn in demand for the Company's products resulting from the slowdown in the economy.
COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold decreased by $4,530 for the three months ended June 30, 2002 compared to the three months ended last year. For the six months ended June 30, 2002, cost of products sold decreased by $124,445 compared to the six months ended June 30, 2001. This decrease corresponds with the decline in net sales for the three and six months ended June 30, 2002. Gross margin for the three months ended June 31, 2002 was $570,715, or 48.2%. For the three months ended June 30, 2001, gross margin was $682,712, or 52.5%. For the six months ended June 30, 2002, gross margin was $1,180,211 or 50.0%, compared to $1,316,844 or 50.3% for the six months ended June 30, 2001. Overall, the Company's gross margin percentage decreased by 0.3% for the six months ended June 30, 2002 compared to the six months ended June 30, 2001.
OPERATING EXPENSES. For the three months ended June 30, 2002, operating expenses decreased by $43,646 or 6.9%, compared to the same three months ended last year, and decreased by $96,498 or 7.8% for the six months ended June 30, 2002 compared to the six months ended June 30, 2001. Selling, general and administrative expenses, expressed as a percentage of net sales were 46.9% and 46.0% for the three months ended June 30, 2002 and 2001, respectively, and decreased by $42,267 for the three months ended June 30, 2002 when compared to the three months ended June 30, 2001. For the six months ended June 30, 2002 and 2001, selling, general and administrative expenses expressed as a percentage of net sales were 45.5% and 44.6%, respectively, and decreased by $97,773 for the six months ended June 30, 2002 compared to six months ended June 30, 2001. Research and development expenses decreased by $7,368 for the three months ended June 30, 2002 compared to the same three months ended last year, and for the six months ended June 30, 2002, decreased by $4,714 compared to the six months ended June 30, 2001. Total operating expenses expressed as a percentage of net sales were 49.2% and 48.0% for the three and six months ended June 30, 2002, respectively, versus 48.0% and 46.9% for the three and six months ended June 30, 2001, respectively.
OTHER INCOME (EXPENSE), NET. Other income, net of other (expense) was $4,429 for the three months ended June 30, 2002 versus $10,414 compared to the same three months ended last year. For the six months ended June 30, 2002 and 2001, other income, net of (expense) was ($14,035) and $48,525, respectively. The decrease results from the loss from the disposal of equipment and a decline in the investment earnings of the Company's cash and cash equivalents.
EARNINGS (LOSS) BEFORE INCOME TAXES. Earnings (loss) before income taxes were ($7,925) for the three months ended June 30, 2002 as compared to pre-tax income of $66,894 for the three months ended June 30, 2001. For the six months ended June 30, 2002 and 2001, earnings before income taxes were $33,122 and $137,382, respectively.
INCOME TAXES. The Company's effective income tax rate was 18.3% based on pre-tax income of $33,122 for the six months ended June 30, 2002. For the six months ended June 30, 2001, the Company's effective tax rate was 44.5% based on pre-tax income of $137,382.
NET EARNINGS. Overall earnings, after income taxes, were $1,295 for the three months ended June 30, 2002 as compared to earnings, after income taxes, of $37,559 for the three months ended June 30, 2001. For the six months ended June 30, 2001 and 2000, net earnings were $27,059 and $76,159, respectively.
EARNINGS (LOSS) PER COMMON SHARE. The Company's basic and diluted earnings (loss) per common share was $.01 for the three months ended June 30, 2002 as compared to $.04 per common share for the three months ended June 30, 2001. For the six months ended June 30, 2002 and 2001, the Company's basic and diluted earnings per common share were $.03 and $.08, respectively.
Liquidity, Capital Resources and Financial Condition
The Company funds its needs for liquidity and capital resources through cash from operations, and the availability of short-term and long-term borrowings.
The Company has a commercial demand line of credit in the amount of $1,000,000, with a variable interest rate equal to the lender's prime rate or the Euro-Rate plus 2%. 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 lending bank each February. At June 30, 2002, no amount was outstanding under the line of credit. The Company also has term loans used to finance the purchase of vehicles. The balance of these loans at June 30, 2002 was $36,628.
At June 30, 2002, the Company's net working capital was $3,082,740, compared to $3,081,092 at December 31, 2001. At June 30, 2002, the Company's ratio of current assets to current liabilities was 10.55 to 1 compared to 10.38 to 1 at December 31, 2001.
During the six months ended June 30, 2002, the Company's cash expenditures for equipment totaled $83,461. In addition, during the six months ended June 30, 2002, the Company repaid principal on term loans of $8,297. There were no cash dividends paid by the Company and there were no long-term borrowings by the Company during the six months ended June 30, 2002.
Current financial resources, including working capital and the existing line of credit, and anticipated funds from operations, are expected to be sufficient to meet the Company's cash requirements throughout the remainder of the year, 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 required, will be available on terms that are acceptable and favorable to the Company.
During the six months ended June 30, 2002, the Company's net cash used in operating activities was ($39,804) as compared to net cash provided by operating activities of $150,810 for the six months ended June 30, 2001.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed herewith or incorporated by reference herein.
No. | Exhibit | Location |
3-1 | Certificate of Incorporation of Digimetrics, Inc. | Incorporated by reference from Digimetrics, Inc.'s Registration Statement on Form 10 File No. 0-15919 ("Form 10"). |
3-2 | By-laws of Digimetrics, Inc. | Incorporated by reference from Digimetrics, Inc.'s Form 10. |
3-3 | Certificate of Amendment of the Certificate of Incorporation of Digimetrics, Inc. | Incorporated by reference from Form 10-KSB File No. 0-15919 for the fiscal year ended June 30, 1993 as Exhibit 3-3. |
4-1 | Specimen of Common Stock Certificate | Incorporated by reference from Digimetrics, Inc.'s Form 10. |
99.1 | Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 | Attached herewith. |
(b) Reports on Form 8-K.
The Registrant filed no Reports on Form 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: August 14, 2002 By: \s\Douglas S. Bell
Douglas S. Bell
Chairman of the Board,
Chief Executive Officer and President
Exhibit 99.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES - OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of Control Chief Holdings, Inc. (the "Company") for the quarterly period ended June 30, 2002, as filed with the Securities and Exchange Commission on August 14, 2002 (the "Report"), the undersigned, in the capacities and dates indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Douglas S. Bell
Douglas S. Bell
President, Chief Executive Officer and Director
By: /s/ Douglas S. Bell
Douglas S. Bell
Treasurer and Chief Financial Officer