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 March 31, 2001

[  ]	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 beensubject 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 April 30, 2001 was 986,930 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
7  **Part II   Other Informations   
Item 5    Other Information
11
Item 6    Exhibits and Reports on Form 8-K
11  **Signatures
11** 

Part I - Financial Information

Item 1.  Financial Statements

Control Chief Holdings, Inc. and Subsidiary

Consolidated Balance Sheets**    **March 31,**December 31, **2001**2000**Assets**(Unaudited)    
Current assets  
   Cash and cash equivalents
$1,040,512
$   802,758
   Marketable securities, at fair value
165,346
201,699
   Accounts receivables, less allowance for  
      doubtful accounts of $38,355 and $40,000
665,027
809,641
   Inventories  
      Work in process
62,949
63,779
      Raw materials and subassemblies
1,325,489
1,440,505
   Other current assets
   194,964
   215,451   
            Total current assets
3,454,287
3,533,833   
Equipment and leasehold improvements, net
   713,207
   747,693   
            Total assets
$4,167,494
$4,281,526   **Liabilities and Stockholders' Equity     
Current liabilities  
   Current maturities of long-term debt
$      6,173
$      7,714
   Accounts payable trade
117,088
198,798
   Accrued items
   329,230
   313,515   
            Total current liabilities
   452,491
   520,027   
Deferred income taxes
     76,573
     80,856   
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
2,189,656
2,210,272
   Treasury stock, 28,290 shares, at cost
(115,772)
(115,772)
   Accumulated other comprehensive income  
     Unrealized gain (loss) on available-for-sale securities 
    (66,343)
    (44,746)   
            Total stockholders' equity
 3,638,430
 3,680,643   
            Total liabilities and stockholders' equity
$4,167,494
$4,281,526
See accompanying notes to financial statements.
**Control Chief Holdings, Inc. and Subsidiary

Consolidated Statements of Operations and Retained Earnings

(Unaudited)** **Three Months Ended **March 31, **2001**2000   
Net sales
$1,318,442
$1,888,444   
Cost of products sold
    684,310
    855,736   
Gross margin
    634,132
 1,032,708   
Operating expenses  
   Selling expenses
315,152
332,293
   General and administrative
254,632
345,590
   Research and development
31,919
57,048
   Environmental remediation-expenses
              --
      37,173   
Total operating expenses
    601,703
    772,104   
Earnings from operations
32,429
260,604   
Other income (expense)  
   Interest expense
(52)
(776)
   Other income
      38,111
      19,968   
Earnings before income taxes
70,488
279,796   
Provision for income taxes
      31,888
    116,500   
Net earnings
38,600
163,296   
Retained earnings, beginning of period
2,210,272
1,819,072   
Cash dividends paid
    (59,216)
               --   
Retained earnings, end of period
$2,189,656
$1,982,368   
Earnings per common share  
   Basic
$ .04
$ .16
   Diluted
$ .04
$ .16   
Dividends paid per common share
$ .06
$ .00   
Weighted average number of common shares outstanding
   Basic
986,930
994,109
   Diluted
994,305
1,003,359
See accompanying notes to financial statements.
**Control Chief Holdings, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)	
**Three Months Ended**March 31, **2001**2000**Cash flows from operating activities  
   Net earnings
$   38,600
$ 163,296
   Adjustments to reconcile net earnings to net cash  
     provided by (used in) operating activities:  
      Depreciation and amortization
45,306
30,920
      Provision for bad debts
--
28,767
      Deferred income taxes
(1,508)
3,200
      Change in assets and liabilities:  
        (Increase) decrease in receivables
144,614
(110,005)
        (Increase) decrease in inventories
115,846
111,144
        (Increase) decrease in other current assets
32,468
(3,811)
        Increase (decrease) in accounts payable and accruals
    (65,995)
     57,797   
          Net cash provided by operating activities
    309,331
   281,308   **Cash flows from investing activities  
   Purchase of equipment and leasehold improvements
    (10,820)
  (43,621)   
         Net cash used in investing activities
    (10,820)
  (43,621)   **Cash flows from financing activities  
   Repayments of long-term debt
(1,541)
(63,461)
   Proceeds from exercise of common stock options
--
956
   Purchase of treasury stock
--
(124)
   Dividends paid
    (59,216)
            --   
         Net cash used in financing activities
    (60,757)
  (62,629)   
Net increase (decrease) in cash
237,754
175,058   
Cash at beginning of period
    802,758
   790,451   
Cash at end of period
$1,040,512
$ 965,509   **Cash paid during the period for:  
   Interest
$            52
$        776
   Income taxes
14,838
82,000
 

 

 

 

 

See accompanying notes to financial statements.
**Control Chief Holdings, Inc. and Subsidiary

Notes to Financial Statements****1.  Basis of Presentation**
The financial statements include the accounts of the Control Chief Holdings, Inc. and its wholly owned subsidiary, Control Chief Corporation, (the "Company"). All significant intercompany accounts are eliminated upon consolidation. Thepreparation 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, thedisclosure 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 normalrecurring 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 inconjunction with the consolidated financial statements and notes thereto appearing in the annual report of the Company on Form 10-KSB for the six-month transition period ended December 31, 2000.
**2.  Change in Fiscal Year to December 31**
On June 29, 2000, the Executive Committee of the Board of Directors changed the Company's fiscal year end from June 30 to December 31, effective June 30, 2000. Accordingly, the Company reported a transition period from July 31, 2000through December 31, 2000. The Company elected to change its fiscal year in order to more closely correspond to its current business cycle.
**3.  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.
**4.  Cash Dividends Paid**
The Board of Directors of the Company approved a cash dividend totaling $59,216 ($.06 per share) payable on March 26, 2001 to holders of record at the close of business on March 5, 2001.
**4.  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 conductedcertain 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 watersupply for the Borough of Lewis Run, and detected contamination in the well. In addition, several remediations of adjacent and upgradient properties have previously been conducted by current and former owners of those properties to address contaminationat those locations.

On February 1, 2000, the Company entered into a Consent Order and Agreement ("Agreement") with the DEP. The Agreement required 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 required the Company to identify and evaluate both interim and permanent options to replace or treat the water from the municipal well. The Company did not commitin 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 was, in fact, to try and determine if the source of some or all of thecontamination is one or more of the upgradient properties.

The Company's consultant, Civil and Environmental Consultants, Inc. ("CEC"), subsequently submitted to the DEP a Work Plan for the investigation and conducted a soil, groundwater, and surface water investigation. Upon completionthey presented their report and findings to the DEP. In February 2001, the DEP reviewed the information developed by CEC on behalf of the Company, related to the groundwater contamination at the municipal well site in Lewis Run, Pennsylvania. Based uponthe findings and review by the DEP, the Company does not consider itself a responsible party. The DEP notified the Company through correspondence, dated February 23, 2001, that it has decided to pursue additional site investigation, including a study ofpotential sources of groundwater contamination, upgradient of the Company's former manufacturing facility. In addition, the DEP rescinded the February 1, 2000 Consent Order and Agreement. Accordingly, the Company is no longer responsible for carrying outany additional requirements of that Agreement.

During the three-month periods ended March 31, 2001 and 2000, the Company charged to operating expenses $0 and $37,173, respectively, relating to this environmental matter.

 
**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 operationscontained in the Control Chief Holdings, Inc. and Subsidiary annual report on Form 10-KSB for the six-month transition period ended December 31, 2000.
**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 ofhistorical 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-lookingstatements. 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 notlimited 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 theCompany'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 theCompany'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 materialhandling 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 aremicroprocessor-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 months ended March 31, 2001 and 2000.

 
Three months ended 
March 31, 
2001
2000   
Net sales
100.0%
100.0%   
Cost of products sold
 51.9%
 45.3%   
Gross margin
 48.1%
 54.7%   
Operating expenses  
   Selling expenses
23.9%
17.6%
   General and administrative
19.3%
18.3%
   Research and development
2.4%
3.0%
   Environmental remediation-expenses
   0.0%
   2.0%   
Total operating expenses
 45.6%
 40.9%   
Earnings from operations
2.5%
13.8%   
Other income (expense), net
   2.8%
   1.0%   
Earnings before income taxes
5.3%
14.8%   
Provision for income taxes
   2.4%
   6.2%   
Net earnings
   2.9%
   8.6%

 
*NET SALES. Net sales were $1,318,442 for the three months ended March 31, 2001. This compares to net sales of $1,888,444 for the three months ended March 31, 2000. The decrease in net sales totaled $570,002 or 30.2%. Thedecrease 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 $171,426 for the three months ended March 31, 2001 as compared to the same period last year. This decrease corresponds with the decline in net sales forthe period. Gross margin for the three months ended March 31, 2001 was $634,132, or 48.1%. For the three months ended March 31, 2000, gross margin was $1,032,708, or 54.7%. Overall, the Company's gross margin percentage decreased by 6.6% for the monthsended March 31, 2001 when compared to the three months ended March 31, 2000.
*OPERATING EXPENSES. For the three months ended March 31, 2001, operating expenses decreased by $170,401, or 22.1%, as compared to the same period last year. Because of the Company's drop in sales, overall operating expensesincreased as a percentage of net sales to 45.6% for the three months ended March 31, 2001 versus 40.9% for the three months ended March 31, 2000.
*OTHER INCOME, NET. Other income, net of other expense increased by $18,867 for the three months ended March 31, 2001 when compared to the same period last year. The increase results from investment earnings from the Company'scash and cash equivalents.
*EARNINGS BEFORE INCOME TAXES. Earnings before income taxes were $70,488 for the three months ended March 31, 2001 as compared to $279,796 for the three months ended March 31, 2000, representing a decrease of $209,308 or 74.8%.
*INCOME TAXES. The Company's effective income tax rate was 45.2% and 41.6% for the three month periods ended March 31, 2001 and 2000, respectively.
*NET EARNINGS. Overall earnings, after income taxes, were $38,600 for the three months ended March 31, 2001 as compared to earnings, after income taxes, of $163,296 for the three months ended March 31, 2000, reflecting a decreaseof $124,696 or 76.3%.
*EARNINGS PER COMMON SHARE. The Company's basic and diluted earnings per common share was $.04 for the three months ended March 31, 2001 as compared to $.16 per common share for the three months ended March 31, 2000.
**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 andinventory of the Company. The line of credit is subject to an annual review by the lending bank each February. At March 31, 2001, no amount was outstanding under the line of credit.

The Company also has term loans that were used to finance the purchase of vehicles. The balance of these loans at March 31, 2001 was $6,173.

 

At March 31, 2001, the Company's net working capital was $3,001,796, compared to $3,013,806 at December 31, 2000. At March 31, 2001, the Company's ratio of current assets to current liabilities was 7.63 to 1 as compared to 6.79 to 1 atDecember 31, 2000.

During the three months ended March 31, 2001, the Company's cash expenditures for equipment totaled $10,820. In addition, the Company repaid $1,541 on term loans, and paid cash dividends totaling $59,216 during the three months endedMarch 31, 2001.

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, ifrequired, will be available on terms that are acceptable and favorable to the Company.

During the three months ended March 31, 2001, the Company's net cash provided by operating activities was $309,331. Net cash provided by operating activities was $281,308 for the three months ended March 31, 2000.
**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 conductedcertain 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 watersupply for the Borough of Lewis Run, and detected contamination in the well. In addition, several remediations of adjacent and upgradient properties have previously been conducted by current and former owners of those properties to address contaminationat those locations.

On February 1, 2000, the Company entered into a Consent Order and Agreement ("Agreement") with the DEP. The Agreement required 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 required the Company to identify and evaluate both interim and permanent options to replace or treat the water from the municipal well. The Company did not commitin 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 was, in fact, to try and determine if the source of some or all of thecontamination is one or more of the upgradient properties.

The Company's consultant, Civil and Environmental Consultants, Inc. ("CEC"), subsequently submitted to the DEP a Work Plan for the investigation and conducted a soil, groundwater, and surface water investigation. Upon completionthey presented their report and findings to the DEP. In February 2001, the DEP reviewed the information developed by CEC on behalf of the Company, related to the groundwater contamination at the municipal well site in Lewis Run, Pennsylvania. Based uponthe findings and review by the DEP, the Company does not consider itself a responsible party. The DEP notified the Company through correspondence, dated February 23, 2001, that it has decided to pursue additional site investigation, including a study ofpotential sources of groundwater contamination, upgradient of the Company's former manufacturing facility. In addition, the DEP rescinded the February 1, 2000 Consent Order and Agreement. Accordingly, the Company is no longer responsible for carrying outany additional requirements of that Agreement.

During the three-month periods ended March 31, 2001 and 2000, the Company charged to operating expenses $0 and $37,173, respectively, relating to this environmental matter.

 
**Part II - Other Information****Item 5.  Other Information***SHAREHOLDER PROPOSALS - DEADLINE FOR INCLUSION IN PROXY MATERIALS.  Any proposal by a stockholder of the Company intended to be presented at the 2002 Annual Meeting of Stockholders must be received by the Company on orbefore December 17, 2001 to be included in the proxy materials of the Company relating to such meeting.
*SHAREHOLDER PROPOSALS - DISCRETIONARY VOTING OF PROXIES.  In accordance with 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 2002Annual Meeting of Shareholders is received by the Company after December 17, 2001, the persons authorized under the Company's management proxies may exercise discretionary authority to vote or act on such proposal if the proposal is raised at the 2002Annual Meeting of Shareholders.
**Item 6.  Exhibits and Reports on Form 8-K**
a)  Exhibit 27, the Financial Data Schedule, is no longer required to be filed.

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: May 7, 2001
By: \s\ *Douglas S. Bell* 
Douglas S. Bell 
Chairman of the Board 
Chief Executive Officer and President********************************************************