United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 2015
☐ Transaction Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For transition period from to
Commission File Number: 2-5916
Chase General Corporation | ||
(Exact name of registrant as specified in its charter) |
MISSOURI | 36-2667734 | |||||||
(State or other jurisdiction of | (IRS Employer Identification No.) | |||||||
Incorporation or organization |
1307 South 59th, St. Joseph, Missouri | 64507 | |||||||
(Address of Principal Executive Offices) | Zip Code |
(816) 279-1625 | ||
(Registrant’s telephone number, including area code) | ||
Securities Registered Pursuant to Section 12(b) of the Act: |
None | ||
Securities Registered Pursuant to Section 12(g) of the Act: |
None | ||
(Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o☐ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o☐ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 o
Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o☐ Accelerated filer o☐ Non-accelerated filer o☐ Smaller reporting company x
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).
Yes o☐ No x
The aggregate market value of the shares of common stock held by non-affiliates of the Issuer is not actively traded. Therefore, market value of the stock is unknown as of 60 days prior to the date of this filing.
As of September 18, 201321, 2015 there were 969,834 shares of Common Stock, $1.00 par value, outstanding.
Chase General Corporation AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
FOR THE YEAR ENDED JUNE 30, 2015
PART I | ||
Item 1. | Business | 3 |
Item 1A. | Risk Factors | |
Item 1B. | Unresolved Staff Comments | |
Item 2. | Properties | 7 |
Item 3. | Legal Proceedings | 7 |
Item 4. | 7 | |
PART II | ||
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 8 |
Item 6. | Selected Financial Data | 8 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
Item 8. | Consolidated Financial Statements and Supplementary Data | 15 |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
Item | Controls and Procedures | |
Item 9B. | Other Information | |
PART III | ||
Item 10. | Directors, Executive Officers, and Corporate Governance | |
Item 11. | Executive Compensation | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Stockholder Matters | |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
Item 14. | Principal | |
PART IV | ||
Item 15. | Exhibits and Consolidated Financial Statement Schedules | |
SIGNATURES | 40 |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
PART I
ITEM 1 BUSINESS
Chase General Corporation was incorporated November 6, 1944 for the purpose of manufacturing confectionery products. In 1970, Chase General Corporation acquired a 100% interest in its wholly-owned subsidiary, Dye Candy Company. (Chase General Corporation and Dye Candy Company are sometimes referred herein as “the Company”). This subsidiary is the main operating company for the reporting entity.
Principal Products and Methods of Distribution
The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. The products of both divisions are sold to the same type of customers in the same geographical areas. In addition, both divisions share a common labor force and utilize the same basic equipment and raw materials. Management considers these two divisions as one reportable segment for inclusion in this filing.
The principal products produced are as follows:
Chase Candy Products of Dye Candy Company
produces a candy bar under the trade name of “Cherry Mash”. The bar is distributed in the following six case sizes:(1) | 60 count pack |
(2) | 12 boxes of 24 bars per box |
(3) | 200 count shipper box |
(4) | 100 count shipper box |
(5) | 100 # 2 box Counter Display |
(6) | 4 box - 36 count Counter Display |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Principal Products and Methods of Distribution (Continued)
In addition to the regular size bar, a “mini-mash” is distributed in the following seven case sizes:
(1) | 24 - 12 oz. bags |
(2) | 6 jars - 60 bars per jar |
(3) | 23 # wrapped bars |
(4) | 22 # unwrapped bars |
(5) | 12 - 12 oz. bags |
(6) | 6 - 4 # jars |
(7) | 24 - 12 oz. clamshell containers |
Seasonal Candy Products of Dye Candy Company
produces coconut, peanut, chocolate, and fudge confectioneries. These products are distributed in bulk or packaged. Principal products include:(1) | Coconut Bon-Bons | (6) Peanut Brittle |
(2) | Coconut Stacks | (7) Peanut Clusters |
(3) | Home Style Poe Fudge | (8) Champion Crème Drops |
(4) | Peco Flake | (9) Jelly Candies |
(5) | Peanut Squares | (10) Frosted Pretzels |
The Champion Creme Drops, Frosted Pretzels and Jelly Candies are not produced by the Company, but repackaged for wholesale distribution.
All products are shipped to customers by commercial haulers.
Competition and Market Area
The Chase Candy Products division bars are sold primarily to wholesale candy and tobacco jobbing houses, grocery accounts, vendors and repackers. “Cherry Mash” bars are marketed in the Midwest region of the United States. For both the years ended June 30, 20132015 and 2012,2014, this division accounted for 57% and 53%, respectively,61% of the consolidated sales of Dye Candy Company.
The Seasonal Candy Products division isis. sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For both the years ended June 30, 20132015 and 2012, the2014, this division accounted for 43% and 47%, respectively,39% of the consolidated sales of Dye Candy Company.
The Company has no government contracts, foreign operations or export sales. In addition, all domestic sales are primarily in the Midwest region of the United States.
The Company is a seasonal business whereby the largest volume of sales occur in August through December of each year. The net income per quarter of the Company varies in direct proportion to the seasonal sales volume.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Competition and Market Area (Continued)
Due to the seasonal nature of the business, there is a heavier demand on working capital in the fall and winter months of the year when the Company is building its inventories in anticipation of August through December sales. The fluctuation of demand on working capital due to the seasonal nature of the business is common to the confectionery industry. If necessary, the Company has the ability to borrow short-term funds to finance operations prior to receiving cash collections from fall sales. The Company occasionally offers extended payment terms of up to sixty days. Since this practice is infrequent, the effect on working capital is minimal.
Prompt service and efficient service are traits demanded in the confectionery industry, which results in a continual low volume of back-orders. Therefore, at no time during the year does the Company have a significant amount of back-orders.
The confectionery market for the type of product produced by the divisions of Dye Candy Company is very competitive and quality minded. The confectionery (candy) industry in which the divisions operate is highly competitive with many small companies and, within certain specialized areas, a few competitors dominate. In the United States, the dominant competitors in the coconut candy industry are Crown Candy Company, Vermico Candy Company, and the Seasonal Candy DivisionProducts division of Dye Candy Company with approximately 70% of the market share among them. In the United States, Old Dominion has approximately 80% of the market share of the peanut candy business in which the Seasonal Candy DivisionProducts division operates. Dye Candy Company sells approximately 95% of its products in the Midwest region with seasonal orders being shipped to the Southern and Eastern regions of the United States. Except for the coconut candy industry, Dye Candy Company is not a dominant competitor in any of the candy industries in which it competes. Dye Candy Company’s market share in the coconut industry does not vary significantly from year to year.
Principal methods of competition the Company uses include quality of product, price, reduced transportation costs due to central location, and service. The Company’s competitive position is positively influenced by labor costs being lower than industry average. Chase General Corporation is firmly established in the confectionery market and through its operating divisions has many years of experience associated with its name.
Research and Development
The Company has not developed any new products during the fiscal years endingended June 30, 20132015 and 2012.
Raw Materials and Principal Suppliers
Raw materials and packaging materials are produced on a national basis with products coming from locations throughout the United States. Raw materials and packaging materials are generally widely available, depending on common market influences.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Patents and Trademarks
The largest single revenue producing product, the “Cherry Mash” bar, is protected by a trademark registered with The United States Patent and Trademark Office. The Company considers this trademark significant to operations. This trademark expires in the year 2023. The Company and its legal representatives do not expect any impediment to renewing this trademark prior to its expiration.
Employees
As of June 30, 2013,2015, the Company had 1721 full time employees. This expands to approximately 31 full time personnel during the busy production months of August through December.
Customers
For the years endingended June 30, 20132015 and 2012,2014, one customer accounted for 32%27% and 31%29%, respectively, of gross sales,sales. As of June 30, 2015 and 15%2014, that same customer accounted for 8% and 12%16%, respectively, of accounts receivable.trade receivables. For the years endingended June 30, 20132015 and 2012,2014, another customer and its affiliates accounted for 16%18% and 11%21%, respectively, of gross salessales. As of June 30, 2015 and 43%2014, that same customer and 30%its affiliates accounted for 47% and 46%, respectively, of accounts receivable.trade receivables. No other customer accounted for more than 10% of the Company’s sales in fiscal years 20132015 and 2012.
Environmental Protection and the paragraph below and toEffect on Probable Government Regulations on the Business
To the best of management’s knowledge, the Company is presently in compliance with all environmental laws and regulations and does not anticipate any future expenditures in this regard.
Need for the Public Building CommissionGovernment Approval of Chicago (PBC) in August 2012, alleging that the Company previously owned and operated a manufacturing facility in Chicago and that the Company is a liable party for environmental response costs incurred by the PBC in the amount of $822,642. It is the opinion of Management, after reviewing the letter with counsel, that further information is required to determine the validity of the claim, the likelihood of an unfavorable outcome to the Company, and an amount of potential loss to the Company, if any, at all. Management believes significant questions need to be resolved and answered before completing its assessment of the validity of the claim. In the event that a loss were to be incurred by the Company in connection with this claim, the loss would be material.
The Company is required to meet the FDAFood and Drug Administration guidelines for proper labeling of its products and for contents of its products.
Reports to Security Holders
The Registrant is not required to send the annual audit report, annual 10-K report and quarterly 10-Q reports to security holders since the stock is not actively traded. These reports are available at the Registrant’s registered office or they are available on-line on the SEC’s EDGAR website.
Item 1A RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 1B UNRESOLVED STAFF COMMENTS
The Company has no unresolved SEC staff comments at June 30, 2013.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Item 2 PROPERTIES
We conduct our operations from two buildings as follows:
Chase Warehouse
- This building is located in St. Joseph, Missouri and is owned by Dye Candy Company, a wholly-owned subsidiary of the registrant. The facility is currently devoted entirely to the storage of supplies, and the warehousing and shipping of candy products. This warehouse is over seventy years old, is in fair condition and adequate to meet present requirements. The warehouse has approximately 15,000 square feet and is not encumbered.Chase General Office and Dye Candy Company Operating Plant
- This building is located in St. Joseph, Missouri and contains the general offices (of approximately 2,000 square feet) for Chase General Corporation, Dye Candy Company and its divisions. The production plant of Dye Candy Company occupies the remainder of the building or 18,000 square feet. The building, specifically designed for the Company, is leased from an entity owned by the Vice-President and Director of the Company and his spouse. The annual rental expense of this facility was $78,000 for each year ended June 30,The net book value of our premises, land and office, and production equipment was $361,825totaled $360,763 and $448,616, respectively, for fiscal years ending$303,045 at June 30, 20132015 and 2012.
We believe both facilities are adequately covered by insurance.
Item 3 LEGAL PROCEEDINGS
None.
Item 4 MINE SAFETY DISCLOSURES
Not applicable.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | |
Market information
There is no established public trading market for the common stock (par value $1 per share) of the Company.
Security holders
As of September 18, 2013,21, 2015, the latest practicable date, the approximate number of record holders of common stock was 1,869, including individual participants in security listings.
Dividends
(1) | Dividend history and restrictions |
No dividends have been paid during the past two fiscal years and there are no dividend restrictions. Preferred stock dividends in arrears are accumulated.
(2) | Dividend policy |
There is no set policy on the payment of dividends due to the financial condition of the Company and other factors. It is not anticipated that cash dividends will be paid in the foreseeable future.
Securities authorized for issuance under equity compensation plans
The Company does not have any equity compensation plans.
Item 6 SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015 Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements
| |
Overview
During fiscal year ended 2013,2015, the Company’s net sales were $3,190,787,$3,223,939, as compared to net sales of $2,953,665$3,243,951 for fiscal year ended June 30, 2012.2014. This 8.0% increase1% decrease in volume combined with a 2.9% decrease1% increase in cost of sales and a 10% decrease in operating expenses resulted in increased profitability during the year, as reflected in the net income before income taxesfrom operations of $124,617$190,390 for fiscal year 20132015 compared to net loss of $151,954$157,330 for fiscal year 2012.2014. Working capital increased $136,627$110,936 to $560,106$732,063 for the current year from $423,479$621,127 for the fiscal year 20122014 due primarily to an increase in inventory, trade receivables, increase in inventories, decreases in accrued expenses, and cash offset by a decreasedecreases in current maturities of notes payable offset by decreases in cash, decreases in prepaid expenses, increases in accounts payable, and accountsincreases in income taxes payable.
The following information should be read together with the consolidated financial statements and notes thereto included elsewhere herein.
Critical Accounting Policies and Estimates
General
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
GENERAL FOR THE YEAR ENDED JUNE 30, 2015(CONTINUED)
Critical Accounting Policies and Estimates (Continued)
General (Continued)
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
There have been no other events that have occurred subsequent to June 30, 2013,2015, through the date of filing this form, that would require disclosure in the Form 10-K or would be required to be recognized in the consolidated financial statements as of or for the year ended June 30, 2013.
Revenue Recognition
The Company recognizes revenues as product is shipped to customers. Net sales are comprised of the total sales billed during the period less the estimated returns, customer allowances, and customer discounts.
Trade Receivables
Trade receivables are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Accounts receivableTrade receivables are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of accounts receivabletrade receivables are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of accounts receivabletrade receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable.trade receivables. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or to require an excessive collection cost, are written off to the allowance for doubtful accounts.
Inventories
Inventories are carried at the “lower of cost or market value,” with cost being determined on the “first-in, first-out” basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amounts of such assets to future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Results of Operations
The following table sets forth for the years indicated, the percentage of net sales of certain items in the Company’s consolidated statements of operationsincome for each of the fiscal years ended June 30, 20132015 and 2012,2014, respectively:
2013 | 2012 | |||||||
Net sales | 100.00 | % | 100.00 | % | ||||
Cost of sales | 70.39 | 78.33 | ||||||
Gross profit on sales | 29.61 | 21.67 | ||||||
Selling expense | 12.73 | 13.18 | ||||||
General and administrative expense | 13.50 | 13.66 | ||||||
Gain on sale of equipment | (0.70 | ) | (0.37 | ) | ||||
Income (loss) from operations | 4.08 | (4.80 | ) | |||||
Other income (expense), net | (0.17 | ) | (0.35 | ) | ||||
Income (loss) before income taxes | 3.91 | (5.15 | ) | |||||
Provision (credit) for income taxes | 1.52 | (1.73 | ) | |||||
Net income (loss) | 2.39 | (3.42 | ) | |||||
Preferred dividends | (4.01 | ) | (4.33 | ) | ||||
Loss applicable to common stockholders | (1.62 | )% | (7.75 | )% |
2015 | 2014 | |||||||
Net Sales | 100.00 | % | 100.00 | % | ||||
Cost of Sales | 70.34 | 68.98 | ||||||
Gross Profit on Sales | 29.66 | 31.02 | ||||||
Selling Expense | 13.15 | 12.27 | ||||||
General and Administrative Expense | 11.43 | 13.89 | ||||||
(Gain) Loss on Sale of Equipment | (0.82 | ) | - | |||||
Income from Operations | 5.90 | 4.86 | ||||||
Other Income (Expense), Net | 0.35 | (3.09 | ) | |||||
Income before Income Taxes | 6.25 | 1.77 | ||||||
Provision for Income Taxes | 1.89 | 0.21 | ||||||
Net Income | 4.36 | 1.56 | ||||||
Preferred Dividends | (3.97 | ) | (3.95 | ) | ||||
Income (Loss) Applicable to Common Stockholders | 0.39 | % | (2.39 | )% |
Fiscal Year 2015 Compared to Fiscal Year 2014
Net Sales
During the year ended June 30, 2013,2015, sales, net of returns and allowances, increased $237,122decreased $20,012 or 8.0%.6% as compared to the year ended June 30, 2012.2014. Gross sales for Chase Candy products increased decreased$247,31234,292 or 15.4%1.7% to $1,850,738$1,972,855 for the year ended June 30, 20132015 compared to $1,603,426$2,007,147 for 2012.2014. Gross sales for seasonal candySeasonal Candy products decreased $26,781$10,017 or 1.9%.8% to $1,390,273$1,286,343 for the year ended June 30, 20132015 as compared to $1,417,054$1,296,360 for 2012.2014. The Company’s returns and allowances decreased $17,755$23,181 or 22.1%33.6% to $62,456$45,864 for the year ended June 30, 2013,2015, compared to $80,211$69,045 for the year ended June 30, 2012.2014. The Company’s other sales decreased $1,164increased $1,116 or 8.7%11.8% to $12,232$10,605 for the year ended June 30, 2013,2015, compared to $13,396$9,489 for the year ended June 30, 2012.
The 15.4% increase1.7% decrease in gross sales of Chase Candy of $247,312$34,292 for the year ended June 30, 20132015 over the same period ended June 30, 2012,2014, is primarily due to the net effect of some customers decreasing orders slightly offset by other customers increasing orders. Sales for Chase Candy consisted of the following: 1) increased sales offollowing divisions: L276 Cherry Mash Bar of approximately $246,000 to three customers; 2) increased sales of the 24/12oz. bag of Bite Size Mini Mash by approximately $28,000 primarily due to the timing of Halloween orders; 3) overall decreased sales toDistributor Pack division, Cherry Mash Merchandisers of approximately $1,000; 4) overall decreased sales of the Keg ofdivision, L260 Changemaker Jar division, L279/L299 Bulk Mini Mash of approximately $4,000; 5) overall decreased sales of bulkdivision, and L278/L212 Mini Mash division. While sales did fluctuate slightly due to changes in volume and an average 9.5% price increase during the year ended June 30, 2015 over the same period ended June 30, 2014 inside those divisions, the divisions of approximately $7,000 and 6) overall decreased internet salesChase Candy remained unchanged. While there were changes in the mix of various Cherry Mash products sold, there were no major changes in the types of approximately $12,000.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Fiscal Year 2015 Compared to Fiscal Year 2014 (Continued)
Net Sales (Continued)
The 1.9%.8% decrease in gross sales of Seasonal Candy of $26,781$10,017 for the year ended June 30, 20132015 over the same period ended June 30, 2012,2014, is primarily due to the following: 1) decreasednet effect of some customers decreasing orders slightly offset by other customers increasing orders. Sales for Chase Candy consisted of the following divisions: bulk seasonal division, clamshell seasonal division, and the generic seasonal division. While sales did fluctuate slightly due to changes in volume and an average 2.8% price increase during the year ended June 30, 2015 over the same period ended June 30, 2014 inside those divisions, the divisions of bulk segment product of $4,000; 2) decreased salesSeasonal Candy remained unchanged. While there were changes in the clamshell seasonal product categorymix of approximately $9,000; and 3) decreased sales from severalproducts sold, there were no major changes in the types of customers in the generic segmentdivisions of approximately $17,000.
Cost of Sales
Cost of sales for the year ended June 30, 2013,2015, as compared to the year ended June 30, 2012, decreased2014, increased by 2.9%1.3%. The cost of sales decreased increased$67,49829,945to$2,246,0002,267,783 while decreasingincreasing to 70.4%70.3% of related revenuesnet sales for the year ended June 30, 2013,2015, compared to $2,313,498$2,237,838 or 78.3%69.0% of related revenuesnet sales for the year ended June 30, 2012.
The 2.9% decrease1.3% increase in cost of sales of $67,498$29,945 is primarily due toincreased labor costs, a 53% decrease5% increase in the raw material costsmaterials cost of peanuts compared to the same period ended June 30, 2012. The decrease in cost of sales was partially2014 offset by the 8.0% increase inan decrease of .6% of net sales of $237,122.sales. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.
Labor costs, including wages, vacation pay and payroll taxes of $439,282$504,973 for the year ended June 30, 2013,2015, increased 12.8%15.2% or $49,700$66,492 as compared to $389,582$438,481 for the period ending 2012. The increase wasended 2014 primarily due to increased production.
Freight expense, including shipping and handling costs on goods shipped of $187,778 for the year ended June 30, 2015, increased 6.7% or $11,792 as compared to $175,986 for the period ended 2014 due primarily to an increase in fuel costs and an increase in refrigeration costs due to weather conditions.
Gross Profit on Sales
The gross profit increased 47.6%decreased 5.0% or $304,620$49,957 to $944,787 increasing$956,156 decreasing to 29.6%29.7% of related net sales for the year ended June 30, 2013,2015, as compared to $640,167$1,006,113 or 21.67%31.0% of related net sales for the year ended June 30, 2012,2014, as a result of the overall increasedecrease in net sales and decreaseincrease in cost of sales.
Finished goods inventory as of June 30, 20132015 of $258,392$377,853 increased $20,823$119,127 or 8.8%46.0% from the June 30, 20122014 finished goods inventory of $237,569.$258,726. Raw materials inventory as of June 30, 20132015 of $81,515$90,506 increased $15,603$10,418 or 23.7%13.0% from the June 30, 20122014 raw materials inventory of $65,912.$80,088. Packaging materials inventory as of June 30, 20132015 of $158,283 increased $26,596$130,726 decreased $14,320 or 20.2%9.9% from June 30, 20122014 packaging materials inventory of $131,687.$145,046. Goods in process inventory as of June 30, 20132015 of $10,942 decreased $1,922$13,815 increased $1,865 or 14.9%15.6% from the June 30, 20122014 goods in process inventory of $12,864.$11,950. Inventory levels vary based primarily on sales and purchasespurchases.
Chase General Corporation.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Fiscal Year 2015 Compared to Fiscal Year 2014 (Continued)
Selling Expenses
Selling expenses for the year ended June 30, 20132015 increased $16,985$25,675 to $406,247,$423,802, which is 12.7%13.2% of net sales, compared to $389,262$398,127 or 13.1%12.3% of net sales for the year June 30, 2012.2014. This increase is primarily due to higher premium promotions being paid and higher customer show expenses for the period in an effort to increase sales volume.depreciation expense. Premium promotions, which are paid to customers for various marketing reasons, increased $8,844 or 14.3%$10,336 to $70,833$72,744 for the year ended June 30, 2013,2015, as compared to $61,989 for the year ending June 30, 2012. Customer show expense increased $6,122 or 376.7% to $7,747$62,408 for the year ended June 30, 2013,2014. Depreciation expense increased $7,041 to $40,542 for the year ended June 30, 2015, as compared to $1,625$33,501 for the year endingended June 30, 2012.
General and Administrative Expenses
General and administrative expenses for the year ended June 30, 2013 increased $27,2082015 decreased $82,097 to $430,776,$368,466, which is 13.5%11.4% of net sales, compared to $403,568$450,563 or 13.7% of sales for the year ended June 30, 2012. This increase is primarily due to increased professional fees due to higher legal fees offset by a decrease in general taxes and license expense due to decreased personal property taxes. Professional fees increased $35,661 or 33.5% to $142,225 for the year ended June 30, 2013, as compared to $106,564 for the year ending June 30, 2012. General taxes and license decreased $7,269 or 51.7% to $6,798 for the year ended June 30, 2013, as compared to $14,067 for the year ending June 30, 2012.
Income from Operations
Income from operations for the year ended June 30, 2015 was 5.9% of net sales, as compared to 4.9% of net sales for the year ended June 30, 2014 for the reasons previously described above.
Other Income (Expense)
Other income (expense), net, reflects net expenseincome of $(5,401)$11,368 for the year endedJune 30, 20132015, as compared to net expense of $(10,220)$(100,386) for the year endedJune 30, 20122014. This decreaseincrease of $4,819$111,754 in other income (expense) was primarily due to decreased interest expense.
Income (loss)before Income Taxes
Income before income taxes was $124,617$201,758 for the year ended June 30, 2013,2015, as compared to $(151,954)$56,944 for the year ended June 30, 2012.2014. The reasons for the increase of $276,571$144,814 have been previously discussed above.
Provision for Income Taxes
The Company recorded income tax expense (credit) for the year ended June 30, 20132015 of $48,600$60,849 ascompared to an income tax expense (credit) of $(51,068)$6,676 for the year endedJune 30, 20122014. The income tax expense (credit) for the year endedJune 30, 2013 2015is a result of operations previously discussed above.discussed.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Fiscal Year 2015 Compared to Fiscal Year 2014 (Continued)
Net Income
Net income for the year ended June 30, 20132015 was $76,017,$140,919, compared to a net lossincome for the year ended June 30, 20122014 of $(100,886).$50,268. This increase of $171,903$90,641 is the result of those items previously discussed above.
Liquidity and Sources of Capital
The table below presents the summary of cash flow for the fiscal year indicated.
2013 | 2012 | |||||||
Net cash provided by operating activities | $ | 101,109 | $ | 37,552 | ||||
Net cash provided by (used in) investing activities | $ | 18,751 | $ | (22,680 | ) | |||
Net cash used in financing activities | $ | (109,245 | ) | $ | (15,695 | ) |
2015 | 2014 | |||||||
Net Cash Provided by Operating Activities | $ | 55,681 | $ | 230,410 | ||||
Net Cash Used in Investing Activities | $ | (108,798 | ) | $ | (28,767 | ) | ||
Net Cash Used in Financing Activities | $ | (25,114 | ) | $ | (67,772 | ) |
Operating Activities
The positive cash flow of $101,109$55,681 generated from operations is a result of increasessmall fluctuations in net sales, decreases in operating expenses and the Company continuing to monitor raw material pricing, and when a price increase or decrease is anticipated, adjustments to inventory levels are made accordingly. During the year ended June 30, 2013,2015, sales, net of returns and allowances, increased $237,122decreased $20,012 or 8.0%.6% as compared to the year ended June 30, 2012.2014. Total inventory as of June 30, 20132015 of $509,132$601,896 increased $61,100$106,086 or 13.6%21.4% from the June 30, 20122014 total inventory of $448,032.$495,810. The timing of inventory purchases and collections from customers impact cash flow generated from operations.
Investing Activities
Machinery and equipment cash purchases of $3,749$108,798 and $45,680$28,767 were made during the years ended June 30, 20132015 and 2012,2014, respectively. Depending on results of operations and cash flows, the Company has plans to replace two cookers at an anticipated cost of $40,000 in the next several years, with no set target date.
Financing Activities
The Company borrowed $310,050$265,000 and $290,000, respectively, on its line-of-credit during the fall of 20122014 (fiscal 2015) and 20112013 (fiscal 2014) busy seasons. Payments of $350,050$265,000 and $250,000,$290,000, respectively, were paid for years endingended June 30, 20132015 and 2012.2014. The Company entered into a $350,000 line-of-credit agreement expiring onJanuary 3, 2014,2016, with a variable interest rate at prime but not less than 5%. The line-of-credit agreement replaced two existing line-of-credit agreements that expired on January 3, 2013. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.
Loan payments were $69,245$25,114 and $55,695$67,772 for years ended June 30, 20132015 and 2012,2014, respectively.
Overall cash and cash equivalents increased $10,615decreased $78,231 to $28,564$84,204 at June 30, 20132015 from $17,949$162,435 at June 30, 2012.
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Fiscal Year 2015 Compared to Fiscal Year 2014 (Continued)
Liquidity and Sources of Capital (Continued)
Financing Activities (Continued)
At June 30, 2013,2015, the Company’s accumulated deficit was $5,647,879,$5,497,402, compared to an accumulated deficit of $5,764,596$5,638,311 as of June 30, 2012.2014. Working capital as of June 30, 20132015 increased $136,627$110,936 to $560,106$732,063 from $423,479$621,127 as of June 30, 2012.
The Company’s lease on its office and plant facility is effective through March 31, 2025, with an option to extend for an additional time of five years, and currently requires payments of $6,500 per month. At the end of each five year period, the base rent may be increased an amount not greater than 30%, at the sole discretion of lessor. The facility is leased from an entity owned 100% by the Vice-President and Director and his spouse.
In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area and increase sales to its customers. Management also intends to continue tight control on all expenditures.
There has been no other material impact from inflation and changing prices on net sales, or on income from continuing operations for the last two fiscal years.
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
Item 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements meeting the requirements of Regulation S-B are contained on pages 16 through 32 of this Form 10-K.
Chase General Corporation AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
TABLE OF CONTENTS
FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 17 | |
18 | ||
CONSOLIDATED BALANCE SHEETS | ||
20 | ||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | 21 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | 22 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 23 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
CHASE GENERAL CORPORATION AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of Chase General Corporation and Subsidiary (the “Company”)Company) as of June 30, 20132015 and 2012,2014, and the related consolidated statements of operations,income, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatementmisstatement.. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chase General Corporation and Subsidiary as of June 30, 20132015 and 2012,2014, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Mayer Hoffman McCann P.C.
MAYER HOFFMAN MCCANN P.C.
Kansas
September 19, 2013
2013 | 2012 | |||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 28,564 | $ | 17,949 | ||||
Trade receivables, net of allowance for doubtful accounts, of $16,196 and $15,102, respectively | 166,585 | 139,963 | ||||||
Inventories: | ||||||||
Finished goods | 258,392 | 237,569 | ||||||
Goods in process | 10,942 | 12,864 | ||||||
Raw materials | 81,515 | 65,912 | ||||||
Packaging materials | 158,283 | 131,687 | ||||||
Prepaid expenses | 5,414 | 11,517 | ||||||
Deferred income taxes | 6,863 | 7,277 | ||||||
Total current assets | 716,558 | 624,738 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 35,000 | 35,000 | ||||||
Buildings | 77,348 | 77,348 | ||||||
Machinery and equipment | 717,985 | 776,462 | ||||||
Trucks and autos | 188,594 | 188,594 | ||||||
Office equipment | 30,826 | 30,826 | ||||||
Leasehold improvements | 72,068 | 71,481 | ||||||
Total | 1,121,821 | 1,179,711 | ||||||
Less accumulated depreciation | 759,996 | 731,095 | ||||||
Total property and equipment, net | 361,825 | 448,616 | ||||||
TOTAL ASSETS | $ | 1,078,383 | $ | 1,073,354 |
CHASE GENERAL CORPORATION AND SUBSIDIARY | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
JUNE 30, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and Cash Equivalents | $ | 84,204 | $ | 162,435 | ||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $16,296 and $16,508, Respectively | 187,607 | 178,686 | ||||||
Inventories: | ||||||||
Finished Goods | 377,853 | 258,726 | ||||||
Goods in Process | 13,815 | 11,950 | ||||||
Raw Materials | 90,506 | 80,088 | ||||||
Packaging Materials | 130,726 | 145,046 | ||||||
Prepaid Expenses | 5,689 | 12,233 | ||||||
Deferred Income Taxes | 7,288 | 7,047 | ||||||
Total Current Assets | 897,688 | 856,211 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 35,000 | 35,000 | ||||||
Buildings | 77,348 | 77,348 | ||||||
Machinery and Equipment | 807,325 | 739,962 | ||||||
Trucks and Autos | 198,845 | 188,594 | ||||||
Office Equipment | 31,518 | 31,518 | ||||||
Leasehold Improvements | 72,068 | 72,068 | ||||||
Total | 1,222,104 | 1,144,490 | ||||||
Less Accumulated Depreciation | 861,341 | 841,445 | ||||||
Total Property and Equipment, Net | 360,763 | 303,045 | ||||||
Total Assets | $ | 1,258,451 | $ | 1,159,256 |
The accompanying notes are an integral part of the consolidated financial statements.
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
2013 | 2012 | |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 66,598 | $ | 78,798 | ||||
Current maturities of notes payable | 54,172 | 97,266 | ||||||
Accrued expenses | 27,466 | 23,896 | ||||||
Income taxes payable | 3,711 | - | ||||||
Deferred income | 1,299 | 1,299 | ||||||
Total current liabilities | 153,246 | 201,259 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred income | 13,960 | 15,259 | ||||||
Notes payable, less current maturities | 39,787 | 105,938 | ||||||
Deferred income taxes | 93,973 | 49,498 | ||||||
Total long-term liabilities | 147,720 | 170,695 | ||||||
Total liabilities | 300,966 | 371,954 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock issued and outstanding: | ||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||
Series A (liquidation preference $2,160,000 and $2,130,000, respectively) | 500,000 | 500,000 | ||||||
Series B (liquidation preference $2,115,000 and $2,085,000, respectively) | 500,000 | 500,000 | ||||||
Cumulative preferred stock, $20 par value Series A (liquidation preference $4,902,131 and $4,843,598, respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (liquidation preference $798,899 and $789,360, respectively) | 190,780 | 190,780 | ||||||
Common stock, $1 par value | 969,834 | 969,834 | ||||||
Paid-in capital in excess of par | 3,134,722 | 3,134,722 | ||||||
Accumulated deficit | (5,688,579 | ) | (5,764,596 | ) | ||||
Total stockholders’ equity | 777,417 | 701,400 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,078,383 | $ | 1,073,354 |
CHASE GENERAL CORPORATION AND SUBSIDIARY | ||||||||
CONSOLIDATED BALANCE SHEETS (CONTINUED) | ||||||||
JUNE 30, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts Payable | $ | 111,944 | $ | 51,947 | ||||
Current Maturities of Notes Payable | 8,297 | 21,537 | ||||||
Accrued Expenses | 17,966 | 139,098 | ||||||
Income Taxes Payable | 26,119 | 21,203 | ||||||
Deferred Income | 1,299 | 1,299 | ||||||
Total Current Liabilities | 165,625 | 235,084 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred Income | 11,362 | 12,661 | ||||||
Notes Payable, Less Current Maturities | 14,004 | 4,650 | ||||||
Deferred Income Taxes | 98,866 | 79,176 | ||||||
Total Long-Term Liabilities | 124,232 | 96,487 | ||||||
Total Liabilities | 289,857 | 331,571 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital Stock Issued and Outstanding: | ||||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
Series A (Liquidation Preference $2,220,000 and $2,190,000, Respectively) | 500,000 | 500,000 | ||||||
Series B (Liquidation Preference $2,175,000 and $2,145,000, Respectively) | 500,000 | 500,000 | ||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
Series A (Liquidation Preference $5,019,197 and $4,960,664, Respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (Liquidation Preference $817,977 and $808,438, Respectively) | 190,780 | 190,780 | ||||||
Common Stock, $1 Par Value | 969,834 | 969,834 | ||||||
Paid-In Capital in Excess of Par | 3,134,722 | 3,134,722 | ||||||
Accumulated Deficit | (5,497,402 | ) | (5,638,311 | ) | ||||
Total Stockholders’ Equity | 968,594 | 827,685 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 1,258,451 | $ | 1,159,256 |
The accompanying notes are an integral part of the consolidated financial statements.
2013 | 2012 | |||||||
NET SALES | $ | 3,190,787 | $ | 2,953,665 | ||||
COST OF SALES | 2,246,000 | 2,313,498 | ||||||
Gross profit on sales | 944,787 | 640,167 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 406,247 | 389,262 | ||||||
General and administrative | 430,776 | 403,568 | ||||||
Gain on sale of equipment | (22,254 | ) | (10,929 | ) | ||||
Total operating expenses | 814,769 | 781,901 | ||||||
Income (loss) from operations | 130,018 | (141,734 | ) | |||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous income | 1,913 | 1,774 | ||||||
Interest expense | (7,314 | ) | (11,994 | ) | ||||
Total other income (expense), net | (5,401 | ) | (10,220 | ) | ||||
Income (loss) before income taxes | 124,617 | (151,954 | ) | |||||
PROVISION (CREDIT) FOR INCOME TAXES | 48,600 | (51,068 | ) | |||||
NET INCOME (LOSS) | $ | 76,017 | $ | (100,886 | ) | |||
NET LOSS PER SHARE OF COMMON STOCK | ||||||||
- BASIC | $ | (0.05 | ) | $ | (0.24 | ) | ||
- DILUTED | $ | (0.05 | ) | $ | (0.24 | ) |
CHASE GENERAL CORPORATION AND SUBSIDIARY | ||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
YEARS ENDED JUNE 30, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
NET SALES | $ | 3,223,939 | $ | 3,243,951 | ||||
COST OF SALES | 2,267,783 | 2,237,838 | ||||||
Gross Profit on Sales | 956,156 | 1,006,113 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 423,802 | 398,127 | ||||||
General and Administrative | 368,466 | 450,563 | ||||||
(Gain) Loss on Sale of Equipment | (26,502 | ) | 93 | |||||
Total Operating Expenses | 765,766 | 848,783 | ||||||
Income from Operations | 190,390 | 157,330 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income (Expense) | 13,592 | (96,513 | ) | |||||
Interest Expense | (2,224 | ) | (3,873 | ) | ||||
Total Other Income (Expense), Net | 11,368 | (100,386 | ) | |||||
Net Income before Income Taxes | 201,758 | 56,944 | ||||||
�� | ||||||||
PROVISION FOR INCOME TAXES | 60,849 | 6,676 | ||||||
NET INCOME | $ | 140,909 | $ | 50,268 | ||||
NET INCOME (LOSS) PER SHARE OF COMMON STOCK | ||||||||
- BASIC | $ | 0.01 | $ | (0.08 | ) | |||
- DILUTED | $ | 0.01 | $ | (0.08 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
Prior Cumulative | Cumulative | |||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common | Paid-In | Accumulated | ||||||||||||||||||||||||||||
Series A | Series B | Series A | Series B | Stock | Capital | Deficit | Total | |||||||||||||||||||||||||
BALANCE, JUNE 30, 2011 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,663,710 | ) | $ | 802,286 | |||||||||||||||
Net loss | - | - | - | - | - | - | (100,886 | ) | (100,886 | ) | ||||||||||||||||||||||
BALANCE, JUNE 30, 2012 | 500,000 | 500,000 | 1,170,660 | 190,780 | 969,834 | 3,134,722 | (5,764,596 | ) | 701,400 | |||||||||||||||||||||||
Net income | - | - | - | - | - | - | 76,017 | 76,017 | ||||||||||||||||||||||||
BALANCE, JUNE 30, 2013 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,688,579 | ) | $ | 777,417 |
CHASE GENERAL CORPORATION AND SUBSIDIARY | ||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
YEARS ENDED JUNE 30, 2015 AND 2014 | ||||||||||||||||||||||||||||||||
Prior Cumulative | Cumulative | |||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common | Paid-In | Accumulated | ||||||||||||||||||||||||||||
Series A | Series B | Series A | Series B | Stock | Capital | Deficit | Total | |||||||||||||||||||||||||
BALANCE, JUNE 30, 2013 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,688,579 | ) | $ | 777,417 | |||||||||||||||
Net income | - | - | - | - | - | - | 50,268 | 50,268 | ||||||||||||||||||||||||
BALANCE, JUNE 30, 2014 | 500,000 | 500,000 | 1,170,660 | 190,780 | 969,834 | 3,134,722 | (5,638,311 | ) | 827,685 | |||||||||||||||||||||||
Net income | - | - | - | - | - | - | 140,909 | 140,909 | ||||||||||||||||||||||||
BALANCE, JUNE 30, 2015 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,497,402 | ) | $ | 968,594 |
The accompanying notes are an integral part of the consolidated financial statements.
2013 | 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Collections from customers | $ | 3,164,165 | $ | 2,975,372 | ||||
Deferred income | 1,299 | 1,299 | ||||||
Cost of sales, selling, general and administrative expenses paid | (3,057,008 | ) | (2,927,158 | ) | ||||
Interest paid | (7,347 | ) | (11,961 | ) | ||||
Income taxes paid | - | - | ||||||
Net cash provided by operating activities | 101,109 | 37,552 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from sale of equipment | 22,500 | 23,000 | ||||||
Purchases of property and equipment | (3,749 | ) | (45,680 | ) | ||||
Net cash provided by (used in) investing activities | 18,751 | (22,680 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from line-of-credit | 310,050 | 290,000 | ||||||
Principal payments on line-of-credit | (350,050 | ) | (250,000 | ) | ||||
Proceeds from notes payable - stockholder | - | 100,000 | ||||||
Principal payments on notes payable - stockholder | - | (100,000 | ) | |||||
Principal payments on notes payable | (69,245 | ) | (55,695 | ) | ||||
Net cash used in financing activities | (109,245 | ) | (15,695 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 10,615 | (823 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 17,949 | 18,772 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 28,564 | $ | 17,949 | ||||
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH | ||||||||
PROVIDED BY OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | 76,017 | $ | (100,886 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 90,294 | 110,147 | ||||||
Allowance for bad debts | 1,741 | (281 | ) | |||||
Deferred income amortization | (1,299 | ) | (1,299 | ) | ||||
Deferred income taxes | 44,889 | (51,098 | ) | |||||
Gain on sale of equipment | (22,254 | ) | (10,929 | ) | ||||
Effects of changes in operating assets and liabilities: | ||||||||
Trade receivables | (28,363 | ) | 21,988 | |||||
Inventories | (61,100 | ) | 95,692 | |||||
Prepaid expenses | 6,103 | (6,470 | ) | |||||
Accounts payable | (12,200 | ) | (25,998 | ) | ||||
Accrued expenses | 3,570 | 6,686 | ||||||
Income taxes payable | 3,711 | - | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 101,109 | $ | 37,552 |
CHASE GENERAL CORPORATION AND SUBSIDIARY | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
YEARS ENDED JUNE 30, 2015 AND 2014 | ||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Collections from Customers | $ | 3,215,018 | $ | 3,231,850 | ||||
Deferred Income | 1,299 | 1,299 | ||||||
Cost of Sales, Selling, General and Administrative Expenses Paid | (3,121,928 | ) | (2,994,761 | ) | ||||
Interest Paid | (2,224 | ) | (3,873 | ) | ||||
Income Taxes Paid | (36,484 | ) | (4,105 | ) | ||||
Net Cash Provided by Operating Activities | 55,681 | 230,410 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of Property and Equipment | (108,798 | ) | (28,767 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 265,000 | 290,000 | ||||||
Principal Payments on Line-of-Credit | (265,000 | ) | (290,000 | ) | ||||
Principal Payments on Notes Payable | (25,114 | ) | (67,772 | ) | ||||
Net Cash Used by Financing Activities | (25,114 | ) | (67,772 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (78,231 | ) | 133,871 | |||||
Cash and Cash Equivalents, Beginning of Year | 162,435 | 28,564 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 84,204 | $ | 162,435 | ||||
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
Net Income | $ | 140,909 | $ | 50,268 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 98,810 | 87,454 | ||||||
Allowance for Bad Debts | (412 | ) | 1,713 | |||||
Deferred Income Amortization | (1,299 | ) | (1,299 | ) | ||||
Deferred Income Taxes | 19,449 | (14,981 | ) | |||||
(Gain) Loss on Sale of Equipment | (26,502 | ) | 93 | |||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | (8,509 | ) | (13,814 | ) | ||||
Inventories | (117,090 | ) | 13,322 | |||||
Prepaid Expenses | 6,544 | (6,819 | ) | |||||
Accounts Payable | 59,997 | (14,651 | ) | |||||
Accrued Expenses | (121,132 | ) | 111,632 | |||||
Income Taxes Payable | 4,916 | 17,492 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 55,681 | $ | 230,410 |
The accompanying notes are an integral part of the consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business
Chase General Corporation (the Company) was incorporated on November 6, 1944 in the Statestate of Missouri for the purpose of manufacturing confectionery products. The Company grants credit terms to substantially all customers, consisting of repackers, grocery accounts, and national syndicate accounts, who are primarily located in the Midwest region of the United States.
Significant accounting policies are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Dye Candy Company. All intercompany transactions and balances have been eliminated in consolidation.
Segment Reporting of the Business
The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. The products of both divisions are sold to the same type of customers in the same geographical areas. In addition, both divisions share a common labor force and utilize the same basic equipment and raw materials. Management considers these two divisions as one reportable segment in these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition(CONTINUED)
The Company recognizes revenues as product is shipped to customers. Net sales are comprised of the total sales billed during the period, including shipping and handling charges to customers, less the estimated returns, customer allowances and customer discounts.
CHASE GENERAL CORPORATION AND HANDLING COSTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Shipping and Handling Costs
Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for the years ended June 30, 20132015 and 20122014 was $150,787$187,778 and $136,023,$175,986, respectively.
Trade Receivables
Trade receivables are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Accounts receivableTrade receivables are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of accounts receivabletrade receivables are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of accounts receivabletrade receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable.trade receivables. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or tothat require an excessive collection cost, are written off to the allowance for doubtful accounts.
Inventories
Inventories are carried at the “lower of cost or market value” with cost being determined on the “first-in, first-out” basis of accounting. FinishedThe cost of finished goods and goods in process inventories include a provisionan estimate for manufacturing overhead.
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Property and Equipment(CONTINUED)
The Company’s property and equipment is recorded at cost and is being depreciated on straight-line and accelerated methods over the following estimated useful lives:
Buildings | 39 years |
Machinery and equipment | 5 |
Trucks and autos | 5 years |
Office equipment | 5 |
Leasehold improvements | Lesser of estimated |
useful life or the | |
lease term |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.
Income Taxes
Deferred income taxes are provided using the liability method for temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred income tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred income tax assets are only recognized if it is more likely than not that a tax position will be realized or sustained upon examination by the relevant taxing authority. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred income tax assets will not be realized. Deferred income tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the dates of enactment.
The Company’s policy is to evaluate uncertain tax positions under the guidance as prescribed by Accounting Standards Codification (ASC) 740,Income Taxes. As of June 30, 2013,2015 and 2014, the Company has not identified any uncertain tax positions requiring recognition in the consolidated financial statements. The Company had no accruals for interest or penalties as of June 30, 2015 and 2014.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted Earnings Per Common Shareearnings per common share shall be computed by including contingently issuable shares with the weighted average shares outstanding during the period. When inclusion of the contingently issuable shares would have an antidilutive effect upon earnings per share, diluted earnings per share will be calculated in the same manner as basic earnings per share.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Earnings Per Common Share (Continued)
The following table details out the contingently issuable shares as for 2015 and 2014. For 2014, the contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share:
2013 | 2012 | |||||||
Shares issuable upon conversion of Series A | ||||||||
Prior Cumulative Preferred Stock | 400,000 | 400,000 | ||||||
Shares issuable upon conversion of Series B | ||||||||
Prior Cumulative Preferred Stock | 375,000 | 375,000 | ||||||
Shares issuable upon conversion of Series A | ||||||||
Cumulative Preferred Stock | 222,133 | 222,133 | ||||||
Shares issuable upon conversion of Series B | ||||||||
Cumulative Preferred Stock | 36,201 | 36,201 |
2015 | 2014 | |||||||
Shares Issuable Upon Conversion of Series A | ||||||||
Prior Cumulative Preferred Stock | 400,000 | 400,000 | ||||||
Shares Issuable Upon Conversion of Series B | ||||||||
Prior Cumulative Preferred Stock | 375,000 | 375,000 | ||||||
Shares Issuable Upon Conversion of Series A | ||||||||
Cumulative Preferred Stock | 222,133 | 222,133 | ||||||
Shares Issuable Upon Conversion of Series B | ||||||||
Cumulative Preferred Stock | 36,201 | 36,201 | ||||||
Total Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 |
Advertising Expense
Advertising is expensed when incurred. Advertising expense was $6,850$13,791 and $4,512$8,545 for the years ended June 30, 20132015 and 2012,2014, respectively.
NOTE 2 | FORGIVABLE LOAN AND DEFERRED INCOME |
During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of January 3, 2010. The Company met the criteria of occupying a 20,000 square foot building and creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs during the five year term. Notice was received February 6, 2009 from the Buchanan County Commission, that the Company had fulfilled its minimum loan requirements so that the loan was forgiven in full and has no further obligations. Since the Company was no longer legally required to return the monies, the liability was reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. Deferred revenue is recognized on a straight line basis over the lease term of 20 years. During the years ended June 30, 20132015 and 2012,2014, deferred revenue of $1,299 was amortized into income for each year.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 | NOTES PAYABLE |
The Company’s long-term debt at June 30, 2015 and 2014 consists of:
Payee | Terms | 2013 | 2012 | |||||||
Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 3, 2014, with a variable interest rate at prime but not less than 5%. The line-of-credit agreement replaced two existing line-of-credit agreements that expired on January 3, 2013. The line-of-credit is collateralized by substantially all assets of the Company. | $ | - | $ | 40,000 | |||||
Ford Credit | $679 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle. | 22,413 | 30,563 | |||||||
Ford Credit | $517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle. | 17,050 | 23,250 | |||||||
Nodaway Valley Bank | $3,192, including interest of 5.75%; final payment due June 2015, secured by equipment. | 48,698 | 84,309 | |||||||
Toyota Financial Services | $502 monthly payments including interest of 4.9%, secured by a vehicle. Paid in full during 2013. | - | 15,438 | |||||||
Toyota Financial Services | $305 monthly payments including interest of 2.9% due March 2015, secured by a vehicle. | 5,798 | 9,644 | |||||||
Total | 93,959 | 203,204 | ||||||||
Less current portion | 54,172 | 97,266 | ||||||||
Long-term portion | $ | 39,787 | $ | 105,938 |
Payee | Terms | 2015 | 2014 | |||||||
Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 3, 2016, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. | $ | - | $ | - | |||||
Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 19,151 | - | |||||||
Ford Credit | $517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle. | 3,150 | 10,850 | |||||||
Nodaway Valley Bank | $3,192, including interest of 5.75%; final payment due June 2015, secured by equipment; paid in full in December 2014. | - | 12,547 | |||||||
Toyota Financial Services | $305 monthly payments including interest of 2.9% due March 2015, secured by a vehicle; paid in full in December 2014 | - | 2,790 | |||||||
Total | 22,301 | 26,187 | ||||||||
Less current portion | 8,297 | 21,537 | ||||||||
Long-term portion | $ | 14,004 | $ | 4,650 | ||||||
Future minimum payments are: | ||||||||||
2016 | $ | 8,297 | ||||||||
2017 | 5,298 | |||||||||
2018 | 5,454 | |||||||||
2019 | 3,252 | |||||||||
Total | $ | 22,301 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2014 | $ | 54,172 | ||
2015 | 29,025 | |||
2016 | 10,762 | |||
Total | $ | 93,959 |
NOTE 4 | CAPITAL STOCK |
Capital stock authorized, issued, and outstanding as of June 30, 20132015 is as follows:
Shares | ||||||||
Issued and | ||||||||
Authorized | Oustanding | |||||||
Prior Cumulative Preferred Stock, $5 par value: | ||||||||
6% Convertible | 240,000 | |||||||
Series A | 100,000 | |||||||
Series B | 100,000 | |||||||
Cumulative Preferred Stock, $20 par value: | ||||||||
5% Convertible | 150,000 | |||||||
Series A | 58,533 | |||||||
Series B | 9,539 | |||||||
Common Stock, $1 par value: | ||||||||
Reserved for conversion of | ||||||||
Preferred Stock - 1,030,166 shares | 2,000,000 | 969,834 |
Shares | ||||||||
Issued and | ||||||||
Authorized | Outstanding | |||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
6% Convertible | 240,000 | |||||||
Series A | 100,000 | |||||||
Series B | 100,000 | |||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
5% Convertible | 150,000 | |||||||
Series A | 58,533 | |||||||
Series B | 9,539 | |||||||
Common Stock, $1 Par Value: | ||||||||
Reserved for Conversion of | ||||||||
Preferred Stock - 1,030,166 shares | 2,000,000 | 969,834 |
Cumulative Preferred Stock dividends in arrears at June 30, 20132015 and 20122014 totaled $7,564,590$7,820,734 and $7,436,518,$7,692,662, respectively. Total dividends in arrears, on a per share basis, consist of the following at June 30, 20132015 and 2012:
2013 | 2012 | |||||||
6% Convertible | ||||||||
Series A | $ | 16.35 | $ | 16.05 | ||||
Series B | $ | 15.90 | $ | 15.60 | ||||
5% Convertible | ||||||||
Series A | $ | 63.75 | $ | 62.75 | ||||
Series B | $ | 63.75 | $ | 62.75 |
2015 | 2014 | |||||||
6% Convertible | ||||||||
Series A | $ | 16.95 | $ | 16.65 | ||||
Series B | $ | 16.50 | $ | 16.20 | ||||
5% Convertible | ||||||||
Series A | $ | 65.75 | $ | 64.75 | ||||
Series B | $ | 65.75 | $ | 64.75 |
The 6% convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 a share plus unpaid accrued dividends to date of redemption. In the event of voluntary liquidation, holders of this stock are entitled to receive $5.25 per share plus accrued dividends. Cumulative preferred stock may be exchanged for common stock at the option of the shareholders in the ratio of 4 common shares for one share of Series A and 3.75 common shares for one share of Series B.
The Company has the privilege of redemption of 5% convertible cumulative preferred stock at $21.00 a share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20.00 a share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 | INCOME TAX |
The income tax positions taken for open years are appropriately stated and supported for all open years. The Company’s federal tax returns for the fiscal years ended 2010, 2011,2012, 2013, and 20122014 are subject to examination by the IRS taxing authority.
The sources of deferred income tax assets and liability at June 30, 20132015 and 20122014 are as follows:
2013 | 2012 | |||||||
Deferred income tax assets: | ||||||||
Inventories | $ | 688 | $ | 588 | ||||
Trade receivables | 6,175 | 5,135 | ||||||
Contribution carryover | - | 1,554 | ||||||
Deferred income | 5,818 | 5,630 | ||||||
Net operating loss carryover | - | 50,507 | ||||||
Total deferred income tax assets | 12,681 | 63,414 | ||||||
Deferred income tax liability: | ||||||||
Property and equipment | (99,791 | ) | (105,635 | ) | ||||
NET DEFERRED INCOME TAX LIABILITY | $ | (87,110 | ) | $ | (42,221 | ) |
2015 | 2014 | |||||||
Deferred Income Tax Assets: | ||||||||
Inventories | $ | 1,075 | $ | 753 | ||||
Trade Receivables | 6,213 | 6,294 | ||||||
Deferred Income | 4,828 | 5,323 | ||||||
Total Deferred Income Tax Assets | 12,116 | 12,370 | ||||||
Deferred Income Tax Liability: | ||||||||
Property and Equipment | (103,694 | ) | (84,499 | ) | ||||
NET DEFERRED INCOME TAX LIABILITY | $ | (91,578 | ) | $ | (72,129 | ) |
The net deferred income tax asset (liability) is presented in the accompanying June 30, 20132015 and 20122014 consolidated balance sheets as follows:
2013 | 2012 | |||||||
Current deferred income tax asset | $ | 6,863 | $ | 7,277 | ||||
Noncurrent deferred income tax liability | (93,973 | ) | (49,498 | ) | ||||
NET DEFERRED INCOME TAX LIABILITY | $ | (87,110 | ) | $ | (42,221 | ) |
2015 | 2014 | |||||||
Current Deferred Income Tax Asset | $ | 7,288 | $ | 7,047 | ||||
Noncurrent Deferred Income Tax Liability | (98,866 | ) | (79,176 | ) | ||||
NET DEFERRED INCOME TAX LIABILITY | $ | (91,578 | ) | $ | (72,129 | ) |
The provision (credit) for income taxes for the years ended June 30, 20132015 and 2012,2014 consists of the following:
2013 | 2012 | |||||||
Current income tax expense | $ | 3,711 | $ | 30 | ||||
Deferred income tax expense | 44,889 | (51,098 | ) | |||||
$ | 48,600 | $ | (51,068 | ) |
2015 | 2014 | |||||||
Current Income Tax Expense | $ | 41,400 | $ | 21,657 | ||||
Deferred Income Tax Expense (Credit) | 19,449 | (14,981 | ) | |||||
$ | 60,849 | $ | 6,676 |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 | INCOME TAX (CONTINUED) |
The income tax provision differs from the amount of income tax determined by applying the statutory federal income tax rate to pretax income for the years ended June 30, 20132015 and 20122014 due to the following:
2013 | 2012 | |||||||
Computed at federal statutory rates | $ | 42,370 | $ | (51,665 | ) | |||
Increase (decrease) in income taxes (benefits) | ||||||||
resulting from: | ||||||||
Deferred income tax rate adjustment | 4,568 | - | ||||||
Other | (3,948 | ) | 597 | |||||
State income taxes | 5,610 | - | ||||||
$ | 48,600 | $ | (51,068 | ) |
2015 | 2014 | |||||||
Computed at Federal Statutory Rate of 34% | $ | 68,623 | $ | 19,367 | ||||
Increase (Decrease) in Income Taxes Resulting from: | ||||||||
Statutory Rate Adjustment | (10,129 | ) | (11,750 | ) | ||||
Other | (3,681 | ) | (2,902 | ) | ||||
State Income Taxes | 6,036 | 1,961 | ||||||
$ | 60,849 | $ | 6,676 |
NOTE 6 | INCOME (LOSS) PER SHARE |
The income (loss) per share for the years ended June 30, 2015 and 2014, respectively, was computed on the weighted average of outstanding common shares during the year as follows:
2013 | 2012 | |||||||
Net income (loss) | $ | 76,017 | $ | (100,886 | ) | |||
Preferred dividend requirements: | ||||||||
6% Prior Cumulative Preferred, $5 par value | 60,000 | 60,000 | ||||||
5% Convertible Cumulative Preferred, $20 par value | 68,072 | 68,072 | ||||||
Total dividend requirements | 128,072 | 128,072 | ||||||
Net loss - common stockholders | $ | (52,055 | ) | $ | (228,958 | ) |
2015 | 2014 | |||||||
Net Income | $ | 140,909 | $ | 50,268 | ||||
Preferred Dividend Requirements: | ||||||||
6% Prior Cumulative Preferred, $5 Par Value | 60,000 | 60,000 | ||||||
5% Convertible Cumulative Preferred, $20 Par Value | 68,072 | 68,072 | ||||||
Total Dividend Requirements | 128,072 | 128,072 | ||||||
Net Income (Loss) - Common Stockholders | $ | 12,837 | $ | (77,804 | ) |
2015 | 2014 | |||||||
Weighted Average of Shares - Basic | 969,834 | 969,834 | ||||||
Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | ||||||
Weighted Average Shares – Diluted | 2,003,168 | 2,003,168 | ||||||
Basic Earnings (Loss) per Share | $ | 0.01 | $ | (0.08 | ) | |||
Diluted Earnings (Loss) per Share | $ | 0.01 | $ | (0.08 | ) |
Contingently issuable shares were not included in the 2014 diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013 | 2012 | |||||||
Weighted average of shares - basic | 969,834 | 969,834 | ||||||
Dilutive effect of contingently issuable shares | 1,033,344 | 1,033,334 | ||||||
Weighted average shares – diluted | 2,003,178 | 2,003,168 | ||||||
Basic earnings (loss) per share | $ | (0.05 | ) | $ | (0.24 | ) | ||
Diluted earnings (loss) per share | $ | (0.05 | ) | $ | (0.24 | ) |
2013 | 2012 | |||||||
Cash paid for: | ||||||||
Interest | $ | 7,347 | $ | 11,961 | ||||
Income taxes | - | - | ||||||
Non-cash transactions: | ||||||||
Financing of new vehicles | - | 27,245 | ||||||
Value of vehicles traded-in | - | 14,962 |
NOTE 7 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
2015 | 2014 | |||||||
Cash Paid for: | ||||||||
Interest | $ | 2,224 | $ | 3,873 | ||||
Income Taxes | 36,484 | 4,105 | ||||||
Non-Cash Transactions: | ||||||||
Financing of New Vehicles | 21,228 | - |
NOTE 8 | COMMITMENTS AND CONTINGENCIES |
Dye Candy Company leases its office and manufacturing facility, located at 1307 South 59th, St. Joseph, Missouri, from an entity owned by the Vice-President and Director of the Company and his spouse. The lease term is from February 1, 2005 through March 31, 2025, with an option to extend for an additional term of five years, and currently requires payments of $6,500 per month. At the end of the first five years, the base rent may be increased an amount not greater than 30%, at the sole discretion of lessor and for each additional term of five years. Rental expense was $78,000 for each year ended June 30, 20132015 and 2012.2014. The amounts are included in cost of sales.
Future minimum lease payments under this lease are as follows:
2014 | $ | 78,000 | ||
2015 | 78,000 | |||
2016 | 78,000 | |||
2017 | 78,000 | |||
2018 | 78,000 | |||
Thereafter | 526,500 | |||
$ | 916,500 |
Year ending June 30: | |||||
2016 | $ | 78,000 | |||
2017 | 78,000 | ||||
2018 | 78,000 | ||||
2019 | 78,000 | ||||
2020 | 78,000 | ||||
Thereafter | 370,500 | ||||
$ | 760,500 |
As of June 30, 2013,2015, the Company had raw materials purchase commitments with threefive vendors totaling $235,995.
NOTE 9 | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS |
The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these consolidated financial instruments. As of June 30, 2013,2015, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 | CONCENTRATION OF CREDIT RISK |
For the years endingended June 30, 20132015 and 2012,2014, two customers accounted for 48% and 42%, respectively,46% of the gross sales. As of June 30, 20132015 and 2012,2014, two customers accounted for 58%55% and 42%62%, respectively, of accounts receivable.
NOTE 11 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board issued new accounting guidance for the recognition of revenue from contracts with customers, which will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company’s fiscal year 2019, and early adoption is not permitted. The Company is evaluating the effect the new guidance will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the standard on its ongoing financial reporting.
There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s consolidated financial statements.
NOTE 12 | SUBSEQUENT EVENTS |
On July 13, 2015, the Company purchased a heating and cooling unit for approximately $10,511.
The Company monitors significant events occurring after June 30, 2015 and prior to the issuance of the financial statements to determine the impact, if any, of the events on the financial statements to be issued. All subsequent events of which the Company is aware were evaluated through the filing date of this Form 10-K.
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable
CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures |
The Company’s principal executive officer, who is also the chief financial and accounting officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, such officer has concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to Management, including those officers, and to members of the Board of Directors, to allow timely decisions regarding required disclosure.
(b) | Management’s Report on Internal Control over Financial Reporting |
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Management has assessed the Company’s internal control over financial reporting in relation to criteria described inInternal Control-Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment using those criteria, management concluded that, as of June 30, 2013,2015, the Company’s internal control over financial reporting was effective.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
(c) Changes in Internal Controls
There were no significant changes in the Company’s internal controls over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect the Company’s internal controls over financial reporting subsequent to the date of the evaluation.
ITEM 9B | OTHER INFORMATION |
None
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
PART III
ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
(a) | Directors |
Name | Age | Periods of Service as Director | Terms | |||
Barry M. Yantis | 1980 to | One | ||||
Brett A. Yantis | January 21, 1999 to | One | ||||
Brian A. Yantis | July 16, 1986 to | One |
Years of | ||||||||
Service as | ||||||||
Name | Age | Position | an Officer | Term | ||||
Barry M. Yantis | 68 | President, CEO | 34 | Until successor elected | ||||
and Treasurer | ||||||||
Brett A. Yantis | 45 | Vice-President | 11 | Until successor elected | ||||
Brian A. Yantis | 65 | Secretary | 21 | Until successor elected |
Years of | ||||||
Service as | ||||||
Name | Age | an Officer | Term | |||
Barry M. Yantis | 70 | 36 | Until Successor Elected | |||
Brett A. Yantis | 47 | 13 | Until Successor Elected | |||
Brian A. Yantis | 67 | 23 | Until Successor Elected |
(b) | Certain Significant Employees |
There are no significant employees other than above.
(c) | Family Relationships |
Barry M. Yantis and Brian A. Yantis are brothers. Brett A. Yantis is the son of Barry M. Yantis.
Business Experience
(1) | Barry M. Yantis, President and Treasurer has been an officer of the Company for |
Brett A. Yantis was elected to the position of Director during the year ending June 30, 1999. Brett was elected Vice-President in January 2003. Brett has been associated with the Company for twenty-one years.
Brian A. Yantis, Secretary has been an officer of the Company since May 1992. Until retiring in 2011, he had been associated with the insurance business for thirty-seven years and was a Vice-President of Aon Risk Services in Chicago, Illinois for twenty-two years.
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
ITEM 10 |
(2) The directors and executive officers listed above are also the directors and executive officers of Dye Candy Company.
(d) Involvement in Certain Legal Proceedings
Not applicable
(e) Audit Committee Financial Expert
Registrant is not required to have an audit committee since the stock is not actively traded. The Board of Directors are not considered audit committee financial experts, but do effectively operate as the audit committee.
(f) Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics that applies to all executive officers, directors and employees of the Company. The Code of Business Conduct and Ethics will be provided to any person without charge upon request.
ITEM 11 | EXECUTIVE COMPENSATION |
(a) General
Executive officers are compensated for their services as set forth in the Summary Compensation Table. These salaries are approved yearly by the Board of Directors.
(b) Summary Compensation Table
Long Term Compensation | ||||||||||||||||||||||||||||||||
Annual Compensation | Awards | Payouts | ||||||||||||||||||||||||||||||
Name and | Other | Restricted | ||||||||||||||||||||||||||||||
Principal | Fiscal | Annual | Stock | Option | LTIP | All Other | ||||||||||||||||||||||||||
Position | Year End | Salary | Bonus | Compensation | Award (s) | SARs (#) | Payouts | Compensation | ||||||||||||||||||||||||
Barry M. Yantis | 1) 06-30-13 | $ | 132,000 | $ | 26,000 | $ | 3,500 | - | - | - | - | |||||||||||||||||||||
Barry M. Yantis | 1) 06-30-12 | $ | 132,000 | $ | - | $ | 4,100 | - | - | - | - | |||||||||||||||||||||
Barry M. Yantis | 1) 06-30-11 | $ | 132,000 | $ | 1,000 | $ | 2,340 | - | - | - | - |
Long-Term Compensation | ||||||||||||||||||||
Annual Compensation | Awards | Payouts | ||||||||||||||||||
Name and Principal Position | Fiscal Year End | Salary | Bonus | Other Annual Compensation | Restricted Stock Award (s) | Option SARs (#) | LTIP Payouts | All Other Compensation | ||||||||||||
Barry M. Yantis | 1) 06-30-15 | $ | 133,650 | $ | 19,000 | $ | 2,040 | - | - | - | - | |||||||||
Barry M. Yantis | 1) 06-30-14 | $ | 132,000 | $ | 4,000 | $ | 2,240 | - | - | - | - | |||||||||
Barry M. Yantis | 1) 06-30-13 | $ | 132,000 | $ | 26,000 | $ | 3,500 | - | - | - | - |
1) | CEO, President and Treasurer |
2) | No other compensation than that which is listed in compensation table. |
3) | No other officers have compensation over $100,000 for their services besides those listed in this compensation table. |
(c) Option/SAR grants table
Not applicable
(d) Aggregated option/SAR exercises and fiscal year-end option/SAR value table
Not applicable
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
ITEM 11 | EXECUTIVE COMPENSATION (CONTINUED) |
(e) Long-term incentive plan awards table
Not applicable
(f) Compensation of Directors
Directors are not compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings. During the fiscal year 2015 and 2014, $0 and $1,067, respectively, of travel expenses were reimbursed to board member Brian A. Yantis.
(g) | Employment contracts and termination of employment and change in control arrangements |
No employment contracts exist with any executive officers. In addition, there are no contracts currently in place regarding termination of employment or change in control arrangements.
(h) Report on repricing of option/SARs
Not applicable
(i) | Additional information with respect to compensation committee interlocks and insider participation in compensation decisions | |
The registrant has no formal compensation committee. The Board of Directors, Brian A. Yantis, Barry M. Yantis, and Brett A. Yantis (all current officers of the Company) annually approve the compensation of Barry M. Yantis, CEO, President and Treasurer.
(j) Board compensation committee report on executive compensation
The Board bases the annual salary of the CEO on the Company’s prior year performance. The criteria is based upon, but is not limited to, market area expansion, gross profit improvement, control of operating expenses, generation of positive cash flow, and hours devoted to the business during the previous fiscal year.
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
Amounts | |||||||||
and | |||||||||
Nature | |||||||||
of | |||||||||
Beneficial | |||||||||
Title of Class | Name and Address | Ownership | % of Class | ||||||
(a) | Security ownership of certain beneficial owners | ||||||||
Common; par value $1 per share | Barry Yantis, CEO & | ||||||||
Director | 194,385 (1) | 16.9% | (2) | ||||||
5605 Osage Drive | |||||||||
St. Joseph, Mo. | |||||||||
64503 | |||||||||
Brian Yantis, Officer & | |||||||||
Director | 97,192 (1) | 8.4% | (2) | ||||||
1210 E. Clarendon | |||||||||
Arlington Heights, IL. | |||||||||
60004 | |||||||||
(b) | Security ownership of management | ||||||||
Common; par value $1 per share | Two directors and CEO | 110,856 | 11.4% | ||||||
as a group | |||||||||
Prior Cumulative Preferred, | Two directors and CEO | 21,533 | 21.5% | ||||||
$5 par value: Series A, | as a group | ||||||||
6% convertible | |||||||||
Prior Cumulative Preferred | Two directors and CEO | 21,533 | 21.5% | ||||||
$5 par value: Series B, | as a group | ||||||||
6% convertible | |||||||||
Cumulative Preferred, $20 par | Two directors and CEO | 3,017 | 5.2% | ||||||
value: Series A, $5 convertible | as a group | ||||||||
Cumulative Preferred, $20 par | Two directors and CEO | 630 | 6.6% | ||||||
value: Series B, $5 convertible | as a group |
ITEM 12 |
Title of Class | Name and Address | Amounts and Nature of Beneficial Ownership | % of Class | ||||||
(a) | Security Ownership of Certain Beneficial Owners Common; Par Value $1 per Share | Barry Yantis, CEO & Director 5605 Osage Drive St. Joseph, MO 64503 | 194,385 | (1) | 16.90% | (2) | |||
Brian Yantis, Officer & Director 1210 E. Clarendon Arlington Heights, IL 60004 | 97,192 | (1) | 8.40% | (2) | |||||
(b) | Security Ownership of Management Common; Par Value $1 per Share | Two Directors and CEO as a Group | 110,856 | 11.40% | |||||
Prior Cumulative Preferred, $5 Par Value: Series A, 6% Convertible | Two Directors and CEO as a Group | 21,533 | 21.50% | ||||||
Prior Cumulative Preferred, $5 Par Value: Series B, 6% Convertible | Two Directors and CEO as a Group | 21,533 | 21.50% | ||||||
Cumulative Preferred, $20 Par Value: Series A, $5 Convertible | Two Directors and CEO as a Group | 3,017 | 5.20% | ||||||
Cumulative Preferred, $20 Par Value: Series B, $5 Convertible | Two Directors and CEO as a Group | 630 | 6.60% | ||||||
(1) | Includes 120,477 and 60,244 shares, respectively, which could be received within 30 days upon conversion of preferred stock. | ||||||||
(2) | Reflects the percentage assuming the preferred shares above were converted into common stock. | ||||||||
(c) | No Known Change of Control is Anticipated |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
ITEM 13 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
(a) | Transactions with management and others |
The registrant’s subsidiary, Dye Candy Company entered into an operating lease agreement during the 2005 fiscal year to provide office and manufacturing facilities with a limited liability company that is owned 100% by Vice-President and Director, Brett A. Yantis and his spouse. The annual rent is $78,000. |
(b) | Certain business relationships |
Not applicable |
(c) | Indebtedness of management |
Not applicable |
(d) | Transactions with promoters |
Not applicable |
PRINCIPAL |
The following table shows the aggregate fees billed to the Company for professional services for the years ended June 30, 20132015 and 2012:
2013 | 2012 | |||||||
Audit fees: | ||||||||
Mayer Hoffman McCann P.C. | $ | 59,629 | $ | 62,679 | ||||
Tax fees | - | - | ||||||
All other fees | - | - |
2015 | 2014 | |||||||
Audit Fees: | ||||||||
Mayer Hoffman McCann P.C. (MHM) | $ | 57,824 | $ | 60,577 | ||||
Audit Related Fees | - | - | ||||||
Tax Fees | - | - | ||||||
All Other Fees | - | - |
MHM leases substantially all its personnel, who work under the control of MHM shareholders, from wholly-owned subsidiaries of CBIZ, Inc., in an alternative practice structure.
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
PART IV
EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this report.
Consolidated Financial Statements: | Page | |||
Index to Consolidated Financial Statements | 16 | |||
Consolidated Balance Sheets | 18 - 19 | |||
Consolidated Statements of | 20 | |||
Consolidated Statements of Stockholders’ Equity | 21 | |||
Consolidated Statements of Cash Flows | 22 | |||
Notes to Consolidated Financial Statements | 23 - | |||
2. | Consolidated Financial Statement Schedules: | |||
None | ||||
3. | Exhibits: |
The exhibits listed below are filed with or incorporated by reference in this report.
The following have been previously filed and are incorporated by reference to prior years’ Forms 10-K filed by the Registrant:
3.1 Articles of Incorporation of Chase General Corporation
3.2 Bylaws
The following are Exhibits attached or explanations included in “Notes to Consolidated Financial Statements” in Part II of this report:
4. Instruments defining the rights of security holders including indentures - Refer to Note 4.
11. Computation of per share earnings - Refer to Note 6.
21. Subsidiaries of registrant - Refer to Note 1 of Notes to Consolidated Financial Statements.
31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chairman of the Board, Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2015
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHASE GENERAL CORPORATION | ||
(Registrant) | ||
Date: September | By: | /s/ Barry M. Yantis |
Barry M. Yantis | ||
Chairman of the Board, Chief Executive Officer, | ||
President and Treasurer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signatures | Title | Date | ||
/s/ Barry M. Yantis | September | |||
Barry M. Yantis | Chairman of the Board, Chief Executive Officer and Chief Financial Officer, President, Treasurer and Director | |||
/s/ Brett Yantis | September | |||
Brett Yantis | Vice-President and Director | |||
/s/ Brian A. Yantis | September | |||
Brian A. Yantis | Secretary and Director |
40 |