UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017September 30, 2018
¨TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 2-5916
Chase General Corporation
(Exact name of small business issuer 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
(Issuer’s telephone number, including area code)
Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes¨ Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes¨ Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12, 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. Yesx No¨
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). Yesx No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated 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¨ | Accelerated filer¨ | |
Nonaccelerated filerx | ||
Smaller reporting companyx | ||
Emerging Growth Company¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes¨ Nox
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes¨ Nox
As of February 11,November 12, 2018, there were 969,834 shares of common stock, $1.00 par value, outstanding.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
FOR THE SIXTHREE MONTHS ENDEDDECEMBER 31, 2017 SEPTEMBER 30, 2018
Chase General Corporation and Subsidiary
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETSsheets
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and Cash Equivalents | $ | 328,331 | $ | 46,182 | ||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $14,333 and $13,733, Respectively | 187,166 | 127,207 | ||||||
Inventories: | ||||||||
Finished Goods | 30,331 | 270,352 | ||||||
Goods in Process | 12,915 | 13,393 | ||||||
Raw Materials | 83,352 | 60,655 | ||||||
Packaging Materials | 140,890 | 135,638 | ||||||
Prepaid Expenses | 40,120 | 24,689 | ||||||
Income Tax Receivable | 52,531 | 11,160 | ||||||
Total Current Assets | 875,636 | 689,276 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 35,000 | 35,000 | ||||||
Buildings | 77,348 | 77,348 | ||||||
Machinery and Equipment | 836,066 | 838,131 | ||||||
Trucks and Autos | 213,116 | 213,116 | ||||||
Office Equipment | 30,748 | 31,518 | ||||||
Leasehold Improvements | 72,068 | 72,068 | ||||||
Total | 1,264,346 | 1,267,181 | ||||||
Less Accumulated Depreciation | 1,033,225 | 1,002,043 | ||||||
Total Property and Equipment, Net | 231,121 | 265,138 | ||||||
Deferred Income Taxes | - | 27,163 | ||||||
Total Long-Term Assets | 231,121 | 292,301 | ||||||
Total Assets | $ | 1,106,757 | $ | 981,577 |
September 30, | June 30, | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and Cash Equivalents | $ | 283 | 2,129 | |||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $13,689 and $13,389, Respectively | 553,964 | 135,331 | ||||||
Inventories: | ||||||||
Finished Goods | 227,449 | 208,254 | ||||||
Goods in Process | 17,936 | 10,937 | ||||||
Raw Materials | 97,322 | 74,267 | ||||||
Packaging Materials | 160,875 | 152,184 | ||||||
Prepaid Expenses | 36,013 | 12,225 | ||||||
Total Current Assets | 1,093,842 | 595,327 | ||||||
LONG-TERM ASSETS | ||||||||
Property and Equipment: | ||||||||
Land | 35,000 | 35,000 | ||||||
Buildings | 77,348 | 77,348 | ||||||
Machinery and Equipment | 851,791 | 851,791 | ||||||
Trucks and Autos | 163,039 | 163,039 | ||||||
Office Equipment | 33,025 | 33,025 | ||||||
Leasehold Improvements | 72,068 | 72,068 | ||||||
Total | 1,232,271 | 1,232,271 | ||||||
Less Accumulated Depreciation | 1,011,336 | 997,091 | ||||||
Total Property and Equipment, Net | 220,935 | 235,180 | ||||||
Total Assets | $ | 1,314,777 | $ | 830,507 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETSsheets (CONTINUED)
December 31, | June 30, | |||||||
2017 | 2017 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts Payable | $ | 157,217 | $ | 63,628 | ||||
Current Maturities of Notes Payable | 16,481 | 16,133 | ||||||
Accrued Expenses | 14,656 | 29,239 | ||||||
Income Taxes Payable | 6,739 | - | ||||||
Deferred Income | 1,299 | 1,299 | ||||||
Total Current Liabilities | 196,392 | 110,299 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred Income | 8,116 | 8,765 | ||||||
Notes Payable, Less Current Maturities | 30,935 | 39,264 | ||||||
Deferred Income Taxes | 32,520 | - | ||||||
Total Long-Term Liabilities | 71,571 | 48,029 | ||||||
Total Liabilities | 267,963 | 158,328 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Capital Stock Issued and Outstanding: | ||||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
Series A (Liquidation Preference $2,295,000 and $2,280,000, Respectively) | 500,000 | 500,000 | ||||||
Series B (Liquidation Preference $2,250,000 and $2,235,000, Respectively) | 500,000 | 500,000 | ||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
Series A (Liquidation Preference $5,165,530 and $5,136,263, Respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (Liquidation Preference $841,824 and $837,055, 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 | (5,627,202 | ) | (5,642,747 | ) | ||||
Total Stockholders' Equity | 838,794 | 823,249 | ||||||
Total Liabilities and Stockholders' Equity | $ | 1,106,757 | $ | 981,577 |
September 30, | June 30, | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Bank Overdraft | $ | 12,846 | $ | - | ||||
Accounts Payable | 294,706 | 176,871 | ||||||
Current Maturities of Notes Payable and Line of Credit | 321,365 | 11,224 | ||||||
Accrued Expenses | 57,953 | 30,852 | ||||||
Refund Liability Owed to Customers | 18,274 | - | ||||||
Deferred Income | 1,299 | 1,299 | ||||||
Total Current Liabilities | 706,443 | 220,246 | ||||||
LONG-TERM LIABILITIES | ||||||||
Notes Payable, Less Current Maturities | 21,892 | 24,787 | ||||||
Deferred Income | 7,142 | 7,466 | ||||||
Total Long-Term Liabilities | 29,034 | 32,253 | ||||||
Total Liabilities | 735,477 | 252,499 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Capital Stock Issued and Outstanding: | ||||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
Series A (Liquidation Preference $2,317,500 and $2,310,000, Respectively) | 500,000 | 500,000 | ||||||
Series B (Liquidation Preference $2,272,500 and $2,265,000, Respectively) | 500,000 | 500,000 | ||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
Series A (Liquidation Preference $5,209,430 and $5,194,796, Respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (Liquidation Preference $848,979 and $846,594, 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 | (5,886,696 | ) | (5,887,988 | ) | ||||
Total Stockholders' Equity | 579,300 | 578,008 | ||||||
Total Liabilities and Stockholders' Equity | $ | 1,314,777 | $ | 830,507 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
Chase General Corporation and Subsidiary
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | ||||||||
December 31 | ||||||||
2017 | 2016 | |||||||
NET SALES | $ | 1,110,235 | $ | 1,153,469 | ||||
COST OF SALES | 786,390 | 931,235 | ||||||
Gross Profit on Sales | 323,845 | 222,234 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 118,216 | 132,229 | ||||||
General and Administrative | 122,627 | 86,909 | ||||||
Total Operating Expenses | 240,843 | 219,138 | ||||||
Income from Operations | 83,002 | 3,096 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income | 392 | 408 | ||||||
Interest Expense | (2,318 | ) | (4,140 | ) | ||||
Total Other Income (Expense) | (1,926 | ) | (3,732 | ) | ||||
Income (Loss) before Income Taxes | 81,076 | (636 | ) | |||||
PROVISION FOR INCOME TAXES (INCOME TAX BENEFIT) | 8,682 | (153 | ) | |||||
NET INCOME (LOSS) | $ | 72,394 | $ | (483 | ) | |||
EARNINGS (LOSS) PER SHARE | ||||||||
Basic | $ | 0.04 | $ | (0.03 | ) | |||
Diluted | $ | 0.02 | $ | (0.03 | ) |
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
SALES | $ | 741,520 | $ | 870,430 | ||||
COST OF SALES | 526,321 | 661,092 | ||||||
Gross Profit on Sales | 215,199 | 209,338 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 72,903 | 112,332 | ||||||
General and Administrative | 138,484 | 147,036 | ||||||
Total Operating Expenses | 211,387 | 259,368 | ||||||
Income (Loss) from Operations | 3,812 | (50,030 | ) | |||||
OTHER EXPENSE | ||||||||
Miscellaneous Income | 363 | 370 | ||||||
Interest Expense | (2,883 | ) | (1,978 | ) | ||||
Total Other Income (Expense) | (2,520 | ) | (1,608 | ) | ||||
Income (Loss) before Income Taxes | 1,292 | (51,638 | ) | |||||
INCOME TAX EXPENSE (BENEFIT) | - | 5,209 | ||||||
NET INCOME (LOSS) | $ | 1,292 | $ | (56,847 | ) | |||
NET LOSS PER SHARE OF COMMON STOCK | ||||||||
Basic | $ | (0.03 | ) | $ | (0.09 | ) | ||
Diluted | $ | (0.03 | ) | $ | (0.09 | ) |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
3 |
Chase General Corporation and Subsidiary
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF cash flows
(UNAUDITED)
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income (Loss) | $ | 1,292 | $ | (56,847 | ) | |||
Adjustments to Reconcile Net Income (Loss) to Net Cash | ||||||||
Used by Operating Activities: | ||||||||
Depreciation and Amortization | 14,245 | 17,096 | ||||||
Allowance for Bad Debts | 300 | 300 | ||||||
Deferred Income Amortization | (324 | ) | (324 | ) | ||||
Deferred Income Taxes | - | 57,740 | ||||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | (418,933 | ) | (531,879 | ) | ||||
Inventories | (57,940 | ) | (10,809 | ) | ||||
Prepaid Expenses | (23,788 | ) | (18,152 | ) | ||||
Income Taxes Receivable | - | (52,531 | ) | |||||
Accounts Payable | 117,835 | 202,414 | ||||||
Accrued Expenses | 27,101 | 25,348 | ||||||
Refund Liability Owed to Customers | 18,274 | - | ||||||
Net Cash Used by Operating Activities | (321,938 | ) | (367,644 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 310,000 | 330,000 | ||||||
Principal Payments on Notes Payable | (2,754 | ) | (3,969 | ) | ||||
Bank Overdraft | 12,846 | - | ||||||
Net Cash Provided by Financing Activities | 320,092 | 326,031 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (1,846 | ) | (41,613 | ) | ||||
Cash and Cash Equivalents - Beginning of Period | 2,129 | 46,182 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 283 | $ | 4,569 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended | ||||||||
December 31 | ||||||||
2017 | 2016 | |||||||
NET SALES | $ | 1,980,665 | $ | 2,015,657 | ||||
COST OF SALES | 1,447,482 | 1,603,126 | ||||||
Gross Profit on Sales | 533,183 | 412,531 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 230,548 | 231,495 | ||||||
General and Administrative | 269,663 | 222,655 | ||||||
Total Operating Expenses | 500,211 | 454,150 | ||||||
Income (Loss) from Operations | 32,972 | (41,619 | ) | |||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income | 762 | 784 | ||||||
Interest Expense | (4,298 | ) | (4,957 | ) | ||||
Total Other Income (Expense) | (3,536 | ) | (4,173 | ) | ||||
Income (Loss) before Income Taxes | 29,436 | (45,792 | ) | |||||
PROVISION FOR INCOME TAXES (INCOME TAX BENEFIT) | 13,891 | (17,381 | ) | |||||
NET INCOME (LOSS) | $ | 15,545 | $ | (28,411 | ) | |||
LOSS PER SHARE | ||||||||
Basic | $ | (0.05 | ) | $ | (0.10 | ) | ||
Diluted | $ | (0.05 | ) | $ | (0.10 | ) |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended | ||||||||
December 31 | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income (Loss) | $ | 15,545 | $ | (28,411 | ) | |||
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 34,017 | 52,913 | ||||||
Allowance for Bad Debts | 600 | 600 | ||||||
Deferred Income Amortization | (649 | ) | (649 | ) | ||||
Deferred Income Taxes | 59,683 | (17,346 | ) | |||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | (60,559 | ) | (127,701 | ) | ||||
Inventories | 212,550 | 347,505 | ||||||
Prepaid Expenses | (15,431 | ) | (34,165 | ) | ||||
Income Taxes Receivable | (41,371 | ) | 22,678 | |||||
Accounts Payable | 93,589 | 95,533 | ||||||
Accrued Expenses | (14,583 | ) | (5,391 | ) | ||||
Income Taxes Payable | 6,739 | - | ||||||
Net Cash Provided by Operating Activities | 290,130 | 305,566 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of Property and Equipment | - | (17,245 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 330,000 | 325,000 | ||||||
Principal Payments on Line-of-Credit | (330,000 | ) | (325,000 | ) | ||||
Principal Payments on Notes Payable | (7,981 | ) | (7,648 | ) | ||||
Net Cash Used by Financing Activities | (7,981 | ) | (7,648 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 282,149 | 280,673 | ||||||
Cash and Cash Equivalents - Beginning of Period | 46,182 | 19,259 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 328,331 | $ | 299,932 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO
Chase General Corporation and Subsidiary
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
notes to CONDENSED CONSOLIDATED financial STATEMENTS
(UNAUDITED)
NOTE 1 |
General
The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”,Chase, we, our, and “us”)us) at June 30, 20172018 has been takencondensed from audited consolidated financial statements at that date and condensed.date. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2017September 30, 2018 and for the three and six months ended December 31, 2016September 30, 2017 are unaudited and reflect all normal and recurring accruals and adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results and cash flows for the interim periods presented in this quarterly report. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended June 30, 2017.2018. The results of operations for the three and six months ended December 31, 2017September 30, 2018 and cash flows for the sixthree months ended December 31, 2017September 30, 2018 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2018.2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the periods have been included.
No events have occurred subsequent to December 31, 2017,September 30, 2018, through the date of filing this form, that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the sixthree month period ended December 31, 2017.September 30, 2018.
Revenue Recognition
The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including 1) a candy bar marketed under the trade name “Cherry Mash” and 2) coconut, peanut, chocolate, and fudge confectioneries. The Company recognizes revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon shipment to the customer. Shipping and handling costs incurred to ship product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Generally, individual orders from customers are accounted for as a single performance obligation.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS notes to CONDENSED CONSOLIDATED financial STATEMENTS (UNAUDITED) |
NOTE |
Revenue Recognition (Continued)
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The earnings (loss) per shareamount of consideration the Company expects to receive and revenue the Company recognizes includes estimates of variable consideration, including costs for trade promotional programs, customer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, and expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. The Company reviews and updates these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in first quarter of the year ending June 30, 2019 resulting from updated estimates of revenue for prior year product sales were computed on the weighted average of outstanding common shares during the period. Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.not significant.
Three Months Ended | Six Months Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Income (Loss) | $ | 72,394 | $ | (483 | ) | $ | 15,545 | $ | (28,411 | ) | ||||||
Preferred Dividend Requirements: | ||||||||||||||||
6% Prior Cumulative Preferred, $5 Par Value | 15,000 | 15,000 | 30,000 | 30,000 | ||||||||||||
5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | 34,036 | 34,036 | ||||||||||||
Total Dividend Requirements | 32,018 | 32,018 | 64,036 | 64,036 | ||||||||||||
Net Income (Loss) - Common Stockholders | $ | 40,376 | $ | (32,501 | ) | $ | (48,491 | ) | $ | (92,447 | ) | |||||
Weighted Average Shares - Basic | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | 1,033,334 | 1,033,334 | ||||||||||||
Weighted Average Shares – Diluted | 2,003,168 | 2,003,168 | 2,003,168 | 2,003,168 | ||||||||||||
Basic Earnings (Loss) per Share | $ | 0.04 | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.10 | ) | |||||
Diluted Earnings (Loss) per Share | $ | 0.02 | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.10 | ) |
The contingently issuable shares,majority of the Company’s products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. The 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. 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. The various divisions of revenue are as follows for the three months ended December 31, 2016, the six months ended December 31, 2017 and the six months ended December 31, 2016, were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.September 30:
2018 | 2017 | |||||||
Sales - Chase Candy | $ | 294,447 | $ | 342,763 | ||||
Sales - Seasonal Candy | 447,073 | 527,667 | ||||||
Sales | $ | 741,520 | $ | 870,430 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS notes to CONDENSED CONSOLIDATED financial STATEMENTS (UNAUDITED) |
NOTE |
Cumulative Preferred Stock dividends in arrears at December 31, 2017 and 2016 totaled $8,140,914 and $8,012,842, respectively. Total dividends in arrears, on a per share basis, consist of the following:
Six Months Ended | ||||||||
December 31 | ||||||||
2017 | 2016 | |||||||
6% Convertible | ||||||||
Series A | $ | 18 | $ | 17 | ||||
Series B | 17 | 17 | ||||||
5% Convertible | ||||||||
Series A | $ | 68 | $ | 67 | ||||
Series B | 68 | 67 |
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. It 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company’s long-term debt consists of:
December 31, | June 30, | |||||||||
Payee | Terms | 2017 | 2017 | |||||||
Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2019, 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 | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. | 28,983 | 32,308 | |||||||
Toyota Credit | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 12,434 | 14,383 | |||||||
Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 5,999 | 8,706 | |||||||
Total | 47,416 | 55,397 | ||||||||
Less Current Portion | 16,481 | 16,133 | ||||||||
Long-Term Portion | $ | 30,935 | $ | 39,264 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Future minimum payments for the twelve months ending December 31 are:
December 31: | Amount | |||
2018 | 16,481 | |||
2019 | 11,974 | |||
2020 | 12,098 | |||
2021 | 6,863 | |||
Total | $ | 47,416 |
The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at December 31, 2017. The Company has no material tax positions at December 31, 2017 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company had no accruals for interest or penalties at December 31, 2017. The Company’s federal income tax returns for the fiscal years ended 2014, 2015 and 2016 are subject to examination by the Internal Revenue Service taxing authority.
On December 22, 2017, the President signed into law The Tax Cuts and Jobs Act (the “Act”), which enacts significant changes to U.S. income tax and related laws. Among other things, the Act reduces the top U.S. corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, and makes changes to certain other business-related exclusions, deductions and credits. Because a change in tax law is accounted for in the period of enactment, the effect of the Act was recorded in the Company’s fiscal second quarter ending December 31, 2017 which caused a net provision adjustment to deferred income taxes of approximately $19,000.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six Months Ended | ||||||||
December 31 | ||||||||
2017 | 2016 | |||||||
Cash Paid for: | ||||||||
Interest | $ | 4,298 | $ | 4,957 | ||||
Income Taxes | $ | - | $ | 2,030 |
In May 2014, the Financial Accounting Standards Board (FASB) issued amended guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The guidance will initially be applied retrospectively using one of two methods. The standard will be effective for the entity for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted beginning for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company plans to adopt the new standard on July 1, 2018 on a modified retrospective basis. The Company is finalizing reviews and working on implementing the process, policy and disclosure changes that will go into effect on July 1, 2018.
The Company has performed a review of the requirements of the new guidance and has identified which of its revenue streams will be within the scope of ASC 606. The Company is working through an adoption plan which includes a review of customer contracts, applying the five-step model of the new standard to the customer contracts and comparing the results to our current accounting. As part of this, we are assessing changes that might be necessary to information technology systems, processes, and internal controls to capture new data and address changes in financial reporting. Effective July 1, 2018, the Company will be revising its revenue recognition accounting policy and expanding revenue disclosures to reflect the requirements of ASC 606, which include disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgements and assets recognized from the costs to obtain or fulfill a contract. Because of the nature of the work that remains, at this time the Company is unable to reasonably estimate the impact of adoption on its consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In February 2016, the FASB issued amended guidance for the treatment of leases. The guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability for all operating and finance leases with lease terms greater than one year. The guidance also requires both qualitative and quantitative disclosures regarding the nature of the entity’s leasing activities. The guidance will initially be applied using a modified retrospective approach. The amendments in the guidance are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of the amended lease guidance on the its consolidated financial statements
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.
Recently Adopted Pronouncements
In November 2015,May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On July 1, 2018, we adopted the requirements of ASC 606 and all the related amendments to contracts that have not been completed as of the initial adoption date using the modified retrospective method. Upon completing our implementation assessment of ASC 606, we concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The Company identified certain amounts included in accounts payable that will be separately recorded as a current liability upon adoption of ASC 606. There will be no impact to working capital as a result of these reclassifications. The cumulative effects of the changes made to our consolidated July 1, 2018 balance sheet for the adoption of the new revenue standard were as follows:
Balance at | Adjustment | Balance at | ||||||||||
June 30, 2018 | Upon Adoption | July 1, 2018 | ||||||||||
Balance Sheet | ||||||||||||
Accounts Payable | $ | 135,311 | $ | (12,900 | ) | $ | 122,411 | |||||
Refund Liability Owed to Customers | - | 12,900 | 12,900 |
There is no change in the timing of revenue recognition upon adoption of ASC 606. The Company has identified certain amounts paid to customers which are currently recorded as selling expense. Under ASC 606, these amounts will be recorded as a reduction to revenue as the Company does not receive a distinct good or service in exchange for the payment. The total impact of adoption on our consolidated statement of operation and balance sheet was as follows:
As of and for the period ended September 30, 2018 | ||||||||||||
Current | Previous | |||||||||||
Standard | Change | Standard | ||||||||||
Balance Sheet | ||||||||||||
Accounts Payable | $ | 294,706 | $ | 18,274 | $ | 312,980 | ||||||
Refund Liability Owed to Customers | 18,274 | (18,274 | ) | $ | - | |||||||
Statement of Operations | ||||||||||||
Sales | $ | 741,520 | $ | 19,802 | $ | 761,322 | ||||||
Selling Expenses | 72,903 | 19,802 | $ | 92,705 |
7 |
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS notes to CONDENSED CONSOLIDATED financial STATEMENTS (UNAUDITED) |
NOTE 1 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Recently Issued Pronouncements
In February 2016, the FASB issued ASU No. 2015-17, Income Taxes2016-02, Leases (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the842). This ASU will require lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use (ROU) assets. Recognition, measurement, and presentation of deferred income taxes.expenses will depend on classification as a finance or operating lease. We are currently in the process of evaluating our existing lease portfolio, including accumulating all of the necessary information required to properly account for the leases under the new standard. ASU 2015-17 requires2016-02 is effective for us beginning July 1, 2019. The guidance originally required entities to apply ASU 2016-02 on a modified retrospective basis; however, the FASB has recently proposed guidance that deferred taxwould allow adoption of this standard as of the effective date without restating prior periods. We expect adoption to result in a material increase in lease-related assets and liabilities be classified as noncurrent inon our consolidated balance sheets; however, we do not expect it to have a classified balance sheet, insteadsignificant impact on our consolidated statements of separating deferred taxes into current and noncurrent amounts. During the period ended September 30, 2017, the Company electedoperations or cash flows.
There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to retrospectively adopt ASU 2015-17, resulting inhave, a reclassification reducing both deferred tax assets and deferred tax liabilities by $63,306significant impact on the balance sheet at June 30, 2017. There was no impactCompany’s consolidated financial statements.
NOTE 2 | EARNINGS (LOSS) PER SHARE |
The loss per share were computed on resultsthe weighted average of operations as a result ofoutstanding common shares during the adoption of ASU 2015-17.period.
In July 2015,
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
Net Income (Loss) | $ | 1,292 | $ | (56,847 | ) | |||
Preferred Dividend Requirements: | ||||||||
6% Prior Cumulative Preferred, $5 Par Value | 15,000 | 15,000 | ||||||
5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | ||||||
Total Dividend Requirements | 32,018 | 32,018 | ||||||
Net Loss - Common Stockholders | $ | (30,726 | ) | $ | (88,865 | ) |
Diluted earnings per share are calculated by including contingently issuable shares with the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," (ASU 2015-11). The core principal of the guidance is that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance was effective on July 1, 2017. The adoption of this amendment did not have a material impact on these financial statements.weighted average shares outstanding.
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS notes to CONDENSED CONSOLIDATED financial STATEMENTS (UNAUDITED) |
NOTE 2 | EARNINGS (LOSS) PER SHARE (CONTINUED) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
Weighted Average 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 Loss per Share | $ | (0.03 | ) | $ | (0.09 | ) | ||
Diluted Loss per Share | $ | (0.03 | ) | $ | (0.09 | ) |
NOTES TOThe contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
Cumulative Preferred Stock dividends in arrears at September 30, 2018 and 2017 totaled $8,236,968 and $8,108,896, respectively. Total dividends in arrears, on a per share basis, consist of the following:
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
6% Convertible | ||||||||
Series A | $ | 18 | $ | 18 | ||||
Series B | $ | 17 | $ | 17 | ||||
5% Convertible | ||||||||
Series A | $ | 69 | $ | 68 | ||||
Series B | $ | 69 | $ | 68 |
The 6% convertible prior cumulative preferred stock may, upon 30 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. It may be exchanged for common stock at the option of the shareholders in the ratio of four 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.
9 |
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS notes to CONDENSED CONSOLIDATED financial STATEMENTS (UNAUDITED) |
NOTE 3 | NOTES PAYABLE and line of credit |
The Company’s long-term debt consists of:
September 30, | June 30, | |||||||||
Payee | Terms | 2018 | 2018 | |||||||
Nodaway | $350,000 line-of-credit agreement | |||||||||
Valley Bank | expiring on January 4, 2019, 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. Management | ||||||||||
anticipates renewal of the line-of-credit | ||||||||||
agreement at similar terms upon | ||||||||||
expiration. | $ | 310,000 | $ | - | ||||||
Ford Credit | $705 monthly payments, interest of | |||||||||
5.8%; final payment due October 2021, | ||||||||||
secured by a vehicle. | 23,810 | 25,560 | ||||||||
Toyota Credit | $364 monthly payments, interest of | |||||||||
3.5%; final payment due December | ||||||||||
2020, secured by a vehicle. | 9,447 | 10,451 | ||||||||
Total | 343,257 | 36,011 | ||||||||
Less: Current Portion | 321,365 | 11,224 | ||||||||
Long-Term Portion | $ | 21,892 | $ | 24,787 |
Future minimum payments for the twelve months ending September 30 are:
Twelve Months Ending September 30, | Amount | |||
2019 | $ | 321,365 | ||
2020 | 11,946 | |||
2021 | 9,245 | |||
2022 | 701 | |||
2023 | - | |||
Total | $ | 343,257 |
10 |
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS notes to CONDENSED CONSOLIDATED financial STATEMENTS (UNAUDITED) |
NOTE 4 | INCOME TAXES |
The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at September 30, 2018. The Company has no material tax positions at September 30, 2018 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company’s federal income tax returns for the fiscal years ended 2016, 2017, and 2018 are subject to examination by the Internal Revenue Service (IRS) taxing authority.
NOTE | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
Cash Paid for: | ||||||||
Interest | $ | 2,883 | $ | 1,978 |
NOTE 6 | 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 December 31, 2017,September 30, 2018, 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.
OVERVIEW
Chase General Corporation (Chase) is a holding company for its wholly-ownedwholly owned subsidiary, Dye Candy Company. This subsidiary is the main operating company that is engaged in the manufacture of confectionery products which are sold primarily to wholesale houses, grocery accounts, vendors, and repackers. The subsidiary (Company) operates two divisions, Chase Candy division and Seasonal Candy division, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two divisions is not maintained by Management.management.
The Company’s business, like that of many other confectionary product manufacturers, is seasonal. Historically, the Company has realized more of its revenue and earnings in the fiscal second quarter, which includes the majority of the holiday shopping season, than in any other fiscal quarter.
RESULTS OF OPERATIONS - Three Months Ended December 31, 2017September 30, 2018 Compared towith Three Months Ended December 31, 2016, and Six Months Ended December 31,September 30, 2017 Compared to Six Months Ended December 31, 2016
The following management comments regarding Chase’s results of operations and outlook should be read in conjunction with the condensed consolidated financial statements included pursuant to Item 1 of the quarterly report.
The following table sets forth certain items as a percentage of net sales and revenues for the periods presented:
Three Months Ended | Six Months Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of Sales | 71 | 81 | 73 | 80 | ||||||||||||
Gross Profit on Sales | 29 | 19 | 27 | 20 | ||||||||||||
Operating Expenses | 22 | 19 | 25 | 23 | ||||||||||||
Income (Loss) from Operations | 7 | - | 2 | (3 | ) | |||||||||||
Other Income (Expense), Net | - | - | - | - | ||||||||||||
Income (Loss) before Income Taxes | 7 | - | 2 | (3 | ) | |||||||||||
Provision (Benefit) for Income Taxes | 1 | - | 1 | (1 | ) | |||||||||||
Net Income (Loss) | 6 | % | - | % | 1 | % | (2 | )% |
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
Sales | 100 | % | 100 | % | ||||
Cost of Sales | 71 | 76 | ||||||
Gross Profit on Sales | 29 | 24 | ||||||
Operating Expenses | 29 | 30 | ||||||
Income (Loss) from Operations | - | (6 | ) | |||||
Other Income (Expense), Net | - | (0 | ) | |||||
Income (Loss) before Income Taxes | - | (6 | ) | |||||
Provision for Income Taxes | - | 1 | ||||||
Net Income (Loss) | - | % | (7 | )% |
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NET SALES
Net salesSales decreased $43,234$128,910 or 4%15% for the three months ended December 31, 2017September 30, 2018 to $1,110,235$741,520 compared to $1,153,469$870,430 for the three months ended December 31, 2016. Gross salesSeptember 30, 2017. Sales for ChaseSeasonal Candy decreased $32,741$77,854 to $465,051$460,284 for the three months ended December 31, 2017,September 30, 2018, compared to $497,792$538,138 for 2017. Sales for Chase Candy decreased $46,839 to $302,182 for the three months ended December 31, 2016. Gross salesSeptember 30, 2018, compared to $349,021 for Seasonal Candy increased $14,4852017. Sales allowances and discounts for the Company decreased $15,179 to $680,143$2,083 for the three months ended December 31, 2017,September 30, 2018, compared to $665,658$17,262 for 2017. The Company’s other sales increased $406 to $939 for the three months ended December 31, 2016. Gross salesSeptember 30, 2018, compared to $533 for other sales for2017. Due to the Company increased $877 to $8,020adoption of ASC 606, adjustments disclosed in Note 1 totaling $19,802 for the three months ended December 31, 2017, comparedSeptember 30, 2018 were recorded as a reduction to $7,143revenue.
The 14% decrease in sales of Seasonal Candy of $77,854 for the three months ended December 31, 2016. Sales returnsSeptember 30, 2018 over the same period ended September 30, 2017, is primarily due to the net effect of the following: 1) decreased orders in the bulk seasonal division netting approximately $78,000 due to decreased sales to existing customers; 2) decreased orders from various customers in the clamshell seasonal division netting approximately $70,000 versus the same period a year ago primarily due to existing customers decreasing orders; offset by 3) increased orders from customers in the generic seasonal division netting approximately $70,000 versus the same period a year ago primarily due to existing customer increasing orders; and allowances for4) an approximate 5% average increase to the Company increased $25,855 to $42,979price of Seasonal Candy products.
The 13% decrease in sales of Chase Candy of $46,839 for the three months ended December 31, 2017, compared to $17,124 for the three months ended December 31, 2016.
The 7% decrease in gross sales of Chase Candy of $32,741 for the three months ended December 31, 2017September 30, 2018 over the same period ended December 31, 2016,September 30, 2017, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash MerchandisersDistributor Pack division by approximately $21,000$34,000 versus the same period a year ago primarily due to decreased orders from existing customers; 2) decreased sales of L100/L200 Cherry Mash Merchandisers division by approximately $8,000 versus the same period a year ago due to decreased orders from existing customers; 3) decreased sales of L278L278/L212 Mini Mash division by approximately $3,000$14,000 versus the same period a year ago primarily due to decreased orders from existing customers; and 4)3) decreased sales of L279 and L299 Bulk Mini Mash division by approximately $1,000$13,000 versus the same period a year ago due to decreased orders from existing customers.
The 2% increase in grosscustomers; offset by 4) increased sales of Seasonal Candy of $14,485 for the three months ended December 31, 2017 over the same period ended December 31, 2016, is primarily due to the net effect of the following: 1) an increase orders in the generic seasonalL100, L200, SK436, and SK2100 Cherry Mash Merchandisers division nettingby approximately $119,000$14,000 versus the same period a year ago primarily due to existing customers increasing orders; offset by 2) decreasedincreased orders in the clamshell seasonal division netting approximately $64,000, due to decreased sales from existing customers; and 3) decreased orders from various customers in the bulk seasonal division netting approximately $41,000 versus the same period a year ago, primarily due to existing customers decreasing orders.
Management anticipates sales returns and allowances for the three months ended December 31, 2017 to be higher than the prior period due to expected returns from one customer.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NET SALES (CONTINUED)
Net sales decreased $34,992 or 2% for the six months ended December 31, 2017 to $1,980,665 compared to $2,015,657 for the six months ended December 31, 2016. Gross sales for Chase Candy decreased $105,605 to $814,072 for the six months ended December 31, 2017, compared to $919,677 for the six months ended December 31, 2016. Gross sales for Seasonal Candy increased $105,651 to $1,218,281 for the six months ended December 31, 2017, compared to $1,112,720 for the six months ended December 31, 2016. Gross sales for other sales for the Company increased $1,371 to $8,553 for the six months ended December 31, 2017, compared to $7,182 for the six months ended December 31, 2016. Sales returns and allowances for the Company increased $36,319 to $60,241 for the six months ended December 31, 2017, compared to $23,922 for the six months ended December 31, 2016.
The 11% decrease in gross sales of Chase Candy of $105,605 for the six months ended December 31, 2017 over the same period ended December 31, 2016, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $90,000 versus the same period a year ago primarily due to existing customers decreasing orders; 2) decreased sales of the L212 Mini Mash division by approximately $10,000 versus the same period a year ago primarily due to existing customers decreasing orders; 3) decreased sales of the L200 Cherry Mash Merchandisers division by approximately $13,000 versus the same period a year ago primarily due to existing customers decreasing orders; offset by 4) increased sales of the L279/L299 Bulk Mini Mash division by approximately $7,000 versus the same period a year ago primarily due to existing customers increasing orders.
The 9% increase in gross sales of Seasonal Candy of $105,651 for the six months ended December 31, 2017 over the same period ended December 31, 2016, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal division netting approximately $135,000 versus the same period a year ago, primarily due to existing customers increasing orders; offset by 2) decreased sales in the clamshell seasonal division netting approximately $30,000 versus the same period a year ago, primarily due to existing customers decreasing orders.
Management anticipates sales returns and allowances for the six months ended December 31, 2017 to be higher than the prior period due to expected returns from one customer.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONScustomers.
COST OF SALES
The cost of sales decreased $144,845$134,771 to $786,390$526,321, or 71% of related revenuessales for the three months ended December 31, 2017,September 30, 2018 compared to $931,235$661,092, or 81%76% of related revenuessales for the three months ended December 31, 2016. September 30, 2017.
The 16%20% decrease in cost of sales of $144,845$134,771 is primarily due to the net effectimpact of 1) a 4%15% decrease in net sales of $43,234; 2)$128,910 and a 2%6% decrease in the priceraw material cost of peanuts; 3) direct labor decreasing $8,334 to $114,047 for this period from $122,381 for the three months ended December 31, 2016 primarily due to less temporary and overtime labor; 4) equipment depreciation decreasing $9,499 to $5,133 for this period from $14,632 for the three months ended December 31, 2016 primarily due to assets becoming fully depreciated in the prior period; 5) maintenance labor decreasing $8,095 to $9,389 for this period from $17,484 for the three months ended December 31, 2016 primarily due to not hiring a dedicated maintenance worker during the current period;peanuts. This was offset by 6) an 8%a 6% increase in the priceraw material cost of corn syrup; and 7) a 2% increase in the price of chocolate.
The cost of sales decreased $155,644 to $1,447,482 or 73% of related revenues for the six months ended December 31, 2017, compared to $1,603,126 or 80% of related revenues for the six months ended December 31, 2016. The 10% decrease in cost of sales of $155,644 is primarily due to the net effect of 1) a 2% decrease in net sales of $34,992; 2) a 2% decrease in the price of peanuts; 3) direct labor decreasing $39,714 to $213,974 for this period from $253,688 for the six months ended December 31, 2016 primarily due to less temporary and overtime labor; 4) equipment depreciation decreasing $18,896 to $10,441 for this period from $29,337 for the six months ended December 31, 2016 primarily due to assets becoming fully depreciated in the prior period; 5) maintenance labor decreasing $18,155 to $16,915 for this period from $35,070 for the six months ended December 31, 2016 primarily due to not hiring a dedicated maintenance worker during the current period; offset by 6) an 8% increase in the price of corn syrup; and 7) a 2% increase in the price of chocolate.
syrup. 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
SELLING EXPENSES
Selling expenses for the three months ended December 31, 2017September 30, 2018 decreased $14,013$39,429 to $118,216,$72,903, which is 11%10% of sales, compared to $132,229,$112,332 or 11%13% of sales for the three months ended December 31, 2016. September 30, 2017.
The decrease of $14,013$39,429 in selling expenses for the three months ended December 31, 2017September 30, 2018 is primarily due to the adoption of ASC 606, lower sales salaries, shipping charges, and auto depreciation. With the adoption of ASC 606, the Company no longer includes advertising and bill backs expense, lower promotions expense offset by higher commissions. Bill backs expense, which are paid to customers for various marketing reasons, decreased $14,032 to $12,991 for this period from $27,023with selling expenses. The expenses included in selling expenses totaled $29,417 for the three months ended December 31, 2016 primarily dueSeptember 30, 2017. As disclosed in Note 1, adjustments of $19,802 were made to a change in the structure of the bill back agreement. Promotions expense decreased $1,273 to $790 for this period from $2,063selling expenses for the three months ended December 31, 2016 primarily dueSeptember 30, 2018. Sales salaries decreased $5,500 to fewer promotional items ordered in the current period as compared to the previous period. Commissions increased $1,154 to $40,849$23,125 for this period from $39,695$28,625 for the three months ended December 31, 2016September 30, 2017 primarily due to an increase in salesthe retirement of items with higher commissions.
Selling expenses forone of the six months ended December 31, 2017 decreased $947 to $230,548, which is 11% of sales, compared to $231,495 or 11% of sales for the six months ended December 31, 2016. The decrease of $947 in selling expenses for the six months ended December 31, 2017 is primarily due to lower advertising expense offset by higher shipping expense for the period. Advertisingsalespersons. Auto depreciation expense decreased $2,561$2,504 to $1,244$8,152 for this period from $3,805$10,656 for the sixthree months ended December 31, 2016September 30, 2017 primarily due to selling a reduction in advertisementvehicle in the current period.period ending June 30, 2018. Shipping expense increased $1,500decreased $1,929 to $17,528$(334) for this period from $16,028$1,595 for the sixthree months ended December 31, 2016September 30, 2017 primarily due to increased shipment of online ordered items.actual shipping costs being less than estimated at year ending June 30, 2018.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2017September 30, 2018 decreased $8,552 to $138,484 and increased $35,718 to $122,627 and 11%19% of sales, compared to $86,909$147,036 or 8%17% of sales for the three months ended December 31, 2016. September 30, 2017.
The decreased costs are primarily because of a decrease in website expense offset by an increase of $35,718 in general and administrative expensesoffice salaries. Website expense decreased $10,242 to $4,094 for this period from $14,336 for the three months ended December 31, 2017 isSeptember 30, 2018 primarily due to higher website expense, professional fees, and insurance expense offset by lower miscellaneous expense. Website expense increased $29,057 to $31,942 for this period from $2,885 for the three months ending December 31, 2016 due to redesigning the website for the 100th anniversary of the Cherry Mash. Professional feesMash during the period ending September 30, 2017. Office salaries increased $5,637$1,797 to $20,607$23,105 for this period from $14,970$21,308 for the three months ending December 31, 2016ended September 30, 2018 primarily due to higher audit fees versus the same period a year ago. Insuranceannual raises for employees.
OTHER EXPENSE
Other expense increased $2,372 to $30,838 for this period from $28,466by $912 for the three months ending December 31, 2016ended September 30, 2018 to $2,520 compared to $1,608 for the three months ended September 30, 2017 primarily due to an increase in health insurance premiums partially paid by the company. Miscellaneousinterest expense decreased $883 to $1,319 for this period from $2,202 for the three months ending December 31, 2016 due to non-recurring expenses happening in the previous period.
CHASE GENERAL CORPORATION AND SUBSIDIARYof $905.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)
General and administrative expenses for the six months ended December 31, 2017 increased $47,008 to $269,663 or 14% of sales, compared to $222,655 or 11% of sales for the six months ended December 31, 2016. The increase of $47,008 in general and administrative expenses for the six months ended December 31, 2017 is primarily due to higher website expense and insurance expense. Website expense increased $41,320 to $46,278 for this period from $4,958 for the three months ending December 31, 2016 due to redesigning the website for the 100th anniversary of the Cherry Mash. Insurance expense increased $6,409 to $62,322 for this period from $55,913 for the six months ending December 31, 2016 due to an increase in health insurance premiums partially paid by the Company.
OTHER INCOME (EXPENSE)
Other income (expense) increased by $1,806 for the three months ended December 31, 2017 to $(1,926), compared to $(3,732) for the three months ended December 31, 2016 primarily due to an increase of $1,822 in interest expense.
Other income (expense) increased by $637 for the six months ended December 31, 2017 to $(3,536), compared to $(4,173) for the six months ended December 31, 2016 primarily due to an increase of $659 in interest expense.
PROVISIONTAX EXPENSE (BENEFIT) FOR INCOME TAXES
The Company recorded incomea tax expense for the three months ended December 31, 2017September 30, 2018 of $8,835$0 as compared to income tax benefitexpense of $(153)$5,209 for the three months ended December 31, 2016. The Company recordedSeptember 30, 2017. There is no income tax expense for the six months ended December 31, 2017 of $13,891 as compared to income tax benefit of $(17,381) for the six months ended December 31, 2016. The net income tax expense (benefit) recorded for the three and six months ended December 31, 2017 is primarily due to recognizing income taxes in relation to the profitability of operations and a $19,000 net provision adjustment to deferred income taxes due to the U.S. corporate income tax rate reducing from 35.0% to 21.0%.
NET INCOME (LOSS)
The Company reported net income for the three months ended December 31, 2017 of $72,394, comparedSeptember 30, 2018 primarily due to the net operating loss of $(483) forcarryforward at June 30, 2018 that is available to offset taxable income in the three months ended December 31, 2016. This increase of $72,877 is explained above. The Company reported net income for the six months ended December 31, 2017 of $15,545, compared to net loss of $(28,411) for the six months ended December 31, 2016. This decrease of $43,956 is explained above.current period.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
NET INCOME (LOSS)
The Company reported a net income for the three months ended September 30, 2018 of $1,292, compared to net loss of $56,847 for the three months ended September 30, 2017. This increase of $58,139 is explained above
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended December 31,September 30, 2018 and 2017, and 2016, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
Preferred dividends were $64,036 for the six months ended December 31, 2017 and 2016, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
NET INCOME (LOSS)LOSS APPLICABLE TO COMMON STOCKHOLDERS
Net income applicable to common stockholders for the three months ended December 31, 2017 was $40,376 which is an increase of $72,877 as compared to the net loss applicable to common stockholders for the three months ended December 31, 2016 of $(32,501).
Net loss applicable to common stockholders for the six months ended December 31, 2017September 30, 2018 was $45,891$30,726 which is an increasea decrease of $43,956$58,139 as compared to the net income applicable to common stockholdersloss for the sixthree months ended December 31, 2016September 30, 2017 of $(92,447).$88,865.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal periodyear indicated.
Six Months Ended | ||||||||
December 31 | ||||||||
2017 | 2016 | |||||||
Net Cash Provided by Operating Activities | $ | 290,130 | $ | 305,566 | ||||
Net Cash Provided by (Used in) Investing Activities | $ | - | $ | (17,245 | ) | |||
Net Cash Used by Financing Activities | $ | (7,981 | ) | $ | (7,648 | ) |
Three Months Ended | ||||||||
September 30 | ||||||||
2018 | 2017 | |||||||
Net Cash Used in Operating Activities | $ | (321,938 | ) | $ | (367,644 | ) | ||
Net Cash Provided by Financing Activities | 320,092 | 326,031 |
Management has made no material commitments for capital expenditures during the remainder of fiscal 2018.2019. The $290,130$321,938 of cash provided byused in operating activities is fully detailed in the condensed consolidated statement of cash flows on page five.four. The $7,981$320,092 of cash used inprovided by financing activities is primarily due to the receipt of $330,000 drawn from a line-of-credit, net of principal payments on equipment and vehicle loans. The proceeds from the line-of-credit during the period ended September 30, 2017 were used to finance the buildup of inventories which is reflected in the cash used in operating activities. At December 31, 2017,September 30, 2018, the Company had $350,000$40,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements. Management expects that projected cash flows will enable the Company to pay the full balance on the line-of-credit prior to December 31, 2018.
Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future.
Management believes that inflation will have only a minimal effect on future operations since such effects will generally be offset by sales price increases, which are not expected to have a significant effect upon demand.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
CRITICAL ACCOUNTING POLICIES
Forward-Looking Information
This report, as well as our other reports filed with the Securities and Exchange Commission (SEC), contains forward-looking statements made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, and management’s plans and objectives. Accordingly, these forward-looking statements are based on assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks, and uncertainties that could cause actual results to be different from what appear here. These risk factors include: the ability to adequately pass through customers unanticipated future increases in raw material costs, decreased demand for products, expected orders that do not occur, loss of key customers, the impact of competition and price erosion as well as supply and manufacturing constraints, and other risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will prove accurate, and our actual results may differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements made herein.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
PART I. FINANCIAL INFORMATION
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to a smaller reporting company.
ITEM 4. | CONTROLS AND PROCEDURES |
(a) Evaluation of Disclosure Controls and Procedures
Chase’s Management,management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’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, the Chief Executive Officer and Managementmanagement has concluded that Chase’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 Boardboard of Directors,directors, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
DuringIn connection with the first quarterpreparation of yearour financial statements for the period ending JuneSeptember 30, 2018, we identified and disclosed a material weakness in our internal control over financial reporting as it relatesrelated to our controls over the use of the retail inventory method in estimating ending inventory. The material weaknessinventory balances. This control deficiency resulted in a material adjustment to our ending inventory balance which wasis reflected in our financial statements for the period ending September 30, 2017. As a result, management has implemented controls to properly record and review the ending inventory balance under the retail inventory method.period.
Except as noteddescribed above, there were no significant changes in Chase’s internal control over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of the evaluation.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
ITEM 1. | LEGAL PROCEEDINGS |
None.
ITEM 1A. | RISK FACTORS |
Not applicable to a smaller reporting company.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
a. | None |
b. | The total cumulative preferred stock dividends contingency at |
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. | EXHIBITS |
Exhibit 31.1 | Certification of Chief Executive Officer and | ||
Exhibit 32.1 | Certification of | ||
Exhibit 101 | The following financial statements for the quarter ended |
Pursuant to the requirements 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 and Subsidiary | |
(Registrant) | |
/s/ Barry M. Yantis | |
Date | Barry M. Yantis |
Chairman of the Board, Chief Executive Officer and | |
Chief Financial Officer, President, and Treasurer |