UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 20172018
| ¨ | 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. YesxNo¨
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). YesxNo¨
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, 2018,13, 2019, there were 969,834 shares of common stock, $1.00 par value, outstanding.
CHASE GENERAL CORPORATION AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
FOR THE SIX MONTHS ENDEDDECEMBER 31, 20172018
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| 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 | ||||
| December 31, | June 30, | |||||||
| 2018 | 2018 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 249,130 | $ | 2,129 | ||||
| Trade Receivables, Net of Allowance for Doubtful Accounts of $13,989 and $13,389, Respectively | 187,218 | 135,331 | ||||||
| Inventories: | ||||||||
| Finished Goods | 18,669 | 208,254 | ||||||
| Goods in Process | 9,360 | 10,937 | ||||||
| Raw Materials | 89,173 | 74,267 | ||||||
| Packaging Materials | 135,889 | 152,184 | ||||||
| Prepaid Expenses | 44,523 | 12,225 | ||||||
| Total Current Assets | 733,962 | 595,327 | ||||||
| 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 | 1,025,520 | 997,091 | ||||||
| Total Property and Equipment, Net | 206,751 | 235,180 | ||||||
| Total Assets | $ | 940,713 | $ | 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
CONDENSED CONSOLIDATED BALANCE SHEETS (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 | ||||
| December 31, | June 30, | |||||||
| 2018 | 2018 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 92,379 | $ | 176,871 | ||||
| Current Maturities of Notes Payable | 11,507 | 11,224 | ||||||
| Accrued Expenses | 7,089 | 30,852 | ||||||
| Refund Liability Owed to Customers | 37,624 | - | ||||||
| Deferred Income | 1,299 | 1,299 | ||||||
| Total Current Liabilities | 149,898 | 220,246 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred Income | 6,817 | 7,466 | ||||||
| Notes Payable, Less Current Maturities | 18,962 | 24,787 | ||||||
| Deferred Income Taxes | 3,400 | - | ||||||
| Total Long-Term Liabilities | 29,179 | 32,253 | ||||||
| Total Liabilities | 179,077 | 252,499 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Capital Stock Issued and Outstanding: | ||||||||
| Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
| Series A (Liquidation Preference $2,325,000 and $2,310,000, Respectively) | 500,000 | 500,000 | ||||||
| Series B (Liquidation Preference $2,280,000 and $2,265,000, Respectively) | 500,000 | 500,000 | ||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| Series A (Liquidation Preference $5,224,063 and $5,194,796, Respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (Liquidation Preference $851,363 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 | (5,704,360 | ) | (5,887,988 | ) | ||||
| Total Stockholders' Equity | 761,636 | 578,008 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 940,713 | $ | 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
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 | ||||||||
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| SALES | $ | 1,130,629 | $ | 1,110,235 | ||||
| COST OF SALES | 752,454 | 786,390 | ||||||
| Gross Profit on Sales | 378,175 | 323,845 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 95,514 | 118,216 | ||||||
| General and Administrative | 97,329 | 122,627 | ||||||
| Total Operating Expenses | 192,843 | 240,843 | ||||||
| Income from Operations | 185,332 | 83,002 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 3,462 | 392 | ||||||
| Interest Expense | (3,056 | ) | (2,318 | ) | ||||
| Total Other Income (Expense) | 406 | (1,926 | ) | |||||
| Income before Income Taxes | 185,738 | 81,076 | ||||||
| PROVISION FOR INCOME TAXES | 3,400 | 8,682 | ||||||
| NET INCOME | $ | 182,338 | $ | 72,394 | ||||
| EARNINGS PER SHARE | ||||||||
| Basic | $ | 0.14 | $ | 0.04 | ||||
| Diluted | $ | 0.07 | $ | 0.02 | ||||
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
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 | ) | ||
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| SALES | $ | 1,872,149 | $ | 1,980,665 | ||||
| COST OF SALES | 1,278,775 | 1,447,482 | ||||||
| Gross Profit on Sales | 593,374 | 533,183 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 168,417 | 230,548 | ||||||
| General and Administrative | 235,813 | 269,663 | ||||||
| Total Operating Expenses | 404,230 | 500,211 | ||||||
| Income from Operations | 189,144 | 32,972 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 3,825 | 762 | ||||||
| Interest Expense | (5,941 | ) | (4,298 | ) | ||||
| Total Other Income (Expense) | (2,116 | ) | (3,536 | ) | ||||
| Income before Income Taxes | 187,028 | 29,436 | ||||||
| PROVISION FOR INCOME TAXES | 3,400 | 13,891 | ||||||
| NET INCOME | $ | 183,628 | $ | 15,545 | ||||
| EARNINGS/(LOSS) PER SHARE | ||||||||
| Basic | $ | 0.11 | $ | (0.05 | ) | |||
| Diluted | $ | 0.05 | $ | (0.05 | ) | |||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
ITEM 1. 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 | ||||
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 183,628 | $ | 15,545 | ||||
| Adjustments to Reconcile Net Income to Net Cash | ||||||||
| Provided by Operating Activities: | ||||||||
| Depreciation and Amortization | 28,429 | 34,017 | ||||||
| Allowance for Bad Debts | 600 | 600 | ||||||
| Deferred Income Amortization | (649 | ) | (649 | ) | ||||
| Deferred Income Taxes | 3,400 | 59,683 | ||||||
| Effects of Changes in Operating Assets and Liabilities: | ||||||||
| Trade Receivables | (52,487 | ) | (60,559 | ) | ||||
| Inventories | 192,551 | 212,550 | ||||||
| Prepaid Expenses | (32,298 | ) | (15,431 | ) | ||||
| Income Taxes Receivable | - | (41,371 | ) | |||||
| Accounts Payable | (84,492 | ) | 93,589 | |||||
| Accrued Expenses | (23,763 | ) | (14,583 | ) | ||||
| Income Taxes Payable | - | 6,739 | ||||||
| Refund Liability Owed to Customers | 37,624 | - | ||||||
| Net Cash Provided by Operating Activities | 252,543 | 290,130 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Line-of-Credit | 340,000 | 330,000 | ||||||
| Principal Payments on Line-of-Credit | (340,000 | ) | (330,000 | ) | ||||
| Principal Payments on Notes Payable | (5,542 | ) | (7,981 | ) | ||||
| Net Cash Used by Financing Activities | (5,542 | ) | (7,981 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 247,001 | 282,149 | ||||||
| Cash and Cash Equivalents - Beginning of Period | 2,129 | 46,182 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 249,130 | $ | 328,331 | ||||
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
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”, and “us”) at June 30, 20172018 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three and six months ended December 31, 20172018 and for the three and six months ended December 31, 20162017 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, 20172018 and cash flows for the six months ended December 31, 20172018 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, 2017,2018, 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 six month period ended December 31, 2017.2018.
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 CONDENSED CONSOLIDATEDPART I. FINANCIAL STATEMENTSINFORMATION
(UNAUDITED)
The earnings (loss) per share 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.
| 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, 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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)
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 1 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
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 amount 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 second quarter of the year ending June 30, 2019 resulting from updated estimates of revenue for prior year product sales were not significant.
The 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, 2018
| 2018 | 2017 | |||||||
| Sales - Chase Candy | $ | 473,685 | $ | 455,329 | ||||
| Sales - Seasonal Candy | 656,944 | 654,906 | ||||||
| Sales | $ | 1,130,629 | $ | 1,110,235 | ||||
For the six months ended December 31, 2018
| 2018 | 2017 | |||||||
| Sales - Chase Candy | $ | 767,772 | $ | 797,757 | ||||
| Sales - Seasonal Candy | 1,104,377 | 1,182,908 | ||||||
| Sales | $ | 1,872,149 | $ | 1,980,665 | ||||
| 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 Adopted Pronouncements
In 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 | |||||||||
| 8 |
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 Adopted Pronouncements (Continued)
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:
| For the three month period ended December 31, 2018 | ||||||||||||
| Current | Previous | |||||||||||
| Standard | Change | Standard | ||||||||||
| Statement of Operations | ||||||||||||
| Sales | $ | 1,130,629 | $ | 28,088 | $ | 1,158,717 | ||||||
| Selling Expenses | 95,514 | 28,088 | 123,602 | |||||||||
| As of and for the six month period ended December 31, 2018 | ||||||||||||
| Current | Previous | |||||||||||
| Standard | Change | Standard | ||||||||||
| Balance Sheet | ||||||||||||
| Accounts Payable | $ | 92,382 | $ | 37,624 | $ | 130,006 | ||||||
| Refund Liability Owed to Customers | 37,624 | (37,624 | ) | - | ||||||||
| Statement of Operations | ||||||||||||
| Sales | $ | 1,872,149 | $ | 47,890 | $ | 1,920,039 | ||||||
| Selling Expenses | 168,417 | 47,890 | 216,307 | |||||||||
| 9 |
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. 2016-02, Leases (Topic 842). 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 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 2016-02 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 would 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 on our consolidated balance sheets; however, we do not expect it to have a significant impact on our consolidated statements of operations or cash flows.
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.
| 10 |
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 |
The earnings (loss) per share 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.
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net Income | $ | 182,338 | $ | 72,394 | $ | 183,628 | $ | 15,545 | ||||||||
| 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 | $ | 150,320 | $ | 40,376 | $ | 119,592 | $ | (48,491 | ) | |||||||
| 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 | $ | 0.14 | $ | 0.04 | $ | 0.11 | $ | (0.05 | ) | |||||||
| Diluted Earnings (Loss) per Share | $ | 0.07 | $ | 0.02 | $ | 0.05 | $ | (0.05 | ) | |||||||
The contingently issuable shares, for the six months ended December 31, 2017, were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
| 11 |
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) |
Cumulative Preferred Stock dividends in arrears at December 31, 2018 and 2017 totaled $8,268,986 and $8,140,914, respectively. Total dividends in arrears, on a per share basis, consist of the following:
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| 6% Convertible | ||||||||
| Series A | $ | 18 | $ | 18 | ||||
| Series B | 18 | 17 | ||||||
| 5% Convertible | ||||||||
| Series A | $ | 69 | $ | 68 | ||||
| Series B | 69 | 68 | ||||||
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.
| 12 |
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 |
The Company’s long-term debt consists of:
| December 31, | June 30, | |||||||||
| Payee | Terms | 2018 | 2018 | |||||||
| Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2020, 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. | 22,036 | 25,560 | |||||||
| Toyota Credit | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 8,433 | 10,451 | |||||||
| Total | 30,469 | 36,011 | ||||||||
| Less Current Portion | 11,507 | 11,224 | ||||||||
| Long-Term Portion | $ | 18,962 | $ | 24,787 | ||||||
Future minimum payments for the twelve months ending December 31 are:
| December 31: | Amount | |||
| 2019 | $ | 11,507 | ||
| 2020 | 12,098 | |||
| 2021 | 6,864 | |||
| Total | $ | 30,469 | ||
| 13 |
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 December 31, 2018. The Company has no material tax positions at December 31, 2018 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, 2018. 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 taxing authority.
| NOTE 5 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2017 | 2016 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 4,298 | $ | 4,957 | ||||
| Income Taxes | $ | - | $ | 2,030 | ||||
| December 31 | ||||||||
| 2018 | 2017 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 5,941 | $ | 4,298 | ||||
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, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet, instead of separating deferred taxes into current and noncurrent amounts. During the period ended September 30, 2017, the Company elected to retrospectively adopt ASU 2015-17, resulting in a reclassification reducing both deferred tax assets and deferred tax liabilities by $63,306 on the balance sheet at June 30, 2017. There was no impact on results of operations as a result of the adoption of ASU 2015-17.
In July 2015, 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE | 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, 2017,2018, 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSOPERATION
OVERVIEW
Chase General Corporation (Chase) is a holding company for its wholly-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.
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, 20172018 Compared to Three Months Ended December 31, 2016,2017, and Six Months Ended December 31, 20172018 Compared to Six Months Ended December 31, 20162017
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 | Six Months Ended | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of Sales | 67 | 71 | 68 | 73 | ||||||||||||
| Gross Profit on Sales | 33 | 29 | 32 | 27 | ||||||||||||
| Operating Expenses | 17 | 22 | 22 | 25 | ||||||||||||
| Income from Operations | 16 | 7 | 10 | 2 | ||||||||||||
| Other Income (Expense), Net | - | - | - | - | ||||||||||||
| Income before Income Taxes | 16 | 7 | 10 | 2 | ||||||||||||
| Provision for Income Taxes | - | 1 | - | 1 | ||||||||||||
| Net Income | 16 | % | 6 | % | 10 | % | 1 | % | ||||||||
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSOPERATION
NET SALES
Net sales decreased $43,234Sales increased $20,394 or 4%2% for the three months ended December 31, 20172018 to $1,110,235$1,130,629 compared to $1,153,469$1,110,235 for the three months ended December 31, 2016. Gross sales2017. Sales for Chase Candy decreased $32,741increased $19,917 to $484,968 for the three months ended December 31, 2018, compared to $465,051 for the three months ended December 31, 2017, compared2017. Sales for Seasonal Candy increased $9,701 to $497,792$689,844 for the three months ended December 31, 2016. Gross sales for Seasonal Candy increased $14,4852018, compared to $680,143 for the three months ended December 31, 2017, compared2017. Sales for other sales for the Company increased $3,826 to $665,658$11,846 for the three months ended December 31, 2016. Gross sales for other sales for the Company increased $8772018, compared to $8,020 for the three months ended December 31, 2017, compared2017. Sales returns and allowances for the Company decreased $15,038 to $7,143$27,941 for the three months ended December 31, 2016. Sales returns and allowances for the Company increased $25,8552018, compared to $42,979 for the three months ended December 31, 2017, compared2017. Due to $17,124the adoption of ASC 606, adjustments disclosed in Note 1 totaling $28,088 for the three months ended December 31, 2016.2018 were recorded as a reduction to revenue.
The 7% decrease4% increase in gross sales of Chase Candy of $32,741$19,917 for the three months ended December 31, 20172018 over the same period ended December 31, 2016,2017, is primarily due to the net effect of the following: 1) decreasedincreased sales of the L276 CherryL212/L278 Mini Mash Merchandisers division by approximately $21,000$16,000 versus the same period a year ago primarily due to decreasedincreased orders from existing customers; 2) decreasedincreased sales of L100/L200 CherryL279/L299 Bulk Mini Mash Merchandisers division by approximately $8,000$14,000 versus the same period a year ago due to decreasedincreased orders from existing customers; 3) decreasedincreased sales of L278 MiniL100/L200/SK2100 Cherry Mash Merchandisers division by approximately $3,000$5,000 versus the same period a year ago primarily due to decreasedincreased orders from existing customers; andoffset by 4) decreased sales of L279 Bulk MiniL276 Cherry Mash Distributors Pack division by approximately $1,000$15,000 versus the same period a year ago due to decreased orders from existing customers.
The 2%1% increase in gross sales of Seasonal Candy of $14,485$9,701 for the three months ended December 31, 20172018 over the same period ended December 31, 2016,2017, is primarily due to the net effect of the following: 1) an increase orders in the generic seasonalclamshell division netting approximately $119,000$56,000 versus the same period a year ago, primarily due to existing customers increasing orders; offset by 2) decreasedincreased orders in the clamshellbulk seasonal division netting approximately $64,000,$53,000, due to decreasedincreased sales from existing customers; andoffset by 3) decreased orders from various customers in the bulkgeneral seasonal division netting approximately $41,000$98,500 versus the same period a year ago, primarily due to existing customers decreasing orders.
Management anticipates salesSales returns and allowances decreased $15,038 for the three months ended December 31, 2018 over the same period ended December 31, 2017 to be higher than the prior periodprimarily due to expectedmanagement’s anticipation of returns from one customer.customer in the prior period.
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSOPERATION
NET SALES (CONTINUED)
Net salesSales decreased $34,992$108,516 or 2%5% for the six months ended December 31, 20172018 to $1,980,665$1,872,149 compared to $2,015,657$1,980,665 for the six months ended December 31, 2016. Gross sales2017. Sales for Chase Candy decreased $105,605$26,922 to $787,150 for the six months ended December 31, 2018, compared to $814,072 for the six months ended December 31, 2017, compared2017. Sales for Seasonal Candy decreased $68,153 to $919,677$1,150,128 for the six months ended December 31, 2016. Gross sales for Seasonal Candy increased $105,6512018, compared to $1,218,281 for the six months ended December 31, 2017, compared2017. Sales for other sales for the Company increased $4,232 to $1,112,720$12,785 for the six months ended December 31, 2016. Gross sales for other sales for the Company increased $1,3712018, compared to $8,553 for the six months ended December 31, 2017, compared2017. Sales returns and allowances for the Company decreased $30,217 to $7,182$30,024 for the six months ended December 31, 2016. Sales returns and allowances for the Company increased $36,3192018, compared to $60,241 for the six months ended December 31, 2017, compared2017. Due to $23,922the adoption of ASC 606, adjustments disclosed in Note 1 totaling $47,890 for the six months ended December 31, 2016.2018 were recorded as a reduction to revenue.
The 11%3% decrease in gross sales of Chase Candy of $105,605$26,922 for the six months ended December 31, 20172018 over the same period ended December 31, 2016,2017, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $90,000$49,000 versus the same period a year ago primarily due to existing customers decreasing orders; offset by 2) increased sales of the L100/L200/SK2100 Cherry Mash Merchandisers division by approximately $18,000 versus the same period a year ago primarily due to existing customers increasing orders; 3) decreased sales of the L212/L278 Mini Mash division by approximately $2,000 versus the same period a year ago primarily due to existing customers increasing orders; and 4) other various increases netting to $2,000.
The 6% increase in sales of Seasonal Candy of $68,153 for the six months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) decreased sales in the generic seasonal division netting approximately $28,000 versus the same period a year ago, primarily due to existing customers decreasing orders; 2) decreased sales ofin the L212 Mini Mashbulk seasonal division bynetting approximately $10,000$25,000 versus the same period a year ago, primarily due to existing customers decreasing orders; and 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$14,500 versus the same period a year ago, primarily due to existing customers decreasing orders.
Management anticipates salesSales returns and allowances decreased $30,217 for the six months ended December 31, 2018 over the same period ended December 31, 2017 to be higher than the prior periodis primarily due to expectedmanagement’s anticipation of returns from one customer.customer in the prior period.
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSOPERATION
COST OF SALES
The cost of sales decreased $144,845$33,936 to $752,454 or 67% of related revenues for the three months ended December 31, 2018, compared to $786,390 or 71% of related revenues for the three months ended December 31, 2017, compared to $931,235 or 81% of related revenues for the three months ended December 31, 2016.2017. The 16%4% decrease in cost of sales of $144,845$33,936 is primarily due to the net effect of 1) a 4%1% decrease in netthe price of peanuts; 2) decreased waste in packaging; offset by 3) a 2% increase in sales of $43,234;$20,394; 4) an 4% increase in the price of corn syrup; and 5) a 2% increase in the price of chocolate.
The cost of sales decreased $168,707 to $1,278,775 or 68% of related revenues for the six months ended December 31, 2018, compared to $1,447,482 or 73% of related revenues for the six months ended December 31, 2017. The 12% decrease in cost of sales of $168,707 is primarily due to the net effect of 1) a 5% decrease in sales of $108,516; 2) a 2%3.3% decrease in the price of peanuts; 3) direct laborsupervisor’s salary decreasing $8,334$14,050 to $114,047$92,510 for this period from $122,381$106,560 for the threesix months ended December 31, 20162017 primarily due to less temporary and overtime labor;retirement of one of the supervisors; 4) equipment depreciationmaintenance labor decreasing $9,499$13,023 to $5,133$3,892 for this period from $14,632$16,915 for the threesix 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, 20162017 primarily due to not hiring a dedicated maintenance worker during the current period; offset by 6)5) an 8%5% increase in the price of corn syrup; and 7)6) 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%1% increase in the price of chocolate.
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
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSOPERATION
SELLING EXPENSES
Selling expenses for the three months ended December 31, 20172018 decreased $14,013$22,702 to $118,216,$95,514, which is 11%8% of sales, compared to $132,229,$118,216, or 11% of sales for the three months ended December 31, 2016.2017. The decrease of $14,013$22,702 in selling expenses for the three months ended December 31, 20172018 is primarily due to the adoption of ASC 606, lower bill backs expense,sales salaries, lower promotionsvehicle depreciation, lower auto expense offset by higher commissions. Billshipping expenses. With the adoption of ASC 606, the Company no longer includes advertising and 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 $13,836 for the three months ended December 31, 2016 primarily due2017. As disclosed in Note 1, adjustments of $28,088 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 due2018. 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, 20162017 primarily due to retirement of one of the salespersons. Vehicle depreciation expense decreased $2,504 to $8,152 for this period from $10,656 for the three months ended December 31, 2017 and auto expense decreased $2,211 to $2,330 for this period from $4,541 for the three months ended December 31, 2017 primarily due to a selling a vehicle in the period ending June 30, 2018. Shipping expenses increased $2,574 to $18,507 for this period from $15,933 for the three months ended December 31, 2017 primarily due to an increase in salesshipment of items with higher commissions.online ordered items.
Selling expenses for the six months ended December 31, 20172018 decreased $947$62,131 to $230,548,$168,417, which is 11%9% of sales, compared to $231,495$230,548 or 11% of sales for the six months ended December 31, 2016.2017. The decrease of $947$62,131 in selling expenses for the six months ended December 31, 20172018 is primarily due to the adoption of ASC 606, lower sales salaries, lower vehicle depreciation, and lower auto expense. With the adoption of ASC 606, the Company no longer includes advertising expense offset by higher shipping expense for the period. Advertising expense decreased $2,561 to $1,244 for this period from $3,805and bill backs with selling expenses. The expenses included in selling expenses totaled $43,253 for the six months ended December 31, 2016 primarily due2017. As disclosed in Note 1, adjustments of $47,890 were made to a reduction in advertisement in the current period. Shipping expense increased $1,500 to $17,528 for this period from $16,028selling expenses for the six months ended December 31, 20162018. Sales salaries decreased $11,000 to $46,250 for this period from $57,250 for the six months ended December 31, 2017 primarily due to increased shipmentretirement of online ordered items.one of the salespersons. Vehicle depreciation expense decreased $5,008 to $16,304 for this period from $21,312 for the six months ended December 31, 2017 and auto expense decreased $3,460 to $4,148 for this period from $7,608 for the six months ended December 31, 2017 primarily due to a selling a vehicle in the period ending June 30, 2018.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2017 increased $35,7182018 decreased $25,298 to $122,627$97,329 and 11%9% of sales, compared to $86,909$122,627 or 8%11% of sales for the three months ended December 31, 2016.2017. The increasedecrease of $35,718$25,298 in general and administrative expenses for the three months ended December 31, 20172018 is primarily due to higherlower website expense, professional fees, and insurance expense offset by lower miscellaneous expense.higher insurance expense and office salaries. Website expense increased $29,057decreased $28,750 to $31,942$3,192 for this period from $2,885$31,942 for the three months ending December 31, 20162017 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash. Professional feesMash in the prior year. Insurance expense increased $5,637$2,901 to $20,607$33,739 for this period from $14,970$30,838 for the three months ending December 31, 20162017 primarily due to higher audit fees versus the same period a year ago. Insurance expensean increase in insurance premiums. Office salaries increased $2,372$1,320 to $30,838$23,351 for this period from $28,466$22,031 for the three months ending December 31, 20162017 primarily due to an increase in health insurance premiums partially paid by the company. Miscellaneous expense decreased $883 to $1,319annual raises 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 SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)employees.
General and administrative expenses for the six months ended December 31, 2017 increased $47,0082018 decreased $33,850 to $235,813 or 13% of sales, compared to $269,663 or 14% of sales, compared to $222,655 or 11% of sales for the six months ended December 31, 2016.2017. The increasedecrease of $47,008$33,850 in general and administrative expenses for the six months ended December 31, 20172018 is primarily due to higherlower website expense offset by higher insurance expense and insurance expense.office salaries. Website expense increased $41,320decreased $38,992 to $46,278$7,286 for this period from $4,958$46,278 for the three months ending December 31, 20162017 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash.Mash in the prior year. Insurance expense increased $6,409$3,465 to $62,322$65,787 for this period from $55,913$62,322 for the sixthree months ending December 31, 20162017 primarily due to an increase in health insurance premiums partially paid bypremiums. Office salaries increased $3,117 to $46,456 for this period from $43,339 for the Company.three months ending December 31, 2017 primarily due annual raises for employees.
OTHER INCOME (EXPENSE)
Other income (expense) increased by $1,806$2,332 for the three months ended December 31, 2018 to $406, compared to $(1,926) 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$2,859 of $1,822 in interest expense.miscellaneous income received from supplier.
Other income (expense) increased by $637$1,420 for the six months ended December 31, 2018 to $(2,116), compared to $(3,536) 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$2,859 of $659 in interest expense.miscellaneous income received from supplier.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company recorded income tax expense for the three months ended December 31, 20172018 of $8,835$3,400 as compared to income tax benefitexpense of $(153)$8,682 for the three months ended December 31, 2016.2017. The Company recorded income tax expense for the six months ended December 31, 20172018 of $13,891$3,400 as compared to income tax benefitexpense of $(17,381)$13,891 for the six months ended December 31, 2016.2017. The net income tax expense (benefit) recorded for the three and six months ended December 31, 20172018 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%.operations.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
NET INCOME (LOSS)
The Company reported net income for the three months ended December 31, 20172018 of $72,394,$182,338, compared to net lossincome of $(483)$72,394 for the three months ended December 31, 2016.2017. This increase of $72,877$109,944 is explained above. The Company reported net income for the six months ended December 31, 20172018 of $15,545,$183,628, compared to net lossincome of $(28,411)$15,545 for the six months ended December 31, 2016.2017. This decreaseincrease of $43,956$168,083 is explained above.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended December 31, 20172018 and 2016,2017, 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, 20172018 and 2016,2017, 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) APPLICABLE TO COMMON STOCKHOLDERS
Net income applicable to common stockholders for the three months ended December 31, 20172018 was $40,376$150,320 which is an increase of $72,877$109,944 as compared to the net lossincome applicable to common stockholders for the three months ended December 31, 20162017 of $(32,501).$40,376.
Net income applicable to common stockholders for the six months ended December 31, 2018 was $119,592 which is an increase of $168,083 as compared to the net loss applicable to common stockholders for the six months ended December 31, 2017 was $45,891 which is an increase of $43,956 as compared to the net income applicable to common stockholders for the six months ended December 31, 2016 of $(92,447).$(48,491)
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
| Six Months Ended | Six Months Ended | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2017 | 2016 | 2018 | 2017 | |||||||||||||
| Net Cash Provided by Operating Activities | $ | 290,130 | $ | 305,566 | $ | 252,543 | $ | 290,130 | ||||||||
| Net Cash Provided by (Used in) Investing Activities | $ | - | $ | (17,245 | ) | |||||||||||
| Net Cash Used by Financing Activities | $ | (7,981 | ) | $ | (7,648 | ) | $ | (5,542 | ) | $ | (7,981 | ) | ||||
Management has no material commitments for capital expenditures during the remainder of fiscal 2018.2019. The $290,130$252,543 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $7,981$ 5,542 of cash used in financing activities is the principal payments on equipment and vehicle loans. At December 31, 2017,2018, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.
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 be offset by sales price increases, which are not expected to have a significant effect upon demand.
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSOPERATION
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
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,Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, 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 Management hasChief Financial Officer concluded that Chase’sthe Company’s disclosure controls and procedures arewere not 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 membersas of December 31, 2018, as a result of the Board of Directors, to allow timely decisions regarding required disclosure.material weakness discussed below.
DuringA material weakness is a deficiency, or combination of deficiencies, in internal control over consolidated financial reporting, such that there is a reasonable possibility that a material misstatement of the first quarterCompany’s annual or interim consolidated financial statement will not be prevented or detected on a timely basis. In connection with the preparation 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 overin the use ofmethod used to estimate the retailending inventory method in estimating ending inventory. The material weaknessbalances. This control deficiency resulted in a material adjustment to our ending inventory balance which was reflected in our financial statements for the period ending September 30, 2017. As a2018. If not remediated, this control deficiency could result managementin future material misstatement to inventory and cost of goods sold within the Company’s consolidated financial statements.
Management and the Board of Directors are committed to the continued improvement of the Company’s overall system of internal control over financial reporting. Management believes the remediation measures described below will remediate the identified control deficiency and strengthen the Company’s internal control over financial reporting.
Management has implemented controlsthe following measures to properly record and reviewremediate the ending inventory balance under the retail inventory method.internal control deficiency with respect to its valuation of inventory.
| · | Management has calculated and reviewed the estimated ending inventory balances using the retail inventory method on a monthly basis; and has used an external vendor for verification of the calculation. |
(b) Changes in Internal Control over Financial Reporting
Except as noted above, thereThere were no significant changes in Chase’sthe Company’s internal control over financial reporting or in other factorsduring the quarter ended December 31, 2018 that in management’s estimateshave materially affected, or are reasonably likely to materially affect, Chase’sthe Company’s internal control over financial reporting subsequent to the date of the evaluation.reporting.
CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 1. | LEGAL PROCEEDINGS | |||
None.
| None. | ||||
| ITEM 1A. | RISK FACTORS | |||
Not applicable to a smaller reporting company.
| Not applicable to a smaller reporting company. | ||||
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |||
None
| None | ||||
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | |||
| a. | None | ||
| b. | The total cumulative preferred stock dividends contingency at December 31, | ||
| ITEM 4. | MINE SAFETY DISCLOSURES | |||
Not applicable.
None
| Not applicable. | |||
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART II. OTHER INFORMATION (CONTINUED)
| ITEM 5. | OTHER INFORMATION | ||
| None | |||
| ITEM 6. | EXHIBITS | ||
| a. | Exhibits. | ||
| Exhibit 31.1 | Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | ||
| Exhibit 32.1 | Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| Exhibit 101 | The following financial statements for the quarter ended December 31, | ||
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) | ||
| February | /s/ Barry M. Yantis | |
| Date | Barry M. Yantis | |
| Chairman of the Board, Chief Executive Officer and | ||
| Chief Financial Officer, President and Treasurer |