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 MarchDecember 31, 2010
¨ | 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 incorporation or organization) | (IRS Employer Identification No.) |
1307 South 59th, St. Joseph, Missouri 64507
(Address of principal executive offices, Zip Code)
(816) 279-1625
(Issuer’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
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. Yes x 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). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
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 ¨ No x
As of April 30, 2010,January 31, 2011, there were 969,834 shares of common stock, $1.00 par value, outstanding.
Table of Contents
CHASE GENERAL CORPORATION AND SUBSIDIARY
Quarterly Report on Form 10-Q
For the NineSix Months Ended MarchDecember 31, 2010
TABLE OF CONTENTS
Item | Condensed Consolidated Financial Statements | |||
Condensed Consolidated Balance Sheets as of | 3 | |||
5 | ||||
6 | ||||
7 | ||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 8 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 21 | ||
Item 4T. | Controls and Procedures | |||
| ||||
| ||||
| ||||
| ||||
| 22 | |||
Item 1. | Legal Proceedings | 23 | ||
Item 1A. | Risk Factors | 23 | ||
Item 3. | Defaults Upon Senior Securities | 23 | ||
Item 4. | Submission of Matters to Vote of Security Holders | 23 | ||
Item 6. | Exhibits | 23 | ||
24 |
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2010 | June 30, 2009 | |||||||||||||
(Unaudited) | (Audited) | December 31, 2010 | June 30, 2010 | |||||||||||
(Unaudited) | (Audited) | |||||||||||||
CURRENT ASSETS | ||||||||||||||
Cash and cash equivalents | $ | 260,785 | $ | 28,771 | $ | 468,313 | $ | 106,508 | ||||||
Trade receivables, net (less allowance for doubtful accounts, March 31, 2010 - $16,636 and June 30, 2009 - $15,736) | 217,356 | 229,909 | ||||||||||||
Trade receivables, net of allowance for doubtful accounts, of $15,491 and $14,891, respectively | 175,710 | 164,753 | ||||||||||||
Inventories: | ||||||||||||||
Finished goods | 58,058 | 119,116 | 60,348 | 104,022 | ||||||||||
Goods in process | 13,954 | 4,932 | 6,048 | 3,730 | ||||||||||
Raw materials | 112,075 | 69,960 | 58,841 | 109,027 | ||||||||||
Packaging materials | 187,534 | 172,764 | 175,215 | 186,420 | ||||||||||
Prepaid expenses | 119,952 | 16,858 | 21,539 | 4,959 | ||||||||||
Deferred income taxes | 3,664 | 4,626 | 5,350 | 5,844 | ||||||||||
Total current assets | 973,378 | 646,936 | 971,364 | 685,263 | ||||||||||
PROPERTY AND EQUIPMENT - NET | 274,587 | 328,482 | 467,839 | 512,069 | ||||||||||
TOTAL ASSETS | $ | 1,247,965 | $ | 975,418 | $ | 1,439,203 | $ | 1,197,332 | ||||||
The accompanying notes are an integral part of the
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31, 2010 | June 30, 2009 | |||||||||||||||
(Unaudited) | (Audited) | December 31, 2010 | June 30, 2010 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable | $ | 86,731 | $ | 158,570 | $ | 89,532 | $ | 68,734 | ||||||||
Current maturities of notes payable | 174,030 | 30,142 | 48,644 | 56,820 | ||||||||||||
Accrued expenses | 17,779 | 15,487 | 9,516 | 15,337 | ||||||||||||
Deferred income | 1,299 | 1,299 | 1,299 | 1,299 | ||||||||||||
Income taxes payable | 86,494 | 185 | 93,678 | 2 | ||||||||||||
Total current liabilities | 366,333 | 205,683 | 242,669 | 142,192 | ||||||||||||
LONG-TERM LIABILITIES | ||||||||||||||||
Deferred income | 18,181 | 19,155 | 17,207 | 17,857 | ||||||||||||
Notes payable, less current maturities | 20,302 | 42,604 | 126,363 | 150,475 | ||||||||||||
Deferred income taxes | 16,352 | 21,986 | 84,657 | 93,869 | ||||||||||||
Total long-term liabilities | 54,835 | 83,745 | 228,227 | 262,201 | ||||||||||||
Total liabilities | 421,168 | 289,428 | 470,896 | 404,393 | ||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||
Capital stock issued and outstanding: | ||||||||||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||||||||||
Series A (liquidation preference $2,062,500 and $2,040,000 respectively) | 500,000 | 500,000 | ||||||||||||||
Series B (liquidation preference $2,017,500 and $1,995,000 respectively) | 500,000 | 500,000 | ||||||||||||||
Series A (liquidation preference $2,085,000 and $2,070,000 respectively) | 500,000 | 500,000 | ||||||||||||||
Series B (liquidation preference $2,040,000 and $2,025,000 respectively) | 500,000 | 500,000 | ||||||||||||||
Cumulative preferred stock, $20 par value | ||||||||||||||||
Series A (liquidation preference $4,711,900 and $4,668,001 respectively) | 1,170,660 | 1,170,660 | ||||||||||||||
Series B (liquidation preference $767,896 and $760,741 respectively) | 190,780 | 190,780 | ||||||||||||||
Series A (liquidation preference $4,755,799 and $4,726,533 respectively) | 1,170,660 | 1,170,660 | ||||||||||||||
Series B (liquidation preference $775,051 and $770,281 respectively) | 190,780 | 190,780 | ||||||||||||||
Common stock, $1 par value | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
Paid-in capital in excess of par | 3,134,722 | 3,134,722 | 3,134,722 | 3,134,722 | ||||||||||||
Accumulated deficit | (5,639,199 | ) | (5,780,006 | ) | (5,497,689 | ) | (5,673,057 | ) | ||||||||
Total stockholders’ equity | 826,797 | 685,990 | 968,307 | 792,939 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | �� | $ | 1,247,965 | $ | 975,418 | $ | 1,439,203 | $ | 1,197,332 | |||||||
The accompanying notes are an integral part of the
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31 | ||||||||||||||||
2010 | 2009 | Three Months Ended December 31 | ||||||||||||||
2010 | 2009 | |||||||||||||||
NET SALES | $ | 441,877 | $ | 395,000 | 1,426,702 | $ | 1,281,122 | |||||||||
COST OF SALES | 382,473 | 331,822 | 984,747 | 860,984 | ||||||||||||
Gross profit on sales | 59,404 | 63,178 | 441,955 | 420,138 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Selling | 58,946 | 66,478 | 150,046 | 135,456 | ||||||||||||
General and administrative | 66,846 | 64,867 | 76,942 | 79,235 | ||||||||||||
(Gain) on sale of equipment | — | (6,762 | ) | |||||||||||||
Total operating expenses | 125,792 | 124,583 | 226,988 | 214,691 | ||||||||||||
Income (loss) from operations | (66,388 | ) | (61,405 | ) | ||||||||||||
Income from operations | 214,967 | 205,447 | ||||||||||||||
OTHER INCOME (EXPENSE) | (834 | ) | (23 | ) | (2,512 | ) | (1,177 | ) | ||||||||
Net income before income taxes | 212,455 | 204,270 | ||||||||||||||
Net income (loss) before income taxes | (67,222 | ) | (61,428 | ) | ||||||||||||
PROVISION FOR INCOME TAXES | 76,461 | 87,411 | ||||||||||||||
(BENEFIT) FOR INCOME TAXES | (26,600 | ) | (36,717 | ) | ||||||||||||
NET (LOSS) | (40,622 | ) | (24,711 | ) | ||||||||||||
NET INCOME | 135,994 | 116,859 | ||||||||||||||
Preferred dividends | (32,018 | ) | (32,018 | ) | (32,018 | ) | (32,018 | ) | ||||||||
Net income applicable to common stockholders | $ | 103,976 | $ | 84,841 | ||||||||||||
NET (LOSS) APPLICABLE TO COMMON STOCKHOLDERS | $ | (72,640 | ) | $ | (56,729 | ) | ||||||||||
NET INCOME PER SHARE OF COMMON STOCK - BASIC | $ | 0.11 | $ | 0.09 | ||||||||||||
NET (LOSS) PER SHARE OF COMMON STOCK - BASIC | $ | (.07 | ) | $ | (.06 | ) | ||||||||||
DILUTED | $ | 0.05 | $ | 0.04 | ||||||||||||
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
The accompanying notes are an integral part of the
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended March 31 | ||||||||||||||||
2010 | 2009 | Six Months Ended December 31 | ||||||||||||||
2010 | 2009 | |||||||||||||||
NET SALES | $ | 2,483,890 | $ | 2,553,842 | $ | 2,195,538 | $ | 2,042,013 | ||||||||
COST OF SALES | 1,731,120 | 1,760,323 | 1,502,367 | 1,348,647 | ||||||||||||
Gross profit on sales | 752,770 | 793,519 | 693,171 | 693,366 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Selling | 266,315 | 297,033 | 230,971 | 207,369 | ||||||||||||
General and administrative | 260,806 | 244,826 | 197,269 | 193,960 | ||||||||||||
(Gain) on sale of equipment | — | (12,014 | ) | (500 | ) | — | ||||||||||
Total operating expenses | 527,121 | 529,845 | 427,740 | 401,329 | ||||||||||||
Income from operations | 225,649 | 263,674 | 265,431 | 292,037 | ||||||||||||
OTHER INCOME (EXPENSE) | (2,820 | ) | (4,640 | ) | (4,908 | ) | (1,986 | ) | ||||||||
Net income before income taxes | 222,829 | 259,034 | 260,523 | 290,051 | ||||||||||||
PROVISION FOR INCOME TAXES | 82,022 | 40,076 | 85,155 | 108,622 | ||||||||||||
NET INCOME | 140,807 | 218,958 | 175,368 | 181,429 | ||||||||||||
Preferred dividends | (96,054 | ) | (96,054 | ) | (64,036 | ) | (64,036 | ) | ||||||||
Net income applicable to common stockholders | $ | 111,332 | $ | 117,393 | ||||||||||||
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS | $ | 44,753 | $ | 122,904 | ||||||||||||
NET INCOME PER SHARE OF COMMON STOCK - | ||||||||||||||||
BASIC | $ | .05 | $ | .13 | ||||||||||||
NET INCOME PER SHARE OF COMMON STOCK - BASIC | $ | 0.11 | $ | 0.12 | ||||||||||||
DILUTED | $ | .02 | $ | .06 | $ | 0.06 | $ | 0.06 | ||||||||
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
The accompanying notes are an integral part of the
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31 | ||||||||||||||||
2010 | 2009 | Six Months Ended December 31 | ||||||||||||||
2010 | 2009 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 140,807 | $ | 218,958 | $ | 175,368 | $ | 181,429 | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 56,469 | 51,800 | 55,016 | 37,594 | ||||||||||||
Allowance for bad debts | 900 | 900 | 600 | 600 | ||||||||||||
Deferred income amortization | (973 | ) | (975 | ) | (650 | ) | (649 | ) | ||||||||
Deferred income taxes | (4,672 | ) | 29,716 | (8,718 | ) | (2,729 | ) | |||||||||
(Gain) on sale of equipment | — | (12,041 | ) | (500 | ) | — | ||||||||||
Effects of changes in operating assets and liabilities: | ||||||||||||||||
Trade receivables | 11,653 | 87,915 | (11,557 | ) | 49,403 | |||||||||||
Other receivable | — | (11,000 | ) | |||||||||||||
Inventories | (4,849 | ) | 11,141 | 102,747 | 39,419 | |||||||||||
Prepaid expenses | (103,094 | ) | (12,946 | ) | (16,580 | ) | (81,921 | ) | ||||||||
Accounts payable | (71,839 | ) | 21,723 | 20,798 | (81,022 | ) | ||||||||||
Accrued expenses | 2,292 | (271 | ) | (5,821 | ) | (3,984 | ) | |||||||||
Income taxes payable | 86,309 | 10,360 | 93,676 | 110,966 | ||||||||||||
Net cash provided by operating activities | 113,003 | 395,280 | 404,379 | 249,106 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Proceeds from sale of equipment | — | 24,000 | 500 | — | ||||||||||||
Purchases of property and equipment | (2,574 | ) | (74,577 | ) | (10,786 | ) | (2,574 | ) | ||||||||
Net cash (used in) investing activities | (2,574 | ) | (50,577 | ) | ||||||||||||
Net cash used in investing activities | (10,286 | ) | (2,574 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Proceeds from line-of-credit | 210,000 | 145,000 | 40,000 | 210,000 | ||||||||||||
Principal payments on line-of-credit | (210,000 | ) | (195,000 | ) | (40,000 | ) | (210,000 | ) | ||||||||
Proceeds from equipment notes payable | 143,554 | — | ||||||||||||||
Principal payments on notes payable - stockholder | — | (140,000 | ) | |||||||||||||
Principal payments on vehicles notes payable | (21,969 | ) | (14,015 | ) | ||||||||||||
Principal payments on notes payable | (32,288 | ) | (14,619 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 121,585 | (204,015 | ) | |||||||||||||
Net cash used in financing activities | (32,288 | ) | (14,619 | ) | ||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 232,014 | 140,688 | 361,805 | 231,913 | ||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 28,771 | 24,828 | 106,508 | 28,771 | ||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 260,785 | $ | 165,516 | $ | 468,313 | $ | 260,684 | ||||||||
The accompanying notes are an integral part of the
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
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, 20092010 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months and ninesix months ended MarchDecember 31, 2010 and for the three months and ninesix months ended MarchDecember 31, 2009 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, 2009.2010. The results of operations for the three and ninesix months ended MarchDecember 31, 2010 and cash flows for the ninesix months ended MarchDecember 31, 2010 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2010.2011. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation. 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.
Pursuant to SFASDuring the third quarter 2010, Chase adopted FASB ASU No. 168,“2010-06 Fair Value Measurements and Disclosures (Topic 820). This ASU requires new disclosures for transfers in and out of Levels 1 and 2, and Activity in Level 3 fair value measurements. The FASB Accounting Standards Codificationupdate also clarifies the level disaggregation and the Hierarchydisclosures about inputs and valuation techniques. The new disclosures and clarifications of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, the FASB Accounting Standards Codification (“ASC”) (FASB ASC 105) became the sole source of authoritative U.S. GAAPexisting disclosures are effective for interim and annual reporting periods endingbeginning after SeptemberDecember 15, 2009, except2009. The requirement related to Level 3 fair value measurements is effective for rulesthe Company for interim and interpretive releasesannual reporting periods beginning after January 28, 2011. The adoption of the SEC, which are sourceseffective portions of authoritative GAAP for SEC registrants. The Company adopted this new standard duringdid not have a material impact on the first quarter of 2009. Reference to specific accounting standards in the footnotes to ourCompany’s condensed consolidated financial statements have been changed to referand the Company does not expect a material impact on its condensed consolidated financial statements related to the appropriate section of the ASC.Level 3 fair value disclosures.
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities (“VIE”) in response to concerns about the application of certain key provisions of pre-existing guidance, including those regarding the transparency of the involvement with a VIE. Specifically, this new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE.VIE and whether an entity is a VIE when a triggering event occurs. In addition, this new guidance requires additional disclosures about the involvement with a VIE and any significant changes in risk exposure due to that involvement. This new guidance is effective for fiscal years beginning after November 15, 2009. We plan to adoptThe Company adopted the new guidance in the first quarter of fiscal year 2011, and dowhich did not expecthave a material impact on ourits condensed consolidated financial statements.
During the third quarter, Chase adopted FASB accounting Standards Update (ASU) No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements, which amends ASC 855, Subsequent Events. This ASU removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated. This change removes potential conflicts with SEC requirements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL (CONTINUED)
Management has performed an evaluation of events that have occurred subsequent to December 31, 2010, through the date of filing of this Form 10-Q. There have been no subsequent events that occurred during such period 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, 2010.
NOTE 2 - NET INCOME (LOSS) PER SHARE
The income per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share is calculated by including contingently issuable shares with the weighted average shares outstanding.
Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
Net income (loss) | $ | (40,622 | ) | $ | (24,711 | ) | $ | 140,807 | $ | 218,958 | ||||
Preferred dividend requirements: | ||||||||||||||
6% Prior Cumulative Preferred, $5 par value | 15,000 | 15,000 | 45,000 | 45,000 | ||||||||||
5% Convertible Cumulative Preferred, $20 par value | 17,018 | 17,018 | 51,054 | 51,054 | ||||||||||
Total dividend requirements | 32,018 | 32,018 | 96,054 | 96,054 | ||||||||||
Net income (loss) common stockholders | $ | (72,640 | ) | $ | (56,729 | ) | $ | 44,753 | $ | 122,904 | ||||
Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||
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 | $ | (.07 | ) | $ | (.06 | ) | $ | .05 | $ | .13 | ||||
Diluted earnings per share | $ | — | $ | — | $ | .02 | $ | .06 | ||||||
Cumulative Preferred Stock dividends in arrears at March 31, 2010 and 2009, totaled $7,148,356 and $7,020,284, respectively. Total dividends in arrears, on a per share basis, consist of the following at March 31:
Nine Months Ended March 31 | ||||||
2010 | 2009 | |||||
6% Convertible | ||||||
Series A | $ | 15 | $ | 15 | ||
Series B | 15 | 15 | ||||
5% Convertible | ||||||
Series A | 61 | 60 | ||||
Series B | 61 | 60 |
Three Months Ended December 31 | Six Months Ended December 31 | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income | $ | 135,994 | $ | 116,859 | $ | 175,368 | $ | 181,429 | ||||||||
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 common stockholders | $ | 103,976 | $ | 84,841 | $ | 111,332 | $ | 117,393 | ||||||||
Three Months Ended December 31 | Six Months Ended December 31 | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
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 per share | $ | .11 | $ | .09 | $ | .11 | $ | .12 | ||||||||
Diluted earnings per share | $ | .05 | $ | .04 | $ | .06 | $ | .06 | ||||||||
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - NET INCOME (LOSS) PER SHARE (CONTINUED)
Cumulative Preferred Stock dividends in arrears at December 31, 2010 and 2009, totaled $7,244,410 and $7,116,338, respectively. Total dividends in arrears, on a per share basis, consist of the following at December 31:
Six Months Ended December 31 | ||||||||
2010 | 2009 | |||||||
6% Convertible | ||||||||
Series A | $ | 16 | $ | 15 | ||||
Series B | 15 | 15 | ||||||
5% Convertible | ||||||||
Series A | 61 | 60 | ||||||
Series B | 61 | 60 |
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)
NOTE 3 - FORGIVABLE LOAN AND DEFERRED INCOME
During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of January 3, 2010. The Company met the criteria of occupying a 20,000 square foot building and creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs during the five year term. Notice was received February 6, 2009 from the Buchanan County Commission, that the Company had fulfilled its minimum loan requirements so that the loan was forgiven in full with no further obligations. Since the Company was no longer legally required to return the monies, the liability was reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. At June 30, 2009, a total of $25,000 washas been reclassified to deferred revenue. Deferred revenue is recognized on a straight-line basis over the lease term of 20 years. During the ninesix months ended MarchDecember 31, 2010 and 2009, deferred revenue of $973$650 and $975,$649, respectively, was amortized into income for each period.
NOTE 4 - NOTES PAYABLE
The Company’s long-term debt consists of:
Payee | Terms | December 31, 2010 | June 30, 2010 | |||||||
Ford Credit | $1,001 monthly payments including interest of 0%; secured by a vehicle. Note was paid in full during the quarter ending December 31, 2010. | $ | — | $ | 9,003 | |||||
Ford Credit | $573 monthly payments including interest of 6.99%; final payment due July 2012, secured by a vehicle. | 10,664 | 13,636 | |||||||
Honda | $508 monthly payments including interest of 1.9%; final payment due December 15, 2011, secured by a vehicle. | 6,032 | 9,007 | |||||||
Nissan | $557 monthly payments including interest of 3.9%; final payment due April 2012, secured by a vehicle. | 8,614 | 11,740 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - NOTES PAYABLE (CONTINUED)
The Company’s long-term debt consists of:
Payee | Terms | March 31, 2010 | June 30, 2009 | |||||
Ford Credit | $1,001 monthly payments including interest of 0%; final payment due March 2011, secured by a vehicle. | $ | 12,004 | $ | 21,010 | |||
Ford Credit | $573 monthly payments including interest of 6.99%; final payment due July 2012, secured by a vehicle. | 15,008 | 19,039 | |||||
Honda | $508 monthly payments including interest of 1.9%; final payment due December 15, 2011, secured by a vehicle. | 10,484 | 14,871 | |||||
Nissan | $557 monthly payments including interest of 3.9%; final payment due April 2012, secured by a vehicle. | 13,282 | 17,826 | |||||
Nodaway Valley Bank | Lump sum payment, including interest of 6.25%, final payment due June 2010, secured by equipment (maximum financing is $160,050.) | 143,554 | — | |||||
Total | 194,332 | 72,746 | ||||||
Less current portion | 174,030 | 30,142 | ||||||
Long-term portion | $ | 20,302 | $ | 42,604 | ||||
Future minimum payments are:
2010 | $ | 174,030 | |
2011 | 17,523 | ||
2012 | 2,779 | ||
Total | $ | 194,332 | |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Payee | Terms | December 31, 2010 | June 30, 2010 | |||||||
Nodaway Valley Bank | $3,192 monthly payments including interest of 6.25%; final payment due June 2015, secured by equipment. | 149,697 | 163,909 | |||||||
Total | 175,007 | 207,295 | ||||||||
Less current portion | 48,644 | 56,820 | ||||||||
Long-term portion | $ | 126,363 | $ | 150,475 | ||||||
Future minimum payments are: | ||||||||||
2011 | $ | 48,644 | ||||||||
2012 | 38,164 | |||||||||
2013 | 33,756 | |||||||||
2014 | 35,927 | |||||||||
2015 | 18,516 | |||||||||
Total | $ | 175,007 | ||||||||
NOTE 5 - NOTE PAYABLE - BANK
Effective June 30, 2009, the Company had a $250,000 line-of-credit agreement which expired on January 3, 2010.2011. The line-of-credit agreement was renewed on that date to extend until January 3, 20112012 with a variable interest rate at prime.prime, which was 5% at December 31, 2010. The line-of-credit is collateralized by certain equipment. At MarchDecember 31, 2010 and June 30, 2009,2010, there was no outstanding balance on the line-of-credit.
NOTE 6 - INCOME TAXES
The recognition of income tax expense related to uncertain tax positions is determined under the provisions of FASB ASC -– 740-10. The Company had no unrecognized tax benefits as of the date of adoption, theadoption. The income tax positions taken for open years are appropriately stated and supported for all open years. The Company’s federal tax returns for the fiscal years ended 2008, 2009 and 2010 are subject to examination by the IRS taxing authority.
As of June 30, 2009,December 31, 2010, the Company had a net operating loss carryforward of approximately $4,512 andhas unused contributions carryforward of $874$1,771 of which the Company’s profit for the ninesix months ended MarchDecember 31, 2010 fully absorbed these amounts.this amount.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Nine Months Ended March 31 | ||||||||||||||
2010 | 2009 | Six Months Ended December 31 | ||||||||||||
2010 | 2009 | |||||||||||||
Cash paid for: | ||||||||||||||
Interest | $ | 3,346 | $ | 5,802 | $ | 6,024 | $ | 2,780 | ||||||
Income taxes | 385 | — | 197 | 385 | ||||||||||
Non-cash transaction: | ||||||||||||||
Financing of new vehicles | — | 60,556 | ||||||||||||
Reclass of forgivable loan to deferred income | — | 10,000 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
RESULTS OF OPERATIONS - Three Months Ended MarchDecember 31, 2010 Compared with Three Months Ended MarchDecember 31, 2009 and NineSix Months Ended MarchDecember 31, 2010 Compared with NineSix Months Ended MarchDecember 31, 2009
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 March 31 | Nine Months Ended March 31 | |||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | Three Months Ended December 31 | Six Months Ended December 31 | |||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Cost of sales | 87 | 84 | 70 | 69 | 69 | 67 | 68 | 66 | ||||||||||||||||||||
Gross profit | 13 | 16 | 30 | 31 | 31 | 33 | 32 | 34 | ||||||||||||||||||||
Operating expenses | 28 | 32 | 21 | 21 | 16 | 17 | 20 | 20 | ||||||||||||||||||||
Income (loss) from operations | (15 | ) | (16 | ) | 9 | 10 | ||||||||||||||||||||||
Net income (loss) before income taxes | (15 | ) | (15 | ) | 9 | 10 | ||||||||||||||||||||||
Provision (benefit) for income taxes | (6 | ) | (9 | ) | 3 | 2 | ||||||||||||||||||||||
Income from operations | 15 | 16 | 12 | 14 | ||||||||||||||||||||||||
Net income before income taxes | 15 | 16 | 12 | 14 | ||||||||||||||||||||||||
Provision for income taxes | 5 | 7 | 4 | 5 | ||||||||||||||||||||||||
Net income | 10 | % | 9 | % | 8 | % | 9 | % | ||||||||||||||||||||
Net income (loss) | (9 | )% | (6 | )% | 6 | % | 8 | % | ||||||||||||||||||||
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION (CONTINUED)
NET SALES
Net sales increased $46,877$145,580 or 12%11% for the three months ended MarchDecember 31, 2010 to $441,877$1,426,702 compared to $395,000$1,281,122 for the three months ended MarchDecember 31, 2009. Gross sales for Chase Candy decreased $4,060$13,131 to $392,532$442,650 for the three months ended MarchDecember 31, 2010 compared to $396,592$455,781 for 2009. Gross sales for Seasonal Candy increased $49,220$178,280 to $56,994$1,011,034 for the three months ended MarchDecember 31, 2010 compared to $7,774$832,754 for 2009.
The 3% decrease in gross sales of Chase Candy of $13,131 for the three months ended December 31, 2010 over the same period ended December 31, 2009, is primarily due to the discontinuation of the Mini Mash Limited Addition Tin combined with one customer reducing orders approximately $16,100. The 21% increase in gross sales of Seasonal Candy of $178,280 for the three months ended December 31, 2010 over the same period ended December 31, 2009, is primarily due to increased orders from one customer totaling approximately $80,000 combined with approximately a $60,000 increase due to shipment during this quarter verses first quarter a year ago.
Net sales decreased $69,952increased $153,525 or 3%8% for the ninesix months ended MarchDecember 31, 2010 to $2,483,890$2,195,538 compared to $2,553,842$2,042,013 for the ninesix months ended MarchDecember 31, 2009. Gross sales for Chase Candy decreased $30,951$29,627 to $1,290,358$868,199 for the ninesix months ended MarchDecember 31, 2010 compared to $1,321,309$897,826 for 2009. Gross sales for Seasonal Candy decreased $45,469increased $208,286 to $1,223,114$1,374,406 for the ninesix months ended MarchDecember 31, 2010 compared to $1,290,358$1,166,120 for 2009.
The net 12%3% decrease in gross sales increase of $46,877Chase Candy of $29,627 for the threesix months ended MarchDecember 31, 2010 over the same period ended MarchDecember 31, 2009, is primarily due to the discontinuation of the Mini Mash Limited Addition Tin combined with one customer reducing orders from a new customer. In addition,of approximately $33,600. The 18% increase in gross sales returns and allowances decreased $5,120 or 31% from $16,614of Seasonal Candy of $208,286 for the threesix months ended March 31, 2009 to $11,495 for the three months ended March 31, 2010.
The 3% decrease in net sales of $69,952 for the nine month period ended MarchDecember 31, 2010 over the same period ended MarchDecember 31, 2009, is primarily due to reducedincreased orders from severaltwo customers and discontinuation of the Mini Mash Limited Addition Tin. Additionally, during 2009, the Company increased pricing and was unable to do so in 2010. Seasonal sales for the nine months were reduced approximately $90,000 from loss of a customer, but this loss was offset by additional sales of $48,000 from the clamshell product line.totaling $200,000.
COST OF SALES
The cost of sales increased $50,651$123,763 to $382,473$984,747 increasing to 87%69% of related revenues for the three months ended MarchDecember 31, 2010, compared to $331,822$860,984 or 84%67% of related revenues for the three months ended March 31, 2009. The cost of sales decreased $29,203 to $1,731,120 increasing to 70% of related revenues for the nine months ended March 31, 2010, compared to $1,760,323 or 69% of related revenues for the nine months ended MarchDecember 31, 2009.
The increase in cost of sales for the three months ended March 31, 2010 is a 15% increase from the three months ended March 31, 2009. Direct costs of goods for materials manufactured and production labor force increased $19,920 to $225,223 for the three months ended MarchDecember 31, 2010, increased $102,278 to $637,498 as compared to $205,303$535,220 for the three months ended MarchDecember 31, 2009, which is primarily due to raw material price increases in chocolate, peanuts, and sugar which were not passed along to customers. Direct labor costs for the result ofthree months ended December 31, 2010 increased $11,336 to $133,070 as compared to $121,734 for the three months ended December 31, 2009, which is a bonus award9% increase and comparable to a long time retiring employee.11% increase in net sales.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION (CONTINUED)
COST OF SALES (CONTINUED)
The cost of sales increased $153,720 to $1,502,367 or 68% of related revenues for the six months ended December 31, 2010, compared to $1,348,647 or 66% of related revenues for the six months ended December 31, 2009.
Direct costs of goods for materials manufactured and production labor forcenet change in inventories for the ninesix months ended MarchDecember 31, 2010, decreased $58,884increased $116,437 to $1,150,801$825,718 as compared to $1,209,685$709,281 for the ninesix months ended MarchDecember 31, 2009, which is primarily due to raw material price increases in chocolate, peanuts, and sugar which were not passed along to customers. Freight in/out for the six months ended December 31, 2010 increased $5,885 to $97,084 as compared to $91,229 for the six months ended December 31, 2009 as a result of having to ship product using refrigeration services as summer temperatures continued to be high into late fall. Direct labor costs for the six months ended December 31, 2010 increased $32,555 to $279,851 as compared to $247,296 for the six months ended December 31, 2009, which is a result13% increase due to increased bonus payments paid at the end of no raw material price increases. In addition, new transportation vendors were used which resulted in a decrease of 18% in freight costs from $145,014 for the nine months ended March 31, 2009 to $119,123 for the nine months ended March 31, 2010.busy season.
The Company decreased finished goods inventory for the threesix months ended MarchDecember 31, 2010 to $58,058$60,348 or 51%42% from the June 30, 20092010 finished goods inventory of $119,116$104,022 due to the end of the Company’s busy season. Raw material inventory of $112,075$58,841 and packaging materials inventory of $187,534$175,215 is 23% higher21% lower than the June 30, 20092010 inventories of $69,960$109,027 raw material and $172,764$186,420 packaging materials as a result of not purchasing excess inventory to take advantage of favorable pricing, but not all of this inventory was used duringcarry into the thirdnext quarter, ending March 31, 2010.due to higher pricing.
SELLING EXPENSES
Selling expenses for the three months ended MarchDecember 31, 2010 decreased $7,532increased $14,590 to $58,946,$150,046, which is 13%11% of sales, compared to $66,478$135,456 or 17%11% of sales for the three months ended March 31, 2009. Selling expenses for the nine months ended March 31, 2010 decreased $30,718 to $266,315, which is 11% of sales, compared to $297,033 or 12% of sales for the nine months ended MarchDecember 31, 2009.
The decreaseincrease of $7,532$14,590 in selling expenses for the three months ended MarchDecember 31, 2010 is primarily due to lowerhigher commissions and premium promotions being paid, and sample costs for the period in an effort to increase sales volume. Commissions and premium promotions, and sample costs for the period. Commissions, premium promotions, and sample costs decreased 48%increased $10,877 to $14,584$107,967 for this period from $28,047$97,090 for the three months ended MarchDecember 31, 2009.
The decrease of $30,718 in sellingSelling expenses for the ninesix months ended March 31, 2010 is also due to lower commissions, premium promotions and sample costs for this period. Commissions, premium promotions, and sample costs decreased 23% to $138,178 for this period from $178,644 for the nine months ended March 31, 2009.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended MarchDecember 31, 2010 increased $1,979$23,602 to $66,846,$230,971, which is 15%11% of sales, compared to $64,867 or 16% of sales for the three months ended March 31, 2009. General and administrative expenses for the nine months ended March 31, 2010 increased $15,980 to $260,806, which is 10% of sales, compared to $244,826$207,369 or 10% of sales for the ninesix months ended MarchDecember 31, 2009.
The increase of $23,602 in selling expenses for the six months ended December 31, 2010 is primarily due to higher commissions and premium promotions being paid, and sample costs for the period in an effort to increase sales volume. Commissions and premium promotions, and sample costs increased costs are primarily because of a $16,936 increase in employee health and directors insurance.$17,381 to $140,975 for this period from $123,594 for the six months ended December 31, 2009.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2010 decreased $2,293 to $76,942 and decreased to 5% of sales, compared to $79,235 or 6% of sales for the three months ended December 31, 2009. The decreased costs are primarily because of a $2,942 decrease in professional fees offset by a $2,587 increase in office supplies and website expense.
General and administrative expenses for the six months ended December 31, 2010 increased $3,309 to $197,269, or 9% of sales, compared to $193,960 or 10% of sales for the six months ended December 31, 2009. The increased costs are primarily because of a $4,961 increase in office supplies and website expense.
OTHER INCOME (EXPENSE)
Other income and (expense) decreasedincreased by $811$1,335 for the three months ended MarchDecember 31, 2010 to $(834)$(2,512), compared to $(23)$(1,177) for the three months ended MarchDecember 31, 2009. Other income and expense increased by $1,820$2,922 for the ninesix months ended MarchDecember 31, 2010 to $(2,820)$(4,908), compared to $(4,640)$(1,986) for the ninesix months ended MarchDecember 31, 2009. This was2009 primarily due to a decreasean increase in interest expense since there was no stockholder note payable during the current year.expenses.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company recorded a tax (benefit)provision for the three months ended MarchDecember 31, 2010 of $(26,600)$76,461 as compared to $(36,717)$87,411 for the three months ended MarchDecember 31, 2009. The Company recorded a tax provisionexpense for the ninesix months ended MarchDecember 31, 2010 of $82,022$85,155 as compared to $40,076the tax expense of $108,622 for the ninesix months ended MarchDecember 31, 2009. The net tax expense recorded for the ninethree and six months ended MarchDecember 31, 2010 and 2009 is primarily due to recognizing taxes related to current profitable operations. The Company had incurred losses in the years ending June 30, 2007 and 2008, which was not available to carry back to obtain previously paid income taxes. These losses were utilized against taxable income for the nine months ended March 31, 2009. The net change in deferred taxes for the three months and nine months ended March 31, 2010 was $1,943 and $4,672, respectively.
NET INCOME (LOSS)
The Company reported a net lossincome for the quarter ended MarchDecember 31, 2010 of $(40,622),$135,994, compared to a net lossincome of $(24,711)$116,859 for the quarter ended MarchDecember 31, 2009. This increase in losses of $15,911$19,135 is explained above.
The Company reported a net income for the ninesix months ended MarchDecember 31, 2010 of $140,807,$175,368 compared to a net income of $218,958$181,429 for the ninesix months ended MarchDecember 31, 2009. This decrease of $78,151$6,061 is explained above.
PREFERRED DIVIDENDS
These amounts reflect additional preferred stock dividends in arrears for the three and ninesix months ended MarchDecember 31, 2010 and 2009, respectively, 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION (CONTINUED)
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS
Net (loss)income applicable to common stockholders for the three months ended MarchDecember 31, 2010 was $(72,640),$103,967, which is an increase in losses of $15,911$19,126 as compared to the three months ended MarchDecember 31, 2009 of $(56,729).$84,841.
Net income applicable to common stockholders for the ninesix months ended MarchDecember 31, 2010 was $44,753$111,332, which is a decrease of $78,151$6,061 as compared to the ninesix months ended MarchDecember 31, 2009 of $122,904.$117,393. These items are explained above.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net cash provided by operating activities | $ | 113,003 | $ | 395,280 | $ | 404,379 | $ | 249,106 | ||||||||
Net cash used in investing activities | $ | (2,574 | ) | $ | (50,577 | ) | $ | (10,286 | ) | $ | (2,574 | ) | ||||
Net cash used in financing activities | $ | 121,585 | $ | (204,015 | ) | $ | (32,288 | ) | $ | (14,619 | ) |
The $2,574$10,286 of cash used in investing activities was the result of capital expenditures. Management has approximately $226,000 commitmentno material commitments for capital expenditures during the remainder of fiscal 2010 of which $110,507 has been paid to date as the equipment is being built with expectation to be placed in service by June 30, 2010. Management secured financing for $160,050 effective January 4, 2010 towards this commitment and the balance will be paid with cash funds held by the Company.
2011. The $121,585$32,288 of cash used in financing activities includes receipt of $210,000 from its line-of-credit, which was paid in full as of December 31, 2009,is principal payments on theequipment and vehicle loans of $21,969 and receipt of $143,554 from the financing committed January 4, 2010.loans. 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. Chase does have $250,000 remaining on its bank line-of-credit, which could be utilized to help fund any working capital requirements.
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
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CRITICAL ACCOUNTING POLICIES
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates used in preparing these condensed consolidated financial statements include those assumed in computing the carrying value of equipment and allowance for doubtful trade receivables. Accordingly, actual results could differ from those estimates. Any changes in estimates are recorded in the period in which they become known.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
CRITICAL ACCOUNTING POLICIES (CONTINUED)
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, 2010, 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.
Credit Risk
Financial instruments that potentially subject Chase to concentrations of credit risk consist principally of cash and accounts receivable. Chase grants unsecured credit to substantially all of its customers. Management does not believe that it is exposed to any extraordinary credit risk as a result of this policy. Chase deposits all monies at the Nodaway Valley Bank. These accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation. Chase has not experienced any losses in such accounts. Management does not believe Chase is exposed to any significant credit risk with respect to its cash and cash equivalents.
Revenue Recognition
The Company recognizes revenues as product is shipped to the customers. Net sales are comprised of the total sales billed during the period including shipping and handling charges to customers, less the estimated returns, customer allowances and customer discounts.
Allowance for Doubtful Accounts
The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories are carried at the “lower of cost or market value” with cost being determined on the “first-in, first-out” basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is recorded at cost. The Company’s property and equipment are being depreciated on straight-line and accelerated methods over the following estimated useful lives:
Buildings | 39 years | |||
Machinery and equipment | 5 – 7 years | |||
Trucks and autos | 5 years | |||
Office equipment | 5 – 7 years | |||
Leasehold improvements | Lesser of estimated useful life or the lease term |
Cash Flows
For purposes of the statements of cash flows, Chase considers all short-term investments purchased with original maturity dates of three months or less to be cash equivalents.
Impact of New Accounting Pronouncements
Pursuant to SFASDuring the third quarter 2010, Chase adopted FASB ASU No. 168,“2010-06 Fair Value Measurements and Disclosures (Topic 820). This ASU requires new disclosures for transfers in and out of Levels 1 and 2, and Activity in Level 3 fair value measurements. The FASB Accounting Standards Codificationupdate also clarifies the level disaggregation and the Hierarchydisclosures about inputs and valuation techniques. The new disclosures and clarifications of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, the FASB Accounting Standards Codification (“ASC”) (FASB ASC 105) became the sole source of authoritative U.S. GAAPexisting disclosures are effective for interim and annual reporting periods endingbeginning after SeptemberDecember 15, 2009, except2009. The requirement related to Level 3 fair value measurements is effective for rulesthe Company for interim and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The Company adopted this standard during the first quarter of 2009.annual reporting periods beginning after January 29, 2011. The adoption of ASC 105the effective portions of this new standard did not have any effecta material impact on Chase’s results of operations, financial condition and cash flows. The adoption impacted references to specific accounting standards in the footnotes to ourCompany’s condensed consolidated financial statements which have been changed to referand the Company does not expect a material impact on its condensed consolidated financial statements related to the appropriate section of the ASC.Level 3 fair value disclosures.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION (CONTINUED)
CRITICAL ACCOUNTING POLICIES (CONTINUED)
DuringIn June 2009, the third quarter, Chase adopted FASB accounting Standards Update (ASU) No. 2010-09, Amendmentsissued new guidance on the consolidation of variable interest entities (“VIE”) in response to Certain Recognition and Disclosure Requirements, which amends ASC 855, Subsequent Events. This ASU removesconcerns about the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated. This change removes potential conflicts with SEC requirements.
Effective July 1, 2008, Chase adopted FASB Statementapplication of Financial Accounting Standard No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(FASB ASC 825) – Including an amendmentcertain key provisions of FASBStatement of Financial Accounting Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities(FASB ASC 320).ASC 825 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities withpre-existing guidance, including those regarding the opportunity to mitigate volatility in reported earnings cause by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. ASC 825 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. Mosttransparency of the provisionsinvolvement with a VIE. Specifically, this new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessment of whether an interest in a VIE makes the holder the primary beneficiary of the VIE and whether an entity is a VIE when a triggering event occurs. In addition, this Statement apply onlynew guidance requires additional disclosures about the involvement with a VIE and any significant changes in risk exposure due to entities that electinvolvement. This new guidance is effective for fiscal years beginning after November 15, 2009. The Company adopted the fair value option. However,new guidance in the amendment to ASC 320 applies to all entities with available-for-sale and trading securities. The adoptionfirst quarter of ASC 825fiscal year 2011, which did not have any effecta material impact on Chase’s results of operations, financial condition and cash flows.
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (FASB ASC 805) and SFAS No. 160,Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements(FASB ASC 810). These statements significantly change the accounting for and reporting of business combinations and noncontrolling (minority) interests inits condensed consolidated financial statements. These statements will require noncontrolling interests to be reclassified to equity, consolidated net income to be adjusted to include net income attributed to the noncontrolling interest, and consolidated comprehensive income to be adjusted to include the comprehensive income attributed to the noncontrolling interest. ASC 805 and ASC 810 are required to be adopted simultaneously. ASC 805 is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. ASC 810 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted except for the presentation and disclosure requirements which will be applied retrospectively for all periods. Early adoption is prohibited. The adoption of ASC 805 and ASC 810 did not have any effect on Chase’s results of operations, financial condition and cash flows.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CRITICAL ACCOUNTING POLICIES (CONTINUED)
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.
ITEM 3.3 - QUANTITATIVE AND QUALITATIVE DISCLSOURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 4T. - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
(a) | Evaluation of Disclosure Controls and Procedures |
Chase’s 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 mended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, this officer 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 Board of Directors, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
(b) | Changes in Internal Control over Financial Reporting |
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.
ITEM 1. | LEGAL PROCEEDINGS |
a. | None |
ITEM 1A. | RISK FACTORS |
Not applicable to a smaller reporting company.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
a. | None |
b. | The total cumulative preferred stock dividends contingency at |
ITEM 4. | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS |
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 |
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 11, 2011 |
| |||||
Date | By: Barry M. Yantis | |||||
Chairman of the Board, Chief Executive Officer, | ||||||
President and Treasurer |
2324