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 March 31,September 30, 2015
| ¨ | 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 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☒xNo☐¨
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☒xNo☐¨
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 | Smaller reporting company |
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 May 7,November 11, 2015, 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 three months ended September 30, 2015
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS | ||||||||
March 31, 2015 | June 30, 2014 | |||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 305,173 | $ | 162,435 | ||||
| Trade receivables, net of allowance for doubtful accounts of $18,458 and $16,508, respectively | 141,092 | 178,686 | ||||||
| Inventories: | ||||||||
| Finished goods | 174,175 | 258,726 | ||||||
| Goods in process | 11,313 | 11,950 | ||||||
| Raw materials | 85,959 | 80,088 | ||||||
| Packaging materials | 152,284 | 145,046 | ||||||
| Prepaid expenses | 38,332 | 12,233 | ||||||
| Deferred income taxes | 7,532 | 7,047 | ||||||
| Total current assets | 915,860 | 856,211 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Land | 35,000 | 35,000 | ||||||
| Buildings | 77,348 | 77,348 | ||||||
| Machinery and equipment | 754,193 | 739,962 | ||||||
| Trucks and autos | 198,845 | 188,594 | ||||||
| Office equipment | 31,518 | 31,518 | ||||||
| Leasehold improvements | 72,068 | 72,068 | ||||||
| Total | 1,168,972 | 1,144,490 | ||||||
| Less accumulated depreciation | 839,100 | 841,445 | ||||||
| Total property and equipment, net | 329,872 | 303,045 | ||||||
| TOTAL ASSETS | $ | 1,245,732 | $ | 1,159,256 | ||||
ASSETS
| September 30, | June 30, | |||||||
| 2015 | 2015 | |||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 29,912 | $ | 84,204 | ||||
| Trade Receivables, Net of Allowance for Doubtful Accounts of $16,596 and $16,296, Respectively | 699,168 | 187,607 | ||||||
| Inventories: | ||||||||
| Finished Goods | 290,334 | 377,853 | ||||||
| Goods in Process | 10,959 | 13,815 | ||||||
| Raw Materials | 104,216 | 90,506 | ||||||
| Packaging Materials | 165,137 | 130,726 | ||||||
| Prepaid Expenses | 41,391 | 5,689 | ||||||
| Deferred Income Taxes | 7,077 | 7,288 | ||||||
| Total Current Assets | 1,348,194 | 897,688 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Land | 35,000 | 35,000 | ||||||
| Buildings | 77,348 | 77,348 | ||||||
| Machinery and Equipment | 817,836 | 807,325 | ||||||
| Trucks and Autos | 212,100 | 198,845 | ||||||
| Office Equipment | 31,518 | 31,518 | ||||||
| Leasehold Improvements | 72,068 | 72,068 | ||||||
| Total | 1,245,870 | 1,222,104 | ||||||
| Less Accumulated Depreciation | 845,543 | 861,341 | ||||||
| Total Property and Equipment, Net | 400,327 | 360,763 | ||||||
| Total Assets | $ | 1,748,521 | $ | 1,258,451 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
March 31, 2015 | June 30, 2014 | |||||||
| (Unaudited) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 44,802 | $ | 51,947 | ||||
| Current maturities of notes payable | 10,793 | 21,537 | ||||||
| Accrued expenses | 34,805 | 139,098 | ||||||
| Income taxes payable | 79,525 | 21,203 | ||||||
| Deferred income | 1,299 | 1,299 | ||||||
| Total current liabilities | 171,224 | 235,084 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred income | 11,687 | 12,661 | ||||||
| Notes payable, less current maturities | 15,305 | 4,650 | ||||||
| Deferred income taxes | 77,394 | 79,176 | ||||||
| Total long-term liabilities | 104,386 | 96,487 | ||||||
| Total liabilities | 275,610 | 331,571 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Capital stock issued and outstanding: | ||||||||
| Prior cumulative preferred stock, $5 par value: | ||||||||
| Series A (liquidation preference $2,212,500 and $2,190,000, respectively) | 500,000 | 500,000 | ||||||
| Series B (liquidation preference $2,167,500 and $2,145,000, respectively) | 500,000 | 500,000 | ||||||
| Cumulative preferred stock, $20 par value | ||||||||
| Series A (liquidation preference $5,004,564 and $4,960,664, respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (liquidation preference $815,592 and $808,438, respectively) | 190,780 | 190,780 | ||||||
| Common stock, $1 par value | 969,834 | 969,834 | ||||||
| Paid-in capital in excess of par | 3,134,722 | 3,134,722 | ||||||
| Accumulated deficit | (5,495,874 | ) | (5,638,311 | ) | ||||
Total stockholders’ equity | 970,122 | 827,685 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,245,732 | $ | 1,159,256 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
| September 30, | June 30, | |||||||
| 2015 | 2015 | |||||||
| (Unaudited) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 333,751 | $ | 111,944 | ||||
| Current Maturities of Notes Payable | 235,749 | 8,297 | ||||||
| Accrued Expenses | 47,942 | 17,966 | ||||||
| Income Taxes Payable | 8,691 | 26,119 | ||||||
| Deferred Income | 1,299 | 1,299 | ||||||
| Total Current Liabilities | 627,432 | 165,625 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred Income | 11,038 | 11,362 | ||||||
| Notes Payable, Less Current Maturities | 49,811 | 14,004 | ||||||
| Deferred Income Taxes | 95,392 | 98,866 | ||||||
| Total Long-Term Liabilities | 156,241 | 124,232 | ||||||
| Total Liabilities | 783,673 | 289,857 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Capital Stock Issued and Outstanding: | ||||||||
| Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
| Series A (Liquidation Preference $2,227,500 and $2,220,000, Respectively) | 500,000 | 500,000 | ||||||
| Series B (Liquidation Preference $2,182,500 and $2,175,000, Respectively) | 500,000 | 500,000 | ||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| Series A (Liquidation Preference $5,033,830 and $5,019,197, Respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (Liquidation Preference $820,362 and $817,977, 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 | (5,501,148 | ) | (5,497,402 | ) | ||||
| Total Stockholders' Equity | 964,848 | 968,594 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 1,748,521 | $ | 1,258,451 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31 | ||||||||
| 2015 | 2014 | |||||||
| NET SALES | $ | 450,836 | $ | 462,112 | ||||
| COST OF SALES | 356,567 | 372,767 | ||||||
| Gross profit on sales | 94,269 | 89,345 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 74,670 | 70,054 | ||||||
| General and administrative | 83,890 | 108,816 | ||||||
| Gain on sale of equipment | (10,590 | ) | - | |||||
| Total operating expenses | 147,970 | 178,870 | ||||||
| Loss from operations | (53,701 | ) | (89,525 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous income | 626 | 602 | ||||||
| Interest expense | (125 | ) | (440 | ) | ||||
| Total other income (expense), net | 501 | 162 | ||||||
| Net loss before income taxes | (53,200 | ) | (89,363 | ) | ||||
| INCOME TAX BENEFIT | (18,397 | ) | (31,412 | ) | ||||
| NET LOSS | $ | (34,803 | ) | $ | (57,951 | ) | ||
| NET LOSS PER SHARE OF COMMON STOCK | ||||||||
| - BASIC | $ | (0.07 | ) | $ | (0.09 | ) | ||
| - DILUTED | $ | (0.07 | ) | $ | (0.09 | ) | ||
(UNAUDITED)
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| NET SALES | $ | 1,063,103 | $ | 991,908 | ||||
| COST OF SALES | 843,383 | 715,070 | ||||||
| Gross Profit on Sales | 219,720 | 276,838 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 122,776 | 114,641 | ||||||
| General and Administrative | 115,051 | 121,381 | ||||||
| Gain on Sale of Equipment | (12,374 | ) | - | |||||
| Total Operating Expenses | 225,453 | 236,022 | ||||||
| Income (Loss) from Operations | (5,733 | ) | 40,816 | |||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 378 | 12,022 | ||||||
| Interest Expense | (271 | ) | (887 | ) | ||||
| Total Other Income (Expense), Net | 107 | 11,135 | ||||||
| Income (Loss) before Income Taxes | (5,626 | ) | 51,951 | |||||
| PROVISION (BENEFIT) FOR INCOME TAXES | (1,880 | ) | 17,250 | |||||
| NET INCOME (LOSS) | $ | (3,746 | ) | $ | 34,701 | |||
| NET LOSS PER SHARE OF COMMON STOCK | ||||||||
| Basic | $ | (0.04 | ) | $ | 0.00 | |||
| Diluted | $ | (0.04 | ) | $ | 0.00 | |||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended March 31 | ||||||||
| 2015 | 2014 | |||||||
| NET SALES | $ | 2,734,017 | $ | 2,775,917 | ||||
| COST OF SALES | 1,917,694 | 1,969,368 | ||||||
| Gross profit on sales | 816,323 | 806,549 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 339,074 | 328,091 | ||||||
| General and administrative | 295,724 | 342,317 | ||||||
| Loss (gain) on sale of equipment | (26,502 | ) | 93 | |||||
| Total operating expenses | 608,296 | 670,501 | ||||||
| Income from operations | 208,027 | 136,048 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous income | 13,070 | 2,938 | ||||||
| Interest expense | (2,081 | ) | (3,581 | ) | ||||
| Total other income (expense), net | 10,989 | (643 | ) | |||||
| Net income before income taxes | 219,016 | 135,405 | ||||||
| PROVISION FOR INCOME TAXES | 76,579 | 46,387 | ||||||
| NET INCOME | $ | 142,437 | $ | 89,018 | ||||
| NET INCOME (LOSS) PER SHARE OF COMMON STOCK | ||||||||
| - BASIC | $ | 0.05 | $ | (0.01 | ) | |||
| - DILUTED | $ | 0.02 | $ | (0.01 | ) | |||
(UNAUDITED)
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | (3,746 | ) | $ | 34,701 | |||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Used by Operating Activities: | ||||||||
| Depreciation and Amortization | 29,574 | 21,814 | ||||||
| Allowance for Bad Debts | 300 | 300 | ||||||
| Deferred Income Amortization | (324 | ) | (324 | ) | ||||
| Deferred Income Taxes | (3,263 | ) | (7,405 | ) | ||||
| (Gain) on Sale of Equipment | (12,374 | ) | - | |||||
| Effects of Changes in Operating Assets and Liabilities: | ||||||||
| Trade Receivables | (511,861 | ) | (508,492 | ) | ||||
| Inventories | 42,254 | (11,934 | ) | |||||
| Prepaid Expenses | (35,702 | ) | (1,450 | ) | ||||
| Accounts Payable | 221,807 | 288,401 | ||||||
| Accrued Expenses | 29,976 | (96,871 | ) | |||||
| Income Taxes Payable | (17,428 | ) | 8,722 | |||||
| Net Cash Used by Operating Activities | (260,787 | ) | (272,538 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of Property and Equipment | (14,082 | ) | (11,386 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Line-of-Credit | 225,000 | 135,000 | ||||||
| Principal Payments on Notes Payable | (4,423 | ) | (11,705 | ) | ||||
| Net Cash Provided by Financing Activities | 220,577 | 123,295 | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (54,292 | ) | (160,629 | ) | ||||
| Cash and Cash Equivalents - Beginning of Period | 84,204 | 162,435 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 29,912 | $ | 1,806 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
Nine Months Ended March 31 | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 142,437 | $ | 89,018 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 74,904 | 65,366 | ||||||
| Allowance for bad debts | 1,950 | 400 | ||||||
| Deferred income amortization | (974 | ) | (974 | ) | ||||
| Deferred income taxes | (2,267 | ) | (12,531 | ) | ||||
| Loss (gain) on sale of equipment | (26,502 | ) | 93 | |||||
| Effects of changes in operating assets and liabilities: | ||||||||
| Trade receivables | 35,644 | (12,183 | ) | |||||
| Inventories | 72,079 | 217,057 | ||||||
| Prepaid expenses | (26,099 | ) | (9,842 | ) | ||||
| Accounts payable | (7,145 | ) | (10,651 | ) | ||||
| Accrued expenses | (104,293 | ) | 10,915 | |||||
| Income taxes payable | 58,322 | 54,753 | ||||||
| Net cash provided by operating activities | 218,056 | 391,421 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | (54,001 | ) | (27,439 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from line-of-credit | 265,000 | 290,000 | ||||||
| Principal payments on line-of-credit | (265,000 | ) | (290,000 | ) | ||||
| Principal payments on notes payable | (21,317 | ) | (56,191 | ) | ||||
| Net cash used in financing activities | (21,317 | ) | (56,191 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 142,738 | 307,791 | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 162,435 | 28,564 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 305,173 | $ | 336,355 | ||||
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, 20142015 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 nine months ended March 31,September 30, 2015 and for the three and nine months ended March 31,September 30, 2014 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, 2014.2015. The results of operations for the three and nine months ended March 31,September 30, 2015 and cash flows for the ninethree months ended March 31,September 30, 2015 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2015.2016. 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 March 31,September 30, 2015, 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 ninethree month period ended March 31,September 30, 2015.
| NOTE 2 | EARNINGS PER SHARE |
The income per share was computed on the weighted average of outstanding common shares during the period.
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| Net Income (Loss) | $ | (3,746 | ) | $ | 34,701 | |||
| Preferred Dividend Requirements: | ||||||||
| 6% Prior Cumulative Preferred, $5 Par Value | 15,000 | 15,000 | ||||||
| 5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | ||||||
| Total Dividend Requirements | 32,018 | 32,018 | ||||||
| Net Income (Loss) - Common Stockholders | $ | (35,764 | ) | $ | 2,683 | |||
5
Chase General Corporation and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 2 | EARNINGS PER SHARE (CONTINUED) |
Diluted earnings per share isare calculated by including contingently issuable shares with the weighted average shares outstanding.
Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Net income (loss) | $ | (34,803 | ) | $ | (57,951 | ) | $ | 142,437 | $ | 89,018 | ||||||
| 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 | $ | (66,821 | ) | $ | (89,969 | ) | $ | 46,383 | $ | (7,036 | ) | |||||
| 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 | $ | (0.07 | ) | $ | (0.09 | ) | $ | 0.05 | $ | (0.01 | ) | |||||
| Diluted earnings (loss) per share | $ | (0.07 | ) | $ | (0.09 | ) | $ | 0.02 | $ | (0.01 | ) | |||||
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| Weighted Average Shares - Basic | 969,834 | 969,834 | ||||||
| Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | ||||||
| Weighted Average Shares – Diluted | 2,003,168 | 2,003,168 | ||||||
| Basic Earnings (Loss) per Share | $ | (0.04 | ) | $ | 0.00 | |||
| Diluted Earnings (Loss) per Share | $ | (0.04 | ) | $ | 0.00 | |||
The contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share. Cumulative Preferred Stock dividends in arrears at March 31,September 30, 2015 and 2014 totaled $7,788,716$7,852,752 and $7,660,644,$7,724,680, respectively. Total dividends in arrears, on a per share basis, consist of the following:
Nine Months Ended March 31 | ||||||||
| 2015 | 2014 | |||||||
| 6% Convertible | ||||||||
| Series A | $ | 17 | $ | 17 | ||||
| Series B | $ | 16 | $ | 16 | ||||
| 5% Convertible | ||||||||
| Series A | $ | 66 | $ | 65 | ||||
| Series B | $ | 66 | $ | 65 | ||||
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| 6% Convertible | ||||||||
| Series A | $ | 17 | $ | 17 | ||||
| Series B | 17 | 16 | ||||||
| 5% Convertible | ||||||||
| Series A | $ | 66 | $ | 65 | ||||
| Series B | 66 | 65 | ||||||
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.
6
Chase General Corporation and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 3 | NOTES PAYABLE |
The Company’s long-term debt consists of:
| March 31, | June 30, | ||||||||||
| Payee | Terms | 2015 | 2014 | ||||||||
| Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 3, 2016, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. | $ | - | $ | - | ||||||
| Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 20,415 | - | ||||||||
| Ford Credit | $517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle. | 5,683 | 10,850 | ||||||||
| Nodaway Valley Bank | $3,192, including interest of 5.75%; final payment due June 2015, secured by equipment; paid in full in December 2014. | - | 12,547 | ||||||||
Toyota Financial Services | $305 monthly payments including interest of 2.9% due March 2015, secured by a vehicle; paid in full in December 2014. | - | 2,790 | ||||||||
| Total | 26,098 | 26,187 | |||||||||
| Less current portion | 10,793 | 21,537 | |||||||||
| Long-term portion | $ | 15,305 | $ | 4,650 | |||||||
| September 30, | June 30, | |||||||||
| Payee | Terms | 2015 | 2015 | |||||||
| Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 3, 2016, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. | $ | 225,000 | $ | - | |||||
| Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 17,878 | 19,151 | |||||||
| Ford Credit | $705 monthly payments, interest of 5.8%; final payment due October 2020, secured by a vehicle. | 42,682 | - | |||||||
| Ford Credit | $517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle. | - | 3,150 | |||||||
| Total | 285,560 | 22,301 | ||||||||
| Less Current Portion | 235,749 | 8,297 | ||||||||
| Long-Term Portion | $ | 49,811 | $ | 14,004 | ||||||
Future minimum payments for the twelve months ending March 31September 30 are:
| 2016 | $ | 235,749 | ||
| 2017 | 11,796 | |||
| 2018 | 12,340 | |||
| 2019 | 9,123 | |||
| 2020 | 7,694 | |||
| Thereafter | 8,858 | |||
| Total | $ | 285,560 |
7
| 2016 | $ | 10,793 | ||
| 2017 | 5,260 | |||
| 2018 | 5,414 | |||
| 2019 | 4,631 | |||
| Total | $ | 26,098 |
Chase General Corporation and Subsidiary
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 March 31,September 30, 2015. The Company has no material tax positions at March 31,September 30, 2015 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 March 31, 2015. The Company’s federal income tax returns for the fiscal years ended 2012, 2013, 2014 and 20142015 are subject to examination by the IRS taxing authority.
Nine Months Ended March 31 | ||||||||
| 2015 | 2014 | |||||||
| Cash paid for: | ||||||||
| Interest | $ | 2,081 | $ | 3,563 | ||||
| Income taxes | 32,494 | 4,105 | ||||||
| Non-cash transactions: | ||||||||
| Financing of new vehicle | 21,228 | - | ||||||
| NOTE 5 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 136 | $ | 887 | ||||
| Income Taxes | $ | 27,700 | $ | 15,933 | ||||
| Noncash Transactions: | ||||||||
| Financing of New Vehicles | $ | 42,682 | $ | - | ||||
| NOTE 6 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board issued new accounting guidance for the recognition of revenue from contracts with customers, which will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company’s fiscal year 2018,2019, and early adoption is not permitted. The Company is evaluating the effect the new guidance will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the standard on its ongoing financial reporting.
There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s financial statements.
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.
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 March 31,September 30, 2015 Compared towith Three Months Ended March 31,September 30, 2014 and Nine Months Ended March 31, 2015 Compared to Nine Months Ended March 31, 2014
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 | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| Net Sales | 100 | % | 100 | % | ||||
| Cost of Sales | 79 | 72 | ||||||
| Gross Profit on Sales | 21 | 28 | ||||||
| Operating Expenses | 21 | 24 | ||||||
| Income (Loss) from Operations | (1 | ) | 4 | |||||
| Other Income (Expense), Net | 0 | 1 | ||||||
| Income (Loss) before Income Taxes | (1 | ) | 5 | |||||
| Provision (Benefit) for Income Taxes | (0 | ) | 2 | |||||
| Net Income (Loss) | - | 3 | % | |||||
Chase General Corporation and Subsidiary
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31 | March 31 | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of sales | 79 | 81 | 70 | 71 | ||||||||||||
| Gross profit on sales | 21 | 19 | 30 | 29 | ||||||||||||
| Operating expenses | 33 | 39 | 22 | 24 | ||||||||||||
| Income (loss) from operations | (12 | ) | (20 | ) | 8 | 5 | ||||||||||
| Other income (expense), net | 1 | - | - | - | ||||||||||||
| Income (loss) before income taxes | (11 | ) | (20 | ) | 8 | 5 | ||||||||||
| Provision (benefit) for income taxes | (4 | ) | (7 | ) | 3 | 2 | ||||||||||
| Net income (loss) | (7 | )% | (13 | )% | 5 | % | 3 | % | ||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND SUBSIDIARY
AND RESULTS OF OPERATIONS
NET SALES
Net sales decreased $11,276increased $71,195 or 2%7% for the three months ended March 31,September 30, 2015 to $450,836$1,063,103 compared to $462,112$991,908 for the three months ended March 31,September 30, 2014. Gross sales for Seasonal Candy increased $72,404 to $580,028 for the three months ended September 30, 2015, compared to $507,624 for 2014. Gross sales for Chase Candy decreased $10,516$95 to $449,833$491,985 for the three months ended March 31,September 30, 2015, compared to $460,349$492,080 for 2014. Gross salesSales returns and allowances for Seasonal Candy decreased $7,370the Company increased $926 to $10,706$9,636 for the three months ended March 31,September 30, 2015, compared to $18,076$8,710 for 2014.
The 2%14% increase in gross sales of Seasonal Candy of $72,404 for the three months ended September 30, 2015 over the same period ended September 30, 2014, is primarily due to the following: 1) increased volume from various customers in the clamshell seasonal division totaling approximately $15,000 versus the same period a year ago primarily due to earlier shipments; 2) increased orders from various customers in the generic seasonal division netting approximately $45,000 versus the same period a year ago primarily due to new customers; and 3) increased orders in the bulk seasonal division totaling approximately $12,000 due to increased sales to existing customers.
The .02% decrease in gross sales of Chase Candy of $10,516$95 for the three months ended March 31,September 30, 2015 over the same period ended March 31,September 30, 2014, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $21,000$25,000 versus the same period a year ago primarily due to one customer decreasing orders;earlier shipments; 2) decreased salesother fluctuations netting to a decrease of the Cherry Mash Merchandiser division by approximately $15,000 versus the same period a year ago, primarily due to three customers decreasing orders; and$5,900; offset by 3) increased sales of the L278/L212 Mini Mash division by approximately $26,000$20,000 versus the third quartersame period a year ago due to one customer increasing orders.
COST OF SALES
The cost of sales increased $128,313 to $843,383, or 79% of related sales for the three months ended September 30, 2015 compared to $715,070, or 72% of related sales for the three months ended September 30, 2014.
The 18% increase in cost of sales of the L279/L299 Bulk Mini Mash division by approximately $14,000 versus the same period a year ago primarily due to two customers decreasing orders; 3) various other fluctuations netting to a decrease of approximately $3,000; 4) decreased sales of the L260 Changemaker Jar division by approximately $1,000 versus the same period a year ago primarily due to one customer decreasing orders; offset by 5) increased sales of the L278/L212 Mini Mash division by approximately $77,000 versus the same period a year ago primarily due to two customers increasing orders; and 6) increased sales of the Cherry Mash Merchandiser division by approximately $1,000 versus the same period a year ago primarily due to the net impact of two customers increasing orders and two customers decreasing orders.
Chase General Corporation and Subsidiary
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SELLING EXPENSES
Selling expenses for the three months ended March 31,September 30, 2015 increased $4,616$8,135 to $74,670,$122,776, which is 17%12% of sales, compared to $70,054$114,641 or 15%12% of sales for the three months ended March 31,September 30, 2014.
The increase of $4,616$8,135 in selling expenses for the three months ended March 31,September 30, 2015 is primarily due to higher premium promotionstruck and automobile depreciation expense and higher commissions expense for the period. Truck and automobile depreciation expense. Premium promotions, which are paidexpense increased $3,887 to customers for various marketing reasons, increased $2,314 to $3,694$13,081 for this period from $1,380$9,638 for the three months ended March 31,September 30, 2014. DepreciationCommission expense increased $2,069$2,478 to $10,444$41,585 for this period from $8,375$39,107 for the three months ended March 31,September 30, 2014 primarily due to purchasesan increase in net sales and to a change in the mix of property and equipment of $28,767 during the year ended June 30, 2014 combined with the purchases of property and equipment of $54,001 during the nine months ended March 31, 2015.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31,September 30, 2015 decreased $24,926$6,330 to $83,890$115,051 and decreased to 19%11% of sales, compared to $108,816$121,381 or 24%12% of sales for the three months ended March 31,September 30, 2014. The decrease of $24,926 in general and administrative expense isdecreased costs are primarily because of lower professional fees expense and lowera decrease in insurance expense offset by various other fluctuations netting to an increase of approximately $2,000. Professional feesexpense. Insurance expense decreased $13,380$10,536 to $11,894$22,357 for this period from $25,274$32,893 for the three months ended March 31, 2014 primarily due to decreased legal costs. Insurance expense decreased $13,757 to $29,806 for this period from $43,563 for the three months ended March 31, 2014 primarilySeptember 30, 2015 due to a few employees declining health insurance coverage.
OTHER INCOME (EXPENSE)
Other income and (expense) increaseddecreased by $339$11,028 for the three months ended March 31,September 30, 2015 to $501,$107, compared to $162$11,135 for the three months ended March 31,September 30, 2014 primarily due to a decrease of $315 in interest expense.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company recorded ana provision for income tax benefit for the three months ended March 31,September 30, 2015 of $18,397$1,880 as compared to a tax benefitexpense of $31,412$17,250 for the three months ended March 31,September 30, 2014. The Company recorded an income tax expense for the nine months ended March 31, 2015 of $76,579 as compared to an income tax expense of $46,387 for the nine months ended March 31, 2014. The net income tax expensebenefit recorded for the ninethree months ended March 31,September 30, 2015 is primarily due to recognizing income taxes related to current profitable operations.
NET INCOME (LOSS)
The Company reported a net loss for the three months ended March 31,September 30, 2015 of $34,803,$(19,392), compared to a net lossincome of $57,951$34,701 for the three months ended March 31,September 30, 2014. This change in earningsdecrease of $23,148$54,093 is explained previouslyabove.
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 September 30, 2015 and 2014, which reflects additional preferred stock dividends in this filing. The Company reportedarrears 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 loss applicable to common stockholders for the three months ended September 30, 2015 was $51,410 which is an decrease of $54,093 as compared to the net income for the ninethree months ended March 31, 2015September 30, 2014 of $142,437, compared to net income of $89,018 for the nine months ended March 31, 2014. This change in earnings of $53,419 is explained previously in this filing.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal periodyear indicated.
| Nine Months Ended | ||||||||
| March 31 | ||||||||
| 2015 | 2014 | |||||||
| Net cash provided by operating activities | $ | 218,056 | $ | 391,421 | ||||
| Net cash used in investing activities | $ | (54,001 | ) | $ | (27,439 | ) | ||
| Net cash used in financing activities | $ | (21,317 | ) | $ | (56,191 | ) | ||
| Three Months Ended | ||||||||
| September 30 | ||||||||
| 2015 | 2014 | |||||||
| Net Cash Used in Operating Activities | $ | (260,787 | ) | $ | (272,538 | ) | ||
| Net Cash Used in Investing Activities | (14,082 | ) | (11,386 | ) | ||||
| Net Cash Provided by Financing Activities | 220,577 | 123,295 | ||||||
Management has madeno material commitments of approximately $54,000 to purchase equipment to be used infor capital expenditures during the manufacturing process before the endremainder of fiscal 2015.2016. The $54,001$14,082 of cash used in investing activities is the purchase of equipment used during the manufacturing process and two vehicles.process. The $218,056$260,787 of cash provided byused in operating activities is fully detailed in the condensed consolidated statement of cash flows on page seven.four. The $21,317$220,577 of cash used inprovided by financing activities is primarily due to the receipt of $225,000 drawn from a line-of-credit, net of principal payments on equipment and vehicle loans. At March 31,September 30, 2015, the Company had $350,000$125,000 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 generally be offset by sales price increases, which are not expected to have a significant effect upon demand.
12
Chase General Corporation and Subsidiary
ITEM 2. MANAGEMENT’S DISCUSSION AND SUBSIDIARY
AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Forward-Looking Information
This report, as well as our other reports filed with the Securities and Exchange Commission (“SEC”), contains forward-looking statements made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, and management’s plans and objectives. Accordingly, these forward-looking statements are based on assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks and uncertainties that could cause actual results to be different from what appear here. These risk factors include: the ability to adequately pass through customers unanticipated future increases in raw material costs, decreased demand for products, expected orders that do not occur, loss of key customers, the impact of competition and price erosion as well as supply and manufacturing constraints, and other risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will prove accurate, and our actual results may differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements made herein.
Chase General Corporation and Subsidiary
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to a smaller reporting company.
Chase’s Management,management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Managementmanagement has concluded that Chase’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to management, including those officers, and to members of the Board of Directors, to allow timely decisions regarding required disclosure.
(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 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
| b. | The total cumulative preferred stock dividends contingency at |
None
PARTChase General Corporation and Subsidiary
Part II. OTHER INFORMATION (CONTINUED)
| Exhibit 31.1 | Certification of Chief Executive Officer and |
| Exhibit 32.1 | Certification of |
| Exhibit 101 | The following financial statements for the quarter ended |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Chase General Corporation and Subsidiary | ||
| /s/ Barry M. Yantis | ||
| Date | Barry M. Yantis | |
| Chairman of the Board, Chief Executive Officer and | ||
| Chief Financial Officer, President and Treasurer |