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, 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☒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☒x No☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednonaccelerated 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 | |
| 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, 2015,11, 2016, there were 969,834 shares of common stock, $1.00 par value, outstanding.
CHASE GENERAL CORPORATION AND SUBSIDIARY
Chase General Corporation and Subsidiary
Quarterly Report on FormQUARTERLY REPORT ON FORM 10-Q
For the Three Months Ended March 31, 2015
FOR THE NINE MONTHS ENDED MARCH 31, 2016
| 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 | ||||
| March 31, | June 30, | |||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 282,679 | $ | 84,204 | ||||
| Trade Receivables, Net of Allowance for Doubtful Accounts of $17,196 and $16,296, Respectively | 147,781 | 187,607 | ||||||
| Inventories: | ||||||||
| Finished Goods | 94,482 | 377,853 | ||||||
| Goods in Process | 9,321 | 13,815 | ||||||
| Raw Materials | 82,404 | 90,506 | ||||||
| Packaging Materials | 158,989 | 130,726 | ||||||
| Prepaid Expenses | 18,337 | 5,689 | ||||||
| Prepaid Income Taxes | 29,760 | - | ||||||
| Deferred Income Taxes | 7,314 | 7,288 | ||||||
| Total Current Assets | 831,067 | 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 | 213,116 | 198,845 | ||||||
| Office Equipment | 31,518 | 31,518 | ||||||
| Leasehold Improvements | 72,068 | 72,068 | ||||||
| Total | 1,246,886 | 1,222,104 | ||||||
| Less Accumulated Depreciation | 869,233 | 861,341 | ||||||
| Total Property and Equipment, Net | 377,653 | 360,763 | ||||||
| Total Assets | $ | 1,208,720 | $ | 1,258,451 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(1)
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 | ||||
| March 31, | June 30, | |||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 40,606 | $ | 111,944 | ||||
| Current Maturities of Notes Payable | 15,297 | 8,297 | ||||||
| Accrued Expenses | 28,874 | 17,966 | ||||||
| Income Taxes Payable | - | 26,119 | ||||||
| Deferred Income | 1,299 | 1,299 | ||||||
| Total Current Liabilities | 86,076 | 165,625 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred Income | 10,389 | 11,362 | ||||||
| Notes Payable, Less Current Maturities | 59,324 | 14,004 | ||||||
| Deferred Income Taxes | 93,916 | 98,866 | ||||||
| Total Long-Term Liabilities | 163,629 | 124,232 | ||||||
| Total Liabilities | 249,705 | 289,857 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Capital Stock Issued and Outstanding: | ||||||||
| Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
| Series A (Liquidation Preference $2,242,500 and $2,220,000, Respectively) | 500,000 | 500,000 | ||||||
| Series B (Liquidation Preference $2,197,500 and $2,175,000, Respectively) | 500,000 | 500,000 | ||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| Series A (Liquidation Preference $5,063,097 and $5,019,197, Respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (Liquidation Preference $825,131 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 | (5,506,981 | ) | (5,497,402 | ) | ||||
| Total Stockholders' Equity | 959,015 | 968,594 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 1,208,720 | $ | 1,258,451 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(2)
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 | ||||||||
| March 31 | ||||||||
| 2016 | 2015 | |||||||
| NET SALES | $ | 476,676 | $ | 450,836 | ||||
| COST OF SALES | 437,017 | 356,567 | ||||||
| Gross Profit on Sales | 39,659 | 94,269 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 73,854 | 74,670 | ||||||
| General and Administrative | 86,747 | 83,890 | ||||||
| Gain on Sale of Equipment | - | (10,590 | ) | |||||
| Total Operating Expenses | 160,601 | 147,970 | ||||||
| Loss from Operations | (120,942 | ) | (53,701 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 609 | 626 | ||||||
| Interest Expense | (890 | ) | (125 | ) | ||||
| Total Other Income (Expense), Net | (281 | ) | 501 | |||||
| Net Loss Before Income Taxes | (121,223 | ) | (53,200 | ) | ||||
| BENEFIT FOR INCOME TAXES | (42,708 | ) | (18,397 | ) | ||||
| NET LOSS | $ | (78,515 | ) | $ | (34,803 | ) | ||
| NET LOSS PER SHARE OF COMMON STOCK | ||||||||
| Basic | $ | (0.11 | ) | $ | (0.07 | ) | ||
| Diluted | $ | (0.11 | ) | $ | (0.07 | ) | ||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(3)
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)
| Nine Months Ended | ||||||||
| March 31 | ||||||||
| 2016 | 2015 | |||||||
| NET SALES | $ | 2,818,456 | $ | 2,734,017 | ||||
| COST OF SALES | 2,201,287 | 1,917,694 | ||||||
| Gross Profit on Sales | 617,169 | 816,323 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 353,587 | 339,074 | ||||||
| General and Administrative | 297,034 | 295,724 | ||||||
| Gain on Sale of Equipment | (21,364 | ) | (26,502 | ) | ||||
| Total Operating Expenses | 629,257 | 608,296 | ||||||
| Income (Loss) from Operations | (12,088 | ) | 208,027 | |||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 1,408 | 13,070 | ||||||
| Interest Expense | (3,906 | ) | (2,081 | ) | ||||
| Total Other Income (Expense), Net | (2,498 | ) | 10,989 | |||||
| Net Income (Loss) Before Income Taxes | (14,586 | ) | 219,016 | |||||
| PROVISION (BENEFIT) FOR INCOME TAXES | (5,007 | ) | 76,579 | |||||
| NET INCOME (LOSS) | $ | (9,579 | ) | $ | 142,437 | |||
| NET INCOME (LOSS) PER SHARE OF COMMON STOCK | ||||||||
| Basic | $ | (0.11 | ) | $ | 0.05 | |||
| Diluted | $ | (0.11 | ) | $ | 0.02 | |||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(4)
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 | ||||
(UNAUDITED)
| Nine Months Ended | ||||||||
| March 31 | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | (9,579 | ) | $ | 142,437 | |||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: | ||||||||
| Depreciation and Amortization | 88,777 | 74,904 | ||||||
| Allowance for Bad Debts | 900 | 1,950 | ||||||
| Deferred Income Amortization | (973 | ) | (974 | ) | ||||
| Deferred Income Taxes | (4,976 | ) | (2,267 | ) | ||||
| (Gain) on Sale of Equipment | (21,364 | ) | (26,502 | ) | ||||
| Effects of Changes in Operating Assets and Liabilities: | ||||||||
| Trade Receivables | 38,926 | 35,644 | ||||||
| Inventories | 267,704 | 72,079 | ||||||
| Prepaid Expenses | (12,648 | ) | (14,129 | ) | ||||
| Prepaid Income Taxes | (29,760 | ) | (11,970 | ) | ||||
| Accounts Payable | (71,338 | ) | (7,145 | ) | ||||
| Accrued Expenses | 10,908 | (104,293 | ) | |||||
| Income Taxes Payable | (26,119 | ) | 58,322 | |||||
| Net Cash Provided by Operating Activities | 230,458 | 218,056 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of Property and Equipment | (21,622 | ) | (54,001 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Line-of-Credit | 300,000 | 265,000 | ||||||
| Principal Payments on Line-of-Credit | (300,000 | ) | (265,000 | ) | ||||
| Principal Payments on Notes Payable | (10,361 | ) | (21,317 | ) | ||||
| Net Cash Used by Financing Activities | (10,361 | ) | (21,317 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 198,475 | 142,738 | ||||||
| Cash and Cash Equivalents - Beginning of Period | 84,204 | 162,435 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 282,679 | $ | 305,173 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(5)
(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, 20152016 and for the three and nine months ended March 31, 20142015 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, 20152016 and cash flows for the nine months ended March 31, 20152016 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, 2015,2016, 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 nine month period ended March 31, 2015.
| NOTE 2 | EARNINGS 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.
Contingently issuable shares were not included in the diluted earnings for the three months ended March 31, 2016, the three months ended March 31, 2015, and the nine months ended March 31, 2016 as they would have an antidilutive effect upon earnings per share.
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 | ) | |||||
(6)
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 2 | EARNINGS PER SHARE(continued) |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31 | March 31 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net Income (Loss) | $ | (78,515 | ) | $ | (34,803 | ) | $ | (9,579 | ) | $ | 142,437 | |||||
| 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 | $ | (110,533 | ) | $ | (66,821 | ) | $ | (105,633 | ) | $ | 46,383 | |||||
| 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 | $ | (0.11 | ) | $ | (0.07 | ) | $ | (0.11 | ) | $ | 0.05 | |||||
| Diluted Earnings per Share | $ | (0.11 | ) | $ | (0.07 | ) | $ | (0.11 | ) | $ | 0.02 | |||||
Cumulative Preferred Stock dividends in arrears at March 31, 2016 and 2015 totaled $7,916,788 and 2014 totaled $7,788,716, and $7,660,644, 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 | ||||
| Nine Months Ended | ||||||||
| March 31 | ||||||||
| 2016 | 2015 | |||||||
| 6% Convertible | ||||||||
| Series A | $ | 17 | $ | 17 | ||||
| Series B | 17 | 16 | ||||||
| 5% Convertible | ||||||||
| Series A | $ | 67 | $ | 66 | ||||
| Series B | 67 | 66 | ||||||
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.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 2 | EARNINGS PER SHARE(continued) |
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.
| NOTE 3 | NOTES PAYABLE |
The Company’s notes payable consists of:
| March 31, | June 30, | |||||||||
| Payee | Terms | 2016 | 2015 | |||||||
| Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2017, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration. | $ | - | $ | - | |||||
| Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 15,305 | 19,151 | |||||||
| Ford Credit | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. | 40,208 | - | |||||||
| Toyota Credit | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 19,108 | - | |||||||
| Ford Credit | $517 monthly payments, interest of 0%; secured by a vehicle. | - | 3,150 | |||||||
| Total | 74,621 | 22,301 | ||||||||
| Less Current Portion | 15,297 | 8,297 | ||||||||
| Long-Term Portion | $ | 59,324 | $ | 14,004 | ||||||
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 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 | |||||||
(UNAUDITED)
| NOTE 3 | NOTES PAYABLE(continued) |
Future minimum payments for the twelve months ending March 31 are:
| 2016 | $ | 10,793 | ||
| 2017 | 5,260 | |||
| 2018 | 5,414 | |||
| 2019 | 4,631 | |||
| Total | $ | 26,098 |
| March 31: | Amount | |||
| 2017 | $ | 15,297 | ||
| 2018 | 15,962 | |||
| 2019 | 15,716 | |||
| 2020 | 11,652 | |||
| 2021 | 11,155 | |||
| Thereafter | 4,839 | |||
| Total | $ | 74,621 | ||
| NOTE 4 | INCOME TAXES |
The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards BoardAccounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at March 31, 2015.2016. The Company has no material tax positions at March 31, 20152016, 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, 2015.2016. The Company’s federal income tax returns for the fiscal years ended 2012, 2013, 2014, and 20142015 are subject to examination by the IRSInternal Revenue Service taxing authority.
| NOTE 5 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
| Nine Months Ended | ||||||||
| March 31 | ||||||||
| 2016 | 2015 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 3,906 | $ | 2,081 | ||||
| Income Taxes | $ | 55,888 | $ | 32,494 | ||||
| Noncash Transactions: | ||||||||
| Financing of New Vehicles | $ | 62,681 | $ | 21,228 | ||||
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 | - | ||||||
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 6 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accountingamended guidance to clarify the principles for the recognition ofrecognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The guidance will replace most existinginitially be applied retrospectively using one of two methods. The standard will be effective for the entity for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted beginning for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of the amended revenue recognition guidance in U.S. GAAP when it becomes effective.on its consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," ("ASU 2015-11"). An entity using an inventory method other than last-in, first out ("LIFO") or the retail inventory method should measure inventory at the lower of cost and net realizable value. The new standardguidance clarifies that net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The update is effective as of January 1, 2017, with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.
In February 2016, the FASB issued amended guidance for the Company’streatment of leases. The guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability for all operating and finance leases with lease terms greater than one year. The guidance also requires both qualitative and quantitative disclosures regarding the nature of the entity’s leasing activities. The guidance will initially be applied using a modified retrospective approach. The amendments in the guidance are effective for fiscal year 2018, and earlyyears beginning after December 15, 2018. Early adoption is not permitted. The Company is evaluating the effectimpact of the newamended lease guidance will have on the its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the standard on its ongoing financial reporting.statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 6 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS(continued) |
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Accounting Standards Board issued an accounting standards update which requires managementStatements - Going Concern (Subtopic 205-40)". ASU 2014-15 provides guidance related to assessmanagement's responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raiseis substantial doubt about the Company’san entity's ability to continue as a going concern within one year after the consolidated financial statements are issued. If substantial doubt exists, additional disclosures are required. This update will beand to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the Company’s fiscal year 2015. The adoption of the new standard is not expectedASU 2014-15 to have a material impacteffect on the Company’s consolidatedour financial position, results of operations or cash flows or disclosures.
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.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
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.
| 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 | % | ||||||||
| 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 | ) | ||
Forward-Looking Information
This report, as well as our other reports filed with the Securities and Exchange Commission (“SEC”)(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.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
RESULTS OF OPERATIONS - Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015, and Nine Months Ended March 31, 2016 Compared to Nine Months Ended March 31, 2015
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 | Nine Months Ended | |||||||||||||||
| March 31 | March 31 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net Sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of Sales | 92 | 79 | 78 | 70 | ||||||||||||
| Gross Profit on Sales | 8 | 21 | 22 | 30 | ||||||||||||
| Operating Expenses | 34 | 33 | 22 | 22 | ||||||||||||
| Income (Loss) from Operations | (26 | ) | (12 | ) | - | 8 | ||||||||||
| Other Income (Expense), Net | - | 1 | - | - | ||||||||||||
| Income (Loss) before Income Taxes | (26 | ) | (11 | ) | - | 8 | ||||||||||
| Provision (Benefit) for Income Taxes | (9 | ) | (4 | ) | - | 3 | ||||||||||
| Net Income (Loss) | (17 | )% | (7 | )% | - | % | 5 | % | ||||||||
NET SALES
Net sales increased $25,840 or 6% for the three months ended March 31, 2016 to $476,676 compared to $450,836 for the three months ended March 31, 2015. Gross sales for Chase Candy increased $19,142 to $468,975 for the three months ended March 31, 2016, compared to $449,833 for the three months ended March 31, 2015. Gross sales for Seasonal Candy increased $3,263 to $13,969 for the three months ended March 31, 2016, compared to $10,706 for the three months ended March 31, 2015. Gross sales for other sales for the Company decreased $605 to $662 for the three months ended March 31, 2016, compared to $1,267 for the three months ended March 31, 2015. Sales returns and allowances for the Company decreased $4,040 to $6,930 for the three months ended March 31, 2016, compared to $10,970 for the three months ended March 31, 2015.
The 4% increase in gross sales of Chase Candy of $19,142 for the three months ended March 31, 2016 over the same period ended March 31, 2015, is primarily due to the net effect of the following: 1) increased sales of the L212 Mini Mash division by approximately $31,000 versus the same period a year ago primarily due to one customer increasing orders; offset by 2) decreased sales in the L276 Cherry Mash Bar division by approximately $6,000 due to two customers decreasing orders; and 3) decreased sales in the L278 Mini Mash division by approximately $6,000 due to one customer decreasing orders.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
NET SALES (CONTINUED)
The 30% increase in gross sales of Seasonal Candy of $3,263 for the three months ended March 31, 2016 over the same period ended March 31, 2015, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $8,000 due to sales to one new customer; offset by 2) decreased sales in the bulk seasonal division by approximately $3,000 versus the same period a year ago primarily due to decreased orders from one customer; and 3) decreased sales in the clamshell seasonal division by approximately $2,000 versus the same period a year ago primarily due to decreased sales to two customers.
Net sales increased $84,439 or 3% for the nine months ended March 31, 2016 to $2,818,456 compared to $2,734,017 for the nine months ended March 31, 2015. Gross sales for Chase Candy decreased $94,798 to $1,393,843 for the nine months ended March 31, 2016, compared to $1,488,641 for the nine months ended March 31, 2015. Gross sales for Seasonal Candy increased $183,300 to $1,459,033 for the nine months ended March 31, 2016, compared to $1,275,733 for the nine months ended March 31, 2015. Gross sales for other sales for the Company decreased $4,251 to $5,240 for the nine months ended March 31, 2016, compared to $9,491 for the nine months ended March 31, 2015. Sales returns and allowances for the Company decreased $188 to $39,660 for the nine months ended March 31, 2016, compared to $39,848 for the nine months ended March 31, 2015.
The 6% decrease in gross sales of Chase Candy of $94,798 for the nine months ended March 31, 2016 over the same period ended March 31, 2015, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $94,000 versus the same period a year ago primarily due to three customers decreasing orders and 2) various other fluctuations netting to a decrease of approximately $1,000.
The 14% increase in gross sales of Seasonal Candy of $183,300 for the nine months ended March 31, 2016 over the same period ended March 31, 2015, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $221,000 due to increased orders from two customers offset by decreased orders of another customer; 2) increased sales in the bulk seasonal division by approximately $31,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the clamshell seasonal division by approximately $69,000 versus the same period a year ago primarily due to decreased orders from four customers.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
COST OF SALES
The cost of sales increased $80,450 to $437,017 or 92% of related revenues for the three months ended March 31, 2016, compared to $356,567 or 79% of related revenues for the three months ended March 31, 2015. The 23% increase in cost of sales of $80,450 is primarily due to the net impact of a 6% increase in net sales of $25,840, a 4% increase in the price of sugar, a 1% increase in the price of chocolate, and a 8% increase in the price of corn syrup offset by a 10% decrease in the price of peanuts.
The cost of sales increased $283,593 to $2,201,287 or 78% of related revenues for the nine months ended March 31, 2016, compared to $1,917,694 or 70% of related revenues for the nine months ended March 31, 2015. The 15% increase in cost of sales of $283,593 is primarily due to the net impact of a 3% increase in net sales of $84,439, a 4% increase in the price of sugar, a 1% increase in the price of chocolate, and a 8% increase in the price of corn syrup offset by a 10% decrease in the price of peanuts. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand. Primarily due to the fluctuations in these raw material prices, gross margins have decreased due to unchanged sales prices during the period. Management intends to make sales price adjustments in the future to correspond with changes in raw material prices.
SELLING EXPENSES
Selling expenses for the three months ended March 31, 2016 decreased $816 to $73,854, which is 15% of sales, compared to $74,670, or 17% of sales for the three months ended March 31, 2015. The decrease of $816 in selling expenses for the three months ended March 31, 2016 is primarily due to lower automobile expense and premium promotions offset by higher commissions, advertising expense, and customer shows expense. Premium promotions, which are paid to customers for various marketing reasons, decreased $3,149 to $545 for this period from $3,694 for the three months ended March 31, 2015. Automobile expense decreased $2,516 to $2,011 for this period from $4,527 for the three months ended March 31, 2015, primarily due to falling gasoline prices and the recent purchase of new vehicles. Commissions increased $1,624 to $12,839 for this period from $11,215 for the three months ended March 31, 2015, primarily due to a change in the mix of sales. Advertising increased $1,550 to $2,150 for this period from $600 for the three months ended March 31, 2015, primarily due to timing of regular invoices. Customer shows expense increased $1,830 to $4,534 for this period from $2,704 for the three months ended March 31, 2015 primarily due to timing of customer shows.
Selling expenses for the nine months ended March 31, 2016 increased $14,513 to $353,587, which is 13% of sales, compared to $339,074 or 12% of sales for the nine months ended March 31, 2015. The increase of $14,513 in selling expenses for the nine months ended March 31, 2016 is primarily due to higher commissions expense and depreciation expense, offset by lower automobile expenses for the period. Commission expense increased $10,900 to $103,241 for this period from $92,341 for the nine months ended March 31, 2015 primarily due to a change in the mix of sales. Depreciation expense increased $7,406 to $39,396 for this period from $31,990 primarily due to the purchases of property and equipment of $84,303 during the nine months ended March 31, 2016. Automobile expense decreased $6,080 to $8,917 for this period from $14,997 primarily due to falling gasoline prices and the recent purchase of new vehicles.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 2016 increased $2,857 to $86,747 and 18% of sales, compared to $83,890 or 19% of sales for the three months ended March 31, 2015. The increase of $2,857 in general and administrative expenses for the three months ended March 31, 2016 is primarily due to higher office supplies and professional fees offset by lower insurance expense. Professional fees increased $1,081 to $12,975 for this period from $11,894 for the three months ending March 31, 2015 due to timing of regular invoices. Office expense increased $4,826 to $6,350 for this period from $1,524 for the three months ending March 31, 2015 due to a modification in computer software. Insurance expense decreased $3,549 to $26,257 for this period from $29,806 for the three months ending March 31, 2015 due to employees changing their enrollment in insurance plans.
General and administrative expenses for the nine months ended March 31, 2016 increased $1,310 to $297,034 or 11% of sales, compared to $295,724 or 11% of sales for the nine months ended March 31, 2015. The decrease of $1,310 in general and administrative expenses for the nine months ended March 31, 2016 is primarily due to higher professional fees and office expense offset by lower insurance expense. Professional fees increased $20,188 to $99,312 for this period from $79,124 for the nine months ending March 31, 2015 due to timing of regular invoices. Office expense increased $5,748 to $9,705 for this period from $3,957 for the three months ending March 31, 2015 due to a modification in computer software. Insurance expense decreased $25,265 to $72,839 for this period from $98,104 for the nine months ending March 31, 2015 due to employees changing their enrollment in insurance plans.
OTHER INCOME (EXPENSE)
Other income (expense) decreased by $782 for the three months ended March 31, 2016 to $(281), compared to $501 for the three months ended March 31, 2015 primarily due to an increase of $765 in interest expense.
Other income (expense) increased by $13,487 for the nine months ended March 31, 2016 to $(2,498), compared to $10,989 for the nine months ended March 31, 2015 primarily due to an increase of $1,825 in interest expense and a decrease of $11,662 in miscellaneous income. The decrease in miscellaneous income is primarily due to these unusual items that occurred during nine months ended March 31, 2015: 1) a freight claim of approximately $4,000, and 2) a refund of approximately $7,000 from a customer related to an underpayment written off in a previous period.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
PROVISION (BENEFIT) FOR INCOME TAXES
The Company recorded income tax benefit for the three months ended March 31, 2016 of $(42,708) as compared to income tax benefit of $(18,397) for the three months ended March 31, 2015. The Company recorded income tax benefit for the nine months ended March 31, 2016 of $(5,007) as compared to income tax expense of $76,579 for the nine months ended March 31, 2015. The net income tax expense (benefit) recorded for the three and nine months ended March 31, 2016 is primarily due to recognizing income taxes related to current net income or loss.
NET INCOME (LOSS)
The Company reported a net loss for the three months ended March 31, 2016 of $(78,515), compared to a net loss of $(34,803) for the three months ended March 31, 2015. This earnings decrease of $43,712 is explained above. The Company reported net loss for the nine months ended March 31, 2016 of $(9,579), compared to net income of $142,437 for the nine months ended March 31, 2015. This earnings decrease of $152,016 is explained above.
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended March 31, 2016 and 2015, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
Preferred dividends were $96,054 for the nine months ended March 31, 2016 and 2015, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
Net loss applicable to common stockholders for the three months ended March 31, 2016 was $(110,533) which is a decrease in earnings of $43,712 as compared to the net loss for the three months ended March 31, 2015 of $(66,821).
Net income (loss) applicable to common stockholders for the nine months ended March 31, 2016 was $(105,633) which is a decrease in earnings of $152,016 as compared to the net income for the nine months ended March 31, 2015 of $46,383.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
| Nine Months Ended | ||||||||
| March 31 | ||||||||
| 2016 | 2015 | |||||||
| Net Cash Provided by Operating Activities | $ | 230,458 | $ | 218,056 | ||||
| Net Cash Used by Investing Activities | $ | (21,622 | ) | $ | (54,001 | ) | ||
| Net Cash Used by Financing Activities | $ | (10,361 | ) | $ | (21,317 | ) | ||
Management has no material commitments for capital expenditures during the remainder of fiscal 2016. The $230,458 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $21,622 of cash used in investing activities is the purchase of equipment used during the manufacturing process and an automobile. The $10,361 of cash used in financing activities is the principal payments on equipment and vehicle loans. At March 31, 2016, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.
Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future.
Management believes that inflation will have only a minimal effect on future operations since such effects will be offset by sales price increases, which are not expected to have a significant effect upon demand.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to a smaller reporting company.
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 amended (the “Exchange Act”)Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Management 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.
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
| b. | The total cumulative preferred stock dividends contingency at March 31, |
| ITEM 5. | OTHER INFORMATION |
None.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART II. OTHER INFORMATION
(CONTINUED)| Exhibit 31.1 | Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
| Exhibit 32.1 | Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 101 | The following financial statements for the quarter ended March 31, |
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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 | ||
| May | /s/ Barry M. Yantis | |
| Date | Barry M. Yantis | |
| Chairman of the Board, Chief Executive Officer and | ||
| Chief Financial Officer, President and Treasurer |
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