Loading...
Docoh

Chase General (CSGN)

Filed: 12 Feb 21, 2:25pm

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2020

 

¨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)

 

MISSOURI36-2667734
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)

 

1307 South 59th, St. Joseph, Missouri 64507

 

(Address of principal executive offices, Zip Code)

 

(816) 279-1625

 

(Issuer’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTicker symbol(s)Name of each exchange on which registered
NoneNot ApplicableNot Applicable

 

Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes ¨ No x

 

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 every Interactive Data File required to be submitted 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 nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨Accelerated filer ¨
  
Nonaccelerated filer x Smaller reporting company x
  
Emerging Growth Company ¨ 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes ¨ No x

 

As of February 12, 2021, there were 969,834 shares of common stock, $1.00 par value, outstanding.

 

 

 

 

 

Chase General Corporation and Subsidiary

QUARTERLY REPORT ON FORM 10-Q

 

TABLE OF CONTENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020

 

Part IFinancial Information  
      
 Item 1. Condensed Consolidated Financial Statements  
      
   Condensed Consolidated Balance Sheets as of December 31, 2020 (UNAUDITED) and June 30, 2020 1
      
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED December 31, 2020 AND 2019 (UNAUDITED) 3
      
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE Six MONTHS ENDED December 31, 2020 AND 2019 (UNAUDITED) 4
      
   Condensed Consolidated Statements of Cash Flows FOR THE Six MONTHS ENDED December 31, 2020 AND 2019 (UNAUDITED) 5
      
  Notes to Condensed Consolidated Financial Statements (Unaudited) 6
      
 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
      
 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
      
 Item 4. Controls and Procedures 20
      
Part IIOther Information 
      
 Item 1. Legal Proceedings 21
      
 Item 1A. Risk Factors 21
      
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
      
 Item 3. Defaults Upon Senior Securities 21
      
 Item 4. Mine Safety Disclosures 21
      
 Item 5. Other Information 21
      
 Signatures  22

 

 

 

Chase General Corporation and Subsidiary

pART i. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  December 31,  June 30, 
  2020  2020 
  (Unaudited)    
ASSETS        
CURRENT ASSETS        
Cash and Cash Equivalents $285,839  $53,390 
Trade Receivables, Net of Allowance for Doubtful Accounts of $13,771 and $13,171, Respectively  312,676   144,239 
Inventories:        
Finished Goods  46,788   85,632 
Goods in Process  7,989   6,261 
Raw Materials  69,395   65,555 
Packaging Materials  117,428   156,038 
Prepaid Expenses  47,449   7,653 
Total Current Assets  887,564   518,768 
         
PROPERTY AND EQUIPMENT        
Land  35,000   35,000 
Buildings  77,348   77,348 
Machinery and Equipment  851,791   851,791 
Trucks and Autos  158,632   158,632 
Office Equipment  33,025   33,025 
Leasehold Improvements  72,068   72,068 
Total  1,227,864   1,227,864 
Less: Accumulated Depreciation  1,091,676   1,071,370 
Total Property and Equipment, Net  136,188   156,494 
         
Other Long-Term Assets:        
Right of Use Assets  289,390   318,537 
Total Long-Term Assets  425,578   475,031 
         
Total Assets $1,313,142  $993,799 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

(1)

 

 

Chase General Corporation and Subsidiary

pART i. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

  December 31,  June 30, 
  2020  2020 
  (Unaudited)    
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
CURRENT LIABILITIES        
Accounts Payable $70,122  $47,905 
Current Maturities of Notes Payable  11,877   88,318 
Current Maturities of Lease Liability  61,174   59,244 
Accrued Expenses  10,099   22,207 
Refund Liability Owed to Customers  22,556   10,176 
Deferred Income  1,299   1,299 
Total Current Liabilities  177,127   229,149 
         
LONG-TERM LIABILITIES        
Notes Payable, Less Current Maturities  2,183   103,591 
Lease Liabilities, Less Current Maturities  228,216   259,293 
Deferred Income  4,220   4,869 
Total Long-Term Liabilities  234,619   367,753 
         
Total Liabilities  411,746   596,902 
         
COMMITMENTS AND CONTINGENCIES (NOTE 8)        
         
STOCKHOLDERS' EQUITY        
Capital Stock Issued and Outstanding:        
Prior Cumulative Preferred Stock, $5 Par Value:        
Series A (Liquidation Preference $2,385,000 and $2,370,000, Respectively)  500,000   500,000 
Series B (Liquidation Preference $2,340,000 and $2,325,000, Respectively)  500,000   500,000 
Cumulative Preferred Stock, $20 Par Value:        
Series A (Liquidation Preference $5,341,129 and $5,311,862, Respectively)  1,170,660   1,170,660 
Series B (Liquidation Preference $870,441 and $865,672, 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  (5,564,600)  (6,069,099)
Total Stockholders' Equity  901,396   396,897 
         
Total Liabilities and Stockholders' Equity $1,313,142  $993,799 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

(2)

 

 

Chase General Corporation and Subsidiary

pART i. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

  Three Months Ended 
  December 31 
  2020  2019 
SALES $1,147,882  $1,231,459 
         
COST OF SALES  678,776   806,670 
Gross Profit on Sales  469,106   424,789 
         
OPERATING EXPENSES        
Selling  107,192   100,223 
General and Administrative  133,961   111,835 
Total Operating Expenses  241,153   212,058 
         
Income from Operations  227,953   212,731 
         
OTHER INCOME (EXPENSE)        
Miscellaneous Income  401   433 
Gain on Extinguishment of Debt (Note 3)  171,500   - 
Interest Expense  (1,218)  (3,515)
Total Other Income (Expense)  170,683   (3,082)
         
Income before Income Taxes  398,636   209,649 
         
INCOME TAX PROVISION  -   - 
         
NET INCOME $398,636  $209,649 
         
EARNINGS PER SHARE        
Basic $0.38  $0.18 
         
Diluted $0.18  $0.09 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

(3)

 

 

Chase General Corporation and Subsidiary 

pART i. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

  Six Months Ended 
  December 31 
  2020  2019 
SALES $2,013,129  $1,945,540 
         
COST OF SALES  1,181,612   1,295,300 
Gross Profit on Sales  831,517   650,240 
         
OPERATING EXPENSES        
Selling  186,900   178,178 
General and Administrative  314,003   256,224 
Total Operating Expenses  500,903   434,402 
         
Income from Operations  330,614   215,838 
         
OTHER INCOME (EXPENSE)        
Miscellaneous Income  4,801   3,306 
Gain on Extinguishment of Debt (Note 3)  171,500   - 
Interest Expense  (2,416)  (5,197)
Total Other Income (Expense)  173,885   (1,891)
         
Income before Income Taxes  504,499   213,947 
         
INCOME TAX PROVISION  -   - 
         
NET INCOME $504,499  $213,947 
         
EARNINGS PER SHARE        
Basic $0.45  $0.15 
         
Diluted $0.22  $0.07 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

(4)

 

 

Chase General Corporation and Subsidiary

pART i. FINANCIAL INFORMATION 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

  Six Months Ended 
  December 31 
  2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net Income $504,499  $213,947 
Adjustments to Reconcile Net Income to Net Cash        
  Provided by Operating Activities:        
Depreciation and Amortization  20,306   27,303 
Allowance for Bad Debts  600   600 
Deferred Income Amortization  (649)  (650)
Gain on Extinguishment of Debt (Note 3)  (171,500)  - 
Effects of Changes in Operating Assets and Liabilities:        
Trade Receivables  (169,037)  (26,857)
Inventories  71,886   201,256 
Prepaid Expenses  (39,796)  (36,566)
Accounts Payable  22,217   (12,416)
Accrued Expenses  (12,108)  (17,436)
Refund Liability Owed to Customers  12,380  10,201 
Net Cash Provided by Operating Activities  238,798   359,382 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from Line-of-Credit  210,000   227,000 
Principal Payments on Line-of-Credit  (210,000)  (312,000)
Principal Payments on Notes Payable  (6,349)  (5,975)
Net Cash Used by Financing Activities  (6,349)  (90,975)
         
NET INCREASE IN CASH AND CASH EQUIVALENTS  232,449   268,407 
         
Cash and Cash Equivalents - Beginning of Period  53,390   18,800 
         
CASH AND CASH EQUIVALENTS - END OF PERIOD $285,839  $287,207 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

(5)

 

 

Chase General Corporation and Subsidiary

pART i. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1         SIGNIFICANT ACCOUNTING POLICIES

 

General

 

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as Chase, we, our, and us) at June 30, 2020 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2020 and for the three and six months ended December 31, 2019 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, 2020. The results of operations for the three and six months ended December 31, 2020 and cash flows for the six months ended December 31, 2020 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2021. 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.

 

Revenue Recognition

 

The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including 1) a candy bar marketed under the trade name “Cherry Mash” and 2) coconut, peanut, chocolate, and fudge confectioneries. The Company recognizes revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon shipment to the customer. Shipping and handling costs incurred to ship product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Generally, individual orders from customers are accounted for as a single performance obligation.

 

(6)

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition (Continued)

 

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The amount of consideration the Company expects to receive and revenue the Company recognizes includes estimates of variable consideration, including costs for trade promotional programs, customer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, and expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. The Company reviews and updates these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in the second quarter of the year ending June 30, 2021 resulting from updated estimates of revenue for prior year product sales were not significant. The Company has elected a practical expedient to recognize incremental costs incurred to obtain contracts, which primarily represent sales commissions where the amortization period would be less than one year, as a selling expense when incurred in the financial statements.

 

The majority of the Company’s products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. The Company operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Both divisions share a common labor force and utilize the same basic equipment and raw materials. Management considers these two divisions as one reportable segment. The various divisions of revenue are as follows:

 

For the three months ended December 31,

 

  2020  2019 
Sales - Chase Candy $551,386  $499,762 
Sales - Seasonal Candy  596,496   731,697 
Sales $1,147,882  $1,231,459 

 

(7)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition (Continued)

 

For the six months ended December 31,

 

  2020  2019 
Sales - Chase Candy $931,591  $857,945 
Sales - Seasonal Candy  1,081,538   1,087,595 
Sales $2,013,129  $1,945,540 

 

Recently Issued Pronouncements

There have been no newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s consolidated financial statements.

 

NOTE 2         EARNINGS PER SHARE

 

The earnings per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.

 

  Three Months Ended  Six Months Ended 
  December 31  December 31 
  2020  2019  2020  2019 
Net Income $398,636  $209,649  $504,499  $213,947 
                 
Preferred Dividend Requirements:                
6% Prior Cumulative Preferred,$5 Par Value  15,000 15,000   30,000  30,000 
5% Convertible Cumulative Preferred, $20 Par Value  17,018   17,018   34,036   34,036 
Total Dividend Requirements  32,018   32,018   64,036   64,036 
                
Net Income- Common Stockholders $366,618  $177,631  $440,463 $149,911 
                 
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 $0.38  $0.18  $0.45  $0.15 
                 
Diluted Earnings per Share $0.18  $0.09  $0.22  $0.07 

 

(8)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

note 2         Earnings PER SHARE (continued)

 

Cumulative Preferred Stock dividends in arrears at December 31, 2020 and 2019 totaled $8,525,130 and $8,397,058, respectively. Total dividends in arrears, on a per share basis, consist of the following:

 

  Six Months Ended 
  31-Dec 
  2020  2019 
6% Convertible:        
Series A $19  $18 
Series B  18   18 
5% Convertible:        
Series A $71  $70 
Series B  71   70 

 

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.

 

(9)

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3         NOTES PAYABLE and line of credit

 

The Company’s long-term debt consists of:

 

    December 31,  June 30, 
Payee Terms 2020  2020 
Nodaway Valley Bank $350,000 line-of-credit agreement expiring on January 4, 2022, with a variable        
   interest rate at prime but not less than 5%. The line-of-credit is collateralized        
  by substantially all assets of the Company. $-  $- 
           
           
Ford Credit $705 monthly payments, interest of 5.8%; final payment due October 2021,        
  secured by a vehicle.  6,863   10,824 
           
Toyota Credit $444 monthly payments, interest of 6.49%; final payment due May 2022,        
   secured by a vehicle.  7,197   9,585 
           
Nodaway Valley Bank Small Business Administration Paycheck Protection Program (PPP) Promissory        
  Note, interest of 1%, beginning November 10, 2020 monthly payments of $9,652        
  including interest are due; final payment due April 10, 2022, under the terms        
  of the PPP program, this loan was fully forgiven during December 2020.        
  A gain on extinguishment of debt has been recognized as other income.  -   171,500 
           
  Total  14,060   191,909 
  Less Current Portion  11,877   88,318 
  Long-Term Portion $2,183  $103,591 

 

Future minimum payments for the twelve months ending December 31 are:

 

December 31  Amount 
2021  $11,877 
2022   2,183 
Total  $14,060 

 

(10)

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4         INCOME TAXES

 

The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recorded no income tax provision for the three and six month periods ended December 31, 2020 due to net operating loss carryforward as of June 30, 2020 that is available to offset taxable income in the current period. The Company recognized no liability for unrecognized tax benefits at December 31, 2020. The Company has no material tax positions at December 31, 2020, for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company had no accruals for interest or penalties at December 31, 2020. The Company’s federal income tax returns for the fiscal years ended 2018, 2019, and 2020 are subject to examination by the Internal Revenue Service taxing authority.

 

NOTE 5         SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

  Six Months Ended 
  December 31 
  2020  2019 
Cash Paid for:        
Interest $2,416  $5,197 

 

NOTE 6         DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these consolidated financial instruments. As of December 31, 2020, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.

 

(11)

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 7         COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

 

The Company leases its office and manufacturing facility, located at 1307 South 59th, St. Joseph, Missouri under an operating lease from an entity that is partially owned by the son of the Chief Executive Officer of the Company. The lease term is from February 1, 2005 through March 31, 2025 with an option to extend for an additional term of five years. The Company does not believe that exercise of the renewal option is reasonably assured, and has not included the additional five years in the lease term. The lease currently requires payments of $6,500 per month.

 

Operating lease right-of-use assets and lease liabilities were recognized upon adoption of the lease standard based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 5.5 years and the present value of the lease payments is calculated using the lessor’s implicit rate of 6.43%. Operating lease expense is recognized on a straight-line basis over the lease term.

 

The Company’s lease agreement does not contain any residual value guarantees. Additionally, any other short-term leases are immaterial. The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. Operating lease expenses and cash paid for operating lease liabilities were $39,000 for the six months ended December 31, 2020, of which, $35,782 is included in cost of sales and $3,218 is included in general and administrative expenses.

 

Minimum annual payments required under existing operating lease liabilities that have initial or remaining noncancelable terms in excess of one year as of December 31, 2020 are as follows:

 

Twelve Months Ending December 31,  Amount 
2021  $78,000 
2022   78,000 
2023   78,000 
2024   78,000 
2025   19,500 
Total Lease Payments   331,500 
Less: Imputed Interest   42,110 
Total Lease Liabilities  $289,390 

 

(12)

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 8         Subsequent events,

 

The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. The Company put preparedness plans in place at the manufacturing facility. They have adjusted the number of people allowed at their facilities, enforced social distancing, maintained proper sanitation protocol and have asked that any high risk or employees feeling ill to not come in. The office and sales staff continues to work, while adhering to social distancing guidelines, implementing flexible hours, reducing person-to-person interaction and increasing safety measures.

 

The Company believes they have sufficient liquidity to satisfy current cash needs, however, they continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that the business can continue to operate during these uncertain times.

 

The potential impact to the Company’s consolidated financial statements could occur as early as the third quarter of fiscal year ending June 30, 2021 and include, but not limited to: impairment of long lived assets; including property and equipment and operating lease right-of-use assets related to the Company’s fair value and collectability of receivables and other financial assets.

 

No other events have occurred subsequent to December 31, 2020, through the date of filing this form, that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the six month period ended December 31, 2020.

 

(13)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

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 December 31, 2020 Compared to Three Months Ended December 31, 2019, and Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

 

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 sales and revenues for the periods presented:

 

  Three Months Ended  Six Months Ended 
  December 31,  December 31, 
  2020  2019  2020  2019 
Sales  100%  100%  100%  100%
Cost of Sales  59   66   59   67 
Gross Profit on Sales  41   34   41   33 
Operating Expenses  21   17   25   22 
Income from Operations  20   17   16   11 
Other Income, Net  15   -   9   - 
Net Income before Income Taxes  35   17   25   11 
Income Tax Expense (Benefit)  -   -   -   - 
Net Income  35%  17%  25%  11%

 

(14)

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

 

SALES

 

Sales decreased $83,577 or 7% for the three months ended December 31, 2020 to $1,147,882 compared to $1,231,459 for the three months ended December 31, 2019. Sales for Chase Candy increased $51,624 to $551,386 for the three months ended December 31, 2020, compared to $499,762 for the three months ended December 31, 2019. Sales for Seasonal Candy decreased $135,201 to $596,496 for the three months ended December 31, 2020, compared to $731,697 for the three months ended December 31, 2019.

 

The 10% increase in sales of Chase Candy of $51,624 for the three months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $35,600 versus the same period a year ago primarily due to increased orders from existing customers; 2)  increased net sales of the L100/L200/SK2100 Cherry Mash Merchandisers segment by approximately $19,000; 3) increased website sales by approximately $16,500; offset by 4) decreased sales of approximately $19,500 for the Bulk Mini Mash L279/L299 segments to existing customers.

 

The 18% decrease in sales of Seasonal Candy of $135,201 for the three months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $60,000 versus the same period a year ago, primarily due to decreased sales to existing customers and 2) decreased sales to existing customers in the clamshell division by approximately $75,000 versus the same period a year ago.

 

Sales increased $67,589 or 3% for the six months ended December 31, 2020 to $2,013,129 compared to $1,945,540 for the six months ended December 31, 2019. Sales for Chase Candy increased $73,646 to $931,591 for the six months ended December 31, 2020, compared to $857,945 for the six months ended December 31, 2019. Sales for Seasonal Candy decreased $6,057 to $1,081,538 for the six months ended December 31, 2020, compared to $1,087,595 for the six months ended December 31, 2019.

 

The 9% increase in sales of Chase Candy of $73,646 for the six months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $77,500 versus the same period a year ago primarily due to increased orders from existing customers; 2) increased website sales of approximately $17,000; 3) increased net sales of the L278/L212 Mini Mash segment by approximately $7,000 versus the same period a year ago primarily due to increased orders from existing customers; offset by 3) decreased sales of approximately $14,000 for the Bulk Mini Mash L279/L299 segments to existing customers; and 4) decreased sales of the approximately $14,000 for the L100/L200/SK2100 Cherry Mash Merchandisers Segment to existing customers.

 

The 1% decrease in sales of Seasonal Candy of $6,057 for the six months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the effect of the following: 1) increased sales in the bulk seasonal division by approximately $31,000 versus the same period a year ago, primarily due to increased sales to existing customers along with a price increase of 5% effective first quarter ended September 30, 2020; offset by 2) decreased sales in the clamshell division by approximately $18,000 versus the same period a year ago, primarily due to decreased sales to existing customers; and 3) decreased sales in the generic segment of approximately $19,000 primarily due to decreased sales to existing customers.

 

(15)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

 

COST OF SALES

 

The cost of sales decreased $127,894 to $678,776 or 59% of related revenues for the three months ended December 31, 2020, compared to $806,670 or 66% of related revenues for the three months ended December 31, 2019.

 

The 16% decrease in cost of sales of $127,894 is primarily due to the impact of 1) a 7% decrease in sales of $83,577, 2) a 37% decrease in freight out of $18,805 during the period, 3) a decrease in consumption of raw materials combined with lower sales during the period.

 

The cost of sales decreased $113,688 to $1,181,612 or 59% of related revenues for the six months ended December 31, 2020, compared to $1,295,300 or 67% of related revenues for the six months ended December 31, 2019.

 

The 9% decrease in cost of sales of $113,688 is primarily due to the impact of 1) a 3% increase in sales of $67,589, a portion of which is related to price increases noted above that did not have a direct impact on cost of sales, 2) a 29% decrease in freight out of $25,921 during the period, 3) a decrease in consumption of raw materials combined with lower sales during the period.

 

SELLING EXPENSES

 

Selling expenses for the three months ended December 31, 2020 increased $6,969 to $107,192, which is 9% of sales, compared to $100,223, or 8% of sales for the three months ended December 31, 2019.

 

The increase of $6,969 in selling expenses for the three months ended December 31, 2020 is primarily due to higher shipping costs with decreases in depreciation expense. Shipping costs increased $9,761 to approximately $25,500 for this period from approximately $15,600 for the three months ended December 31, 2019, primarily due to an increase in orders placed. Depreciation expense decreased approximately $3,100 for this period.

 

Selling expenses for the six months ended December 31, 2020 increased $8,722 to $186,900, which is 9% of sales, compared to $178,178, or 9% of sales for the six months ended December 31, 2019.

 

The increase of $8,722 in selling expenses for the six months ended December 31, 2020 is primarily due to higher commissions and shipping costs with decreases in depreciation expense and customer shows. Commissions increased $6,899 to approximately $83,800 for this period from approximately $76,900 for the six months ended December 31, 2019, and shipping costs increased $10,675 to approximately $28,000 for this period from approximately $17,000 for the six months ended December 31, 2019, all of which was primarily due to an increase in sales. Depreciation expense decreased approximately $6,200 for this period. Customer show expense decreased $3,081 for this period from $3,381 for the six months ended December 31, 2019, primarily due to effects of COVID 19 and not going on site for customer shows.

 

(16)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses for the three months ended December 31, 2020 increased $22,126 to $133,961 and 12% of sales, compared to $111,835 or 9% of sales for the three months ended December 31, 2019.

 

The increase of $22,126 in general and administrative expenses for the three months ended December 31, 2020 is primarily due to higher professional fees and insurance expense plus minimal increases in office related expenses. Professional fees increased approximately $17,300 to $47,109 for this period from $29,723 for the three months ended December 31, 2019 primarily due to increased audit and consulting fees. Insurance expense increased approximately $3,450 to $34,950 for the period from $31,500 for the three months ended December 31, 2019 due to the increase in insurance premiums. An increase in office related expenses of approximately $1,500 for this period also contributed to the increased noted above.

 

General and administrative expenses for the six months ended December 31, 2020 increased $57,779 to $314,003 and 16% of sales, compared to $256,244 or 13% of sales for the six months ended December 31, 2019.

 

The increase of $57,779 in general and administrative expenses for the six months ended December 31, 2020 is primarily due to higher professional fees and insurance expense offset by minimal decreases in office related expenses. Professional fees increased approximately $48,750 to $147,493 for this period from $98,742 for the six months ended December 31, 2019 primarily due to increased audit and consulting fees. Insurance expense increased approximately $9,400 to $70,086 for the period from $60,695 for the six months ended December 31, 2019 due to the increase in insurance premiums. A decrease in office related expenses of approximately $400 for this period offset the increases discussed above.

 

OTHER INCOME (EXPENSE)

 

Other income (expense) increased by $173,765 for the three months ended December 31, 2020 to $170,683, compared to $(3,082) for the three months ended December 31, 2019.

 

Other income (expense) increased by $175,776 for the six months ended December 31, 2020 to $173,885, compared to $(1,891) for the six months ended December 31, 2019.

 

The majority of this change can be attributed to the gain on extinguishment of debt of $171,500 related to the forgiveness of debt from the PPP loan program. Another portion of the change can be attributed to a decrease in interest expense for the period.

 

PROVISION FOR INCOME TAXES

 

The Company recorded no income tax provision for the three and six months ended December 31, 2020 due to the net operating loss carryforward as of June 30, 2020 that is available to offset taxable income in the current period with a corresponding valuation allowance placed on the remaining net operating loss carryforward.

 

(17)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

 

NET INCOME

 

The Company reported a net income for the three months ended December 31, 2020 of $398,636, compared to a net income of $209,469 for the three months ended December 31, 2019. This increase of $188,987 is explained above. The Company reported a net income for the six months ended December 31, 2020 of $504,499, compared to a net income of $213,947 for the six months ended December 31, 2019. This increase of $290,552 is explained above.

 

PREFERRED DIVIDENDS

 

Preferred dividends were $32,018 for the three months ended December 31, 2020 and December 31, 2019, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

 

Preferred dividends were $64,036 for the six months ended December 31, 2020 and December 31, 2019, 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 APPLICABLE TO COMMON STOCKHOLDERS

 

Net income applicable to common stockholders for the three months ended December 31, 2020 was $366,618 which is an increase of $188,987 as compared to the net income applicable to common stockholders for the three months ended December 31, 2019 of $177,631.

 

Net income applicable to common stockholders for the six months ended December 31, 2020 was $440,463 which is an increase of $290,552 as compared to the net income applicable to common stockholders for the six months ended December 31, 2019 of $149,911.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The table below presents the summary of cash flow for the fiscal period indicated.

 

  Six Months Ended 
  December 31, 
  2020  2019 
Net Cash Provided by Operating Activities $238,798  $359,382 
Net Cash Used by Financing Activities $(6,349) $(90,975)

 

Management has made no material commitments for capital expenditures during the remainder of fiscal 2021. The $238,798 of cash used in operating activities for the six months ended December 31, 2020 is fully detailed in the condensed consolidated statement of cash flows on page five. The $6,349 of cash used by financing activities for the six months ended December 31, 2020 are primarily due to principal payments on equipment and vehicle loans.

 

The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to the Company, COVID-19 may impact various parts of its fiscal year ending June 30, 2021 operations and financial results, including the production and sales of goods.

 

(18)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

 

Management believes the Company is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as these events are still developing.

 

Management believes that the projected cash flow from operations, including the impact of the COVID-19 pandemic, combined with its availability on the line-of-credit, 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.

 

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.

 

(19)

 

 

Chase General Corporation and Subsidiary

 

PART I. FINANCIAL INFORMATION

 

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET rISK

 

Not applicable to a smaller reporting company.

 

ITEM 4.CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Chase’s management, 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 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 management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of evaluation.

 

(20)

 

 

Chase General Corporation and Subsidiary

 

PART II. OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.RISK FACTORS

 

Not applicable to a smaller reporting company.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

a.None

 

b.The total cumulative preferred stock dividends contingency at December 31, 2020 is $8,525,130

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.OTHER INFORMATION

 

None.

 

ITEM 6.EXHIBITS

 

a.Exhibits.

 

Exhibit 31.1Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

 

Exhibit 32.1Certification 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 101The following financial statements for the quarter ended December 31, 2020, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2020 and 2019, (iii) Condensed Consolidated Statement of Operations for the Six Months Ended December 31, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

(21)

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 Chase General Corporation and Subsidiary
  (Registrant)
   
   
February 12, 2021 /s/ Barry M. Yantis
Date Barry M. Yantis
  Chairman of the Board, Chief Executive Officer and
  Chief Financial Officer, President, and Treasurer

 

(22)