UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2018
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 2-5916
Chase General Corporation
(Exact name of small business issuer as specified in its charter)
MISSOURI | 36-2667734 | |
(State or other jurisdiction of | (IRS Employer Identification No.) | |
incorporation or organization) |
1307 South 59th, St. Joseph, Missouri 64507 |
(Address of principal executive offices, Zip Code) |
(816) 279-1625 |
(Issuer’s telephone number, including area code) |
Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes¨Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes¨Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNo¨
Indicate by check mark whether the registrant (1) has submitted electronically 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 such files). YesxNo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨ | Accelerated filer¨ |
Nonaccelerated filerx | Smaller reporting companyx |
Emerging Growth Company¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes¨Nox
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes¨Nox
As of February 13, 2019, there were 969,834 shares of common stock, $1.00 par value, outstanding.
CHASE GENERAL CORPORATION AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
FOR THE SIX MONTHS ENDEDDECEMBER 31, 2018
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, | June 30, | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and Cash Equivalents | $ | 249,130 | $ | 2,129 | ||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $13,989 and $13,389, Respectively | 187,218 | 135,331 | ||||||
Inventories: | ||||||||
Finished Goods | 18,669 | 208,254 | ||||||
Goods in Process | 9,360 | 10,937 | ||||||
Raw Materials | 89,173 | 74,267 | ||||||
Packaging Materials | 135,889 | 152,184 | ||||||
Prepaid Expenses | 44,523 | 12,225 | ||||||
Total Current Assets | 733,962 | 595,327 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 35,000 | 35,000 | ||||||
Buildings | 77,348 | 77,348 | ||||||
Machinery and Equipment | 851,791 | 851,791 | ||||||
Trucks and Autos | 163,039 | 163,039 | ||||||
Office Equipment | 33,025 | 33,025 | ||||||
Leasehold Improvements | 72,068 | 72,068 | ||||||
Total | 1,232,271 | 1,232,271 | ||||||
Less Accumulated Depreciation | 1,025,520 | 997,091 | ||||||
Total Property and Equipment, Net | 206,751 | 235,180 | ||||||
Total Assets | $ | 940,713 | $ | 830,507 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
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, | |||||||
2018 | 2018 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts Payable | $ | 92,379 | $ | 176,871 | ||||
Current Maturities of Notes Payable | 11,507 | 11,224 | ||||||
Accrued Expenses | 7,089 | 30,852 | ||||||
Refund Liability Owed to Customers | 37,624 | - | ||||||
Deferred Income | 1,299 | 1,299 | ||||||
Total Current Liabilities | 149,898 | 220,246 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred Income | 6,817 | 7,466 | ||||||
Notes Payable, Less Current Maturities | 18,962 | 24,787 | ||||||
Deferred Income Taxes | 3,400 | - | ||||||
Total Long-Term Liabilities | 29,179 | 32,253 | ||||||
Total Liabilities | 179,077 | 252,499 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Capital Stock Issued and Outstanding: | ||||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
Series A (Liquidation Preference $2,325,000 and $2,310,000, Respectively) | 500,000 | 500,000 | ||||||
Series B (Liquidation Preference $2,280,000 and $2,265,000, Respectively) | 500,000 | 500,000 | ||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
Series A (Liquidation Preference $5,224,063 and $5,194,796, Respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (Liquidation Preference $851,363 and $846,594, Respectively) | 190,780 | 190,780 | ||||||
Common Stock, $1 Par Value | 969,834 | 969,834 | ||||||
Paid-In Capital in Excess of Par | 3,134,722 | 3,134,722 | ||||||
Accumulated Deficit | (5,704,360 | ) | (5,887,988 | ) | ||||
Total Stockholders' Equity | 761,636 | 578,008 | ||||||
Total Liabilities and Stockholders' Equity | $ | 940,713 | $ | 830,507 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
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 | ||||||||
2018 | 2017 | |||||||
SALES | $ | 1,130,629 | $ | 1,110,235 | ||||
COST OF SALES | 752,454 | 786,390 | ||||||
Gross Profit on Sales | 378,175 | 323,845 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 95,514 | 118,216 | ||||||
General and Administrative | 97,329 | 122,627 | ||||||
Total Operating Expenses | 192,843 | 240,843 | ||||||
Income from Operations | 185,332 | 83,002 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income | 3,462 | 392 | ||||||
Interest Expense | (3,056 | ) | (2,318 | ) | ||||
Total Other Income (Expense) | 406 | (1,926 | ) | |||||
Income before Income Taxes | 185,738 | 81,076 | ||||||
PROVISION FOR INCOME TAXES | 3,400 | 8,682 | ||||||
NET INCOME | $ | 182,338 | $ | 72,394 | ||||
EARNINGS PER SHARE | ||||||||
Basic | $ | 0.14 | $ | 0.04 | ||||
Diluted | $ | 0.07 | $ | 0.02 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
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 | ||||||||
2018 | 2017 | |||||||
SALES | $ | 1,872,149 | $ | 1,980,665 | ||||
COST OF SALES | 1,278,775 | 1,447,482 | ||||||
Gross Profit on Sales | 593,374 | 533,183 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 168,417 | 230,548 | ||||||
General and Administrative | 235,813 | 269,663 | ||||||
Total Operating Expenses | 404,230 | 500,211 | ||||||
Income from Operations | 189,144 | 32,972 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income | 3,825 | 762 | ||||||
Interest Expense | (5,941 | ) | (4,298 | ) | ||||
Total Other Income (Expense) | (2,116 | ) | (3,536 | ) | ||||
Income before Income Taxes | 187,028 | 29,436 | ||||||
PROVISION FOR INCOME TAXES | 3,400 | 13,891 | ||||||
NET INCOME | $ | 183,628 | $ | 15,545 | ||||
EARNINGS/(LOSS) PER SHARE | ||||||||
Basic | $ | 0.11 | $ | (0.05 | ) | |||
Diluted | $ | 0.05 | $ | (0.05 | ) |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
4 |
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended | ||||||||
December 31 | ||||||||
2018 | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 183,628 | $ | 15,545 | ||||
Adjustments to Reconcile Net Income to Net Cash | ||||||||
Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 28,429 | 34,017 | ||||||
Allowance for Bad Debts | 600 | 600 | ||||||
Deferred Income Amortization | (649 | ) | (649 | ) | ||||
Deferred Income Taxes | 3,400 | 59,683 | ||||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | (52,487 | ) | (60,559 | ) | ||||
Inventories | 192,551 | 212,550 | ||||||
Prepaid Expenses | (32,298 | ) | (15,431 | ) | ||||
Income Taxes Receivable | - | (41,371 | ) | |||||
Accounts Payable | (84,492 | ) | 93,589 | |||||
Accrued Expenses | (23,763 | ) | (14,583 | ) | ||||
Income Taxes Payable | - | 6,739 | ||||||
Refund Liability Owed to Customers | 37,624 | - | ||||||
Net Cash Provided by Operating Activities | 252,543 | 290,130 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 340,000 | 330,000 | ||||||
Principal Payments on Line-of-Credit | (340,000 | ) | (330,000 | ) | ||||
Principal Payments on Notes Payable | (5,542 | ) | (7,981 | ) | ||||
Net Cash Used by Financing Activities | (5,542 | ) | (7,981 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 247,001 | 282,149 | ||||||
Cash and Cash Equivalents - Beginning of Period | 2,129 | 46,182 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 249,130 | $ | 328,331 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
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, 2018 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, 2018 and for the three and six months ended December 31, 2017 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, 2018. The results of operations for the three and six months ended December 31, 2018 and cash flows for the six months ended December 31, 2018 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the periods have been included.
No events have occurred subsequent to December 31, 2018, through the date of filing this form, that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the six month period ended December 31, 2018.
Revenue Recognition
The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including 1) a candy bar marketed under the trade name “Cherry Mash” and 2) coconut, peanut, chocolate, and fudge confectioneries. The Company recognizes revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon shipment to the customer. Shipping and handling costs incurred to ship product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Generally, individual orders from customers are accounted for as a single performance obligation.
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 add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The amount of consideration the Company expects to receive and revenue the Company recognizes includes estimates of variable consideration, including costs for trade promotional programs, customer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, and expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. The Company reviews and updates these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in second quarter of the year ending June 30, 2019 resulting from updated estimates of revenue for prior year product sales were not significant.
The majority of the Company’s products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. The Company operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Both divisions share a common labor force and utilize the same basic equipment and raw materials. Management considers these two divisions as one reportable segment. The various divisions of revenue are as follows:
For the three months ended December 31, 2018
2018 | 2017 | |||||||
Sales - Chase Candy | $ | 473,685 | $ | 455,329 | ||||
Sales - Seasonal Candy | 656,944 | 654,906 | ||||||
Sales | $ | 1,130,629 | $ | 1,110,235 |
For the six months ended December 31, 2018
2018 | 2017 | |||||||
Sales - Chase Candy | $ | 767,772 | $ | 797,757 | ||||
Sales - Seasonal Candy | 1,104,377 | 1,182,908 | ||||||
Sales | $ | 1,872,149 | $ | 1,980,665 |
7 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Recently Adopted Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On July 1, 2018, we adopted the requirements of ASC 606 and all the related amendments to contracts that have not been completed as of the initial adoption date using the modified retrospective method. Upon completing our implementation assessment of ASC 606, we concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The Company identified certain amounts included in accounts payable that will be separately recorded as a current liability upon adoption of ASC 606. There will be no impact to working capital as a result of these reclassifications. The cumulative effects of the changes made to our consolidated July 1, 2018 balance sheet for the adoption of the new revenue standard were as follows:
Balance at | Adjustment | Balance at | ||||||||||
June 30, 2018 | Upon Adoption | July 1, 2018 | ||||||||||
Balance Sheet | ||||||||||||
Accounts Payable | $ | 135,311 | $ | (12,900 | ) | $ | 122,411 | |||||
Refund Liability Owed to Customers | - | 12,900 | 12,900 |
8 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Recently Adopted Pronouncements (Continued)
There is no change in the timing of revenue recognition upon adoption of ASC 606. The Company has identified certain amounts paid to customers which are currently recorded as selling expense. Under ASC 606, these amounts will be recorded as a reduction to revenue as the Company does not receive a distinct good or service in exchange for the payment. The total impact of adoption on our consolidated statement of operation and balance sheet was as follows:
For the three month period ended December 31, 2018 | ||||||||||||
Current | Previous | |||||||||||
Standard | Change | Standard | ||||||||||
Statement of Operations | ||||||||||||
Sales | $ | 1,130,629 | $ | 28,088 | $ | 1,158,717 | ||||||
Selling Expenses | 95,514 | 28,088 | 123,602 | |||||||||
As of and for the six month period ended December 31, 2018 | ||||||||||||
Current | Previous | |||||||||||
Standard | Change | Standard | ||||||||||
Balance Sheet | ||||||||||||
Accounts Payable | $ | 92,382 | $ | 37,624 | $ | 130,006 | ||||||
Refund Liability Owed to Customers | 37,624 | (37,624 | ) | - | ||||||||
Statement of Operations | ||||||||||||
Sales | $ | 1,872,149 | $ | 47,890 | $ | 1,920,039 | ||||||
Selling Expenses | 168,417 | 47,890 | 216,307 |
9 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 | SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Recently Issued Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use (ROU) assets. Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease. We are currently in the process of evaluating our existing lease portfolio, including accumulating all of the necessary information required to properly account for the leases under the new standard. ASU 2016-02 is effective for us beginning July 1, 2019. The guidance originally required entities to apply ASU 2016-02 on a modified retrospective basis; however, the FASB has recently proposed guidance that would allow adoption of this standard as of the effective date without restating prior periods. We expect adoption to result in a material increase in lease-related assets and liabilities on our consolidated balance sheets; however, we do not expect it to have a significant impact on our consolidated statements of operations or cash flows.
There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s consolidated financial statements.
10 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 | EARNINGS (Loss) PER SHARE |
The earnings (loss) per share were computed on the weighted average of outstanding common shares during the period. Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.
Three Months Ended | Six Months Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Income | $ | 182,338 | $ | 72,394 | $ | 183,628 | $ | 15,545 | ||||||||
Preferred Dividend Requirements: | ||||||||||||||||
6% Prior Cumulative Preferred, $5 Par Value | 15,000 | 15,000 | 30,000 | 30,000 | ||||||||||||
5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | 34,036 | 34,036 | ||||||||||||
Total Dividend Requirements | 32,018 | 32,018 | 64,036 | 64,036 | ||||||||||||
Net Income (Loss) - Common Stockholders | $ | 150,320 | $ | 40,376 | $ | 119,592 | $ | (48,491 | ) | |||||||
Weighted Average Shares - Basic | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | 1,033,334 | 1,033,334 | ||||||||||||
Weighted Average Shares – Diluted | 2,003,168 | 2,003,168 | 2,003,168 | 2,003,168 | ||||||||||||
Basic Earnings (Loss) per Share | $ | 0.14 | $ | 0.04 | $ | 0.11 | $ | (0.05 | ) | |||||||
Diluted Earnings (Loss) per Share | $ | 0.07 | $ | 0.02 | $ | 0.05 | $ | (0.05 | ) |
The contingently issuable shares, for the six months ended December 31, 2017, were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
11 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
note 2 | EARNINGS (LOSS) PER SHARE (continued) |
Cumulative Preferred Stock dividends in arrears at December 31, 2018 and 2017 totaled $8,268,986 and $8,140,914, respectively. Total dividends in arrears, on a per share basis, consist of the following:
Six Months Ended | ||||||||
December 31 | ||||||||
2018 | 2017 | |||||||
6% Convertible | ||||||||
Series A | $ | 18 | $ | 18 | ||||
Series B | 18 | 17 | ||||||
5% Convertible | ||||||||
Series A | $ | 69 | $ | 68 | ||||
Series B | 69 | 68 |
The 6% convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 a share plus unpaid accrued dividends to date of redemption. In the event of voluntary liquidation, holders of this stock are entitled to receive $5.25 per share plus accrued dividends. It may be exchanged for common stock at the option of the shareholders in the ratio of 4 common shares for one share of Series A and 3.75 common shares for one share of Series B.
The Company has the privilege of redemption of 5% convertible cumulative preferred stock at $21.00 a share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20.00 a share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.
12 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 | NOTES PAYABLE |
The Company’s long-term debt consists of:
December 31, | June 30, | |||||||||
Payee | Terms | 2018 | 2018 | |||||||
Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2020, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. | $ | - | $ | - | |||||
Ford Credit | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. | 22,036 | 25,560 | |||||||
Toyota Credit | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 8,433 | 10,451 | |||||||
Total | 30,469 | 36,011 | ||||||||
Less Current Portion | 11,507 | 11,224 | ||||||||
Long-Term Portion | $ | 18,962 | $ | 24,787 |
Future minimum payments for the twelve months ending December 31 are:
December 31: | Amount | |||
2019 | $ | 11,507 | ||
2020 | 12,098 | |||
2021 | 6,864 | |||
Total | $ | 30,469 |
13 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 | INCOME TAXES |
The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at December 31, 2018. The Company has no material tax positions at December 31, 2018 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company had no accruals for interest or penalties at December 31, 2018. The Company’s federal income tax returns for the fiscal years ended 2016, 2017 and 2018 are subject to examination by the Internal Revenue Service taxing authority.
NOTE 5 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
December 31 | ||||||||
2018 | 2017 | |||||||
Cash Paid for: | ||||||||
Interest | $ | 5,941 | $ | 4,298 |
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, 2018, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.
14 |
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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, 2018 Compared to Three Months Ended December 31, 2017, and Six Months Ended December 31, 2018 Compared to Six Months Ended December 31, 2017
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 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of Sales | 67 | 71 | 68 | 73 | ||||||||||||
Gross Profit on Sales | 33 | 29 | 32 | 27 | ||||||||||||
Operating Expenses | 17 | 22 | 22 | 25 | ||||||||||||
Income from Operations | 16 | 7 | 10 | 2 | ||||||||||||
Other Income (Expense), Net | - | - | - | - | ||||||||||||
Income before Income Taxes | 16 | 7 | 10 | 2 | ||||||||||||
Provision for Income Taxes | - | 1 | - | 1 | ||||||||||||
Net Income | 16 | % | 6 | % | 10 | % | 1 | % |
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SALES
Sales increased $20,394 or 2% for the three months ended December 31, 2018 to $1,130,629 compared to $1,110,235 for the three months ended December 31, 2017. Sales for Chase Candy increased $19,917 to $484,968 for the three months ended December 31, 2018, compared to $465,051 for the three months ended December 31, 2017. Sales for Seasonal Candy increased $9,701 to $689,844 for the three months ended December 31, 2018, compared to $680,143 for the three months ended December 31, 2017. Sales for other sales for the Company increased $3,826 to $11,846 for the three months ended December 31, 2018, compared to $8,020 for the three months ended December 31, 2017. Sales returns and allowances for the Company decreased $15,038 to $27,941 for the three months ended December 31, 2018, compared to $42,979 for the three months ended December 31, 2017. Due to the adoption of ASC 606, adjustments disclosed in Note 1 totaling $28,088 for the three months ended December 31, 2018 were recorded as a reduction to revenue.
The 4% increase in sales of Chase Candy of $19,917 for the three months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) increased sales of the L212/L278 Mini Mash division by approximately $16,000 versus the same period a year ago primarily due to increased orders from existing customers; 2) increased sales of L279/L299 Bulk Mini Mash division by approximately $14,000 versus the same period a year ago due to increased orders from existing customers; 3) increased sales of L100/L200/SK2100 Cherry Mash Merchandisers division by approximately $5,000 versus the same period a year ago primarily due to increased orders from existing customers; offset by 4) decreased sales of L276 Cherry Mash Distributors Pack division by approximately $15,000 versus the same period a year ago due to decreased orders from existing customers.
The 1% increase in sales of Seasonal Candy of $9,701 for the three months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) an increase orders in the clamshell division netting approximately $56,000 versus the same period a year ago, primarily due to existing customers increasing orders; 2) increased orders in the bulk seasonal division netting approximately $53,000, due to increased sales from existing customers; offset by 3) decreased orders from various customers in the general seasonal division netting approximately $98,500 versus the same period a year ago, primarily due to existing customers decreasing orders.
Sales returns and allowances decreased $15,038 for the three months ended December 31, 2018 over the same period ended December 31, 2017 primarily due to management’s anticipation of returns from one customer in the prior period.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SALES (CONTINUED)
Sales decreased $108,516 or 5% for the six months ended December 31, 2018 to $1,872,149 compared to $1,980,665 for the six months ended December 31, 2017. Sales for Chase Candy decreased $26,922 to $787,150 for the six months ended December 31, 2018, compared to $814,072 for the six months ended December 31, 2017. Sales for Seasonal Candy decreased $68,153 to $1,150,128 for the six months ended December 31, 2018, compared to $1,218,281 for the six months ended December 31, 2017. Sales for other sales for the Company increased $4,232 to $12,785 for the six months ended December 31, 2018, compared to $8,553 for the six months ended December 31, 2017. Sales returns and allowances for the Company decreased $30,217 to $30,024 for the six months ended December 31, 2018, compared to $60,241 for the six months ended December 31, 2017. Due to the adoption of ASC 606, adjustments disclosed in Note 1 totaling $47,890 for the six months ended December 31, 2018 were recorded as a reduction to revenue.
The 3% decrease in sales of Chase Candy of $26,922 for the six months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $49,000 versus the same period a year ago primarily due to existing customers decreasing orders; offset by 2) increased sales of the L100/L200/SK2100 Cherry Mash Merchandisers division by approximately $18,000 versus the same period a year ago primarily due to existing customers increasing orders; 3) decreased sales of the L212/L278 Mini Mash division by approximately $2,000 versus the same period a year ago primarily due to existing customers increasing orders; and 4) other various increases netting to $2,000.
The 6% increase in sales of Seasonal Candy of $68,153 for the six months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) decreased sales in the generic seasonal division netting approximately $28,000 versus the same period a year ago, primarily due to existing customers decreasing orders; 2) decreased sales in the bulk seasonal division netting approximately $25,000 versus the same period a year ago, primarily due to existing customers decreasing orders; and 3) decreased sales in the clamshell seasonal division netting approximately $14,500 versus the same period a year ago, primarily due to existing customers decreasing orders.
Sales returns and allowances decreased $30,217 for the six months ended December 31, 2018 over the same period ended December 31, 2017 is primarily due to management’s anticipation of returns from one customer in the prior period.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
COST OF SALES
The cost of sales decreased $33,936 to $752,454 or 67% of related revenues for the three months ended December 31, 2018, compared to $786,390 or 71% of related revenues for the three months ended December 31, 2017. The 4% decrease in cost of sales of $33,936 is primarily due to the net effect of 1) a 1% decrease in the price of peanuts; 2) decreased waste in packaging; offset by 3) a 2% increase in sales of $20,394; 4) an 4% increase in the price of corn syrup; and 5) a 2% increase in the price of chocolate.
The cost of sales decreased $168,707 to $1,278,775 or 68% of related revenues for the six months ended December 31, 2018, compared to $1,447,482 or 73% of related revenues for the six months ended December 31, 2017. The 12% decrease in cost of sales of $168,707 is primarily due to the net effect of 1) a 5% decrease in sales of $108,516; 2) a 3.3% decrease in the price of peanuts; 3) supervisor’s salary decreasing $14,050 to $92,510 for this period from $106,560 for the six months ended December 31, 2017 primarily due to retirement of one of the supervisors; 4) maintenance labor decreasing $13,023 to $3,892 for this period from $16,915 for the six months ended December 31, 2017 primarily due to not hiring a dedicated maintenance worker during the current period; offset by 5) an 5% increase in the price of corn syrup; and 6) a 1% increase in the price of chocolate.
Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
SELLING EXPENSES
Selling expenses for the three months ended December 31, 2018 decreased $22,702 to $95,514, which is 8% of sales, compared to $118,216, or 11% of sales for the three months ended December 31, 2017. The decrease of $22,702 in selling expenses for the three months ended December 31, 2018 is primarily due to the adoption of ASC 606, lower sales salaries, lower vehicle depreciation, lower auto expense offset by shipping expenses. With the adoption of ASC 606, the Company no longer includes advertising and bill backs with selling expenses. The expenses included in selling expenses totaled $13,836 for the three months ended December 31, 2017. As disclosed in Note 1, adjustments of $28,088 were made to selling expenses for the three months ended December 31, 2018. Sales salaries decreased $5,500 to $23,125 for this period from $28,625 for the three months ended December 31, 2017 primarily due to retirement of one of the salespersons. Vehicle depreciation expense decreased $2,504 to $8,152 for this period from $10,656 for the three months ended December 31, 2017 and auto expense decreased $2,211 to $2,330 for this period from $4,541 for the three months ended December 31, 2017 primarily due to a selling a vehicle in the period ending June 30, 2018. Shipping expenses increased $2,574 to $18,507 for this period from $15,933 for the three months ended December 31, 2017 primarily due to an increase in shipment of online ordered items.
Selling expenses for the six months ended December 31, 2018 decreased $62,131 to $168,417, which is 9% of sales, compared to $230,548 or 11% of sales for the six months ended December 31, 2017. The decrease of $62,131 in selling expenses for the six months ended December 31, 2018 is primarily due to the adoption of ASC 606, lower sales salaries, lower vehicle depreciation, and lower auto expense. With the adoption of ASC 606, the Company no longer includes advertising and bill backs with selling expenses. The expenses included in selling expenses totaled $43,253 for the six months ended December 31, 2017. As disclosed in Note 1, adjustments of $47,890 were made to selling expenses for the six months ended December 31, 2018. Sales salaries decreased $11,000 to $46,250 for this period from $57,250 for the six months ended December 31, 2017 primarily due to retirement of one of the salespersons. Vehicle depreciation expense decreased $5,008 to $16,304 for this period from $21,312 for the six months ended December 31, 2017 and auto expense decreased $3,460 to $4,148 for this period from $7,608 for the six months ended December 31, 2017 primarily due to a selling a vehicle in the period ending June 30, 2018.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2018 decreased $25,298 to $97,329 and 9% of sales, compared to $122,627 or 11% of sales for the three months ended December 31, 2017. The decrease of $25,298 in general and administrative expenses for the three months ended December 31, 2018 is primarily due to lower website expense offset by higher insurance expense and office salaries. Website expense decreased $28,750 to $3,192 for this period from $31,942 for the three months ending December 31, 2017 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash in the prior year. Insurance expense increased $2,901 to $33,739 for this period from $30,838 for the three months ending December 31, 2017 primarily due to an increase in insurance premiums. Office salaries increased $1,320 to $23,351 for this period from $22,031 for the three months ending December 31, 2017 primarily due annual raises for employees.
General and administrative expenses for the six months ended December 31, 2018 decreased $33,850 to $235,813 or 13% of sales, compared to $269,663 or 14% of sales for the six months ended December 31, 2017. The decrease of $33,850 in general and administrative expenses for the six months ended December 31, 2018 is primarily due to lower website expense offset by higher insurance expense and office salaries. Website expense decreased $38,992 to $7,286 for this period from $46,278 for the three months ending December 31, 2017 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash in the prior year. Insurance expense increased $3,465 to $65,787 for this period from $62,322 for the three months ending December 31, 2017 primarily due to an increase in insurance premiums. Office salaries increased $3,117 to $46,456 for this period from $43,339 for the three months ending December 31, 2017 primarily due annual raises for employees.
OTHER INCOME (EXPENSE)
Other income (expense) increased by $2,332 for the three months ended December 31, 2018 to $406, compared to $(1,926) for the three months ended December 31, 2017 primarily due to $2,859 of miscellaneous income received from supplier.
Other income (expense) increased by $1,420 for the six months ended December 31, 2018 to $(2,116), compared to $(3,536) for the six months ended December 31, 2017 primarily due to $2,859 of miscellaneous income received from supplier.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company recorded income tax expense for the three months ended December 31, 2018 of $3,400 as compared to income tax expense of $8,682 for the three months ended December 31, 2017. The Company recorded income tax expense for the six months ended December 31, 2018 of $3,400 as compared to income tax expense of $13,891 for the six months ended December 31, 2017. The net income tax expense (benefit) recorded for the three and six months ended December 31, 2018 is primarily due to recognizing income taxes in relation to the profitability of operations.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
NET INCOME
The Company reported net income for the three months ended December 31, 2018 of $182,338, compared to net income of $72,394 for the three months ended December 31, 2017. This increase of $109,944 is explained above. The Company reported net income for the six months ended December 31, 2018 of $183,628, compared to net income of $15,545 for the six months ended December 31, 2017. This increase of $168,083 is explained above.
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended December 31, 2018 and 2017, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
Preferred dividends were $64,036 for the six months ended December 31, 2018 and 2017, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
Net income applicable to common stockholders for the three months ended December 31, 2018 was $150,320 which is an increase of $109,944 as compared to the net income applicable to common stockholders for the three months ended December 31, 2017 of $40,376.
Net income applicable to common stockholders for the six months ended December 31, 2018 was $119,592 which is an increase of $168,083 as compared to the net loss applicable to common stockholders for the six months ended December 31, 2017 of $(48,491)
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
Six Months Ended | ||||||||
December 31 | ||||||||
2018 | 2017 | |||||||
Net Cash Provided by Operating Activities | $ | 252,543 | $ | 290,130 | ||||
Net Cash Used by Financing Activities | $ | (5,542 | ) | $ | (7,981 | ) |
Management has no material commitments for capital expenditures during the remainder of fiscal 2019. The $252,543 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $ 5,542 of cash used in financing activities is the principal payments on equipment and vehicle loans. At December 31, 2018, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.
Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future.
Management believes that inflation will have only a minimal effect on future operations since such effects will be offset by sales price increases, which are not expected to have a significant effect upon demand.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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.
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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
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2018, as a result of the material weakness discussed below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over consolidated financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statement will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the period ending September 30, 2018, we identified a material weakness in our internal control over financial reporting related to our controls in the method used to estimate the ending inventory balances. This control deficiency resulted in a material adjustment to our ending inventory balance for the period ending September 30, 2018. If not remediated, this control deficiency could result in future material misstatement to inventory and cost of goods sold within the Company’s consolidated financial statements.
Management and the Board of Directors are committed to the continued improvement of the Company’s overall system of internal control over financial reporting. Management believes the remediation measures described below will remediate the identified control deficiency and strengthen the Company’s internal control over financial reporting.
Management has implemented the following measures to remediate the internal control deficiency with respect to its valuation of inventory.
· | Management has calculated and reviewed the estimated ending inventory balances using the retail inventory method on a monthly basis; and has used an external vendor for verification of the calculation. |
(b) Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
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, 2018 is $8,268,986. | ||
ITEM 4. | MINE SAFETY DISCLOSURES | ||
Not applicable. | |||
ITEM 5. | OTHER INFORMATION | ||
None | |||
ITEM 6. | EXHIBITS | ||
a. | Exhibits. | ||
Exhibit 31.1 | Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | ||
Exhibit 32.1 | Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
Exhibit 101 | The following financial statements for the quarter ended December 31, 2018, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2018 and 2017, (iii) Condensed Consolidated Statements of Operations for the Six Months Ended December 31, 2018 and 2017, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2018 and 2017, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
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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 | ||
(Registrant) | ||
February 14, 2019 | /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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