United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 2016
¨ Transaction Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For transition period from to
Commission File Number: 2-5916
Chase General Corporation | ||
(Exact name of registrant 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 | ||
(Registrant’s telephone number, including area code) | ||
Securities Registered Pursuant to Section 12(b) of the Act: |
None | ||
Securities Registered Pursuant to Section 12(g) of the Act: |
None | ||
(Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned 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 or 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 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The aggregate market value of the shares of common stock held by non-affiliates of the Issuer is not actively traded. Therefore, market value of the stock is unknown as of 60 days prior to the date of this filing.
As of September 22, 2016 there were 969,834 shares of Common Stock, $1.00 par value, outstanding.
Chase General Corporation AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
FOR THE YEAR ENDED JUNE 30, 2016
PART I | ||
ITEM 1. | BUSINESS | 1 |
ITEM 1A. | RISK FACTORS | 5 |
ITEM 1B. | UNRESOLVED STAFF COMMENTS | 5 |
ITEM 2. | PROPERTIES | 5 |
ITEM 3. | LEGAL PROCEEDINGS | 5 |
ITEM 4. | MINE SAFETY DISCLOSURES | 5 |
PART II | ||
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED stOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 6 |
ITEM 6. | SELECTED FINANCIAL DATA | 6 |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 7 |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 15 |
ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 15 |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 34 |
ITEM 9A. | CONTROLS AND PROCEDURES | 34 |
ITEM 9B. | OTHER INFORMATION | 34 |
PART III | ||
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE | 35 |
ITEM 11. | EXECUTIVE COMPENSATION | 36 |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND STOCKHOLDER MATTERS | 38 |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 39 |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES | 39 |
PART IV | ||
ITEM 15. | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES | 40 |
SIGNATURES | 41 |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
PART I
ITEM 1 | BUSINESS |
Chase General Corporation was incorporated November 6, 1944 for the purpose of manufacturing confectionery products. In 1970, Chase General Corporation acquired a 100% interest in its wholly-owned subsidiary, Dye Candy Company. (Chase General Corporation and Dye Candy Company are sometimes referred herein as “the Company”). This subsidiary is the main operating company for the reporting entity.
Principal Products and Methods of Distribution
The subsidiary, Dye Candy 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. The products of both divisions are sold to the same type of customers in the same geographical areas. In addition, 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 for inclusion in this filing.
The principal products produced are as follows:
Chase Candy Products of Dye Candy Company produces a candy bar under the trade name of “Cherry Mash”. The bar is distributed in the following six case sizes:
(1) | 60 count pack |
(2) | 12 boxes of 24 bars per box |
(3) | 200 count shipper box |
(4) | 100 count shipper box |
(5) | 100 # 2 box Counter Display |
(6) | 4 box - 36 count Counter Display |
(1) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Principal Products and Methods of Distribution (Continued)
In addition to the regular size bar, a “mini-mash” is distributed in the following seven case sizes:
(1) | 24 - 12 oz. bags |
(2) | 6 jars - 60 bars per jar |
(3) | 23 # wrapped bars |
(4) | 22 # unwrapped bars |
(5) | 12 - 12 oz. bags |
(6) | 6 - 4 # jars |
(7) | 24 - 12 oz. clamshell containers |
Seasonal Candy Products of Dye Candy Company produces coconut, peanut, chocolate, and fudge confectioneries. These products are distributed in bulk or packaged. Principal products include:
(1) | Coconut Bon-Bons | (6) Peanut Brittle | |
(2) | Coconut Stacks | (7) Peanut Clusters | |
(3) | Home Style Poe Fudge | (8) Champion Crème Drops | |
(4) | Peco Flake | (9) Jelly Candies | |
(5) | Peanut Squares | (10) Frosted Pretzels |
The Champion Creme Drops, Frosted Pretzels and Jelly Candies are not produced or repackaged by the Company.
All products are shipped to customers by commercial haulers.
Competition and Market Area
The Chase Candy Products division bars are sold primarily to wholesale candy and tobacco jobbing houses, grocery accounts, vendors and repackers. “Cherry Mash” bars are marketed in the Midwest region of the United States. For the years ended June 30, 2016 and 2015, this division accounted for 56% and 61%, respectively, of the consolidated sales of Dye Candy Company.
The Seasonal Candy Products division is sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For the years ended June 30, 2016 and 2015, this division accounted for 44% and 39%, respectively, of the consolidated sales of Dye Candy Company.
The Company has no government contracts, foreign operations or export sales. In addition, all domestic sales are primarily in the Midwest region of the United States.
The Company is a seasonal business whereby the largest volume of sales occur in August through December of each year. The earnings per quarter of the Company varies in direct proportion to the seasonal sales volume.
(2) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Competition and Market Area (Continued)
Due to the seasonal nature of the business, there is a heavier demand on working capital in the fall and winter months of the year when the Company is building its inventories in anticipation of August through December sales. The fluctuation of demand on working capital due to the seasonal nature of the business is common to the confectionery industry. If necessary, the Company has the ability to borrow short-term funds to finance operations prior to receiving cash collections from fall sales. The Company occasionally offers extended payment terms of up to sixty days. Since this practice is infrequent, the effect on working capital is minimal.
Prompt service and efficient service are traits demanded in the confectionery industry, which results in a continual low volume of back-orders. Therefore, at no time during the year does the Company have a significant amount of back-orders.
The confectionery (candy) market for the type of product produced by the divisions of Dye Candy Company is very competitive and quality minded. The confectionery industry in which the divisions operate is highly competitive with many small companies and, within certain specialized areas, a few competitors dominate. In the United States, the dominant competitors in the coconut candy industry are Crown Candy Company, Vermico Candy Company, and the Seasonal Candy Products division of Dye Candy Company with approximately 70% of the market share among them. In the United States, Old Dominion has approximately 80% of the market share of the peanut candy business in which the Seasonal Candy Products division operates. Dye Candy Company sells approximately 95% of its products in the Midwest region with seasonal orders being shipped to the Southern and Eastern regions of the United States. Except for the coconut candy industry, Dye Candy Company is not a dominant competitor in any of the candy industries in which it competes. Dye Candy Company’s market share in the coconut industry does not vary significantly from year to year.
Principal methods of competition the Company uses include quality of product, price, reduced transportation costs due to central location, and service. The Company’s competitive position is positively influenced by labor costs being lower than industry average. Chase General Corporation is firmly established in the confectionery market and through its operating divisions has many years of experience associated with its name.
Research and Development
The Company has not developed any new products during the fiscal years ended June 30, 2016 and 2015.
Raw Materials and Principal Suppliers
Raw materials and packaging materials are produced on a national basis with products coming from locations throughout the United States. Raw materials and packaging materials are generally widely available, depending on common market influences. For the year ended June 30, 2015 one supplier accounted for 11% of the cost of sales. No other supplier accounted for more than 10% of the Company’s cost of sales in fiscal years 2016 and 2015.
(3) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Patents and Trademarks
The largest single revenue producing product, the “Cherry Mash” bar, is protected by a trademark registered with The United States Patent and Trademark Office. The Company considers this trademark significant to operations. This trademark expires in the year 2023. The Company and its legal representatives do not expect any impediment to renewing this trademark prior to its expiration.
Employees
As of June 30, 2016, the Company had 19 full time employees. This expands to approximately 30 full time personnel during the busy production months of August through December.
Customers
For the years ended June 30, 2016 and 2015, one customer accounted for 41% and 27%, respectively, of gross sales. As of June 30, 2016 and 2015, that same customer accounted for 24% and 8%, respectively, of trade receivables. For the years ended June 30, 2016 and 2015, another customer and its affiliates accounted for 17% and 18%, respectively, of gross sales. As of June 30, 2016 and 2015, that same customer and its affiliates accounted for 36% and 47%, respectively, of trade receivables. No other customer accounted for more than 10% of the Company’s sales in fiscal years 2016 and 2015.
Environmental Protection and the Effect on Probable Government Regulations on the Business
To the best of management’s knowledge, the Company is presently in compliance with all environmental laws and regulations and does not anticipate any future expenditures in this regard.The Company is evaluating the requirements of the Food Safety Modernization Act (FSMA). The FSMA aims to ensure the U.S. food supply is safe by shifting the focus of federal regulators from responding to contamination to preventing it. The FSMA has given the Food and Drug Administration (FDA) new authorities to regulate the way foods are grown, harvested and processed. To the best of management’s knowledge, the Company has approximately two years to become compliant with all FSMA requirements and does not anticipate any future expenditures in the next twelve months in this regard.
Need for Government Approval of Principal Products or Services
The Company is required to meet the Food and Drug Administration guidelines for proper labeling of its products and for contents of its products.
Reports to Security Holders
The Registrant is not required to send the annual audit report, annual 10-K report and quarterly 10-Q reports to security holders since the stock is not actively traded. These reports are available at the Registrant’s registered office or they are available on-line on the SEC’s EDGAR website.
(4) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 1A | RISK FACTORS |
Not applicable to a smaller reporting company.
ITEM 1B | UNRESOLVED STAFF COMMENTS |
The Company has no unresolved SEC staff comments at June 30, 2016.
Item 2 | PROPERTIES |
We conduct our operations from two buildings as follows:
Chase Warehouse - This building is located in St. Joseph, Missouri and is owned by Dye Candy Company, a wholly-owned subsidiary of the registrant. The facility is currently devoted entirely to the storage of supplies, and the warehousing and shipping of candy products. This warehouse is over seventy years old, is in fair condition and adequate to meet present requirements. The warehouse has approximately 15,000 square feet and is not encumbered.
Chase General Office and Dye Candy Company Operating Plant - This building is located in St. Joseph, Missouri and contains the general offices (of approximately 2,000 square feet) for Chase General Corporation, Dye Candy Company and its divisions. The production plant of Dye Candy Company occupies the remainder of the building or 18,000 square feet. The building, specifically designed for the Company, is leased from an entity owned by the Vice-President and Director of the Company. The annual rental expense of this facility was $78,000 for each year ended June 30, 2016 and 2015.
The net book value of our premises, land and office, and production equipment totaled $353,647 and $360,763 at June 30, 2016 and 2015, respectively.
We believe both facilities are adequately covered by insurance.
Item 3 | LEGAL PROCEEDINGS |
None.
Item 4 | MINE SAFETY DISCLOSURES |
Not applicable.
(5) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
PART II
Item 5 | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market information
There is no established public trading market for the common stock (par value $1 per share) of the Company.
Security holders
As of September 22, 2016, the latest practicable date, the approximate number of record holders of common stock was 1,869, including individual participants in security listings.
Dividends
(1) | Dividend history and restrictions |
No dividends have been paid during the past two fiscal years and there are no dividend restrictions. Preferred stock dividends in arrears are accumulated.
(2) | Dividend policy |
There is no set policy on the payment of dividends due to the financial condition of the Company and other factors. It is not anticipated that cash dividends will be paid in the foreseeable future.
Securities authorized for issuance under equity compensation plans
The Company does not have any equity compensation plans.
Item 6 | SELECTED FINANCIAL DATA |
Not applicable to a smaller reporting company.
(6) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This report contains statements that plan for or anticipate the future. Forward-looking statements may include statements about the future of our products and the industry, statements about our future business plans and strategies, and other statements that are not historical in nature. In this report, forward-looking statements are generally identified by the words “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” and the like. Readers should carefully review these cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. These forward-looking statements are based on the information available to, and the expectations and assumptions deemed reasonable by, the Company at the time the statements are made. These expectations, assumptions and uncertainties include: the Company’s expectation of heavier demand on working capital in the fall and winter months in anticipation of August through December sales; our belief that the Company has stabilized its customer base; will continue its efforts to expand the existing market area and increase sales to customers; and maintain tight control of all expenditures.
Overview
During fiscal year ended 2016, the Company’s net sales were $3,304,604, as compared to net sales of $3,223,939 for fiscal year ended June 30, 2015. This 2.5% increase in volume combined with a 9.2% increase in cost of sales and a 2.9% increase in operating expenses resulted in decreased profitability during the year, as reflected in the income from operations of $38,936 for fiscal year 2016 compared to $190,390 for fiscal year 2015. Working capital increased $72,387 to $804,450 for the current year from $732,063 for the fiscal year 2015 due primarily to an increase in income taxes receivable, increase in inventories, decreases in accounts payable, and a decrease in income tax payable offset by decreases in cash, decreases in trade receivables, increases in accrued expenses, and increases in current maturities of notes payable.
The following information should be read together with the consolidated financial statements and notes thereto included elsewhere herein.
Critical Accounting Policies and Estimates
General
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
(7) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Critical Accounting Policies and Estimates (Continued)
General (Continued)
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Except for events in Note 12 to the consolidated financial statements, there have been no other events that have occurred subsequent to June 30, 2016, through the date of filing this form, that would require disclosure in the Form 10-K or would be required to be recognized in the consolidated financial statements as of or for the year ended June 30, 2016.
Revenue Recognition
The Company recognizes revenues as product is shipped to customers. Net sales are comprised of the total sales billed during the period less the estimated returns, customer allowances, and customer discounts.
Trade Receivables
Trade receivables are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Trade receivables are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of trade receivables are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the trade receivables. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or to require an excessive collection cost, are written off to the allowance for doubtful accounts.
Inventories
Inventories are carried at the “lower of cost or market value,” with cost being determined on the “first-in, first-out” basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.
(8) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Critical Accounting Policies and Estimates (Continued)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amounts of such assets to future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.
New Accounting Guidance
See Note 11,RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS,to the consolidated financial statements for a discussion of new accounting standards.
(9) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Results of Operations
The following table sets forth for the years indicated, the percentage of net sales of certain items in the Company’s consolidated statements of income for each of the fiscal years ended June 30, 2016 and 2015, respectively:
2016 | 2015 | |||||||
Net Sales | 100.00 | % | 100.00 | % | ||||
Cost of Sales | 74.97 | 70.34 | ||||||
Gross Profit on Sales | 25.03 | 29.66 | ||||||
Selling Expense | 13.22 | 13.15 | ||||||
General and Administrative Expense | 11.28 | 11.43 | ||||||
Gain on Sale of Equipment | (0.65 | ) | (0.82 | ) | ||||
Income from Operations | 1.18 | 5.90 | ||||||
Other Income (Expense), Net | (0.09 | ) | 0.35 | |||||
Income before Income Taxes | 1.09 | 6.25 | ||||||
Provision for Income Taxes | 0.07 | 1.89 | ||||||
Net Income | 1.02 | 4.36 | ||||||
Preferred Dividends | (3.88 | ) | (3.97 | ) | ||||
Income (Loss) Applicable to Common Stockholders | (2.86 | )% | 0.39 | % |
Fiscal Year 2016 Compared to Fiscal Year 2015
Net Sales
During the year ended June 30, 2016, sales, net of returns and allowances, increased $80,665 or 2.5% as compared to the year ended June 30, 2015. Gross sales for Chase Candy products decreased$103,411 or 5.2% to $1,869,444 for the year ended June 30, 2016 compared to $1,972,855 for 2015. Gross sales for Seasonal Candy products increased $202,981 or 15.8% to $1,489,324 for the year ended June 30, 2016 as compared to $1,286,343 for 2015. The Company’s returns and allowances increased $16,017 or 34.9% to $61,881 for the year ended June 30, 2016, compared to $45,864 for the year ended June 30, 2015. The Company’s other sales decreased $2,888 or 27.2% to $7,717 for the year ended June 30, 2016, compared to $10,605 for the year ended June 30, 2015.
Sales for Chase Candy consisted of the following divisions: L276 Cherry Mash Distributor Pack division, Cherry Mash Merchandisers division, L260 Changemaker Jar division, L279/L299 Bulk Mini Mash division, and L278/L212 Mini Mash division. The 5.2% decrease in gross sales of Chase Candy of $103,411 for the year ended June 30, 2016 over the same period ended June 30, 2015, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $104,000 versus the same period a year ago primarily due to three customers decreasing orders and 2) various other fluctuations netting to a increase of approximately $1,000.
(10) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Fiscal Year 2016 Compared to Fiscal Year 2015 (Continued)
Net Sales (Continued)
Sales for Seasonal Candy consisted of the following divisions: bulk seasonal division, clamshell seasonal division, and the generic seasonal division. The 15.8% increase in gross sales of Seasonal Candy of $202,981 for the year ended June 30, 2016 over the same period ended June 30, 2015, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $245,000 due to increased orders from two customers offset by decreased orders of another customer; 2) increased sales in the bulk seasonal division by approximately $30,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the clamshell seasonal division by approximately $72,000 versus the same period a year ago primarily due to decreased orders from four customers.
Cost of Sales
Cost of sales for the year ended June 30, 2016, as compared to the year ended June 30, 2015, increased by 9.2%. The cost of sales increased$209,696 to$2,477,479 while increasing to 75.0% of net sales for the year ended June 30, 2016, compared to $2,267,783 or 70.3% of net sales for the year ended June 30, 2015.
The 9.2% increase in cost of sales of $209,696 is primarily due to the net impact of a 2.5% increase in net sales of $80,665 and a 8.4% increase in the price of corn syrup offset by a 3.4% decrease in the price of sugar, a 2.8% decrease in the price of chocolate and a 11.0% decrease in the price of peanuts. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand. Primarily due to the fluctuations in these raw material prices, gross margins have decreased due to unchanged sales prices during the period. Management intends to make sales price adjustments in the future to correspond with changes in raw material prices.
Labor costs, including wages, vacation pay and payroll taxes of $560,812 for the year ended June 30, 2016, increased 11.1% or $55,839 as compared to $504,973 for the period ended 2015 primarily due to increased production wages due to increased hours, bonuses, and pay rates compared to the same period ended June 30, 2015.
Freight expense, including shipping and handling costs on goods shipped of $183,456 for the year ended June 30, 2016, decreased 2.3% or $4,322 as compared to $187,778 for the period ended 2015 due primarily to a decrease in fuel costs.
(11) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Fiscal Year 2016 Compared to Fiscal Year 2015 (Continued)
Gross Profit on Sales
The gross profit decreased 13.5% or $129,031 to $827,125 decreasing to 25.0% of related net sales for the year ended June 30, 2016, as compared to $956,156 or 29.7% of related net sales for the year ended June 30, 2015, as a result of the large increase in cost of sales described above and offset by the small increase in net sales.
Finished goods inventory as of June 30, 2016 of $433,043 increased $55,190 or 14.6% from the June 30, 2015 finished goods inventory of $377,853. Raw materials inventory as of June 30, 2016 of $76,561 decreased $13,951 or 15.4% from the June 30, 2015 raw materials inventory of $90,506. Packaging materials inventory as of June 30, 2016 of $135,732 increased $5,002 or 3.8% from June 30, 2015 packaging materials inventory of $130,726. Goods in process inventory as of June 30, 2016 of $6,540 decreased $7,275 or 52.7% from the June 30, 2015 goods in process inventory of $13,815. Inventory levels vary based primarily on sales and purchases.
Selling Expenses
Selling expenses for the year ended June 30, 2016 increased $13,067 to $436,869, which is 13.2% of net sales, compared to $423,802 or 13.2% of net sales for the year June 30, 2015. This increase is primarily due to higher commissions and depreciation expense offset by lower auto expense. Commissions increased $9,318 to $117,294 for the year ended June 30, 2016, as compared to $107,976 for the year ended June 30, 2015, primarily due to an increase in sales from the brokers. Depreciation expense increased $10,721 to $50,813 for the year ended June 30, 2016, as compared to $40,542 for the year ended June 30, 2015 primarily due to purchases of property and equipment of $130,026 during the year ended June 30, 2015 combined with the purchases of property and equipment of $87,352 during the year ended June 30, 2016. Auto expense decreased $6,884 to $11,961 for the year ended June 30, 2016, as compared to $18,845 for the year ended June 30, 2015, primarily because of new vehicles taking place of the old ones in the current year and lower gasoline prices.
General and Administrative Expenses
General and administrative expenses for the year ended June 30, 2016 increased $4,251 to $372,684, which is 11.3% of net sales, compared to $368,466 or 11.4% of net sales for the year ended June 30, 2015. The increase is primarily due to an increase in professional fees, a decrease in insurance expense, and other changes netting an increase in expenses of $5,807 over the same period for the year ended June 30, 2015. Professional fees increased $22,076 to $112,007 for the year ended June 30, 2016, as compared to $89,931 for the year ended June 30, 2015 primarily due to an increase in audit fees and low legal fees during the year ended June 30, 2015. Insurance expense decreased $23,632 to $98,632 for the year ended June 30, 2016, as compared to $122,264 for the year ended June 30, 2015 primarily due to less employees on the health coverage plan.
(12) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Fiscal Year 2016 Compared to Fiscal Year 2015 (Continued)
Income from Operations
Income from operations for the year ended June 30, 2016 was 1.2% of net sales, as compared to 5.9% of net sales for the year ended June 30, 2015 for the reasons previously described.
Other Income (Expense)
Other income (expense), net, reflects net loss of $2,867 for the year endedJune 30, 2016, as compared to net income of $11,368 for the year endedJune 30, 2015. This decrease of $14,235 in other income (expense) was primarily due to these unusual items that occurred during the year ended June 30, 2015: 1) freight claim of approximately $4,000, and 2) a refund of approximately $7,000 from a customer related to an underpayment written off in a previous period.
Income before Income Taxes
Income before income taxes was $36,069 for the year ended June 30, 2016, as compared to $201,758 for the year ended June 30, 2015. The reasons for the decrease of $165,689 have been previously discussed.
Provision for Income Taxes
The Company recorded income tax expense for the year ended June 30, 2016 of $2,473 ascompared to an income tax expense of $60,849 for the year endedJune 30, 2015. The income tax expense for the year endedJune 30, 2016is a result of operations previously discussed.
Net Income
Net income for the year ended June 30, 2016 was $33,596, compared to net income for the year ended June 30, 2015 of $140,909. This decrease of $107,313 is the result of those items previously discussed.
(13) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Fiscal Year 2016 Compared to Fiscal Year 2015 (Continued)
Liquidity and Sources of Capital
The table below presents the summary of cash flow for the fiscal year indicated.
2016 | 2015 | |||||||
Net Cash Provided (Used) by Operating Activities | $ | (26,149 | ) | $ | 55,681 | |||
Net Cash Used by Investing Activities | $ | (24,671 | ) | $ | (108,798 | ) | ||
Net Cash Used by Financing Activities | $ | (14,125 | ) | $ | (25,114 | ) |
Operating Activities
The negative cash flow of $26,149 generated from operations is a result of small fluctuations in net sales, increases in operating expenses and the Company continuing to monitor raw material pricing, and when a price increase or decrease is anticipated, adjustments to inventory levels are made accordingly. During the year ended June 30, 2016, sales, net of returns and allowances, increased $80,665 or 2.5% as compared to the year ended June 30, 2015. Total inventory as of June 30, 2016 of $651,876 increased $38,976 or 6.3% from the June 30, 2015 total inventory of $612,900. The timing of inventory purchases and collections from customer’s impact cash flow generated from operations.
Investing Activities
Machinery and equipment cash purchases of $24,671 and $108,798 were made during the years ended June 30, 2016 and 2015, respectively.
Financing Activities
The Company borrowed $300,000 and $265,000, respectively, on its line-of-credit during the fall of 2015 (fiscal 2016) and 2014 (fiscal 2015) busy seasons. Payments of $300,000 and $265,000, respectively, were paid for years ended June 30, 2016 and 2015. The Company entered into a $350,000 line-of-credit agreement expiring onJanuary 4, 2017, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.
Loan principal payments were $14,125 and $25,114 for years ended June 30, 2016 and 2015, respectively.
Overall cash and cash equivalents decreased $64,945 to $19,259 at June 30, 2016 from $84,204 at June 30, 2015.
(14) |
Chase General Corporation
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Fiscal Year 2016 Compared to Fiscal Year 2015 (Continued)
Liquidity and Sources of Capital (Continued)
Financing Activities (Continued)
At June 30, 2016, the Company’s accumulated deficit was $5,463,806, compared to an accumulated deficit of $5,497,402 as of June 30, 2015. Working capital as of June 30, 2016 increased $72,387 to $804,450 from $732,063 as of June 30, 2015.
The Company’s lease on its office and plant facility is effective through March 31, 2025, with an option to extend for an additional time of five years, and currently requires payments of $6,500 per month. At the end of each five year period, the base rent may be increased an amount not greater than 30%, at the sole discretion of lessor. The facility is leased from an entity owned 100% by the Vice-President and Director.
In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area and increase sales to its customers. Management also intends to continue tight control on all expenditures. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand. Primarily due to the fluctuations in these raw material prices, gross margins have decreased due to unchanged sales prices during the period. Management intends to make sales price adjustments in the future to correspond with changes in raw material prices.
Item 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to a smaller reporting company.
Item 8 | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The Consolidated Financial Statements meeting the requirements of Regulation S-B are contained on pages 18 through 33 of this Form 10-K.
(15) |
Chase General Corporation AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
TABLE OF CONTENTS
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
Report of Independent Registered Public Accounting Firm | 17 |
Consolidated Financial Statements | 18 |
Consolidated Balance Sheets | 18 |
Consolidated Statements of Income | 20 |
Consolidated Statements of Stockholders’ Equity | 21 |
Consolidated Statements of Cash Flows | 22 |
Notes to Consolidated Financial Statements | 23 |
(16) |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
CHASE GENERAL CORPORATION AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of Chase General Corporation and Subsidiary (the Company) as of June 30, 2016 and 2015, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chase General Corporation and Subsidiary as of June 30, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Mayer Hoffman McCann P.C.
MAYER HOFFMAN MCCANN P.C.
Kansas City, Missouri
September 23, 2016
(17) |
Chase General Corporation AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2016 and 2015
2016 | 2015 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and Cash Equivalents | $ | 19,259 | $ | 84,204 | ||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $16,549 and $16,296, Respectively | 179,622 | 187,607 | ||||||
Inventories: | ||||||||
Finished Goods | 433,043 | 377,853 | ||||||
Goods in Process | 6,540 | 13,815 | ||||||
Raw Materials | 76,561 | 90,506 | ||||||
Packaging Materials | 135,732 | 130,726 | ||||||
Prepaid Expenses | 5,689 | 5,689 | ||||||
Income Taxes Receivable | 29,111 | - | ||||||
Deferred Income Taxes | 7,533 | 7,288 | ||||||
Total Current Assets | 893,090 | 897,688 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 35,000 | 35,000 | ||||||
Buildings | 77,348 | 77,348 | ||||||
Machinery and Equipment | 820,885 | 807,325 | ||||||
Trucks and Autos | 213,116 | 198,845 | ||||||
Office Equipment | 31,518 | 31,518 | ||||||
Leasehold Improvements | 72,068 | 72,068 | ||||||
Total | 1,249,935 | 1,222,104 | ||||||
Less Accumulated Depreciation | 896,288 | 861,341 | ||||||
Total Property and Equipment, Net | 353,647 | 360,763 | ||||||
Total Assets | $ | 1,246,737 | $ | 1,258,451 |
The accompanying notes are an integral part of the consolidated financial statements.
(18) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, 2016 and 2015
2016 | 2015 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts Payable | $ | 46,718 | $ | 111,944 | ||||
Current Maturities of Notes Payable | 15,460 | 8,297 | ||||||
Accrued Expenses | 25,163 | 17,966 | ||||||
Income Taxes Payable | - | 26,119 | ||||||
Deferred Income | 1,299 | 1,299 | ||||||
Total Current Liabilities | 88,640 | 165,625 | ||||||
LONG-TERM LIABILITIES | ||||||||
Notes Payable, Less Current Maturities | 55,397 | 14,004 | ||||||
Deferred Income Taxes | 90,446 | 98,866 | ||||||
Deferred Income | 10,064 | 11,362 | ||||||
Total Long-Term Liabilities | 155,907 | 124,232 | ||||||
Total Liabilities | 244,547 | 289,857 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Capital Stock Issued and Outstanding: | ||||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
Series A (Liquidation Preference $2,250,000 and $2,220,000, Respectively) | 500,000 | 500,000 | ||||||
Series B (Liquidation Preference $2,205,000 and $2,175,000, Respectively) | 500,000 | 500,000 | ||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
Series A (Liquidation Preference $5,077,730 and $5,019,197, Respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (Liquidation Preference $827,516 and $817,977, Respectively) | 190,780 | 190,780 | ||||||
Common Stock, $1 Par Value | 969,834 | 969,834 | ||||||
Paid-In Capital in Excess of Par | 3,134,722 | 3,134,722 | ||||||
Accumulated Deficit | (5,463,806 | ) | (5,497,402 | ) | ||||
Total Stockholders' Equity | 1,002,190 | 968,594 | ||||||
Total Liabilities and Stockholders' Equity | $ | 1,246,737 | $ | 1,258,451 |
The accompanying notes are an integral part of the consolidated financial statements.
(19) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 2016 and 2015
2016 | 2015 | |||||||
NET SALES | $ | 3,304,604 | $ | 3,223,939 | ||||
COST OF SALES | 2,477,479 | 2,267,783 | ||||||
Gross Profit on Sales | 827,125 | 956,156 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 436,869 | 423,802 | ||||||
General and Administrative | 372,684 | 368,466 | ||||||
Gain on Sale of Equipment | (21,364 | ) | (26,502 | ) | ||||
Total Operating Expenses | 788,189 | 765,766 | ||||||
Income from Operations | 38,936 | 190,390 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income | 1,891 | 13,592 | ||||||
Interest Expense | (4,758 | ) | (2,224 | ) | ||||
Total Other Income (Expense), Net | (2,867 | ) | 11,368 | |||||
Net Income before Income Taxes | 36,069 | 201,758 | ||||||
PROVISION FOR INCOME TAXES | 2,473 | 60,849 | ||||||
NET INCOME | $ | 33,596 | $ | 140,909 | ||||
NET INCOME (LOSS) PER SHARE OF COMMON STOCK | ||||||||
- BASIC | $ | (0.10 | ) | $ | 0.01 | |||
- DILUTED | $ | (0.10 | ) | $ | 0.01 |
The accompanying notes are an integral part of the consolidated financial statements.
(20) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended June 30, 2016 and 2015
Prior Cumulative | Cumulative | |||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common | Paid-In | Accumulated | ||||||||||||||||||||||||||||
Series A | Series B | Series A | Series B | Stock | Capital | Deficit | Total | |||||||||||||||||||||||||
BALANCE, JUNE 30, 2014 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,638,311 | ) | $ | 827,685 | |||||||||||||||
Net income | - | - | - | - | - | - | 140,909 | 140,909 | ||||||||||||||||||||||||
BALANCE, JUNE 30, 2015 | 500,000 | 500,000 | 1,170,660 | 190,780 | 969,834 | 3,134,722 | (5,497,402 | ) | 968,594 | |||||||||||||||||||||||
Net income | - | - | - | - | - | - | 33,596 | 33,596 | ||||||||||||||||||||||||
BALANCE, JUNE 30, 2016 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,463,806 | ) | $ | 1,002,190 |
The accompanying notes are an integral part of the consolidated financial statements.
(21) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2016 and 2015
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Collections from Customers | $ | 3,312,589 | $ | 3,215,018 | ||||
Deferred Income | 1,298 | 1,299 | ||||||
Cost of Sales, Selling, General and Administrative Expenses Paid | (3,269,005 | ) | (3,121,928 | ) | ||||
Interest Paid | (4,623 | ) | (2,224 | ) | ||||
Income Taxes Paid | (66,408 | ) | (36,484 | ) | ||||
Net Cash Provided (Used) by Operating Activities | (26,149 | ) | 55,681 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of Property and Equipment | (24,671 | ) | (108,798 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 300,000 | 265,000 | ||||||
Principal Payments on Line-of-Credit | (300,000 | ) | (265,000 | ) | ||||
Principal Payments on Notes Payable | (14,125 | ) | (25,114 | ) | ||||
Net Cash Used by Financing Activities | (14,125 | ) | (25,114 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (64,945 | ) | (78,231 | ) | ||||
Cash and Cash Equivalents, Beginning of Year | 84,204 | 162,435 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 19,259 | $ | 84,204 | ||||
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED | ||||||||
(USED) BY OPERATING ACTIVITIES | ||||||||
Net Income | $ | 33,596 | $ | 140,909 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 115,832 | 98,810 | ||||||
Allowance for Bad Debts | 253 | (412 | ) | |||||
Deferred Income Amortization | (1,298 | ) | (1,299 | ) | ||||
Deferred Income Taxes | (8,665 | ) | 19,449 | |||||
Gain on Sale of Equipment | (21,364 | ) | (26,502 | ) | ||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | 7,732 | (8,509 | ) | |||||
Inventories | (38,976 | ) | (117,090 | ) | ||||
Prepaid Expenses | - | 6,544 | ||||||
Income Taxes Receivable | (29,111 | ) | - | |||||
Accounts Payable | (65,226 | ) | 59,997 | |||||
Accrued Expenses | 7,197 | (121,132 | ) | |||||
Income Taxes Payable | (26,119 | ) | 4,916 | |||||
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | $ | (26,149 | ) | $ | 55,681 |
The accompanying notes are an integral part of the consolidated financial statements.
(22) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business
Chase General Corporation (the Company) was incorporated on November 6, 1944 in the state of Missouri for the purpose of manufacturing confectionery products. The Company grants credit terms to substantially all customers, consisting of repackers, grocery accounts, and national syndicate accounts, who are primarily located in the Midwest region of the United States.
Significant accounting policies are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Dye Candy Company. All intercompany transactions and balances have been eliminated in consolidation.
Segment Reporting of the Business
The subsidiary, Dye Candy 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. The products of both divisions are sold to the same type of customers in the same geographical areas. In addition, 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 in these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition
The Company recognizes revenues as product is shipped to customers. Net sales are comprised of the total sales billed during the period, including shipping and handling charges to customers, less the estimated returns, customer allowances and customer discounts.
(23) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Shipping and Handling Costs
Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for the years ended June 30, 2016 and 2015 was $183,456 and $187,778, respectively.
Trade Receivables
Trade receivables are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Trade receivables are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of trade receivables are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the trade receivables. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or that require an excessive collection cost, are written off to the allowance for doubtful accounts.
Inventories
Inventories are carried at the "lower of cost or market value" with cost being determined on the "first-in, first-out" basis of accounting. The cost of finished goods and goods in process inventories include an estimate for manufacturing overhead.
Property and Equipment
The Company’s property and equipment is recorded at cost and is being depreciated on straight-line and accelerated methods over the following estimated useful lives:
Buildings | 39 years |
Machinery and equipment | 5 – 7 years |
Trucks and autos | 5 years |
Office equipment | 5 – 7 years |
Leasehold improvements | Lesser of estimated |
useful life or the | |
lease term |
(24) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.
Income Taxes
Deferred income taxes are provided using the liability method for temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred income tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred income tax assets are only recognized if it is more likely than not that a tax position will be realized or sustained upon examination by the relevant taxing authority. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred income tax assets will not be realized. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of relevant information. Deferred income tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the dates of enactment.
The Company’s policy is to evaluate uncertain tax positions under the guidance as prescribed by Accounting Standards Codification (ASC) 740,Income Taxes. As of June 30, 2016 and 2015, the Company has not identified any uncertain tax positions requiring recognition in the consolidated financial statements. The Company had no accruals for interest or penalties as of June 30, 2016 and 2015.
Earnings Per Common Share
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share shall be computed by including contingently issuable shares with the weighted average shares outstanding during the period. When inclusion of the contingently issuable shares would have an antidilutive effect upon earnings per share, diluted earnings per share will be calculated in the same manner as basic earnings per share.
(25) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Earnings Per Common Share (Continued)
The following table details out the contingently issuable shares as for 2016 and 2015. For 2016, the contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
2016 | 2015 | |||||||
Shares Issuable Upon Conversion of Series A | ||||||||
Prior Cumulative Preferred Stock | 400,000 | 400,000 | ||||||
Shares Issuable Upon Conversion of Series B | ||||||||
Prior Cumulative Preferred Stock | 375,000 | 375,000 | ||||||
Shares Issuable Upon Conversion of Series A | ||||||||
Cumulative Preferred Stock | 222,133 | 222,133 | ||||||
Shares Issuable Upon Conversion of Series B | ||||||||
Cumulative Preferred Stock | 36,201 | 36,201 | ||||||
Total Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 |
Advertising Expense
Advertising is expensed when incurred. Advertising expense was $13,941 and $13,791 for the years ended June 30, 2016 and 2015, respectively.
NOTE 2 | FORGIVABLE LOAN AND DEFERRED INCOME |
During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of January 3, 2010. The Company met the criteria of occupying a 20,000 square foot building and creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs during the five year term. Notice was received February 6, 2009 from the Buchanan County Commission, that the Company had fulfilled its minimum loan requirements so that the loan was forgiven in full and has no further obligations. Since the Company was no longer legally required to return the monies, the liability was reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. Deferred revenue is recognized on a straight line basis over the lease term of 20 years. During the years ended June 30, 2016 and 2015, deferred revenue of $1,298 and $1,299, respectively, was amortized into income.
(26) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YearsEnded June 30, 2016 and 2015
NOTE 3 | NOTES PAYABLE |
The Company’s long-term debt at June 30, 2016 and 2015 consists of:
Payee | Terms | 2016 | 2015 | |||||||
Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2017, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration. | $ | - | $ | - | |||||
Ford Credit | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. | 38,674 | - | |||||||
Toyota Credit | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 18,179 | - | |||||||
Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 14,004 | 19,151 | |||||||
Ford Credit | $517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle. | - | 3,150 | |||||||
Total | 70,857 | 22,301 | ||||||||
Less current portion | 15,460 | 8,297 | ||||||||
Long-term portion | $ | 55,397 | $ | 14,004 | ||||||
Future minimum payments for the years ended June 30 are: | ||||||||||
2017 | $ | 15,460 | ||||||||
2018 | 16,133 | |||||||||
2019 | 14,477 | |||||||||
2020 | 11,798 | |||||||||
2021 | 10,203 | |||||||||
Thereafter | 2,786 | |||||||||
Total | $ | 70,857 |
(27) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 4 | CAPITAL STOCK |
Capital stock authorized, issued, and outstanding as of June 30, 2016 is as follows:
Shares | ||||||||
Issued and | ||||||||
Authorized | Outstanding | |||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
6% Convertible | 240,000 | |||||||
Series A | 100,000 | |||||||
Series B | 100,000 | |||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||
5% Convertible | 150,000 | |||||||
Series A | 58,533 | |||||||
Series B | 9,539 | |||||||
Common Stock, $1 Par Value: | ||||||||
Reserved for Conversion of | ||||||||
Preferred Stock - 1,030,166 shares | 2,000,000 | 969,834 |
Cumulative Preferred Stock dividends in arrears at June 30, 2016 and 2015 totaled $7,948,806 and $7,820,734, respectively. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2016 and 2015:
2016 | 2015 | |||||||
6% Convertible | ||||||||
Series A | $ | 17.25 | $ | 16.95 | ||||
Series B | $ | 16.80 | $ | 16.50 | ||||
5% Convertible | ||||||||
Series A | $ | 66.75 | $ | 65.75 | ||||
Series B | $ | 66.75 | $ | 65.75 |
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. Cumulative preferred stock 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.
(28) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 5 | INCOME TAXes |
The income tax positions taken for open years are appropriately stated and supported for all open years. The Company’s federal tax returns for the fiscal years ended 2013, 2014, and 2015 are subject to examination by the IRS taxing authority.
The sources of deferred income tax assets and liability at June 30, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
Deferred Income Tax Assets: | ||||||||
Inventories | $ | 1,223 | $ | 1,075 | ||||
Trade Receivables | 6,310 | 6,213 | ||||||
Deferred Income | 4,332 | 4,828 | ||||||
Total Deferred Income Tax Assets | 11,865 | 12,116 | ||||||
Deferred Income Tax Liability: | ||||||||
Property and Equipment | (94,778 | ) | (103,694 | ) | ||||
NET DEFERRED INCOME TAX LIABILITY | $ | (82,913 | ) | $ | (91,578 | ) |
The net deferred income tax asset (liability) is presented in the accompanying June 30, 2016 and 2015 consolidated balance sheets as follows:
2016 | 2015 | |||||||
Current Deferred Income Tax Asset | $ | 7,533 | $ | 7,288 | ||||
Noncurrent Deferred Income Tax Liability | (90,446 | ) | (98,866 | ) | ||||
NET DEFERRED INCOME TAX LIABILITY | $ | (82,913 | ) | $ | (91,578 | ) |
The provision (credit) for income taxes for the years ended June 30, 2016 and 2015 consists of the following:
2016 | 2015 | |||||||
Current Income Tax Expense | $ | 11,138 | $ | 41,400 | ||||
Deferred Income Tax Expense (Credit) | (8,665 | ) | 19,449 | |||||
$ | 2,473 | $ | 60,849 |
(29) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 5 | INCOME TAXes (CONTINUED) |
The income tax provision differs from the amount of income tax determined by applying the statutory federal income tax rate to pretax income for the years ended June 30, 2016 and 2015 due to the following:
2016 | 2015 | |||||||
Computed at Federal Statutory Rate of 34% | $ | 12,309 | $ | 68,623 | ||||
Increase (Decrease) in Income Taxes Resulting from: | ||||||||
Federal Tax Adjustment Due to Actual Rate vs. Statutory Rate | (9,730 | ) | (10,129 | ) | ||||
Non-Deductible Expenses | 630 | 640 | ||||||
Domestic Production Activities Deduction Credit | (1,767 | ) | (4,453 | ) | ||||
Other | (27 | ) | 132 | |||||
State Income Taxes | 1,058 | 6,036 | ||||||
$ | 2,473 | $ | 60,849 |
NOTE 6 | INCOME (LOSS) PER SHARE |
The income (loss) per share for the years ended June 30, 2016 and 2015, respectively, was computed on the weighted average of outstanding common shares during the year as follows:
2016 | 2015 | |||||||
Net Income | $ | 33,596 | $ | 140,909 | ||||
Preferred Dividend Requirements: | ||||||||
6% Prior Cumulative Preferred, $5 Par Value | 60,000 | 60,000 | ||||||
5% Convertible Cumulative Preferred, $20 Par Value | 68,072 | 68,072 | ||||||
Total Dividend Requirements | 128,072 | 128,072 | ||||||
Net Income (Loss) - Common Stockholders | $ | (94,476 | ) | $ | 12,837 | |||
2016 | 2015 | |||||||
Weighted Average of Shares - Basic | 969,834 | 969,834 | ||||||
Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | ||||||
Weighted Average Shares – Diluted | 2,003,168 | 2,003,168 | ||||||
Basic Earnings (Loss) per Share | $ | (0.10 | ) | $ | 0.01 | |||
Diluted Earnings (Loss) per Share | $ | (0.10 | ) | $ | 0.01 |
Contingently issuable shares were not included in the 2016 diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
(30) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 7 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
2016 | 2015 | |||||||
Cash Paid for: | ||||||||
Interest | $ | 4,623 | $ | 2,224 | ||||
Income Taxes | 66,408 | 36,484 | ||||||
Non-Cash Transactions: | ||||||||
Financing of New Vehicles | 62,681 | 21,228 |
NOTE 8 | COMMITMENTS AND CONTINGENCIES |
Dye Candy Company leases its office and manufacturing facility, located at 1307 South 59th, St. Joseph, Missouri, from an entity owned by the Vice-President and Director 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, and currently requires payments of $6,500 per month. At the end of the first five years, the base rent may be increased an amount not greater than 30%, at the sole discretion of lessor and for each additional term of five years. Rental expense was $78,000 for each year ended June 30, 2016 and 2015. The amounts are included in cost of sales.
Future minimum lease payments under this lease are as follows:
Year ending June 30: | ||||
2017 | $ | 78,000 | ||
2018 | 78,000 | |||
2019 | 78,000 | |||
2020 | 78,000 | |||
2021 | 78,000 | |||
Thereafter | 292,500 | |||
$ | 682,500 |
As of June 30, 2016, the Company had raw materials purchase commitments with six vendors totaling approximately $256,000.
NOTE 9 | 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 June 30, 2016, 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.
(31) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 10 | CONCENTRATION OF CREDIT RISK |
For the years ended June 30, 2016 and 2015, two customers accounted for 58% and 45%, respectively, of the gross sales. As of June 30, 2016 and 2015, two customers accounted for 60% and 55%, respectively, of trade receivables.
NOTE 11 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The guidance will initially be applied retrospectively using one of two methods. The standard will be effective for the entity for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted beginning for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of the amended revenue recognition guidance on its consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," ("ASU 2015-11"). An entity using an inventory method other than last-in, first out ("LIFO") or the retail inventory method should measure inventory at the lower of cost and net realizable value. The new guidance clarifies that net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The update is effective as of January 1, 2017, with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.
In February 2016, the FASB issued amended guidance for the treatment of leases. The guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability for all operating and finance leases with lease terms greater than one year. The guidance also requires both qualitative and quantitative disclosures regarding the nature of the entity’s leasing activities. The guidance will initially be applied using a modified retrospective approach. The amendments in the guidance are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of the amended lease guidance on the its consolidated financial statements.
(32) |
Chase General Corporation AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2016 and 2015
NOTE 11 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) |
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)". ASU 2014-15 provides guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.
In November 2015, the FASB issued ASC Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes” as part of its simplification initiatives. This update requires deferred tax liabilities and assets to be classified as non-current on the consolidated condensed balance sheet for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. An entity can elect to adopt prospectively or retrospectively to all periods presented. We do not expect the adoption of ASU 2015-17 to have a material effect on our financial position, results of operations or cash flows.
In February 2015, the FASB issued ASU 2015-02 that amends current consolidation guidance related to the evaluation of whether certain legal entities should be consolidated. The standard modifies both the variable interest entity (“VIE”) model and the voting interest model, including analyses of whether limited partnerships are VIEs and the impact of service fees and related party interests in determining if an entity is a VIE to the reporting entity. The guidance is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results 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.
NOTE 12 | SUBSEQUENT EVENTS |
On July 5, 2016, the Company purchased a mixer for approximately $9,400.
The Company monitors significant events occurring after June 30, 2016 and prior to the issuance of the financial statements to determine the impact, if any, of the events on the financial statements to be issued. All subsequent events of which the Company is aware were evaluated through the filing date of this Form 10-K.
(33) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable
Item 9A | CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures |
The Company’s principal executive officer, who is also the chief financial and accounting officer, has evaluated the effectiveness of the Company’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, such officer has concluded that the Company’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) | Management’s Report on Internal Control over Financial Reporting |
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Management has assessed the Company’s internal control over financial reporting in relation to criteria described inInternal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment using those criteria, management concluded that, as of June 30, 2016, the Company’s internal control over financial reporting was effective.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
(c) | Changes in Internal Controls |
There were no significant changes in the Company’s internal controls over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect the Company’s internal controls over financial reporting subsequent to the date of the evaluation.
ITEM 9B | OTHER INFORMATION |
None
(34) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
PART III
Item 10 | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
(a) | Directors |
Name | Age | Periods of Service as Director | Terms | |||
Barry M. Yantis | 71 | 1980 to Present | One Year | |||
Brett A. Yantis | 48 | January 21, 1999 to Present | One Year | |||
Brian A. Yantis | 68 | July 16, 1986 to Present | One Year |
Years of | ||||||
Service as | ||||||
Name | Age | an Officer | Term | |||
Barry M. Yantis | 71 | 37 | Until Successor Elected | |||
Brett A. Yantis | 48 | 14 | Until Successor Elected | |||
Brian A. Yantis | 68 | 24 | Until Successor Elected | |||
(b) | Certain Significant Employees |
There are no significant employees other than above.
(c) | Family Relationships |
Barry M. Yantis and Brian A. Yantis are brothers. Brett A. Yantis is the son of Barry M. Yantis.
Business Experience
(1) | Barry M. Yantis, President and Treasurer has been an officer of the Company for thirty-seven years, twelve years as Vice-President and twenty-five years as President. He has been on the board of directors for thirty-seven years and has been associated with the candy business for forty-one years. |
Brett A. Yantis was elected to the position of Director during the year ending June 30, 1999. Brett was elected Vice-President in January 2003. Brett has been associated with the Company for twenty-two years.
Brian A. Yantis, Secretary has been an officer of the Company since May 1992. Until retiring in 2011, he had been associated with the insurance business for thirty-seven years and was a Vice-President of Aon Risk Services in Chicago, Illinois for twenty-two years.
(35) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 10 | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE (CONTINUED) |
(2) | The directors and executive officers listed above are also the directors and executive officers of Dye Candy Company. |
(d) | Involvement in Certain Legal Proceedings |
Not applicable
(e) | Audit Committee Financial Expert |
Registrant is not required to have an audit committee since the stock is not actively traded. The Board of Directors are not considered audit committee financial experts, but do effectively operate as the audit committee.
(f) | Code of Ethics |
The Company has adopted a Code of Business Conduct and Ethics that applies to all executive officers, directors and employees of the Company. The Code of Business Conduct and Ethics will be provided to any person without charge upon request.
Item 11 | EXECUTIVE COMPENSATION |
(a) | General |
Executive officers are compensated for their services as set forth in the Summary Compensation Table. These salaries are approved yearly by the Board of Directors.
(b) | Summary Compensation Table |
Long-Term Compensation | ||||||||||||||||||||||||||||||
Annual Compensation | Awards | Payouts | ||||||||||||||||||||||||||||
Name and | Other | Restricted | ||||||||||||||||||||||||||||
Principal | Fiscal | Annual | Stock | Option | LTIP | All Other | ||||||||||||||||||||||||
Position | Year End | Salary | Bonus | Compensation | Award (s) | SARs (#) | Payouts | Compensation | ||||||||||||||||||||||
Barry M. Yantis | 1) 06-30-16 | $ | 138,600 | $ | - | $ | 2,980 | - | - | - | - | |||||||||||||||||||
Barry M. Yantis | 1) 06-30-15 | $ | 133,650 | $ | 19,000 | $ | 2,040 | - | - | - | - | |||||||||||||||||||
Barry M. Yantis | 1) 06-30-14 | $ | 132,000 | $ | 4,000 | $ | 2,240 | - | - | - | - |
1) | CEO, President and Treasurer |
2) | No other compensation than that which is listed in compensation table. |
3) | No other officers have compensation over $100,000 for their services besides those listed in this compensation table. |
(c) | Option/SAR grants table |
Not applicable
(d) | Aggregated option/SAR exercises and fiscal year-end option/SAR value table |
Not applicable
(36) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 11 | EXECUTIVE COMPENSATION (CONTINUED) |
(e) | Long-term incentive plan awards table |
Not applicable
(f) | Compensation of Directors |
Directors are not compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings.
(g) | Employment contracts and termination of employment and change in control arrangements |
No employment contracts exist with any executive officers. In addition, there are no contracts currently in place regarding termination of employment or change in control arrangements.
(h) | Report on repricing of option/SARs |
Not applicable
(i) | Additional information with respect to compensation committee interlocks and insider participation in compensation decisions |
The registrant has no formal compensation committee. The Board of Directors, Brian A. Yantis, Barry M. Yantis, and Brett A. Yantis (all current officers of the Company) annually approve the compensation of Barry M. Yantis, CEO, President and Treasurer.
(j) | Board compensation committee report on executive compensation |
The Board bases the annual salary of the CEO on the Company's prior year performance. The criteria is based upon, but is not limited to, market area expansion, gross profit improvement, control of operating expenses, generation of positive cash flow, and hours devoted to the business during the previous fiscal year.
(37) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND STOCKHOLDER MATTERS |
Title of Class | Name and Address | Amounts and Nature of Beneficial Ownership | % of Class | ||||||
(a) | Security Ownership of Certain Beneficial Owners Common; Par Value $1 per Share | Barry Yantis, CEO & Director 5605 Osage Drive St. Joseph, MO 64503 | 194,385 | (1) | 16.90% | (2) | |||
Brian Yantis, Officer & Director 1210 E. Clarendon Arlington Heights, IL 60004 | 97,192 | (1) | 8.40% | (2) | |||||
(b) | Security Ownership of Management Common; Par Value $1 per Share | Two Directors and CEO as a Group | 110,856 | 11.40% | |||||
Prior Cumulative Preferred, $5 Par Value: Series A, 6% Convertible | Two Directors and CEO as a Group | 21,533 | 21.50% | ||||||
Prior Cumulative Preferred, $5 Par Value: Series B, 6% Convertible | Two Directors and CEO as a Group | 21,533 | 21.50% | ||||||
Cumulative Preferred, $20 Par Value: Series A, $5 Convertible | Two Directors and CEO as a Group | 3,017 | 5.20% | ||||||
Cumulative Preferred, $20 Par Value: Series B, $5 Convertible | Two Directors and CEO as a Group | 630 | 6.60% | ||||||
(1) | Includes 120,477 and 60,244 shares, respectively, which could be received within 30 days upon conversion of preferred stock. | ||||||||
(2) | Reflects the percentage assuming the preferred shares above were converted into common stock. | ||||||||
(c) | No Known Change of Control is Anticipated |
(38) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
Item 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
(a) | Transactions with management and others |
The registrant’s subsidiary, Dye Candy Company entered into an operating lease agreement during the 2005 fiscal year to provide office and manufacturing facilities with a limited liability company that is owned 100% by Vice-President and Director, Brett A. Yantis. The annual rent is $78,000.
(b) | Certain business relationships |
Not applicable
(c) | Indebtedness of management |
Not applicable
(d) | Transactions with promoters |
Not applicable
Item 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The following table shows the aggregate fees billed to the Company for professional services for the years ended June 30, 2016 and 2015:
2016 | 2015 | |||||||
Audit Fees: | ||||||||
Mayer Hoffman McCann P.C. (MHM) | $ | 67,807 | $ | 57,824 | ||||
Audit Related Fees | - | - | ||||||
Tax Fees | - | - | ||||||
All Other Fees | - | - |
MHM leases substantially all its personnel, who work under the control of MHM shareholders, from wholly-owned subsidiaries of CBIZ, Inc., in an alternative practice structure.
(39) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
PART IV
ITEM 15 | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this report.
1. | Consolidated Financial Statements: | Page | |
Index to Consolidated Financial Statements | 16 | ||
Consolidated Balance Sheets | 18 - 19 | ||
Consolidated Statements of Income | 20 | ||
Consolidated Statements of Stockholders’ Equity | 21 | ||
Consolidated Statements of Cash Flows | 22 | ||
Notes to Consolidated Financial Statements | 23 - 32 | ||
2. | Consolidated Financial Statement Schedules: | ||
None | |||
3. | Exhibits: |
The exhibits listed below are filed with or incorporated by reference in this report.
The following have been previously filed and are incorporated by reference to prior years' Forms 10-K filed by the Registrant:
3.1 Articles of Incorporation of Chase General Corporation
3.2 Bylaws
The following are Exhibits attached or explanations included in "Notes to Consolidated Financial Statements" in Part II of this report:
4. Instruments defining the rights of security holders including indentures - Refer to Note 4.
11. Computation of income (loss) per share - Refer to Note 6.
21. Subsidiaries of registrant - Refer to Note 1 of Notes to Consolidated Financial Statements.
31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chairman of the Board, Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(40) |
CHASE GENERAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2016
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 | ||
(Registrant) | ||
Date: September 23, 2016 | By: | /s/ Barry M. Yantis |
Barry M. Yantis | ||
Chairman of the Board, Chief Executive Officer, | ||
President and Treasurer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signatures | Title | Date | ||
/s/ Barry M. Yantis | September 23, 2016 | |||
Barry M. Yantis | Chairman of the Board, Chief Executive Officer and Chief Financial Officer, President, Treasurer and Director | |||
/s/ Brett Yantis | September 23, 2016 | |||
Brett Yantis | Vice-President and Director | |||
/s/ Brian A. Yantis | September 23, 2016 | |||
Brian A. Yantis | Secretary and Director |
(41) |