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 September 30, 2016March 31, 2017
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 2-5916
Chase General Corporation | ||
(Exact name of small business issuer as specified in its charter) |
MISSOURI | 36-2667734 | |||||
(State or other jurisdiction of | (IRS Employer Identification No.) | |||||
incorporation or organization) |
1307 South 59th, St. Joseph, Missouri 64507
(Address of principal executive offices, Zip Code)
(816) 279-1625
(Issuer’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNo¨
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). YesxNo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednonaccelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨ | Accelerated filer¨ | |
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 ☐ No ☒
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 November 9, 2016,May 11, 2017, there were 969,834 shares of common stock, $1.00 par value, outstanding.
Chase General Corporation and Subsidiary
quarterly report on form 10-qQUARTERLY REPORT ON FORM 10-Q
table of contentsTABLE OF CONTENTS
for the three months ended September 30, 2016FOR THE NINE MONTHS ENDED MARCH 31, 2017
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Chase General Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | June 30, | March 31, | June 30, | |||||||||||||
2016 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and Cash Equivalents | $ | 5,917 | $ | 19,259 | $ | 123,483 | $ | 19,259 | ||||||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $16,849 and $16,549, Respectively | 640,154 | 179,622 | ||||||||||||||
Trade Receivables, Net of Allowance for Doubtful Accounts of $17,449 and $16,549, Respectively | 304,353 | 179,622 | ||||||||||||||
Inventories: | ||||||||||||||||
Finished Goods | 472,167 | 433,043 | 51,854 | 433,043 | ||||||||||||
Goods in Process | 10,577 | 6,540 | 8,629 | 6,540 | ||||||||||||
Raw Materials | 95,095 | 76,561 | 62,714 | 76,561 | ||||||||||||
Packaging Materials | 121,025 | 135,732 | 158,223 | 135,732 | ||||||||||||
Prepaid Expenses | 30,015 | 5,689 | 25,772 | 5,689 | ||||||||||||
Income Tax Receivable | 29,143 | 29,111 | ||||||||||||||
Prepaid Income Taxes | 8,463 | 29,111 | ||||||||||||||
Deferred Income Taxes | 7,605 | 7,533 | 7,320 | 7,533 | ||||||||||||
Total Current Assets | 1,411,698 | 893,090 | 750,811 | 893,090 | ||||||||||||
PROPERTY AND EQUIPMENT | ||||||||||||||||
Land | 35,000 | 35,000 | 35,000 | 35,000 | ||||||||||||
Buildings | 77,348 | 77,348 | 77,348 | 77,348 | ||||||||||||
Machinery and Equipment | 838,131 | 820,885 | 838,131 | 820,885 | ||||||||||||
Trucks and Autos | 213,116 | 213,116 | 213,116 | 213,116 | ||||||||||||
Office Equipment | 31,518 | 31,518 | 31,518 | 31,518 | ||||||||||||
Leasehold Improvements | 72,068 | 72,068 | 72,068 | 72,068 | ||||||||||||
Total | 1,267,181 | 1,249,935 | 1,267,181 | 1,249,935 | ||||||||||||
Less Accumulated Depreciation | 922,780 | 896,288 | 975,623 | 896,288 | ||||||||||||
Total Property and Equipment, Net | 344,401 | 353,647 | 291,558 | 353,647 | ||||||||||||
Total Assets | $ | 1,756,099 | $ | 1,246,737 | $ | 1,042,369 | $ | 1,246,737 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(1) |
Chase General Corporation and Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30, | June 30, | March 31, | June 30, | |||||||||||||
2016 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Bank Overdraft | $ | 17,153 | $ | - | ||||||||||||
Accounts Payable | 287,754 | 46,718 | $ | 68,623 | $ | 46,718 | ||||||||||
Current Maturities of Notes Payable | 290,626 | 15,460 | 15,962 | 15,460 | ||||||||||||
Accrued Expenses | 50,512 | 25,163 | 41,834 | 25,163 | ||||||||||||
Deferred Income | 1,299 | 1,299 | 1,299 | 1,299 | ||||||||||||
Total Current Liabilities | 647,344 | 88,640 | 127,718 | 88,640 | ||||||||||||
LONG-TERM LIABILITIES | ||||||||||||||||
Deferred Income | 9,739 | 10,064 | 9,090 | 10,064 | ||||||||||||
Notes Payable, Less Current Maturities | 51,428 | 55,397 | 43,362 | 55,397 | ||||||||||||
Deferred Income Taxes | 73,325 | 90,446 | 2,567 | 90,446 | ||||||||||||
Total Long-Term Liabilities | 134,492 | 155,907 | 55,019 | 155,907 | ||||||||||||
Total Liabilities | 781,836 | 244,547 | 182,737 | 244,547 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||
Capital Stock Issued and Outstanding: | ||||||||||||||||
Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||||||||||
Series A (Liquidation Preference $2,257,500 and $2,250,000, Respectively) | 500,000 | 500,000 | ||||||||||||||
Series B (Liquidation Preference $2,212,500 and $2,205,000, Respectively) | 500,000 | 500,000 | ||||||||||||||
Series A (Liquidation Preference $2,272,500 and $2,250,000, Respectively) | 500,000 | 500,000 | ||||||||||||||
Series B (Liquidation Preference $2,227,500 and $2,205,000, Respectively) | 500,000 | 500,000 | ||||||||||||||
Cumulative Preferred Stock, $20 Par Value: | ||||||||||||||||
Series A (Liquidation Preference $5,092,364 and $5,077,730, Respectively) | 1,170,660 | 1,170,660 | ||||||||||||||
Series B (Liquidation Preference $829,901 and $827,516, Respectively) | 190,780 | 190,780 | ||||||||||||||
Series A (Liquidation Preference $5,121,630 and $5,077,730, Respectively) | 1,170,660 | 1,170,660 | ||||||||||||||
Series B (Liquidation Preference $834,670 and $827,516, Respectively) | 190,780 | 190,780 | ||||||||||||||
Common Stock, $1 Par Value | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
Paid-In Capital in Excess of Par | 3,134,722 | 3,134,722 | 3,134,722 | 3,134,722 | ||||||||||||
Accumulated Deficit | (5,491,733 | ) | (5,463,806 | ) | (5,606,364 | ) | (5,463,806 | ) | ||||||||
Total Stockholders' Equity | 974,263 | 1,002,190 | 859,632 | 1,002,190 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 1,756,099 | $ | 1,246,737 | $ | 1,042,369 | $ | 1,246,737 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(2) |
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | ||||||||||||||||
Three Months Ended | March 31 | |||||||||||||||
September 30 | 2017 | 2016 | ||||||||||||||
2016 | 2015 | |||||||||||||||
NET SALES | $ | 862,188 | $ | 1,063,103 | $ | 398,077 | $ | 476,676 | ||||||||
COST OF SALES | 671,891 | 843,383 | 408,514 | 437,017 | ||||||||||||
Gross Profit on Sales | 190,297 | 219,720 | ||||||||||||||
Gross Profit (Loss) on Sales | (10,437 | ) | 39,659 | |||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Selling | 99,266 | 122,776 | 69,670 | 73,854 | ||||||||||||
General and Administrative | 135,746 | 115,051 | 97,294 | 86,747 | ||||||||||||
Gain on Sale of Equipment | - | (12,374 | ) | |||||||||||||
Total Operating Expenses | 235,012 | 225,453 | 166,964 | 160,601 | ||||||||||||
Loss from Operations | (44,715 | ) | (5,733 | ) | (177,401 | ) | (120,942 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Miscellaneous Income | 375 | 378 | ||||||||||||||
Miscellaneous Income (Expense) | (6,335 | ) | 609 | |||||||||||||
Interest Expense | (815 | ) | (271 | ) | (729 | ) | (890 | ) | ||||||||
Total Other Income (Expense) | (440 | ) | 107 | (7,064 | ) | (281 | ) | |||||||||
Net Loss before Income Taxes | (45,155 | ) | (5,626 | ) | ||||||||||||
Loss before Income Taxes | (184,465 | ) | (121,223 | ) | ||||||||||||
INCOME TAX BENEFIT | (17,228 | ) | (1,880 | ) | (70,320 | ) | (42,708 | ) | ||||||||
NET LOSS | $ | (27,927 | ) | $ | (3,746 | ) | $ | (114,145 | ) | $ | (78,515 | ) | ||||
NET LOSS PER SHARE OF COMMON STOCK | ||||||||||||||||
LOSS PER SHARE | ||||||||||||||||
Basic | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.15 | ) | $ | (0.11 | ) | ||||
Diluted | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.15 | ) | $ | (0.11 | ) |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(3) |
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATIONS
(UNAUDITED)
Three Months Ended | ||||||||
September 30 | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (27,927 | ) | $ | (3,746 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities: | ||||||||
Depreciation and Amortization | 26,493 | 29,574 | ||||||
Allowance for Bad Debts | 300 | 300 | ||||||
Deferred Income Amortization | (325 | ) | (324 | ) | ||||
Deferred Income Taxes | (17,193 | ) | (3,263 | ) | ||||
(Gain) on Sale of Equipment | - | (12,374 | ) | |||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | (460,832 | ) | (511,861 | ) | ||||
Inventories | (46,988 | ) | 42,254 | |||||
Prepaid Expenses | (24,326 | ) | (26,948 | ) | ||||
Income Taxes Receivable | (32 | ) | (8,754 | ) | ||||
Accounts Payable | 241,036 | 221,807 | ||||||
Accrued Expenses | 25,349 | 29,976 | ||||||
Income Taxes Payable | - | (17,428 | ) | |||||
Net Cash Used by Operating Activities | (284,445 | ) | (260,787 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of Property and Equipment | (17,247 | ) | (14,082 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 275,000 | 225,000 | ||||||
Principal Payments on Notes Payable | (3,803 | ) | (4,423 | ) | ||||
Bank Overdraft | 17,153 | - | ||||||
Net Cash Provided by Financing Activities | 288,350 | 220,577 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (13,342 | ) | (54,292 | ) | ||||
Cash and Cash Equivalents - Beginning of Period | 19,259 | 84,204 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 5,917 | $ | 29,912 |
Nine Months Ended | ||||||||
March 31 | ||||||||
2017 | 2016 | |||||||
NET SALES | $ | 2,413,734 | $ | 2,818,456 | ||||
COST OF SALES | 2,011,640 | 2,201,287 | ||||||
Gross Profit on Sales | 402,094 | 617,169 | ||||||
OPERATING EXPENSES | ||||||||
Selling | 301,165 | 353,587 | ||||||
General and Administrative | 319,949 | 297,034 | ||||||
Gain on Sale of Equipment | - | (21,364 | ) | |||||
Total Operating Expenses | 621,114 | 629,257 | ||||||
Loss from Operations | (219,020 | ) | (12,088 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Miscellaneous Income (Expense) | (5,551 | ) | 1,408 | |||||
Interest Expense | (5,688 | ) | (3,906 | ) | ||||
Total Other Income (Expense) | (11,239 | ) | (2,498 | ) | ||||
Loss before Income Taxes | (230,259 | ) | (14,586 | ) | ||||
INCOME TAX BENEFIT | (87,701 | ) | (5,007 | ) | ||||
NET LOSS | $ | (142,558 | ) | $ | (9,579 | ) | ||
LOSS PER SHARE | ||||||||
Basic | $ | (0.25 | ) | $ | (0.11 | ) | ||
Diluted | $ | (0.25 | ) | $ | (0.11 | ) |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(4) |
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||||||
March 31 | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (142,558 | ) | $ | (9,579 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 79,334 | 88,777 | ||||||
Allowance for Bad Debts | 900 | 900 | ||||||
Deferred Income Amortization | (974 | ) | (973 | ) | ||||
Deferred Income Taxes | (87,666 | ) | (4,976 | ) | ||||
Gain on Sale of Equipment | - | (21,364 | ) | |||||
Effects of Changes in Operating Assets and Liabilities: | ||||||||
Trade Receivables | (125,631 | ) | 38,926 | |||||
Inventories | 370,456 | 267,704 | ||||||
Prepaid Expenses | (20,083 | ) | (12,648 | ) | ||||
Prepaid Income Taxes | 20,648 | (29,760 | ) | |||||
Accounts Payable | 21,905 | (71,338 | ) | |||||
Accrued Expenses | 16,671 | 10,908 | ||||||
Income Taxes Payable | - | (26,119 | ) | |||||
Net Cash Provided by Operating Activities | 133,002 | 230,458 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of Property and Equipment | (17,245 | ) | (21,622 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from Line-of-Credit | 325,000 | 300,000 | ||||||
Principal Payments on Line-of-Credit | (325,000 | ) | (300,000 | ) | ||||
Principal Payments on Notes Payable | (11,533 | ) | (10,361 | ) | ||||
Net Cash Used by Financing Activities | (11,533 | ) | (10,361 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 104,224 | 198,475 | ||||||
Cash and Cash Equivalents - Beginning of Period | 19,259 | 84,204 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 123,483 | $ | 282,679 |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(5) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 | GENERAL |
The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2016 has been condensedtaken from audited consolidated financial statements at that date.date and condensed. The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2016March 31, 2017 and for the three and nine months ended September 30, 2015March 31, 2016 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, 2016. The results of operations for the three and nine months ended September 30, 2016March 31, 2017 and cash flows for the threenine months ended September 30, 2016March 31, 2017 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2017. 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 September 30, 2016,March 31, 2017, 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 threenine month period ended September 30, 2016.March 31, 2017.
The earnings (loss) per share were computed on the weighted average of outstanding common shares during the period.
Three Months Ended | ||||||||
September 30 | ||||||||
2016 | 2015 | |||||||
Net Loss | $ | (27,927 | ) | $ | (3,746 | ) | ||
Preferred Dividend Requirements: | ||||||||
6% Prior Cumulative Preferred, $5 Par Value | 15,000 | 15,000 | ||||||
5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | ||||||
Total Dividend Requirements | 32,018 | 32,018 | ||||||
Net Loss - Common Stockholders | $ | (59,945 | ) | $ | (35,764 | ) |
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 | EARNINGS |
The income per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30 | March 31 | March 31 | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||
Net Loss | $ | (114,145 | ) | $ | (78,515 | ) | $ | (142,558 | ) | $ | (9,579 | ) | ||||||||||||
Preferred Dividend Requirements: | ||||||||||||||||||||||||
6% Prior Cumulative Preferred, $5 Par Value | 15,000 | 15,000 | 45,000 | 45,000 | ||||||||||||||||||||
5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | 51,054 | 51,054 | ||||||||||||||||||||
Total Dividend Requirements | 32,018 | 32,018 | 96,054 | 96,054 | ||||||||||||||||||||
Net Loss - Common Stockholders | $ | (146,163 | ) | $ | (110,533 | ) | $ | (238,612 | ) | $ | (105,633 | ) | ||||||||||||
2016 | 2015 | |||||||||||||||||||||||
Weighted Average Shares - Basic | 969,834 | 969,834 | 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 | 1,033,334 | 1,033,334 | ||||||||||||||||||
Weighted Average Shares – Diluted | 2,003,168 | 2,003,168 | 2,003,168 | 2,003,168 | 2,003,168 | 2,003,168 | ||||||||||||||||||
Basic Loss per Share | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.15 | ) | $ | (0.11 | ) | $ | (0.25 | ) | $ | (0.11 | ) | ||||||
Diluted Loss per Share | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.15 | ) | $ | (0.11 | ) | $ | (0.25 | ) | $ | (0.11 | ) |
The contingently issuable shares, for the three months and nine months ended March 31, 2017 and March 31, 2016, were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
(7) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 | EARNINGS PER SHARE (CONTINUED) |
Cumulative Preferred Stock dividends in arrears at September 30,March 31, 2017 and 2016 totaled $8,044,860 and 2015 totaled $7,980,824 and $7,852,752,$7,916,788, respectively. Total dividends in arrears, on a per share basis, consist of the following:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | March 31 | |||||||||||||||
2016 | 2015 | 2017 | 2016 | |||||||||||||
6% Convertible | ||||||||||||||||
Series A | $ | 17 | $ | 17 | $ | 17 | $ | 17 | ||||||||
Series B | $ | 17 | $ | 17 | 17 | 17 | ||||||||||
5% Convertible | ||||||||||||||||
Series A | $ | 67 | $ | 66 | $ | 68 | $ | 67 | ||||||||
Series B | $ | 67 | $ | 66 | 68 | 67 |
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.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 | NOTES PAYABLE |
The Company’s long-term debtnotes payable consists of:
September 30, | June 30, | March 31, | June 30, | |||||||||||||||||
Payee | Terms | 2016 | 2016 | Terms | 2017 | 2016 | ||||||||||||||
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. | $ | 275,000 | $ | - | $350,000 line-of-credit agreement expiring on January 4, 2018, 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. | 37,117 | 38,674 | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. | 33,935 | 38,674 | ||||||||||||||
Toyota Credit | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 17,243 | 18,179 | $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle. | 15,344 | 18,179 | ||||||||||||||
Ford Credit | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 12,694 | 14,004 | $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle. | 10,045 | 14,004 | ||||||||||||||
Total | 342,054 | 70,857 | 59,324 | 70,857 | ||||||||||||||||
Less Current Portion | 290,626 | 15,460 | 15,962 | 15,460 | ||||||||||||||||
Long-Term Portion | $ | 51,428 | $ | 55,397 | $ | 43,362 | $ | 55,397 |
Future minimum payments for the twelve months ending September 30March 31 are:
2017 | $ | 290,626 | ||
2018 | 16,306 | |||
2019 | 13,229 | |||
2020 | 11,947 | |||
2021 | 9,245 | |||
Thereafter | 701 | |||
Total | $ | 342,054 |
March 31: | Amount | |||
2018 | $ | 15,962 | ||
2019 | 15,716 | |||
2020 | 11,652 | |||
2021 | 11,155 | |||
2022 | 4,839 | |||
Total | $ | 59,324 |
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 | INCOME TAXES |
The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards BoardAccounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at September 30, 2016.March 31, 2017. The Company has no material tax positions at September 30, 2016March 31, 2017, for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company had no accruals for interest or penalties at March 31, 2017. The Company’s federal income tax returns for the fiscal years ended 2014, 2015, and 2016 are subject to examination by the IRSInternal Revenue Service taxing authority.
NOTE 5 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
Nine Months Ended | ||||||||||||||||
Three Months Ended | March 31 | |||||||||||||||
September 30 | 2017 | 2016 | ||||||||||||||
2016 | 2015 | |||||||||||||||
Cash Paid for: | ||||||||||||||||
Interest | $ | 812 | $ | 136 | $ | 5,688 | $ | 3,906 | ||||||||
Income Taxes | $ | - | $ | 27,700 | $ | 6,090 | $ | 55,888 | ||||||||
Noncash Transactions: | ||||||||||||||||
Financing of New Vehicles | $ | - | $ | 42,682 | $ | - | $ | 62,681 |
NOTE 6 | 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.
(10) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED) |
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory“Inventory (Topic 330): Simplifying the Measurement of Inventory," ("” (“ASU 2015-11"2015-11”). An entity using an inventory method other than last-in, first out ("LIFO"(“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,for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessingdoes not expect the impact that adopting this new accounting standard willadoption of ASU 2015-11 to have a material effect on its consolidatedthe financial statements.position, results of operations, or cash flows.
Chase General Corporation and Subsidiary
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
In August 2014, the FASB issued ASU No. 2014-15, "Presentation“Presentation of Financial Statements - Going Concern (Subtopic 205-40)"”. ASU 2014-15 provides guidance related to management'smanagement’s responsibility to evaluate whether there is substantial doubt about an entity'sentity’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 doThe Company does not expect the adoption of ASU 2014-15 to have a material effect on ourthe 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 doThe Company does not expect the adoption of ASU 2015-17 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'sCompany’s consolidated financial statements.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 | 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 March 31, 2017, 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.
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CHASE GENERAL CORPORATION AND ANALYSIS OF FINANCIAL CONDITIONSUBSIDIARY
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
Chase General Corporation (Chase) is a holding company for its wholly-owned subsidiary, Dye Candy Company. This subsidiary is the main operating company that is engaged in the manufacture of confectionery products which are sold primarily to wholesale houses, grocery accounts, vendors, and repackers. The subsidiary (Company) operates two divisions, Chase Candy division and Seasonal Candy division, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two divisions is not maintained by management.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 September 30, 2016March 31, 2017 Compared withto Three Months Ended September 30, 2015March 31, 2016, and Nine Months Ended March 31, 2017 Compared to Nine Months Ended March 31, 2016
The following management comments regarding Chase’s results of operations and outlook should be read in conjunction with the condensed consolidated financial statements included pursuant to Item 1 of the quarterly report.
The following table sets forth certain items as a percentage of net sales and revenues for the periods presented:
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30 | March 31 | March 31 | ||||||||||||||||||||||
2016 | 2015 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Net Sales | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
Cost of Sales | 78 | 79 | 103 | 92 | 83 | 78 | ||||||||||||||||||
Gross Profit on Sales | 22 | 21 | ||||||||||||||||||||||
Gross Profit (Loss) on Sales | (3 | ) | 8 | 17 | 22 | |||||||||||||||||||
Operating Expenses | 27 | 22 | 42 | 34 | 26 | 22 | ||||||||||||||||||
Loss from Operations | (5 | ) | (1 | ) | (45 | ) | (26 | ) | (9 | ) | - | |||||||||||||
Other Income (Expense), Net | (0 | ) | (0 | ) | (2 | ) | - | - | - | |||||||||||||||
Loss before Income Taxes | (5 | ) | (1 | ) | (47 | ) | (26 | ) | (9 | ) | - | |||||||||||||
Provision (Benefit) for Income Taxes | (2 | ) | (0 | ) | ||||||||||||||||||||
Benefit for Income Taxes | (18 | ) | (9 | ) | (4 | ) | - | |||||||||||||||||
Net Loss | (3 | )% | (1 | )% | (29 | )% | (17 | )% | (5 | )% | - | % |
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
NET SALES
Net sales decreased $200,915$78,599 or 19%16% for the three months ended September 30, 2016March 31, 2017 to $862,188$398,077 compared to $1,063,103$476,676 for the three months ended September 30, 2015.March 31, 2016. Gross sales for Chase Candy decreased $65,946 to $403,029 for the three months ended March 31, 2017, compared to $468,975 for the three months ended March 31, 2016. Gross sales for Seasonal Candy decreased $132,966$3,949 to $447,062$10,020 for the three months ended September 30, 2016,March 31, 2017, compared to $580,028$13,969 for 2015.the three months ended March 31, 2016. Gross sales for other sales for the Company decreased $160 to $502 for the three months ended March 31, 2017, compared to $662 for the three months ended March 31, 2016. Sales returns and allowances for the Company increased $8,544 to $15,474 for the three months ended March 31, 2017, compared to $6,930 for the three months ended March 31, 2016.
The 14% decrease in gross sales of Chase Candy of $65,946 for the three months ended March 31, 2017 over the same period ended March 31, 2016, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $38,000 versus the same period a year ago, primarily due to decreased orders from existing customers; 2) decreased sales of L200 Cherry Mash Merchandisers division by approximately $11,000 versus the same period a year ago, primarily due to decreased orders from existing customers; 3) decreased sales of L212 Mini Mash division by approximately $10,000 versus the same period a year ago, due to decreased orders from existing customers; 4) decreased sales of L100 Cherry Mash Merchandiser division by approximately $6,000 versus the same period a year ago, due to decreased orders from existing customers; and 5) various other fluctuations netting a decrease of approximately $1,000.
The 28% decrease in gross sales of Seasonal Candy of $3,949 for the three months ended March 31, 2017 over the same period ended March 31, 2016, is primarily due to the net effect of the following: 1) decreased sales in the generic produce division by approximately $8,000 due to a loss of a customer; offset by 2) increased sales in the clamshell division by approximately $3,000 versus the same period a year ago, primarily due to increased sales to one customer.
Net sales decreased $404,722 or 14% for the nine months ended March 31, 2017 to $2,413,734 compared to $2,818,456 for the nine months ended March 31, 2016. Gross sales for Chase Candy decreased $70,100$71,137 to $421,885$1,322,706 for the threenine months ended September 30, 2016,March 31, 2017, compared to $491,985$1,393,843 for 2015.the nine months ended March 31, 2016. Gross sales for Seasonal Candy decreased $336,293 to $1,122,740 for the nine months ended March 31, 2017, compared to $1,459,033 for the nine months ended March 31, 2016. Gross sales for other sales for the Company increased $2,444 to $7,684 for the nine months ended March 31, 2017, compared to $5,240 for the nine months ended March 31, 2016. Sales returns and allowances for the Company decreased $2,838$264 to $6,798$39,396 for the threenine months ended September 30, 2016,March 31, 2017, compared to $9,636 for 2015. The Company’s other sales decreased $687 to $39$39,660 for the threenine months ended September 30,March 31, 2016.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
NET SALES (CONTINUED)
The 5% decrease in gross sales of Chase Candy of $71,137 for the nine months ended March 31, 2017 over the same period ended March 31, 2016, comparedis primarily due to $726 for 2015.the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $27,000 versus the same period a year ago, primarily due to two customers decreasing orders, 2) decreased sales of the L200 Cherry Mash Merchandisers division by approximately $21,000 versus the same period a year ago, primarily due to three customers decreasing orders, 3) decreased sales of the L278 Mini Mash division by approximately $13,000 versus the same period a year ago, primarily due to two customers decreasing orders, 4) decreased sales of the L100 Cherry Mash merchandisers division by approximately $5,000 versus the same period a year ago, primarily due to one customer decreasing orders, 5) decreased sales of the L279 Bulk Mini Mash division by approximately $3,000 versus the same period a year ago, primarily due to decreased orders from customers, and 6) decreased sales of the L260 Changemaker Jar division by approximately $2,000 versus the same period a year ago, primarily due to decreased orders from customers
The 23% decrease in gross sales of Seasonal Candy of $132,966$336,293 for the threenine months ended September 30, 2016March 31, 2017 over the same period ended September 30, 2015,March 31, 2016, is primarily due to the net effect of the following: 1) decreased orders from three customers in the generic seasonal division netting approximately $148,000$336,000 versus the same period a year ago, primarily due to two lost customers and one customer decreasing orders; 2) decreased orders in the bulk seasonal division netting approximately $30,000 due to decreased sales from existing customers; offset by 2)3) increased volume from various customers in the clamshell seasonal division netting approximately $2,000$29,000 versus the same period a year ago, primarily due to two customers increasing orders; 3) increased orders in the bulk seasonal division netting approximately $14,000 due to increased sales to two existing customers.
The 14% decrease in gross sales of Chase Candy of $70,100 for the three months ended September 30, 2016 over the same period ended September 30, 2015, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $14,000 versus the same period a year ago primarily due to decreased orders from two existing customers; 2) decreased sales of L278/L212 Mini Mash division by approximately $40,000 versus the same period a year ago primarily due to decreased orders from four existing customers; and 3) decreased sales of L100, L200, SK436, and SK2100 Cherry Mash Merchandisers division by approximately $17,000 versus the same period a year ago due to decreased orders from five existing customers.orders.
COST OF SALES
The cost of sales decreased $171,492$28,503 to $671,891,$408,514 or 78%103% of related salesrevenues for the three months ended September 30, 2016March 31, 2017, compared to $843,383,$437,017 or 79%92% of related salesrevenues for the three months ended September 30, 2015.
March 31, 2016. The 20%7% decrease in cost of sales of $171,492$28,503 is primarily due to the 19%net impact of a 16% decrease in net sales of $200,915,$78,599 and a 4% decrease in the raw material cost of sugar, and a 3% decrease in the raw material costprice of chocolate, offset by a 20%15% increase in the raw material costprice of corn syruppeanuts and a 1%an 8% increase in the raw materialprice of corn syrup. Cost of sales outpaced net sales primarily due to outdated inventory totaling approximately $13,000 being returned during the period.
The cost of peanuts. Duesales decreased $189,647 to volatility$2,011,640 or 83% of related revenues for the nine months ended March 31, 2017, compared to $2,201,287 or 78% of related revenues for the nine months ended March 31, 2016. The 9% decrease in cost of sales of $189,647 is primarily due to the net impact of a 14% decrease in net sales of $404,722 offset by a 10% increase in the regions where these raw materials are grown, management anticipatesprice of peanuts and a 9% increase in the pricesprice of these raw materials to continue to fluctuate primarily based on supply and demand.corn syrup.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
SELLING EXPENSES
Selling expenses for the three months ended September 30, 2016March 31, 2017 decreased $23,510$4,184 to $99,266,$69,670, which is 12%18% of sales, compared to $122,776$73,854, or 12%15% of sales for the three months ended September 30, 2015.
March 31, 2016. The decrease of $23,510$4,184 in selling expenses for the three months ended September 30,March 31, 2017 is primarily due to lower commission expense. Commissions decreased $4,207 to $8,632 for this period from $12,839 for the three months ended March 31, 2016, primarily due to a decrease in sales.
Selling expenses for the nine months ended March 31, 2017 decreased $52,422 to $301,165, which is 12% of sales, compared to $353,587 or 13% of sales for the nine months ended March 31, 2016. The decrease of $52,422 in selling expenses for the nine months ended March 31, 2017 is primarily due to lower commissions, expense for the period, lower promotions, expense, and lower truckvehicle depreciation, and automobile depreciation expense.expenses. Commission expense decreased $8,270$21,559 to $33,315$81,642 for this period from $41,585$103,241 for the threenine months ended September 30, 2015 primarily due to the decrease in net sales. Promotions expense decreased $7,982 to $17,075 for this period from $25,057 for the three months ended September 30, 2015March 31, 2016 primarily due to a decrease in net sales that have a bill-back allowance. Truck and automobile depreciationsales. Promotions expense, which are paid to customers for various marketing reasons, decreased $2,425$18,139 to $10,656$47,777 for this period from $13,081$65,916 for the three months ended September 30, 2015March 31, 2016. Depreciation expense decreased $7,429 to $31,967 for this period from $39,396 primarily due to lessa decrease in purchases of that asset class placed in service inproperty and equipment during this period opposed to the 2016 period.nine months ended March 31, 2016. Automobile expense, which does not include depreciation, decreased $3,507 to $4,894 for this period from $8,401, primarily due to falling gasoline prices and reduced maintenance costs primarily caused by the purchase of new vehicles during the nine months ended March 31, 2016.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended September 30, 2016March 31, 2017 increased $20,695$10,547 to $135,746$97,294 and increased to 16%24% of sales, compared to $115,051$86,747 or 11%18% of sales for the three months ended September 30, 2015.March 31, 2016. The increased costs are primarily becauseincrease of an increase$10,547 in professional fees, miscellaneous general expense, and insurance expense. Professional fees expense increased $9,089 to $63,760 for this period from $54,671administrative expenses for the three months ended September 30,March 31, 2017 is primarily due to higher insurance expense. Insurance expense increased $10,407 to $36,664 for this period from $26,257 for the three months ended March 31, 2016 due to employees changing their enrollment in insurance plans.
General and administrative expenses for the nine months ended March 31, 2017 increased $22,915 to $319,949 or 13% of sales, compared to $297,034 or 11% of sales for the nine months ended March 31, 2016. The increase of $22,915 in general and administrative expenses for the nine months ended March 31, 2017 is primarily due to an increase in insurance expense, miscellaneous general expense, and payroll tax expense offset by a decrease in professional fees. Insurance expense increased $19,738 to $92,577 for this period from $72,839 for the nine months ended March 31, 2016 due to employees changing their enrollment insurance plans. Miscellaneous general expense increased $5,180$4,698 to $8,063$11,050 for this period from $2,883$6,352 for the three months ended September 30,March 31, 2016 primarily due to the payment of a non-recurring $6,000 expense occurring in the period. Insuranceworkplace penalty. Payroll tax expense increased $5,090$4,462 to $27,447$22,812 for this period from $22,357$18,350 for the three months ended September 30,March 31, 2016 primarily due to a more employees accepting health insurance coverage.reclassifying payroll expenses that were previously charged to cost of sales to general and administrative payroll expense as roles in the Company changed from previous periods. Professional fees decreased $7,443 to $91,869 for this period from $99,312 for the three months ended March 31, 2016 due to lower audit fees.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
OTHER INCOME (EXPENSE)
Other income (expense) decreased by $547$6,783 for the three months ended September 30, 2016March 31, 2017 to $(440)$(7,064), compared to $107$(281) for the three months ended September 30, 2015March 31, 2016 primarily due to an increase of $6,912 in miscellaneous expense. The reason for this increase is primarily due to a increase in interest expense of $544.nonrecurring transition fee charged to the Company by a customer to offset the customer’s product relocation costs.
Other income (expense) decreased by $8,741 for the nine months ended March 31, 2017 to $(11,239), compared to $(2,498) for the nine months ended March 31, 2016 primarily due to an increases of $6,926 and $1,782 in miscellaneous expense and interest expense, respectively. The increase in miscellaneous expense is primarily due to a nonrecurring transition fee charged to the Company by a customer to offset the customer’s product relocation costs.
PROVISION (BENEFIT) FOR INCOME TAX BENEFITTAXES
The Company recorded aincome tax benefit for the three months ended September 30, 2016March 31, 2017 of $17,228$(70,320) as compared to income tax benefit of $1,880$(42,708) for the three months ended September 30, 2015.March 31, 2016. The Company recorded income tax benefit for the nine months ended March 31, 2017 of $(87,701) as compared to income tax benefit of $(5,007) for the nine months ended March 31, 2016. The net income tax expense (benefit) recorded for the three and nine months ended September 30, 2016March 31, 2017 is primarily due to therecognizing income taxes related to current net loss before income taxes.or loss.
NET LOSSINCOME (LOSS)
The Company reported a net loss for the three months ended September 30, 2016March 31, 2017 of $27,927,$(114,145), compared to a net loss of $(78,515) for the three months ended March 31, 2016. This earnings decrease of $35,630 is explained above. The Company reported net loss for the nine months ended March 31, 2017 of $(142,558), compared to net loss of $3,746$(9,579) for the threenine months ended September 30, 2015.March 31, 2016. This earnings decrease of $24,181$132,979 is explained above.
Chase General Corporation and Subsidiary
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended September 30,March 31, 2017 and 2016, and 2015, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
Preferred dividends were $96,054 for the nine months ended March 31, 2017 and 2016, 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.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
NET INCOME (LOSS)LOSS APPLICABLE TO COMMON STOCKHOLDERS
Net loss applicable to common stockholders for the three months ended September 30, 2016March 31, 2017 was $59,945$(146,163) which is a decreasean increase in losses of $24,181$(35,630) as compared to the net loss for the three months ended September 30, 2015March 31, 2016 of $35,764.$(110,533).
Net income (loss) applicable to common stockholders for the nine months ended March 31, 2017 was $(238,612) which is an increase in losses of $(132,979) as compared to the net loss for the nine months ended March 31, 2016 of $(105,633).
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal yearperiod indicated.
Three Months Ended | ||||||||
September 30 | ||||||||
2016 | 2015 | |||||||
Net Cash Used in Operating Activities | $ | (284,445 | ) | $ | (260,787 | ) | ||
Net Cash Used in Investing Activities | (17,247 | ) | (14,082 | ) | ||||
Net Cash Provided by Financing Activities | 288,350 | 220,577 |
Nine Months Ended | ||||||||
March 31 | ||||||||
2017 | 2016 | |||||||
Net Cash Provided by Operating Activities | $ | 133,002 | $ | 230,458 | ||||
Net Cash Used by Investing Activities | $ | (17,245 | ) | $ | (21,622 | ) | ||
Net Cash Used by Financing Activities | $ | (11,533 | ) | $ | (10,361 | ) |
Management has made no material commitments for capital expenditures during the remainder of fiscal 2017. The $17,247$133,002 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $17,245 of cash used in investing activities is the purchase of equipment used during the manufacturing process. The $284,445$11,533 of cash used in operating activities is fully detailed in the condensed consolidated statement of cash flows on page four. The $288,350 of cash provided by financing activities is primarily due to the receipt of $275,000 drawn from a line-of-credit, net of principal payments on equipment and vehicle loans. At September 30, 2016,March 31, 2017, the Company had $75,000$350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements. Management expects that projected cash flows will enable the Company to pay the full balance on the line-of-credit prior to December 31, 2016.
Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future.
Management believes that inflation will have only a minimal effect on future operations since such effects will generally be offset by sales price increases, which are not expected to have a significant effect upon demand.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
CRITICAL ACCOUNTING POLICIES
Forward-Looking Information
This report, as well as our other reports filed with the Securities and Exchange Commission (“SEC”)(SEC), contains forward-looking statements made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, and management’s plans and objectives. Accordingly, these forward-looking statements are based on assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks and uncertainties that could cause actual results to be different from what appear here. These risk factors include: the ability to adequately pass through customers unanticipated future increases in raw material costs, decreased demand for products, expected orders that do not occur, loss of key customers, the impact of competition and price erosion as well as supply and manufacturing constraints, and other risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will prove accurate, and our actual results may differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements made herein.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to a smaller reporting company.
ITEM 4. | CONTROLS AND PROCEDURES |
(a) Evaluation of Disclosure Controls and Procedures
Chase’s management,Management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and managementManagement has concluded that Chase’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to management, including those officers, and to members of the Board of Directors, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There were no significant changes in Chase’s internal control over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of the evaluation.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
PartPART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
None.
ITEM 1A. | RISK FACTORS |
Not applicable to a smaller reporting company.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
a. | None |
b. | The total cumulative preferred stock dividends contingency at |
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
NoneNone.
Chase General Corporation and SubsidiaryCHASE GENERAL CORPORATION AND SUBSIDIARY
PartPART II. OTHER INFORMATION (CONTINUED)
ITEM 6. | EXHIBITS |
a. | Exhibits. |
Exhibit 31.1 | Certification of Chief Executive Officer and |
Exhibit 32.1 | Certification of |
Exhibit 101 | The following financial statements for the quarter ended |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Chase General Corporation and Subsidiary | |
(Registrant) | |
/s/ Barry M. Yantis | |
Date | Barry M. Yantis |
Chairman of the Board, Chief Executive Officer and | |
Chief Financial Officer, President and Treasurer |