UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2003
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
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 incorporation or organization) | (IRS Employer Identification No.) |
3600 Leonard Road, St. Joseph, Missouri 64503
(Address of principal executive offices)
(816) 279-1625
(Issuer’s telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ¨ No ¨x
As of October 31, 2003, there were 969,834 shares of common stock, $1 par value, issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ¨ No x
Index
PART I - FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements | |||
Condensed Consolidated Balance Sheets at September 30, 2003 (Unaudited) and June 30, 2003 | 3 | |||
| 5 | ||||
| 6 | ||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||
Item 3. | 12 | |||
PART II - OTHER INFORMATION | ||||
Item 1. | Legal proceedings - None | |||
Item 2. | Changes In Securities and Use of Proceeds - None | |||
Item 3. | 13 | |||
Item 4. | Submission of Matters to a Vote of Security Holders - None | |||
Item 5. | Other Information - None | |||
Item 6. | 13 | |||
| 13 | ||||
Exhibit 31 - | Certification of Chief Executive Officer and Treasurer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |||
Exhibit 32 - | Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2003 | June 30, 2003 | |||||
| (Unaudited) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 134,518 | $ | 138,806 | ||
Trade receivables, net | 145,810 | 146,691 | ||||
Income tax refund claims receivable | 1,484 | — | ||||
Inventories: | ||||||
Finished goods | 226,262 | 50,934 | ||||
Goods in process | 5,791 | 4,337 | ||||
Raw materials | 62,098 | 46,504 | ||||
Packaging materials | 102,088 | 100,720 | ||||
Prepaid expenses | 4,243 | 17,801 | ||||
Total current assets | 682,294 | 505,793 | ||||
PROPERTY AND EQUIPMENT - NET | 130,719 | 139,790 | ||||
TOTAL ASSETS | $ | 813,013 | $ | 645,583 | ||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30, 2003 | June 30, 2003 | |||||||
| (Unaudited) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 234,274 | $ | 48,717 | ||||
Accrued expenses | 31,867 | 31,183 | ||||||
Total current liabilities | 266,141 | 79,900 | ||||||
LONG-TERM LIABILITIES | ||||||||
Notes payable, Series B | 22,032 | 22,032 | ||||||
Total liabilities | 288,173 | 101,932 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock issued and outstanding: | ||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||
Series A (liquidation preference $1,867,500 and $1,860,000 respectively) | 500,000 | 500,000 | ||||||
Series B (liquidation preference $1,822,500 and $1,815,000 respectively) | 500,000 | 500,000 | ||||||
Cumulative preferred stock, $20 par value | ||||||||
Series A (liquidation preference $4,331,442 and $4,316,809 respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (liquidation preference $705,886 and $703,501 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 | (5,941,156 | ) | (5,922,345 | ) | ||||
Total stockholders’ equity | 524,840 | 543,651 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 813,013 | $ | 645,583 | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30 | ||||||||
| 2003 | 2002 | |||||||
NET SALES | $ | 342,782 | $ | 326,374 | ||||
COST OF SALES | 248,591 | 261,403 | ||||||
Gross profit on sales | 94,191 | 64,971 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 48,823 | 43,972 | ||||||
General and administrative expenses | 69,156 | 57,555 | ||||||
Total operating expenses | 117,979 | 101,527 | ||||||
(Loss) from operations | (23,788 | ) | (36,556 | ) | ||||
OTHER INCOME (EXPENSE) | 3,493 | (177 | ) | |||||
Net (loss) before income taxes (credits) | (20,295 | ) | (36,733 | ) | ||||
CREDIT FOR INCOME TAXES | (1,484 | ) | (7,324 | ) | ||||
NET (LOSS) | (18,811 | ) | (29,409 | ) | ||||
Preferred dividends | (32,018 | ) | (32,018 | ) | ||||
Net (loss) applicable to common stockholders | $ | (50,829 | ) | $ | (61,427 | ) | ||
NET LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED | $ | (.05 | ) | $ | (.06 | ) | ||
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING | 969,834 | 969,834 | ||||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended September 30 | ||||||||
| 2003 | 2002 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net (loss) | $ | (18,811 | ) | $ | (29,409 | ) | ||
Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | 9,071 | 8,853 | ||||||
Provision for bad debts | 1,605 | 1,605 | ||||||
Loss on disposition of equipment | — | 9,747 | ||||||
Effects of changes in operating assets and liabilities: | ||||||||
Receivables | (2,208 | ) | (20,543 | ) | ||||
Inventories | (193,744 | ) | (194,678 | ) | ||||
Prepaid expense | 13,558 | 20,935 | ||||||
Accounts payable | 185,557 | 96,506 | ||||||
Accrued expenses | 684 | (2,118 | ) | |||||
Net cash used in operating activities | (4,288 | ) | (109,102 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from sale of equipment | — | 5,804 | ||||||
Net cash provided by investing activities | — | 5,804 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (4,288 | ) | (103,298 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 138,806 | 188,528 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 134,518 | $ | 85,230 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash payments for: | ||||||||
Income taxes | $ | 968 | $ | — | ||||
Interest | $ | — | $ | — | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
The condensed consolidated balance sheet of Chase General Corporation (“Chase” or “we”, “us”, or “our”) at June 30, 2003 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months ended September 30, 2003 and for the three months ended September 30, 2002 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, 2003. The results of operations and cash flows for the three months ended September 30, 2003 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2004. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation.
NOTE 2 - NET LOSS PER SHARE
The loss per share was computed on the weighted average of outstanding common shares as follows:
Three Months Ended September 30 | ||||||||
| 2003 | 2002 | |||||||
Net (loss) | $ | (18,811 | ) | $ | (29,409 | ) | ||
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 | $ | (50,829 | ) | $ | (61,427 | ) | ||
Weighted average of outstanding common shares | 969,834 | 969,834 | ||||||
Net (loss) per share - basic and diluted | $ | (.05 | ) | $ | (.06 | ) | ||
No computation was made on common stock equivalents outstanding because loss per share would be anti-dilutive.
7
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTE 2 - NET LOSS PER SHARE (CONTINUED)
Cumulative Preferred Stock dividends in arrears at September 30, 2003 and 2002, totaled $6,315,888 and $6,187,816, respectively. Total dividends in arrears, on a per share basis, consist of the following at September 30:
Three Months Ended September 30 | ||||||
| 2003 | 2002 | |||||
6% Convertible | ||||||
Series A | $ | 13 | $ | 13 | ||
Series B | 13 | 13 | ||||
5% Convertible | ||||||
Series A | 54 | 53 | ||||
Series B | 54 | 53 | ||||
Six percent 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.
8
CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2. - | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Management’s Discussion and Analysis of Financial Condition and Results of Operations section and other parts of this Report contain forward-looking statements that involve risks and uncertainties. The Company’s actual results and the timing of certain events may differ significantly from the results and timing discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed or referred to in this report and in Item 7 of the Annual Report on Form 10-K for the year ended June 30, 2003.
The following discussion is intended to provide a better understanding of the significant changes in trends relating to Chase’s financial condition and results of operations. Management’s Discussion and Analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto.
OVERVIEW
Chase General 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 Company and Poe Candy Company, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two division is not maintained by Management.
RESULTS OF OPERATIONS
The following table sets forth certain items as a percentage of net sales and revenues for the periods presented:
Three Months September 30 | ||||||
| 2003 | 2002 | |||||
Net sales | 100 | % | 100 | % | ||
Cost of sales | 73 | 80 | ||||
Gross profit | 27 | 20 | ||||
Operating expenses | 34 | 31 | ||||
Net (loss) from operations | (7 | ) | (11 | ) | ||
Net (loss) before income taxes | (6 | ) | (11 | ) | ||
Credit for income taxes | — | 2 | ||||
Net (loss) | (6 | )% | (9 | )% | ||
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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
Net sales increased $16,408 or 5% for the three months ended September 30, 2003 to $342,782 compared to $326,374 for the three months ended September 30, 2002. Gross sales for Chase Candy Company increased $22,200 to $361,732 for the three months ended September 30, 2003 compared to $339,532 for 2002. Gross sales for Poe Candy Company decreased $7,209 to $14,021 for the three months ended September 30, 2003 compared to $21,230 for 2002.
The overall increase in net sales for the three month period ended September 30, 2003 is primarily due to expansion of the sales market and its website sales.
COST OF SALES
The cost of sales decreased $12,812 to $248,591 decreasing to 73% of related revenues for the three months ended September 30, 2003, compared to $261,403 or 80% of related revenues for the three months ended September 30, 2002. The decrease is due to improved packaging design, that was instituted in the previous year and lower equipment maintenance costs.
SELLING EXPENSES
Selling expenses for the three months ended September 30, 2003 increased $4,851 to $48,823, and increased to 14% of sales, compared to $43,972 or 13% of sales for the three months ended September 30, 2002. The increase in selling expenses and increase as a percentage of sales are due to the Company’s increased sales and marketing activity.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended September 30, 2003 increased $11,601 to $69,156, and increased to 20% of sales, compared to $57,555 or 18% of sales for the three months ended September 30, 2002. The increase as a percentage of sales is due to increased professional fees and insurance costs.
OTHER INCOME (EXPENSE)
Other income and expense increased by $3,670 for the three months ended September 30, 2003 to $3,493 and increased to 1% of sales, compared to $(177) for the three months ended September 30, 2002. This was due to an increase in miscellaneous income of $3,353 and a decrease in interest expense due to a portion of Notes Payable, Series B being paid off in the prior year.
10
CHASE GENERAL CORPORATION AND SUBSIDIARY
| ITEM 2. - | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
CREDIT FOR INCOME TAXES
The Company recorded a tax benefit for the three months ended September 30, 2003 of $1,484 as compared to a tax benefit of $7,324 for the three months ended September 30, 2002. This decrease of $5,840 was due to lower loss for the current period and less to carryback to prior periods.
NET LOSS
The Company reported a net loss for the quarter ended September 30, 2003 of $18,811, compared to a net loss of $29,409 for the quarter ended September 30, 2002. This decrease of $10,598 is explained above.
PREFERRED DIVIDENDS
These amounts reflect additional preferred stock dividends in arrears for the three months ended September 30, 2003 and 2002, respectively, on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
NET (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
Net (loss) applicable to common stockholders for the three months ended September 30, 2003 was $(50,829) which is a decrease of $10,598 as compared to the three months ended September 30, 2002. The decrease is explained above.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has been able to fund its operating cash requirements from operations.
The Company believes it has sufficient resources to finance its current operations for at least the next twelve months through working capital. Cash and cash equivalents decreased $4,288 to $134,518 at September 30, 2003 from $138,806 at June 30, 2003. To date, there are no material commitments by the Company for capital expenditures. At September 30, 2003, the Company’s accumulated deficit was $5,941,156, compared to accumulated deficit of $5,922,345 as of June 30, 2003. Working capital as of September 30, 2003 decreased 2% to $416,153 from $425,893 as of June 30, 2003.
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 existing customers. Management also intends to continue tight control on all expenditures.
There has been no material impact from inflation and changing prices on net sales or on income from continuing operations for the last three months.
11
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 3. - CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
| a. | None |
| b. | The total cumulative preferred stock dividends contingency at September 30, 2003 is $6,315,888. |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
| a. | Exhibits. |
| 31 | Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32 | Certification of Chief Executive Officer and Treasurer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| b. | Reports on Form 8-K. |
No reports on Form 8-K were filed by the Registrant in the quarter ended September 30, 2003.
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
Registrant
Dated: November 7, 2003 | By: | /s/ Barry M. Yantis | ||||||
| Barry M. Yantis | ||||||||
President, Chief Executive Officer, Treasurer and Chairman of the Board | ||||||||
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