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, 2004
| ¨ | 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, Zip Code)
(816) 279-1625
(Issuer’s telephone number, including area code)
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 x No ¨
As of October 31, 2004, there were 969,834 shares of common stock, $1 par value, issued and outstanding.
Transitional Small Business Disclosure Format Yes ¨ No x
Index
Form 10-QSB for the Quarter Ended September 30, 2004
PART I -FINANCIAL INFORMATION | ||
Condensed Consolidated Balance Sheets at September 30, 2004 (Unaudited) and June 30, 2004 | 3 | |
| 5 | ||
| 6 | ||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |
Item 2.Management’s Discussion and Analysis or Plan of Operation | 9 | |
Item 3.Controls and Procedures | 12 | |
PART II -OTHER INFORMATION | ||
Item 1. Legal proceedings - None | ||
Item 2. Unregistered Shares of Equity Securities and Use of Proceeds - None | ||
| 13 | ||
Item 4. Submission of Matters to a Vote of Security Holders - None | ||
Item 5. Other Information - None | ||
Item 6.Exhibits | 13 | |
| 13 | ||
Exhibit 31 - Certification of Chief Executive Officer and Treasurer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | 14 | |
Exhibit 32 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 16 | |
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CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2004 | June 30, 2004 | |||||
| (Unaudited) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 107,975 | $ | 177,919 | ||
Trade receivables, net | 207,541 | 141,297 | ||||
Income tax refund claims receivable | 549 | — | ||||
Inventories: | ||||||
Finished goods | 234,853 | 111,351 | ||||
Goods in process | 9,653 | 3,609 | ||||
Raw materials | 77,143 | 36,156 | ||||
Packaging materials | 123,975 | 124,846 | ||||
Prepaid expenses | 3,245 | 2,940 | ||||
Total current assets | 764,934 | 598,118 | ||||
PROPERTY AND EQUIPMENT - NET | 241,387 | 180,198 | ||||
TOTAL ASSETS | $ | 1,006,321 | $ | 778,316 | ||
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, 2004 | June 30, 2004 | |||||||
| (Unaudited) | ||||||||
CURRENT LIABILITIES | ||||||||
Note payable - bank (Note 3) | $ | 80,010 | $ | — | ||||
Notes payable - Series B | 7,032 | 7,032 | ||||||
Accounts payable | 277,400 | 94,651 | ||||||
Accrued expenses | 38,997 | 27,930 | ||||||
Income taxes payable | — | 24,852 | ||||||
Total current liabilities | 403,439 | 154,465 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock issued and outstanding: | ||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||
Series A (liquidation preference $1,897,500 and $1,890,000 respectively) | 500,000 | 500,000 | ||||||
Series B (liquidation preference $1,852,500 and $1,845,000 respectively) | 500,000 | 500,000 | ||||||
Cumulative preferred stock, $20 par value | ||||||||
Series A (liquidation preference $4,389,974 and $4,375,341 respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (liquidation preference $715,426 and $713,041 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 | (5,863,114 | ) | (5,842,145 | ) | ||||
Total stockholders’ equity | 602,882 | 623,851 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,006,321 | $ | 778,316 | ||||
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 | ||||||||
| 2004 | 2003 | |||||||
NET SALES | $ | 501,955 | $ | 375,778 | ||||
COST OF SALES | 386,118 | 281,587 | ||||||
Gross profit on sales | 115,837 | 94,191 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 59,173 | 48,823 | ||||||
General and administrative expenses | 82,101 | 69,156 | ||||||
Total operating expenses | 141,274 | 117,979 | ||||||
Loss from operations | (25,437 | ) | (23,788 | ) | ||||
OTHER INCOME (EXPENSE) | (753 | ) | 3,493 | |||||
Net loss before income taxes | (26,190 | ) | (20,295 | ) | ||||
CREDIT FOR INCOME TAXES | (5,221 | ) | (1,484 | ) | ||||
NET LOSS | (20,969 | ) | (18,811 | ) | ||||
Preferred dividends | (32,018 | ) | (32,018 | ) | ||||
Net loss applicable to common stockholders | $ | (52,987 | ) | $ | (50,829 | ) | ||
NET LOSS PER SHARE OF COMMON STOCK - BASIC | $ | (.05 | ) | $ | (.05 | ) | ||
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 | ||||||||
| 2004 | 2003 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (20,969 | ) | $ | (18,811 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 11,877 | 9,071 | ||||||
Provision for bad debts | 1,065 | 1,605 | ||||||
Effects of changes in operating assets and liabilities: | ||||||||
Trade receivables | (67,309 | ) | (2,208 | ) | ||||
Income tax refund claims receivable | (549 | ) | — | |||||
Inventories | (169,662 | ) | (193,744 | ) | ||||
Prepaid expenses | (305 | ) | 13,558 | |||||
Accounts payable | 182,749 | 185,557 | ||||||
Accrued expenses | 11,067 | 684 | ||||||
Income taxes payable | (24,852 | ) | — | |||||
Net cash used in operating activities | (76,888 | ) | (4,288 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property and equipment | (73,066 | ) | — | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from note payable – bank | 80,810 | — | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (69,944 | ) | (4,288 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 177,919 | 138,806 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 107,975 | $ | 134,518 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash payments for: | ||||||||
Income taxes | $ | 20,180 | $ | 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, 2004 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, 2004 and for the three months ended September 30, 2003 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-KSB for the year ended June 30, 2004. The results of operations and cash flows for the three months ended September 30, 2004 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2005. 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 | ||||||||
| 2004 | 2003 | |||||||
Net loss | $ | (20,969 | ) | $ | (18,811 | ) | ||
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 | $ | (52,987 | ) | $ | (50,829 | ) | ||
Weighted average of outstanding common shares | 969,834 | 969,834 | ||||||
Net loss per share - basic | $ | (.05 | ) | $ | (.05 | ) | ||
No computation was made on common stock equivalents outstanding because loss per share would be anti-dilutive.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTE 2 - NET LOSS PER SHARE (CONTINUED)
Cumulative Preferred Stock dividends in arrears at September 30, 2004 and 2003, totaled $6,443,960 and $6,315,888, respectively. Total dividends in arrears, on a per share basis, consist of the following at September 30:
Three Months Ended September 30 | ||||||
| 2004 | 2003 | |||||
6% Convertible | ||||||
Series A | $ | 14 | $ | 13 | ||
Series B | 13 | 13 | ||||
5% Convertible | ||||||
Series A | 55 | 54 | ||||
Series B | 55 | 54 | ||||
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.
NOTE 3 - NOTES PAYABLE - BANK
Effective July 16, 2004 the Company entered into a line-of-credit agreement with a financial institution with an original maturity date of October 15, 2004. Effective October 5, 2004 the line-of-credit agreement was renewed to increase the available borrowings from $80,010 to $120,000 and extend the maturity date to December 15, 2004. The line-of-credit is collateralized by certain equipment and bears interest at an annual rate of 5.5%. At September 30, 2004 the outstanding balance on the line-of-credit was $80,010.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made to the 2003 presentation to conform to the 2004 presentation. The reclassifications had no effect on net income or shareholders’ equity.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management’s Discussion and Analysis or Plan of Operation 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 6 of the Annual Report on Form 10-KSB for the year ended June 30, 2004.
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 Ended September 30 | ||||||
| 2004 | 2003 | |||||
Net sales | 100 | % | 100 | % | ||
Cost of sales | 77 | 75 | ||||
Gross profit | 23 | 25 | ||||
Operating expenses | 28 | 31 | ||||
Net loss from operations | (5 | ) | (6 | ) | ||
Net loss before income taxes | (5 | ) | (5 | ) | ||
Credit for income taxes | (1 | ) | — | |||
Net loss | (4 | )% | (5 | )% | ||
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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 $126,177 or 34% for the three months ended September 30, 2004 to $501,955 compared to $375,778 for the three months ended September 30, 2003. Gross sales for Chase Candy Company increased $98,778 to $460,510 for the three months ended September 30, 2004 compared to $361,732 for 2003. Gross sales for Poe Candy Company increased $33,397 to $47,418 for the three months ended September 30, 2004 compared to $14,021 for 2003.
The overall increase in net sales for the three month period ended September 30, 2004 is primarily due to expansion of the sales market and its website sales. In addition, the Poe 2004 sales increase is a result of timing of shipments to several customers who received orders in September, 2004 while in prior years delivery was in October.
COST OF SALES
The cost of sales increased $104,531 to $386,118 increasing to 77% of related revenues for the three months ended September 30, 2004, compared to $281,587 or 75% of related revenues for the three months ended September 30, 2003.
This dollar increase in cost of sales is in direct relationship to the increased volume of sales. The overall increase in net sales for the three months ended September 30, 2004, more than offset the increase in cost of sales as described in net sales. Included in the cost of sales are labor rate increases of 3-4% along with shipping cost increases of 15%.
SELLING EXPENSES
Selling expenses for the three months ended September 30, 2004 increased $10,350 to $59,173, and decreased to 12% of sales, compared to $48,832 or 13% of sales for the three months ended September 30, 2003. The increase in selling expenses are due to the Company’s increased sales and marketing activity. Commissions increased 49% to $14,243 for the three months ended September 30, 2004, which correlates to the increase in net sales as described above.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended September 30, 2004 increased $12,945 to $82,101, and decreased to 16% of sales, compared to $69,156 or 18% of sales for the three months ended September 30, 2003. The increased costs are due to increased professional 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 and expense decreased by $4,246 for the three months ended September 30, 2004 to $(753), compared to $3,493 for the three months ended September 30, 2003. This decrease was due to a decrease in miscellaneous income of $3,689 and an increase in interest expense of $508 due to obtaining bank financing during quarter ended September 30, 2004.
CREDIT FOR INCOME TAXES
The Company recorded a tax benefit for the three months ended September 30, 2004 of $5,221 as compared to a tax benefit of $1,484 for the three months ended September 30, 2003. This increase of $3,737 was due to higher loss for the current period to carry back to prior periods.
NET LOSS
The Company reported a net loss for the quarter ended September 30, 2004 of $20,969, compared to a net loss of $18,811 for the quarter ended September 30, 2003. This increase of $2,158 is explained above.
PREFERRED DIVIDENDS
These amounts reflect additional preferred stock dividends in arrears for the three months ended September 30, 2004 and 2003, 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, 2004 was $(52,987) which is an increase of $2,158 as compared to the three months ended September 30, 2003. The increase is explained above.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 2004, the Company obtained bank financing totaling $80,010, of which $68,730 was used to complete the purchase of a new bagger machine and $11,280 was used to fund operations.
The Company’s series B notes to a related party are expected to be paid in full on December 20, 2004 at the current 6% rate of interest. Net cash provided by financing activities was $80,010 and $-0- for the three months ended September 30, 2004 and 2003, respectively.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company’s lease on its office and plant facility is effective through March 31, 2005 at $2,955 per month. The Company has decided not to renew this lease. The Company will lease a new office/warehouse facility from a Company, owned by one of the Company’s directors. The facility is currently being built with intended occupancy March 1, 2005.
The Company believes after obtaining an additional $40,000 bank financing in October 2004, it will have sufficient resources to finance its current operations for at least the next twelve months through working capital. Cash and cash equivalents decreased $69,944 to $107,975 at September 30, 2004 from $177,919 at June 30, 2004. To date, there are no material commitments by the Company for capital expenditures. At September 30, 2004, the Company’s accumulated deficit was $5,863,114, compared to accumulated deficit of $5,842,145 as of June 30, 2004. Working capital as of September 30, 2004 decreased 18.5% to $361,495 from $443,653 as of June 30, 2004.
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.
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.
12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
| a. | None |
| b. | The total cumulative preferred stock dividends contingency at September 30, 2004 is $6,443,960. |
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. |
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 9, 2004
By: | /S/ BARRY M. YANTIS | |
| Barry M. Yantis | ||
| President, Chief Executive Officer, | ||
| Treasurer and Chairman of the | ||
| Board |
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