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 March 31, 2008
| ¨ | 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.) |
1307 South 59th, St. Joseph, Missouri 64507
(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 12, 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 ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
As of April 30, 2008, 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 March 31, 2008
2
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
| March 31, 2008 | June 30, 2007 | |||||
| (Unaudited) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 21,878 | $ | 22,232 | ||
Trade receivables, net | 133,725 | 182,345 | ||||
Inventories: | ||||||
Finished goods | 47,254 | 68,079 | ||||
Goods in process | 10,441 | 2,279 | ||||
Raw materials | 54,867 | 23,396 | ||||
Packaging materials | 172,942 | 119,341 | ||||
Prepaid expenses | 3,410 | 6,500 | ||||
Deferred income taxes | 32,000 | 3,961 | ||||
Total current assets | 476,517 | 428,133 | ||||
PROPERTY AND EQUIPMENT—NET | 290,336 | 290,595 | ||||
OTHER ASSETS | ||||||
Deferred income taxes—noncurrent | — | 11,789 | ||||
TOTAL ASSETS | $ | 766,853 | $ | 730,517 | ||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
| March 31, 2008 | June 30, 2007 | |||||||
| (Unaudited) | ||||||||
CURRENT LIABILITIES | ||||||||
Current maturities of forgivable loan—bank | $ | 5,000 | $ | 5,000 | ||||
Current maturities of vehicle loan | 12,007 | — | ||||||
Notes payable—stockholder | 30,000 | 45,000 | ||||||
Accounts payable | 71,760 | 168,562 | ||||||
Accrued expenses | 16,405 | 22,764 | ||||||
Deferred income | 1,299 | 1,299 | ||||||
Total current liabilities | 136,471 | 242,625 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred income | 10,779 | 6,753 | ||||||
Deferred income taxes | 13,015 | — | ||||||
Forgivable loan—bank, less current maturities | 5,000 | 10,000 | ||||||
Vehicle loan—less current maturities | 24,014 | — | ||||||
Total long-term liabilities | 52,808 | 16,753 | ||||||
Total liabilities | 189,279 | 259,378 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock issued and outstanding: | ||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||
Series A (liquidation preference $2,002,500 and $1,980,000 respectively) | 500,000 | 500,000 | ||||||
Series B (liquidation preference $1,957,500 and $1,935,000 respectively) | 500,000 | 500,000 | ||||||
Cumulative preferred stock, $20 par value | ||||||||
Series A (liquidation preference $4,594,836 and $4,550,937 respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (liquidation preference $748,816 and $741,661 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 | (5,888,422 | ) | (5,994,857 | ) | ||||
Total stockholders’ equity | 577,574 | 471,139 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 766,853 | $ | 730,517 | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31 | ||||||||
| 2008 | 2007 | |||||||
NET SALES | $ | 390,808 | $ | 285,440 | ||||
COST OF SALES | 363,993 | 300,872 | ||||||
Gross profit (loss) on sales | 26,815 | (15,432 | ) | |||||
OPERATING EXPENSES | ||||||||
Selling expense | 63,056 | 51,685 | ||||||
General and administrative expenses | 62,751 | 92,832 | ||||||
Total operating expenses | 125,807 | 144,517 | ||||||
Loss from operations | (98,992 | ) | (159,949 | ) | ||||
OTHER INCOME (EXPENSE) | 427 | 918 | ||||||
Net loss before income taxes | (98,565 | ) | (159,031 | ) | ||||
PROVISION FOR INCOME TAXES (BENEFITS) | (28,265 | ) | (43,043 | ) | ||||
NET LOSS | (70,300 | ) | (115,988 | ) | ||||
Preferred dividends | (32,018 | ) | (32,018 | ) | ||||
Net loss applicable to common stockholders | $ | (102,318 | ) | $ | (148,006 | ) | ||
NET LOSS PER SHARE OF COMMON STOCK—BASIC | $ | (.11 | ) | $ | (.15 | ) | ||
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)
| Nine Months Ended March 31 | ||||||||
| 2008 | 2007 | |||||||
NET SALES | $ | 2,273,288 | $ | 1,932,342 | ||||
COST OF SALES | 1,675,049 | 1,474,375 | ||||||
Gross profit on sales | 598,239 | 457,967 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 263,131 | 216,498 | ||||||
General and administrative expenses | 228,261 | 299,258 | ||||||
Total operating expenses | 491,392 | 515,756 | ||||||
Income (loss) from operations | 106,847 | (57,789 | ) | |||||
OTHER INCOME (EXPENSE) | (3,647 | ) | (1,545 | ) | ||||
Net income (loss) before income taxes | 103,200 | (59,334 | ) | |||||
PROVISION FOR INCOME TAXES (BENEFITS) | (3,235 | ) | (18,088 | ) | ||||
NET INCOME (LOSS) | 106,435 | (41,246 | ) | |||||
Preferred dividends | (96,054 | ) | (96,054 | ) | ||||
Net income (loss) applicable to common stockholders | $ | 10,381 | $ | (137,300 | ) | |||
NET INCOME (LOSS) PER SHARE OF COMMON STOCK—BASIC | $ | .01 | $ | (.14 | ) | |||
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)
| Nine Months Ended March 31 | ||||||||
| 2008 | 2007 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | 106,435 | $ | (41,246 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 43,954 | 43,106 | ||||||
Provision for bad debts | 900 | 900 | ||||||
Deferred income amortization | (974 | ) | (974 | ) | ||||
Deferred income taxes | (3,235 | ) | (18,088 | ) | ||||
Effects of changes in operating assets and liabilities: | ||||||||
Trade receivables | 47,720 | (551 | ) | |||||
Income tax refund claims receivable | — | 29,197 | ||||||
Inventories | (72,409 | ) | (47,838 | ) | ||||
Prepaid expenses | 3,090 | 4,792 | ||||||
Accounts payable | (96,802 | ) | 46,581 | |||||
Accrued expenses | (6,360 | ) | 1,598 | |||||
Net cash provided by operating activities | 22,319 | 17,477 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Decrease in advance to officer | — | 9,000 | ||||||
Purchases of equipment | (7,673 | ) | — | |||||
Net cash provided by (used in) investing activities | (7,673 | ) | 9,000 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from line-of-credit | 250,000 | — | ||||||
Principal payments on line-of-credit | (250,000 | ) | — | |||||
Proceeds from stockholder notes payable | 50,000 | — | ||||||
Principal payments on stockholder notes payable | (65,000 | ) | — | |||||
Net cash (used in) financing activities | (15,000 | ) | — | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (354 | ) | 26,477 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 22,232 | 26,558 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 21,878 | $ | 53,035 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash payments for: | ||||||||
Income taxes, net of (refunds) | $ | — | $ | (29,197 | ) | |||
Interest | $ | 5,312 | $ | 3,502 | ||||
Non-cash transactions: | ||||||||
Reclass of forgivable loan to deferred income | $ | 5,000 | $ | 5,000 | ||||
Purchase of vehicle with loan proceeds | $ | 36,021 | $ | — | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
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, 2007 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 and nine months ended March 31, 2008 and for the three months and nine months ended March 31, 2007 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, 2007. The results of operations for the three months and nine months ended March 31, 2008 and cash flows for the nine months ended March 31, 2008 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2008. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation.
NOTE 2—NET INCOME (LOSS) PER SHARE
The basic income (loss) per share was computed on the weighted average of outstanding common shares as follows:
| Three Months Ended March 31 | Nine Months Ended March 31 | ||||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||||
Net income (loss) | $ | (70,300 | ) | $ | (115,988 | ) | $ | 106,435 | $ | (41,246 | ) | ||||
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 income (loss) common stockholders | $ | (102,318 | ) | $ | (148,006 | ) | $ | 10,381 | $ | (137,300 | ) | ||||
Weighted average of outstanding common shares | 969,834 | 969,834 | 969,834 | 969,834 | |||||||||||
Net income (loss) per share—basic | $ | (.11 | ) | $ | (.15 | ) | $ | .01 | (.14 | ) | |||||
No computation was made on common stock equivalents outstanding because loss per share would be anti-dilutive.
8
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2—NET INCOME (LOSS) PER SHARE(CONTINUED)
Cumulative Preferred Stock dividends in arrears at March 31, 2008 and 2007, totaled $6,892,212 and $6,764,140, respectively. Total dividends in arrears, on a per share basis, consist of the following at March 31:
| Nine Months Ended March 31 | ||||||
| 2008 | 2007 | |||||
6% Convertible | ||||||
Series A | $ | 15 | $ | 14 | ||
Series B | 14 | 14 | ||||
5% Convertible | ||||||
Series A | 59 | 58 | ||||
Series B | 59 | 58 | ||||
The 6% 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—FORGIVABLE LOAN AND DEFERRED INCOME
During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank has established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of December 31, 2009. The Company has met the criteria of occupying a 20,000 square foot building and the criteria of creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs for three years thereafter and will be required to do so until the five year term has expired. Once the Company is no longer legally required to return the monies, the liability will be reclassified as deferred revenue and amortized into income over the life on the lease term of the new facility. At March 31, 2008 and June 30, 2007, $15,000 and $10,000, respectively, has been reclassified to deferred revenue. During the nine months ended March 31, 2008 and 2007, $974 and $974, has been amortized into income, respectively.
9
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4—NOTE PAYABLE—VEHICLE
The Company has a note that requires monthly payments of $1,001 for 36 months at -0-% interest rate, secured by the vehicle.
Future minimum payments are:
2008 | $ | 3,003 | |
2009 | 12,007 | ||
2010 | 12,007 | ||
2011 | 9,004 | ||
Total | $ | 36,021 | |
NOTE 5—NOTE PAYABLE—BANK
Effective July 20, 2007, the Company had a $250,000 line-of-credit agreement which expired on January 1, 2008. This line-of-credit agreement was renewed on that date to extend until January 1, 2009 at an annual rate of 7.25%. The line-of-credit was collateralized by certain equipment. At March 31, 2008, the outstanding balance on the line-of-credit was $-0-. There were no outstanding borrowings on the line-of-credit at June 30, 2007.
NOTE 6—NOTES PAYABLE—STOCKHOLDER
The Company borrowed $45,000 from a stockholder/officer during fiscal year ended June 30, 2007 and $50,000 during the nine months ended March 31, 2008, which $65,000 was repaid by March 31, 2008. These unsecured loans had no maturity date and carried a 5% annual interest rate. The outstanding balance at March 31, 2008 was $30,000. Interest expense on stockholder/officer notes was $1,367 and $-0- for the nine months ending March 31, 2008 and 2007, respectively.
NOTE 7—PROVISION FOR INCOME TAXES
The Company had a net operating loss carryforward of approximately $203,000 as of June 30, 2007. Based on the available objective evidence available at March 31, 2008, it was determined more likely than not, that the full loss would be fully utilized. Therefore, no allowance was recorded for the nine months ended March 31, 2008 as compared to $100,000 at June 30, 2007. The deferred income taxes for the nine months ended March 31, 2008 increased $3,235 to $18,985 compared to $15,750 at June 30, 2007.
10
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7—PROVISION FOR INCOME TAXES (CONTINUED)
The net deferred tax assets (liability) are presented in the accompanying balance sheets as follows:
| 2008 | 2007 | |||||
Current deferred tax asset | $ | 32,000 | $ | 3,961 | ||
Noncurrent deferred tax asset | — | 11,789 | ||||
Long-term deferred tax liability | 13,015 | — | ||||
Net deferred tax assets | $ | 18,985 | $ | 15,750 | ||
NOTE 8—RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued Interpretation No. 48“Accounting for Uncertainty in Income Taxes”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,“Accounting for Income Taxes”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure. The Company adopted FIN 48 as of July 1, 2007. The adoption of FIN 48 had no impact on the Company’s financial statements for the nine months ended March 31, 2008.
Interest and penalties related to uncertain tax positions are recognized in general and administrative expense. As of March 31, 2008, no provisions for accrued interest and penalties related to uncertain tax positions have been recorded.
11
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8—RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“ SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. This statement clarifies that market participant assumptions include assumptions about risk. A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability, even if the adjustment is difficult to determine. This statement also clarifies that market participant assumptions should also include assumptions about the effect of a restriction on the sale or use of an asset. This statement clarifies that fair value measurement for a liability should reflect nonperformance risk (the risk that the obligation will not be fulfilled). This statement expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value and for recurring fair value measurements using significant unobservable inputs and the effect of the measurements on earnings (or changes in net assets) for the period. SFAS No. 157 is effective for financial statements issue for fiscal years beginning after November 15, 2007. The Company is evaluating the impact that SFAS No. 157 may have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159.The Fair Value Option of Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that use different measurements for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption allowed if SFAS No. 157 is also adopted. The Company is currently evaluating the impact of adopting SFAS No. 159 on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS 141R”) and SFAS No. 160,Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements (“SFAS 160”). These statements significantly change the accounting for and reporting of business combinations and noncontrolling (minority) interests in consolidated financial statements. These statements will require noncontrolling interests to be reclassified to equity, consolidated net income to be adjusted to include net income attributed to the noncontrolling interest, and consolidated comprehensive income to be adjusted to include the comprehensive income attributed to the noncontrolling interest. SFAS 141R and SFAS 160 are required to be adopted simultaneously. SFAS 141 is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. SFAS 160 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted except for the presentation and disclosure requirements which will be applied retrospectively for all periods. Early adoption is prohibited. The Company is currently evaluating the impact of adopting SFAS 141R and SFAS 160 on its consolidated financial statements.
12
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, 2007.
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 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.
13
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.—MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
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 March 31 | Nine Months Ended March 31 | |||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Cost of sales | 93 | 105 | 74 | 76 | ||||||||
Gross profit (loss) | 7 | (5 | ) | 26 | 24 | |||||||
Operating expenses | 32 | 51 | 22 | 27 | ||||||||
Income (Loss) from operations | (25 | ) | (56 | ) | 4 | (3 | ) | |||||
Net income (loss) before income taxes | (25 | ) | (56 | ) | 5 | (3 | ) | |||||
Benefit for income taxes | (7 | ) | (15 | ) | — | (1 | ) | |||||
Net income (loss) | (18 | )% | (41 | )% | 5 | % | (2 | )% | ||||
NET SALES
Net sales increased $105,368 or 37% for the three months ended March 31, 2008 to $390,808 compared to $285,440 for the three months ended March 31, 2007. Gross sales for Chase Candy increased $108,816 to $392,406 for the three months ended March 31, 2008 compared to $283,590 for 2007. Gross sales for Seasonal Candy increased $4,218 to $18,397 for the three months ended March 31, 2008 compared to $14,179 for 2007.
Net sales increased $340,946 or 18% for the nine months ended March 31, 2008 to $2,273,288 compared to $1,932,342 for the nine months ended March 31, 2007. Gross sales for Chase Candy increased $86,438 to $1,122,504 for the nine months ended March 31, 2008 compared to $1,036,066 for 2007. Gross sales for Seasonal Candy increased $266,410 to $1,191,772 for the nine months ended March 31, 2008 compared to $925,362 for 2007.
14
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.—MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
COST OF SALES
The cost of sales increased $63,121 to $363,993 decreasing to 93% of related revenues for the three months ended March 31, 2008, compared to $300,872 or 105% of related revenues for the three months ended March 31, 2007. The cost of sales increased $200,674 to $1,675,049 decreasing to 74% of related revenues for the nine months ended March 31, 2008, compared to $1,474,375 or 76% of related revenues for the nine months ended March 31, 2007.
The increase in cost of sales is a 21% increase which is proportionate to the 37% increase in net sales for the three months ended December 31, 2008 as reflected above. Direct cost of goods for materials manufactured and production labor force for the three months ended March 31, 2008 increased $15,982 to $214,270 as compared to $198,288 for the three months ended March 31, 2007 as a result of raw material price increases for: sugar—4 cents per pound; peanuts—8 cents per pound along with a 4% raise for the production labor force.
Direct costs of goods for materials manufactured and production labor force for the nine months ended March 31, 2008 increased $185,340 to $1,159,125 as compared to $973,785 for the nine months ended March 31, 2007 which also is a result of the increased pricing as explained for the three month period ended March 31, 2008.
Finished goods inventory for the three months ended March 31, 2008 of $47,254, decreased $20,825 or 31% of the June 30, 2007 finished goods inventory of $68,079. The decrease reflects the Company not having to build and store inventory to meet delivery deadlines, but has the capacity to produce inventory just in time for delivery. Raw material inventory of $54,867 and packaging materials inventory of $172,942 is 60% higher than the June 30, 2007 inventories of $23,396 and $119,341, respectively, as a result of purchasing inventory at competitive prices, but not all of this inventory was used during the third quarter ending March 31, 2008.
SELLING EXPENSES
Selling expenses for the three months ended March 31, 2008 increased $11,371 to $63,056, which is 16% of sales, compared to $51,685 or 18% of sales for the three months ended March 31, 2007. Selling expenses for the nine months ended March 31, 2008 increased $46,633 to $263,131, which is 12% of sales, compared to $216,498 or 11% of sales for the nine months ended March 31, 2007.
The increase of $11,371 in selling expenses for the three months ended March 31, 2008 is due to higher commissions being paid and sample costs for the period. Commissions and sample costs increased 105% to $28,226 for this period from $13,776 for the three months ended December 31, 2007.
The increase of $46,633 in selling expenses for the nine months ended March 31, 2008 is also due to higher commissions being paid as a result of increased sales along with sample costs for this period. Commissions and sample costs increased 49% to $113,563 for this period from $76,136 for the nine months ended March 31, 2007.
15
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.—MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 2008 decreased $30,081 to $62,751, and decreased to 16% of sales, compared to $92,832 or 33% of sales for the three months ended March 31, 2007. General and administrative expenses for the nine months ended March 31, 2008 decreased $70,997 to $228,261, and decreased to 10% of sales, compared to $299,258 or 15% of sales for the nine months ended March 31, 2007. The decreased costs are due to decreased professional fees, of which $88,800 were in connection with legal proceedings settled in the prior fiscal year.
OTHER INCOME (EXPENSE)
Other income and expense decreased by $491 for the three months ended March 31, 2008 to $427, compared to $918 for the three months ended March 31, 2007. Other income and expense increased by $(2,102) for the nine months ended March 31, 2008 to $(3,647), compared to $(1,545) for the nine months ended March 31, 2007. This was primarily due to an increase in interest expense.
PROVISION FOR INCOME TAXES (BENEFITS)
The Company recorded a tax (benefit) for the three months ended March 31, 2008 of $(28,265) as compared to $(43,043) for the three months ended March 31, 2007. The Company recorded a tax (benefit) for the nine months ended March 31, 2008 of $(3,235) as compared to $(18,088) for the nine months ended March 31, 2007. The Company had incurred losses for the past two years, which is not available to carry back and obtain previously paid income taxes. This loss can be partially utilized against taxable income for the nine months ended March 31, 2008. Based on available objective evidence, management estimates it is more likely than not, that the net deferred tax asset will be fully realizable in the next fiscal year, so no valuation allowance has been reported. The net change in deferred taxes for the three months and nine months ended March 31, 2008 was $(26,163) and $(3,235), respectively.
NET INCOME (LOSS)
The Company reported a net loss for the three months ended March 31, 2008 of $(70,300), compared to a net loss of $(115,988) for the nine months ended March 31, 2007. This decrease of $45,688 is explained above.
The Company reported a net income for the nine months ended March 31, 2008 of $106,435, compared to a net loss of $(41,246) for the nine months ended March 31, 2007. This increase of $147,681 is explained above.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.—MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
PREFERRED DIVIDENDS
These amounts reflect additional preferred stock dividends in arrears for the three and nine months ended March 31, 2008 and 2007, 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 INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
Net loss applicable to common stockholders for the three months ended March 31, 2008 was $(102,318) which is a decrease of $45,688 as compared to the three months ended March 31, 2007 of $(148,006).
Net income applicable to common stockholders for the nine months ended March 31, 2008 was $10,381 which is an increase of $147,681 as compared to the net loss for the nine months ended March 31, 2007 of $(137,300). These items are explained above.
LIQUIDITY AND CAPITAL RESOURCES
Positive cash flows from operating activities were generated for the nine months ended March 2008 in the amount of $22,319. The positive cash flow is to be expected during this time period, since this is the slow season for the Company as reflected in decreased accounts payable of $96,802 and accrued expenses of $6,360 from June 30, 2007 fiscal year end balances of $168,562 accounts payable and $22,764 accrued expenses. The cash flows from investing activities included equipment purchases of $7,763. The cash flows from financing activities included borrowings from and payments on the line-of-credit of $250,000 and proceeds from borrowings from a stockholder of $50,000 and payments on notes payable to a stockholder of $65,000, which results in net cash used in financing activities of $15,000 for the nine months ended March 31, 2008. Positive cash flows were generated for the nine months ended March 2007 in the amount of $17,477 from operating activities and $9,000 from investing activities.
Overall cash and cash equivalents decreased $(354) to $21,878 at March 31, 2008 from $22,232 at June 30, 2007.
To date, there are no material commitments by the Company for capital expenditures. At March 31, 2008, the Company’s accumulated deficit was $5,888,421, compared to accumulated deficit of $5,994,857 as of June 30, 2007. Working capital as of March 31, 2008 increased 83% to $340,047 from $185,508 as of June 30, 2007.
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.
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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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| a. | None |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
| a. | None |
| b. | The total cumulative preferred stock dividends contingency at March 31, 2008 is $6,892,212. |
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. | |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHASE GENERAL CORPORATION
Registrant
| Dated: May 8, 2008 | By: | /s/ Barry M. Yantis | ||
| Barry M. Yantis | ||||
| President, Chief Executive Officer, Treasurer and Chairman of the Board |
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