FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 Commission File Number 2-5916 CHASE GENERAL CORPORATION (Exact name of registrant as specified in its Charter) Missouri 36-2667734 State incorporation I.R.S. Employer Identification Number 3600 Leonard Road, St. Joseph, Missouri 64503 (Address of principal executive offices) (Zip Code) (816) 279-1625 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports, required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of February 1, 1999 indicate the number of shares outstanding of the issuer's Common Stock, as of the latest practicable date: 969,834 shares of the Company's common stock ($1.00 par value) were outstanding. CHASE GENERAL CORPORATION Index PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets - December 31, 1998 (Unaudited) and June 30, 1998 . . . . . . . . . . . .3 Consolidated Condensed Statements of Operations Six months ended December 31, 1998 and 1997 (Unaudited) . . . . . . . . . . . . . . . . . . . . .5 Consolidated Condensed Statements of Operations Three months ended December 31, 1998 and 1997 (Unaudited) . . . . . . . . . . . . . . . . . . . . .6 Consolidated Condensed Statements of Cash Flows Six months ended December 31, 1998 and 1997 (Unaudited) . . . . . . . . . . . . . . . . . . . . .7 Notes to Consolidated Condensed Financial Statements. . . .8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . .9 PART II - OTHER INFORMATION Item 3. Defaults Upon Senior Securities. . . . . . . . . 10 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 10 PART I - FINANCIAL INFORMATION CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS DECEMBER 31, 1998 AND JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 1998 (Unaudited) CURRENT ASSETS Cash $ 335,004 $ 161,093 Trade receivables, net of allowance 110,453 94,514 Income tax receivable -- 24,710 Inventories: Finished goods 9,834 47,397 Goods in process 4,421 3,633 Raw materials 64,371 81,377 Packaging materials 90,169 79,006 Prepaid expense 1,824 35,549 Prepaid income taxes -- 1,000 Total current assets 616,076 528,279 PROPERTY AND EQUIPMENT - AT COST 1,023,603 1,016,799 Less accumulated depreciation 800,853 774,080 Total property and equipment 222,750 242,719 TOTAL ASSETS $ 838,826 $ 770,998 LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31, JUNE 30, 1998 1998 (Unaudited) CURRENT LIABILITIES Accounts payable $ 25,664 $ 59,194 Accrued expense 16,572 34,928 Estimated liability for income taxes 45,273 -- Total current liabilities 87,509 94,122 LONG-TERM LIABILITIES Notes payable, Series B 162,672 185,305 Total liabilities 250,181 279,427 STOCKHOLDERS' EQUITY Capital stock issued and outstanding: Prior cumulative preferred stock, $5 par value: Series A (liquidation preference $1,200,000 and $1,185,000 respectively) 500,000 500,000 Series B (liquidation preference $1,155,000 and $1,140,000 respectively) 500,000 500,000 Cumulative preferred stock, $20 par value: Series A (liquidation preference $2,882,750 and $2,853,484 respectively) 1,170,660 1,170,660 Series B (liquidation preference $469,796 and $465,026 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 Retained earnings (deficit) (5,877,351) (5,974,425) Total stockholders' equity 588,645 491,571 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 838,826 $ 770,998 See notes to consolidated condensed financial statements. CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) SIX MONTHS ENDED DECEMBER 31 1998 1997 NET SALES $1,481,011 $1,532,910 COST OF SALES 1,106,689 1,149,005 Gross profit 374,322 383,905 OPERATING EXPENSES Selling expense 151,021 170,514 General and administrative expense 77,155 88,582 Total operating expenses 228,176 259,096 Income from operations 146,146 124,809 OTHER INCOME (EXPENSE) (2,799) (4,944) Income before income taxes 143,347 119,865 PROVISION FOR INCOME TAXES 46,273 36,748 NET INCOME $ 97,074 $ 83,117 EARNINGS PER SHARE $ .03 $ .02 See notes to consolidated condensed financial statements. CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED DECEMBER 31 1998 1997 NET SALES $1,089,310 $1,055,758 COST OF SALES 801,641 782,343 Gross profit 287,669 273,415 OPERATING EXPENSES Selling expense 96,262 102,361 General and administrative expense 38,961 43,793 Total operating expenses 135,223 146,154 Income from operations 152,446 127,261 OTHER INCOME (EXPENSE) (2,152) (2,772) Income before income taxes 150,294 124,489 PROVISION FOR INCOME TAXES 47,659 37,670 NET INCOME $ 102,635 $ 86,819 EARNINGS PER SHARE $ .07 $ .06 See notes to consolidated condensed financial statements. CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) SIX MONTHS ENDED DECEMBER 31 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 97,074 $ 83,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,773 30,454 Provision for doubtful accounts 3,210 3,210 Effects of changes in operating assets and liabilities: Trade accounts receivable (19,149) (32,381) Income taxes receivable 24,710 -- Inventory 42,618 61,647 Prepaid expenses 34,725 43,357 Accounts payable (33,530) (10,188) Accrued liabilities 26,917 10,944 Net cash provided by operating activities 203,348 190,160 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (6,804) (24,498) Net cash used in investing activities (6,804) (24,498) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (22,633) (28,648) Net cash used in financing activities (22,633) (28,648) NET INCREASE IN CASH 173,911 137,014 CASH, BEGINNING OF PERIOD 161,093 141,657 CASH, END OF PERIOD $ 335,004 $278,671 See notes to consolidated condensed financial statements. CHASE GENERAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Interim results are not necessarily indicative of results for a full year. A summary of the Company's significant accounting policies is presented on pages 8 and 9 (not shown) of its 1998 Annual Report to Shareholders. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the Annual Report to Shareholders when reviewing interim financial results. There has been no material change in the accounting policies followed by the Company during the quarter and six months ended December 31, 1998. In the opinion of management, the accompanying interim consolidated condensed financial statements contain all adjustments necessary to present fairly Chase General Corporation's financial position as of December 31, 1998 and June 30, 1998 and the results of its operations for the six months and three months ended December 31, 1998 and 1997, and its cash flows for the six months ended December 31, 1998 and 1997. NOTE 2 - EARNINGS PER SHARE The earnings per share was computed on the weighted average of outstanding common shares as follows: SIX MONTHS ENDED THREE MONTHS ENDED DECEMBER 31 DECEMBER 31 1998 1997 1998 1997 Net income $97,074 $83,117 $102,635 $86,819 Preferred dividend requirements: 6% Prior Cumulative Preferred, $5 par value 30,000 30,000 15,000 15,000 5% Convertible Cumulative Preferred, $20 par value 34,036 34,036 17,018 17,018 Total dividend requirements 64,036 64,036 32,018 32,018 Net income common shareholders $33,038 $19,081 $ 70,617 $54,801 Weighted average of outstanding common shares 969,834 969,834 969,834 969,834 Earnings per share $ .03 $ .02 $ .07 $ .06 No computation was made on common stock equivalents outstanding because earnings per share would be anti-dilutive. ITEM 2 CHASE GENERAL CORPORATION AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Chase General and its wholly-owned subsidiary are engaged in the manufacture of confectionery products which are sold primarily to wholesale houses, grocery accounts, vendors, and repackers. RESULTS OF OPERATIONS Six Months ended December 31, 1998 and 1997 Sales: The Company had no unusual transactions for the six months ended December 31, 1998. The Company realized a gross profit margin of 25.27% for the six months ended December 31, 1998 as compared to 25.04% for the same period ended a year ago. Consolidated net sales for the six months ended December 31, 1998 of $1,481,011, were 3% under the $1,532,910 in 1998's first six months. No major customer was lost during this first six months. Expenses: Selling, general and administrative expenses were 15.4% of sales in the six months ended December 31, 1998 compared to 16.9% in the first six months of 1997. Interest expense continues to decrease because of debt retirement. Inventories at December 31, 1998 were $42,000 lower than at June 30, 1998 since the Company is entering their slow season of the year. In addition, accounts payable is $33,500 lower at December 31, 1998 compared to June 30, 1998, which also reflects the entrance into the Company's slower business cycle. Three Months ended December 31, 1998 and 1997 Sales: The Company realized a gross profit margin of 26.4% and 25.9% for the three months ended December 31, 1998 and 1997, respectively. Net sales increased 3% over the same period a year ago as a result of one customer ordering $20,000 - $25,000 of product in the current quarter of 1998 rather than the first quarter of the Company's fiscal year. No major customers were lost during this period. Expenses: Reduced brokerage activity for three months ended December 31, 1998 resulted in selling expenses decreasing 6% compared to selling expenses for the three months ended December 31, 1997. General and administrative expenses decreased 11% as a result of lower professional and insurance costs. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998, the Company has no commitments for capitalized expenditures. Cash increased $173,911 during the current six month period as a result of completing the busy season and controlling overhead. Working capital increased approximately $94,400 for the six month period. The officers of the corporation and legal counsel continue to discuss liquidity and capital resource options to resolve the $5.7 million cumulative preferred stock dividends in arrears. PART II. OTHER INFORMATION CHASE GENERAL CORPORATION AND SUBSIDIARY Item 3. DEFAULTS UPON SENIOR SECURITIES a. None b. The total cumulative preferred stock dividend in arrears at December 31, 1998 is $5,707,546. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits - None b. Reports on Form 8-K: There were no reports on Form 8-K filed during October, November, and December, 1998. SIGNATURES 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 /s/ Barry M. Yantis Date Barry M. Yantis President and Chief Financial Officer