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EX-32.1 - EXHIBIT 32.1 - CHASE GENERAL CORPt1600047_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - CHASE GENERAL CORPt1600047_ex31-1.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2015

 

¨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. Yes x    No ¨

 

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). Yes x    No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer  ¨ Accelerated filer  ¨
     
  Nonaccelerated filer  ¨      (Do not check if a smaller reporting company) Smaller reporting company  x

 

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 ¨    No x

 

As of February 11, 2016, there were 969,834 shares of common stock, $1.00 par value, outstanding.

 

 

 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2015

 

Part I Financial Information  
       
  Item 1. Condensed Consolidated Financial Statements  
       
    Condensed Consolidated Balance Sheets as of December 31, 2015 (unaudited) and June 30, 2015 1
       
    CONDENSED CONSOLIDATED STATEMENTS OF income FOR THE THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014  (UNAUDITED) 3
       
    CONDENSED CONSOLIDATED STATEMENTS OF income FOR THE SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014  (UNAUDITED) 4
       
    Condensed Consolidated Statements of Cash Flows for the six months ended december 31, 2015 and 2014 (unaudited) 5
       
    Notes to Condensed Consolidated Financial Statements (Unaudited) 6
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
       
  Item 4. Controls and Procedures 19
       
Part II Other Information  
       
  Item 1. Legal Proceedings 20
       
  Item 1A. Risk Factors 20
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
       
  Item 3. Defaults Upon Senior Securities 20
       
  Item 4. Mine Safety Disclosures 20
       
  Item 5. Other Information 20
       
  Item 6. Exhibits 21
       
  Signatures 22

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   December 31,   June 30, 
   2015   2015 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS          
Cash and Cash Equivalents  $371,114   $84,204 
Trade Receivables, Net of Allowance for Doubtful Accounts  of $16,896 and $16,296, Respectively   175,289    187,607 
Inventories:          
Finished Goods   118,215    377,853 
Goods in Process   8,733    13,815 
Raw Materials   89,489    90,506 
Packaging Materials   172,059    130,726 
Prepaid Expenses   38,239    5,689 
Deferred Income Taxes   6,727    7,288 
Total Current Assets   979,865    897,688 
           
PROPERTY AND EQUIPMENT          
Land   35,000    35,000 
Buildings   77,348    77,348 
Machinery and Equipment   817,836    807,325 
Trucks and Autos   213,116    198,845 
Office Equipment   31,518    31,518 
Leasehold Improvements   72,068    72,068 
Total   1,246,886    1,222,104 
Less Accumulated Depreciation   841,424    861,341 
Total Property and Equipment, Net   405,462    360,763 
           
Total Assets  $1,385,327   $1,258,451 

 

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)

 

   December 31,   June 30, 
   2015   2015 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
Accounts Payable  $125,767   $111,944 
Current Maturities of Notes Payable   15,107    8,297 
Accrued Expenses   14,903    17,966 
Income Taxes Payable   20,335    26,119 
Deferred Income   1,299    1,299 
Total Current Liabilities   177,411    165,625 
           
LONG-TERM LIABILITIES          
Deferred Income   10,713    11,362 
Notes Payable, Less Current Maturities   63,209    14,004 
Deferred Income Taxes   96,462    98,866 
Total Long-Term Liabilities   170,384    124,232 
           
Total Liabilities   347,795    289,857 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' EQUITY          
Capital Stock Issued and Outstanding:          
Prior Cumulative Preferred Stock, $5 Par Value:          
Series A (Liquidation Preference $2,235,000  and $2,220,000, Respectively)   500,000    500,000 
Series B (Liquidation Preference $2,190,000  and $2,175,000, Respectively)   500,000    500,000 
Cumulative Preferred Stock, $20 Par Value:          
Series A (Liquidation Preference $5,048,464  and $5,019,197, Respectively)   1,170,660    1,170,660 
Series B (Liquidation Preference $822,746 and $817,977, 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   (5,428,464)   (5,497,402)
Total Stockholders' Equity   1,037,532    968,594 
           
Total Liabilities and Stockholders' Equity  $1,385,327   $1,258,451 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

  

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

   Three Months Ended 
   December 31 
   2015   2014 
           
NET SALES  $1,278,677   $1,291,273 
           
COST OF SALES   920,887    846,057 
Gross Profit on Sales   357,790    445,216 
           
OPERATING EXPENSES          
Selling   156,957    149,763 
General and Administrative   95,236    90,453 
Gain on Sale of Equipment   (8,990)   (15,912)
Total Operating Expenses   243,203    224,304 
           
Income from Operations   114,587    220,912 
           
OTHER INCOME (EXPENSE)          
Miscellaneous Income   421    422 
Interest Expense   (2,741)   (1,069)
Total Other Income (Expense), Net   (2,320)   (647)
           
Income before Income Taxes   112,267    220,265 
           
PROVISION FOR INCOME TAXES   39,581    77,726 
           
NET INCOME  $72,686   $142,539 
           
NET INCOME PER SHARE OF COMMON STOCK          
Basic  $0.04   $0.11 
           
Diluted  $0.02   $0.06 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

3 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

   Six Months Ended 
   December 31 
   2015   2014 
           
NET SALES  $2,341,780   $2,283,181 
           
COST OF SALES   1,764,270    1,561,127 
Gross Profit on Sales   577,510    722,054 
           
OPERATING EXPENSES          
Selling   279,733    264,404 
General and Administrative   210,287    211,834 
Gain on Sale of Equipment   (21,364)   (15,912)
Total Operating Expenses   468,656    460,326 
           
Income from Operations   108,854    261,728 
           
OTHER INCOME (EXPENSE)          
Miscellaneous Income   799    12,444 
Interest Expense   (3,014)   (1,956)
Total Other Income (Expense), Net   (2,215)   10,488 
           
Income before Income Taxes   106,639    272,216 
           
PROVISION FOR INCOME TAXES   37,701    94,976 
           
NET INCOME  $68,938   $177,240 
           
NET INCOME PER SHARE OF COMMON STOCK          
Basic  $0.01   $0.12 
           
Diluted  $-   $0.06 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

4 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  

   Six Months Ended 
   December 31 
   2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Income  $68,938   $177,240 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:          
Depreciation and Amortization   60,968    50,127 
Allowance for Bad Debts   600    1,350 
Deferred Income Amortization   (649)   (649)
Deferred Income Taxes   (1,843)   (4,270)
(Gain) on Sale of Equipment   (21,364)   (15,912)
Effects of Changes in Operating Assets and Liabilities:          
Trade Receivables   11,718    (91,597)
Inventories   224,404    244,727 
Prepaid Expenses   (32,550)   (22,388)
Accounts Payable   13,823    49,484 
Accrued Expenses   (3,063)   (124,026)
Income Taxes Payable   (5,784)   78,722 
Net Cash Provided by Operating Activities   315,198    342,808 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of Property and Equipment   (21,622)   (33,876)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from Line-of-Credit   300,000    265,000 
Principal Payments on Line-of-Credit   (300,000)   (265,000)
Principal Payments on Notes Payable   (6,666)   (18,437)
Net Cash Used by Financing Activities   (6,666)   (18,437)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   286,910    290,495 
           
Cash and Cash Equivalents - Beginning of Period   84,204    162,435 
           
CASH AND CASH EQUIVALENTS - END OF PERIOD  $371,114   $452,930 

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1general

 

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2015 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2015 and for the three and six months ended December 31, 2014 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, 2015. The results of operations for the three and six months ended December 31, 2015 and cash flows for the six months ended December 31, 2015 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2016. 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 December 31, 2015, 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 six month period ended December 31, 2015.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2EARNINGS PER SHARE

 

The income per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share is calculated by including contingently issuable shares with the weighted average shares outstanding.

 

   Three Months Ended   Six Months Ended 
   December 31   December 31 
   2015   2014   2015   2014 
Net Income  $72,686   $142,539   $68,938   $177,240 
                     
Preferred Dividend Requirements:                    
6% Prior Cumulative Preferred, $5 Par Value   15,000    15,000    30,000    30,000 
5% Convertible Cumulative Preferred, $20 Par Value   17,018    17,018    34,036    34,036 
Total Dividend Requirements   32,018    32,018    64,036    64,036 
                     
Net Income - Common Stockholders  $40,668   $110,521   $4,902   $113,204 
                     
Weighted Average Shares - Basic   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 
Weighted Average Shares – Diluted   2,003,168    2,003,168    2,003,168    2,003,168 
                     
Basic Earnings per Share  $0.04   $0.11   $0.01   $0.12 
                     
Diluted Earnings per Share  $0.02   $0.06   $-   $0.06 

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

note 2EARNINGS PER SHARE (continued)

 

Cumulative Preferred Stock dividends in arrears at December 31, 2015 and 2014 totaled $7,884,770 and $7,756,698, respectively. Total dividends in arrears, on a per share basis, consist of the following:

 

   Six Months Ended 
   December 31 
   2015   2014 
6% Convertible          
Series A  $17   $17 
Series B   17    16 
5% Convertible          
Series A  $66   $65 
Series B   66    65 

 

 

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.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3NOTES PAYABLE

 

The Company’s long-term debt consists of:

 

      December 31,   June 30, 
Payee  Terms  2015   2015 
              
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.  Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.  $-   $- 
              
Ford Credit  $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle.   16,596    19,151 
              
Ford Credit  $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle.   41,720    - 
              
Ford Credit  $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle.   20,000    - 
              
Ford Credit  $517 monthly payments, interest of 0%; secured by a vehicle.   -    3,150 
              
Total     78,316    22,301 
Less Current Portion    15,107    8,297 
Long-Term Portion   $63,209   $14,004 

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

note 3NOTES PAYABLE (continued)

 

Future minimum payments for the twelve months ending December 31 are:

 

December 31:  Amount 
2016  $15,107 
2017   15,793 
2018   16,481 
2019   11,974 
2020   12,098 
Thereafter   6,863 
Total  $78,316 

 

 

NOTE 4INCOME TAXES

 

The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at December 31, 2015. The Company has no material tax positions at December 31, 2015 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 December 31, 2015. The Company’s federal income tax returns for the fiscal years ended 2013, 2014 and 2015 are subject to examination by the Internal Revenue Service taxing authority.

 

NOTE 5SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

   Six Months Ended 
   December 31 
   2015   2014 
         
Cash Paid for:          
Interest  $3,014   $1,956 
           
Income Taxes  $45,368   $28,504 
           
Noncash Transactions:          
Financing of New Vehicles  $62,681   $21,228 
           
Sales Tax on New Vehicle in Accounts Payable  $-   $3,467 

  

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 6RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued an update to defer the effective date of this update by one year. The updated standard becomes effective for interim and annual periods beginning after December 15, 2017, but allows the Company to adopt the standard one year earlier if it so chooses. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its Consolidated Financial Statements and related disclosures.

 

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," ("ASU 2015-11"). An entity using an inventory method other than last-in, first out ("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. This update is effective as of January 1, 2017, with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

 

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’s financial statements.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2MANAGEMENT’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.

 

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.

 

Forward-Looking Information

 

This report, as well as our other reports filed with the Securities and Exchange Commission (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.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS - Three Months Ended December 31, 2015 Compared to Three Months Ended December 31, 2014, and Six Months Ended December 31, 2015 Compared to Six Months Ended December 31, 2014

 

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   Six Months Ended 
   December 31   December 31 
   2015   2014   2015   2014 
Net Sales   100%   100%   100%   100%
Cost of Sales   72    66    75    68 
Gross Profit on Sales   28    34    25    32 
Operating Expenses   19    17    20    20 
Income from Operations   9    17    5    12 
Other Income (Expense), Net   (1)   -    -    - 
Income before Income Taxes   8    17    5    12 
Provision for Income Taxes   3    6    2    4 
Net Income   5%   11%   3%   8%

  

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

NET SALES

 

Net sales decreased $12,596 or 1% for the three months ended December 31, 2015 to $1,278,677 compared to $1,291,273 for the three months ended December 31, 2014. Gross sales for Chase Candy decreased $113,845 to $432,883 for the three months ended December 31, 2015, compared to $546,728 for the three months ended December 31, 2014. Gross sales for Seasonal Candy increased $107,633 to $865,036 for the three months ended December 31, 2015, compared to $757,403 for the three months ended December 31, 2014. Gross sales for other sales for the Company decreased $3,458 to $7,310 for the three months ended December 31, 2015, compared to $3,852 for the three months ended December 31, 2014. Sales returns and allowances for the Company increased $2,926 to $23,094 for the three months ended December 31, 2015, compared to $20,168 for the three months ended December 31, 2014.

 

The 21% decrease in gross sales of Chase Candy of $113,845 for the three months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $63,000 versus the same period a year ago primarily due to two customers decreasing orders; 2) decreased sales of the L278/L212 Mini Mash division by approximately $30,000 versus the same period a year ago primarily due to one customer decreasing orders; 3) decreased sales of the Cherry Mash Merchandiser division by approximately $15,000 versus the same period a year ago primarily due to five customers decreasing orders; 4) various other fluctuations netting to a decrease of approximately $4,000; 5) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $1,000 versus the same period a year ago primarily due to two customers decreasing orders; and 6) decreased sales of the L260 Changemaker Jar division by approximately $100 versus the same period a year ago primarily due to two customers decreasing orders.

 

The 14% increase in gross sales of Seasonal Candy of $107,633 for the three months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $168,000 due to sales to two new customers offset by the loss of one customer; 2) increased sales in the bulk seasonal division by approximately $22,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the clamshell seasonal division by approximately $82,000 versus the same period a year ago primarily due to decreased sales to four customers.

 

Net sales increased $58,599 or 3% for the six months ended December 31, 2015 to $2,341,780 compared to $2,283,181 for the six months ended December 31, 2014. Gross sales for Chase Candy decreased $113,940 to $924,868 for the six months ended December 31, 2015, compared to $1,038,808 for the six months ended December 31, 2014. Gross sales for Seasonal Candy increased $180,037 to $1,445,064 for the six months ended December 31, 2015, compared to $1,265,027 for the six months ended December 31, 2014. Gross sales for other sales for the Company decreased $3,646 to $4,578 for the six months ended December 31, 2015, compared to $8,224 for the six months ended December 31, 2014. Sales returns and allowances for the Company increased $3,582 to $32,730 for the six months ended December 31, 2015, compared to $28,878 for the six months ended December 31, 2014.

 

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ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

NET SALES (CONTINUED)

 

The 11% decrease in gross sales of Chase Candy of $113,940 for the six months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $88,000 versus the same period a year ago primarily due to two customers decreasing orders; 2) decreased sales of the L278/L212 Mini Mash division by approximately $10,000 versus the same period a year ago primarily due to two customers decreasing orders; 3) various other fluctuations netting to a decrease of approximately $6,000; 4) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $4,000 versus the same period a year ago primarily due to two customers decreasing orders; 5) decreased sales of the Cherry Mash Merchandiser division by approximately $4,000 versus the same period a year ago primarily due to one customer decreasing orders; and 6) decreased sales of the L260 Changemaker Jar division by approximately $1,000 versus the same period a year ago primarily due to one customer decreasing orders.

 

The 14% increase in gross sales of Seasonal Candy of $180,037 for the six months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $213,000 due to increased orders from one customer offset by decreased orders of another customer; 2) increased sales in the bulk seasonal division by approximately $34,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the clamshell seasonal division by approximately $67,000 versus the same period a year ago primarily due to decreased orders from four customers.

 

COST OF SALES

 

The cost of sales increased $74,830 to $920,887 or 72% of related revenues for the three months ended December 31, 2015, compared to $846,057 or 66% of related revenues for the three months ended December 31, 2014. The 9% increase in cost of sales of $74,830 is primarily due to a 10% increase in the price of sugar and a 7% increase in the price of corn syrup.

 

The cost of sales increased $203,143 to $1,764,270 or 75% of related revenues for the six months ended December 31, 2015, compared to $1,561,127 or 68% of related revenues for the six months ended December 31, 2014. The 13% increase in cost of sales of $203,143 is primarily due to a 10% increase in the price of sugar, a 7% increase in the price of corn syrup, and a 3% increase in net sales of $58,599. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

 

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ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

SELLING EXPENSES

 

Selling expenses for the three months ended December 31, 2015 increased $7,194 to $156,957, which is 12% of sales, compared to $149,763, or 12% of sales for the three months ended December 31, 2014. The increase of $7,194 in selling expenses for the three months ended December 31, 2015 is primarily due to higher premium promotions expense and higher commissions expense offset by lower automobile expense. Premium promotions, which are paid to customers for various marketing reasons, increased $3,481 to $40,314 for this period from $36,833 for the three months ended December 31, 2014. Commissions expense, which are based on sales, increased $6,798 to $48,817 for this period from $42,019 for the three months ended December 31, 2014. Automobile expense decreased $3,832 to $3,038 for this period from $6,870 for the three months ended December 31, 2014.

 

Selling expenses for the six months ended December 31, 2015 increased $15,329 to $279,733, which is 12% of sales, compared to $264,404 or 12% of sales for the six months ended December 31, 2014. The increase of $15,329 in selling expenses for the six months ended December 31, 2015 is primarily due to higher commissions expense, and depreciation expense for the period. Commissions expense increased $9,276 to $90,402 for this period from $81,126 for the six months ended December 31, 2014 primarily due to a change in the mix of sales. Depreciation expense increased $6,433 to $27,979 for this period from $21,546 primarily due to the purchases of property and equipment of $84,303 during the six months ended December 31, 2015.

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses for the three months ended December 31, 2015 increased $4,783 to $95,236 and 7% of sales, compared to $90,453 or 7% of sales for the three months ended December 31, 2014. The increase of $4,783 in general and administrative expenses for the three months ended December 31, 2015 is primarily due to higher professional fees offset by lower insurance expense. Professional fees increased $14,625 to $31,666 for this period from $17,041 for the three months ending December 31, 2014 due to timing of regular invoices. Insurance expense decreased $11,180 to $24,225 for this period from $35,405 for the three months ending December 31, 2014 due to employees changing their enrollment in insurance plans.

 

General and administrative expenses for the six months ended December 31, 2015 decreased $1,547 to $210,287 or 9% of sales, compared to $211,834 or 9% of sales for the six months ended December 31, 2014. The decrease of $1,547 in general and administrative expenses for the six months ended December 31, 2015 is primarily due to higher professional fees offset by lower insurance expense. Professional fees increased $19,107 to $86,337 for this period from $67,230 for the six months ending December 31, 2014 due to timing of regular invoices. Insurance expense decreased $21,716 to $46,582 for this period from $68,298 for the six months ending December 31, 2014 due to employees changing their enrollment in insurance plans.


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ITEM 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OTHER INCOME (EXPENSE)

 

Other income (expense) decreased by $1,673 for the three months ended December 31, 2015 to $(2,320), compared to $(647) for the three months ended December 31, 2014 primarily due to an increase of $1,673 in interest expense.

 

Other income (expense) decreased by $12,703 for the six months ended December 31, 2015 to $(2,215), compared to $10,488 for the six months ended December 31, 2014 primarily due to a decrease of $1,058 in interest expense, and a decrease of $11,645 in miscellaneous income. The decrease in miscellaneous income is primarily due to these unusual items that occurred during the six months ended December 31, 2014: 1) a freight claim of approximately $4,000 and 2) a refund of approximately $7,000 from a customer related to an underpayment written off in a previous period.

 

PROVISION FOR INCOME TAXES

 

The Company recorded income tax expense for the three months ended December 31, 2015 of $39,581 as compared to income tax expense of $77,726 for the three months ended December 31, 2014. The Company recorded income tax expense for the six months ended December 31, 2015 of $37,701 as compared to income tax expense of $94,976 for the six months ended December 31, 2014. The net income tax expense recorded for the three and six months ended December 31, 2015 is primarily due to recognizing income taxes related to current profitable operations.

 

NET INCOME

 

The Company reported net income for the three months ended December 31, 2015 of $72,686, compared to net income of $142,539 for the three months ended December 31, 2014. This decrease of $69,853 is explained above. The Company reported net income for the six months ended December 31, 2015 of $68,938, compared to net income of $177,240 for the six months ended December 31, 2014. This decrease of $108,302 is explained above.

 

PREFERRED DIVIDENDS

 

Preferred dividends were $32,018 for the three months ended December 31, 2015 and 2014, 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 $64,036 for the six months ended December 31, 2015 and 2014, 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 2MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

 

Net income applicable to common stockholders for the three months ended December 31, 2015 was $40,668 which is a decrease of $69,853 as compared to the net income for the three months ended December 31, 2014 of $110,521.

 

Net income applicable to common stockholders for the six months ended December 31, 2015 was $4,902 which is a decrease of $108,302 as compared to the net income for the six months ended December 31, 2014 of $113,204.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The table below presents the summary of cash flow for the fiscal period indicated.

 

   Six Months Ended 
   December 31 
   2015   2014 
Net Cash Provided by Operating Activities  $315,198   $342,808 
Net Cash Used in Investing Activities  $(21,622)  $(33,876)
Net Cash Used by Financing Activities  $(6,666)  $(18,437)

 

Management has no material commitments for capital expenditures during the remainder of fiscal 2016. The $315,198 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $21,622 of cash used in investing activities is the purchase of equipment used during the manufacturing process and an automobile. The $6,666 of cash used in financing activities is the principal payments on equipment and vehicle loans. At December 31, 2015, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.

 

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 be offset by sales price increases, which are not expected to have a significant effect upon demand.

 

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CHASE 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, 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), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Management 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.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

PART 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 December 31, 2015 is $7,884,770.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

PART II. OTHER INFORMATION (CONTINUED)

 

ITEM 6. EXHIBITS

 

a.Exhibits.

 

Exhibit 31.1Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

 

Exhibit 32.1Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

Exhibit 101The following financial statements for the quarter ended December 31, 2015, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 2015 and June 30, 2015, (ii) Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2015 and 2014, (iii) Condensed Consolidated Statements of Income for the Six Months Ended December 31, 2015 and 2014, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2015 and 2014, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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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 and Subsidiary
    (Registrant)
     
February 12, 2016   /s/ Barry M. Yantis
Date   Barry M. Yantis
    Chairman of the Board, Chief Executive Officer and
    Chief Financial Officer, President and Treasurer

 

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