UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended September 30, 2016

 

¨

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 non-accelerated 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 ¨
	Non-accelerated 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 November 9, 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 three months ended September 30, 2016

 

Part I	Financial Information
	Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and June 30, 2016	1
		Condensed Consolidated Statements of Operations for the three months ended September 30, 2016 and 2015 (unaudited)	3
		Condensed Consolidated Statements of Cash Flows for the three months ended september 30, 2016 and 2015 (unaudited)	4
		Notes to condensed consolidated Financial Statements (unaudited)	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedures	15
Part II	Other Information
	Item 1.	Legal Proceedings	16
	Item 1A.	Risk Factors	16
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Mine Safety Disclosures	16
	Item 5.	Other Information	16
	Item 6.	Exhibits	17
	Signatures		18

 

  

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Chase General Corporation and Subsidiary

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30,				June 30,
		2016				2016
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents		$	5,917			$	19,259
Trade Receivables, Net of Allowance for Doubtful Accounts of $16,849 and $16,549, Respectively			640,154				179,622
Inventories:
Finished Goods			472,167				433,043
Goods in Process			10,577				6,540
Raw Materials			95,095				76,561
Packaging Materials			121,025				135,732
Prepaid Expenses			30,015				5,689
Income Tax Receivable			29,143				29,111
Deferred Income Taxes			7,605				7,533
Total Current Assets			1,411,698				893,090
PROPERTY AND EQUIPMENT
Land			35,000				35,000
Buildings			77,348				77,348
Machinery and Equipment			838,131				820,885
Trucks and Autos			213,116				213,116
Office Equipment			31,518				31,518
Leasehold Improvements			72,068				72,068
Total			1,267,181				1,249,935
Less Accumulated Depreciation			922,780				896,288
Total Property and Equipment, Net			344,401				353,647
Total Assets		$	1,756,099			$	1,246,737

 

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

 

 

Chase General Corporation and Subsidiary

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

		September 30,				June 30,
		2016				2016
		(Unaudited)
CURRENT LIABILITIES
Bank Overdraft		$	17,153			$	-
Accounts Payable			287,754				46,718
Current Maturities of Notes Payable			290,626				15,460
Accrued Expenses			50,512				25,163
Deferred Income			1,299				1,299
Total Current Liabilities			647,344				88,640
LONG-TERM LIABILITIES
Deferred Income			9,739				10,064
Notes Payable, Less Current Maturities			51,428				55,397
Deferred Income Taxes			73,325				90,446
Total Long-Term Liabilities			134,492				155,907
Total Liabilities			781,836				244,547
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock Issued and Outstanding:
Prior Cumulative Preferred Stock, $5 Par Value:
Series A (Liquidation Preference $2,257,500 and $2,250,000, Respectively)			500,000				500,000
Series B (Liquidation Preference $2,212,500 and $2,205,000, Respectively)			500,000				500,000
Cumulative Preferred Stock, $20 Par Value:
Series A (Liquidation Preference $5,092,364 and $5,077,730, Respectively)			1,170,660				1,170,660
Series B (Liquidation Preference $829,901 and $827,516, 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			(5,491,733	)			(5,463,806	)
Total Stockholders' Equity			974,263				1,002,190
Total Liabilities and Stockholders' Equity		$	1,756,099			$	1,246,737

 

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

 

  

Chase General Corporation and Subsidiary

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended
		September 30
		2016				2015
NET SALES		$	862,188			$	1,063,103
COST OF SALES			671,891				843,383
Gross Profit on Sales			190,297				219,720
OPERATING EXPENSES
Selling			99,266				122,776
General and Administrative			135,746				115,051
Gain on Sale of Equipment			-				(12,374	)
Total Operating Expenses			235,012				225,453
Loss from Operations			(44,715	)			(5,733	)
OTHER INCOME (EXPENSE)
Miscellaneous Income			375				378
Interest Expense			(815	)			(271	)
Total Other Income (Expense)			(440	)			107
Net Loss before Income Taxes			(45,155	)			(5,626	)
INCOME TAX BENEFIT			(17,228	)			(1,880	)
NET LOSS		$	(27,927	)		$	(3,746	)
NET LOSS PER SHARE OF COMMON STOCK
Basic		$	(0.06	)		$	(0.04	)
Diluted		$	(0.06	)		$	(0.04	)

 

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

 

  

Chase General Corporation and Subsidiary

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Three Months Ended
		September 30
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss		$	(27,927	)		$	(3,746	)
Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities:
Depreciation and Amortization			26,493				29,574
Allowance for Bad Debts			300				300
Deferred Income Amortization			(325	)			(324	)
Deferred Income Taxes			(17,193	)			(3,263	)
(Gain) on Sale of Equipment			-				(12,374	)
Effects of Changes in Operating Assets and Liabilities:
Trade Receivables			(460,832	)			(511,861	)
Inventories			(46,988	)			42,254
Prepaid Expenses			(24,326	)			(26,948	)
Income Taxes Receivable			(32	)			(8,754	)
Accounts Payable			241,036				221,807
Accrued Expenses			25,349				29,976
Income Taxes Payable			-				(17,428	)
Net Cash Used by Operating Activities			(284,445	)			(260,787	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment			(17,247	)			(14,082	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Line-of-Credit			275,000				225,000
Principal Payments on Notes Payable			(3,803	)			(4,423	)
Bank Overdraft			17,153				-
Net Cash Provided by Financing Activities			288,350				220,577
NET DECREASE IN CASH AND CASH EQUIVALENTS			(13,342	)			(54,292	)
Cash and Cash Equivalents - Beginning of Period			19,259				84,204
CASH AND CASH EQUIVALENTS - END OF PERIOD		$	5,917			$	29,912

 

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

 

   

Chase General Corporation and Subsidiary

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1

GENERAL

 

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2016 has been condensed from audited consolidated financial statements at that date. The condensed consolidated financial statements as of and for the three months ended September 30, 2016 and for the three months ended September 30, 2015 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, 2016. The results of operations for the three months ended September 30, 2016 and cash flows for the three months ended September 30, 2016 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2017. 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 September 30, 2016, 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 three month period ended September 30, 2016.

 

NOTE 2

EARNINGS (LOSS) PER SHARE

 

The earnings (loss) per share were computed on the weighted average of outstanding common shares during the period.

 

		Three Months Ended
		September 30
		2016				2015
Net Loss		$	(27,927	)		$	(3,746	)
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		$	(59,945	)		$	(35,764	)

 

 

Chase General Corporation and Subsidiary

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2

EARNINGS (LOSS) PER SHARE (CONTINUED)

 

Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.

 

		Three Months Ended
		September 30
		2016				2015
Weighted Average Shares - Basic			969,834				969,834
Dilutive Effect of Contingently Issuable Shares			1,033,334				1,033,334
Weighted Average Shares – Diluted			2,003,168				2,003,168
Basic Loss per Share		$	(0.06	)		$	(0.04	)
Diluted Loss per Share		$	(0.06	)		$	(0.04	)

 

The contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share. Cumulative Preferred Stock dividends in arrears at September 30, 2016 and 2015 totaled $7,980,824 and $7,852,752, respectively. Total dividends in arrears, on a per share basis, consist of the following:

 

		Three Months Ended
		September 30
		2016				2015
6% Convertible
Series A		$	17			$	17
Series B		$	17			$	17
5% Convertible
Series A		$	67			$	66
Series B		$	67			$	66

 

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.

 

 

Chase General Corporation and Subsidiary

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3

NOTES PAYABLE

 

The Company’s long-term debt consists of:

 

				September 30,				June 30,
Payee		Terms		2016				2016
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.		$	275,000			$	-
Ford Credit		$705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle.			37,117				38,674
Toyota Credit		$364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle.			17,243				18,179
Ford Credit		$468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle.			12,694				14,004
Total					342,054				70,857
Less Current Portion					290,626				15,460
Long-Term Portion				$	51,428			$	55,397

 

Future minimum payments for the twelve months ending September 30 are:

 

2017		$	290,626
2018			16,306
2019			13,229
2020			11,947
2021			9,245
Thereafter			701
Total		$	342,054

 

 

Chase General Corporation and Subsidiary

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4

INCOME 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 September 30, 2016. The Company has no material tax positions at September 30, 2016 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company’s federal income tax returns for the fiscal years ended 2014, 2015 and 2016 are subject to examination by the IRS taxing authority.

 

NOTE 5

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

		Three Months Ended
		September 30
		2016				2015
Cash Paid for:
Interest		$	812			$	136
Income Taxes		$	-			$	27,700
Noncash Transactions:
Financing of New Vehicles		$	-			$	42,682

 

NOTE 6

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued amended guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The guidance will initially be applied retrospectively using one of two methods. The standard will be effective for the entity for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted beginning for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of the amended revenue recognition guidance on its consolidated financial statements.

 

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. The 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.

 

 

Chase General Corporation and Subsidiary

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

In February 2016, the FASB issued amended guidance for the treatment of leases. The guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability for all operating and finance leases with lease terms greater than one year. The guidance also requires both qualitative and quantitative disclosures regarding the nature of the entity’s leasing activities. The guidance will initially be applied using a modified retrospective approach. The amendments in the guidance are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of the amended lease guidance on the its consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)". ASU 2014-15 provides guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

 

In November 2015, the FASB issued ASC Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes” as part of its simplification initiatives. This update requires deferred tax liabilities and assets to be classified as non-current on the consolidated condensed balance sheet for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. An entity can elect to adopt prospectively or retrospectively to all periods presented. We do not expect the adoption of ASU 2015-17 to have a material effect on our financial position, results of operations or cash flows.

 

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 consolidated financial statements.

 

  

Chase General Corporation and Subsidiary

 

ITEM 2. MANAGEMENT’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.

 

RESULTS OF OPERATIONS - Three Months Ended September 30, 2016 Compared with Three Months Ended September 30, 2015

 

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
		September 30
		2016				2015
Net Sales			100	%			100	%
Cost of Sales			78				79
Gross Profit on Sales			22				21
Operating Expenses			27				22
Loss from Operations			(5	)			(1	)
Other Income (Expense), Net			(0	)			(0	)
Loss before Income Taxes			(5	)			(1	)
Provision (Benefit) for Income Taxes			(2	)			(0	)
Net Loss			(3	)%			(1	)%

 

 

Chase General Corporation and Subsidiary

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

NET SALES

 

Net sales decreased $200,915 or 19% for the three months ended September 30, 2016 to $862,188 compared to $1,063,103 for the three months ended September 30, 2015. Gross sales for Seasonal Candy decreased $132,966 to $447,062 for the three months ended September 30, 2016, compared to $580,028 for 2015. Gross sales for Chase Candy decreased $70,100 to $421,885 for the three months ended September 30, 2016, compared to $491,985 for 2015. Sales returns and allowances for the Company decreased $2,838 to $6,798 for the three months ended September 30, 2016, compared to $9,636 for 2015. The Company’s other sales decreased $687 to $39 for the three months ended September 30, 2016, compared to $726 for 2015.

 

The 23% decrease in gross sales of Seasonal Candy of $132,966 for the three months ended September 30, 2016 over the same period ended September 30, 2015, is primarily due to the net effect of the following: 1) decreased orders from three customers in the generic seasonal division netting approximately $148,000 versus the same period a year ago primarily due to two lost customers and one customer decreasing orders; offset by 2) increased volume from various customers in the clamshell seasonal division netting approximately $2,000 versus the same period a year ago primarily due to two customers increasing orders; 3) increased orders in the bulk seasonal division netting approximately $14,000 due to increased sales to two existing customers.

 

The 14% decrease in gross sales of Chase Candy of $70,100 for the three months ended September 30, 2016 over the same period ended September 30, 2015, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $14,000 versus the same period a year ago primarily due to decreased orders from two existing customers; 2) decreased sales of L278/L212 Mini Mash division by approximately $40,000 versus the same period a year ago primarily due to decreased orders from four existing customers; and 3) decreased sales of L100, L200, SK436, and SK2100 Cherry Mash Merchandisers division by approximately $17,000 versus the same period a year ago due to decreased orders from five existing customers.

 

COST OF SALES

 

The cost of sales decreased $171,492 to $671,891, or 78% of related sales for the three months ended September 30, 2016 compared to $843,383, or 79% of related sales for the three months ended September 30, 2015.

 

The 20% decrease in cost of sales of $171,492 is primarily due to the 19% decrease in net sales of $200,915, a 4% decrease in the raw material cost of sugar, and a 3% decrease in the raw material cost of chocolate offset by a 20% increase in the raw material cost of corn syrup and a 1% increase in the raw material cost of peanuts. 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.

 

 

Chase General Corporation and Subsidiary

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

SELLING EXPENSES

 

Selling expenses for the three months ended September 30, 2016 decreased $23,510 to $99,266, which is 12% of sales, compared to $122,776 or 12% of sales for the three months ended September 30, 2015.

 

The decrease of $23,510 in selling expenses for the three months ended September 30, 2016 is primarily due to lower commissions expense for the period, lower promotions expense, and lower truck and automobile depreciation expense. Commission expense decreased $8,270 to $33,315 for this period from $41,585 for the three months ended September 30, 2015 primarily due to the decrease in net sales. Promotions expense decreased $7,982 to $17,075 for this period from $25,057 for the three months ended September 30, 2015 primarily due to a decrease in net sales that have a bill-back allowance. Truck and automobile depreciation expense decreased $2,425 to $10,656 for this period from $13,081 for the three months ended September 30, 2015 primarily due to less of that asset class placed in service in the 2016 period.

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses for the three months ended September 30, 2016 increased $20,695 to $135,746 and increased to 16% of sales, compared to $115,051 or 11% of sales for the three months ended September 30, 2015. The increased costs are primarily because of an increase in professional fees, miscellaneous general expense, and insurance expense. Professional fees expense increased $9,089 to $63,760 for this period from $54,671 for the three months ended September 30, 2016 primarily due to an increase in fees. Miscellaneous general expense increased $5,180 to $8,063 for this period from $2,883 for the three months ended September 30, 2016 primarily due to a non-recurring $6,000 expense occurring in the period. Insurance expense increased $5,090 to $27,447 for this period from $22,357 for the three months ended September 30, 2016 primarily due to a more employees accepting health insurance coverage.

 

OTHER INCOME (EXPENSE)

 

Other income (expense) decreased by $547 for the three months ended September 30, 2016 to $(440) compared to $107 for the three months ended September 30, 2015 primarily due to a increase in interest expense of $544.

 

INCOME TAX BENEFIT

 

The Company recorded a tax benefit for the three months ended September 30, 2016 of $17,228 as compared to tax benefit of $1,880 for the three months ended September 30, 2015. The income tax benefit recorded for the three months ended September 30, 2016 is primarily due to the net loss before income taxes.

 

NET LOSS

 

The Company reported a net loss for the three months ended September 30, 2016 of $27,927, compared to net loss of $3,746 for the three months ended September 30, 2015. This decrease of $24,181 is explained above.

 

 

Chase General Corporation and Subsidiary

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

PREFERRED DIVIDENDS

 

Preferred dividends were $32,018 for the three months ended September 30, 2016 and 2015, 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.

 

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

 

Net loss applicable to common stockholders for the three months ended September 30, 2016 was $59,945 which is a decrease of $24,181 as compared to the net loss for the three months ended September 30, 2015 of $35,764.

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

		Three Months Ended
		September 30
		2016				2015
Net Cash Used in Operating Activities		$	(284,445	)		$	(260,787	)
Net Cash Used in Investing Activities			(17,247	)			(14,082	)
Net Cash Provided by Financing Activities			288,350				220,577

  

Management has made no material commitments for capital expenditures during the remainder of fiscal 2017. The $17,247 of cash used in investing activities is the purchase of equipment used during the manufacturing process. The $284,445 of cash used in operating activities is fully detailed in the condensed consolidated statement of cash flows on page four. The $288,350 of cash provided by financing activities is primarily due to the receipt of $275,000 drawn from a line-of-credit, net of principal payments on equipment and vehicle loans. At September 30, 2016, the Company had $75,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements. Management expects that projected cash flows will enable the Company to pay the full balance on the line-of-credit prior to December 31, 2016.

 

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

 

 

Chase General Corporation and Subsidiary

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

CRITICAL ACCOUNTING POLICIES

 

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.

 

  

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.

 

  

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 September 30, 2016 is $7,980,824.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION

 

None

 

  

Chase General Corporation and Subsidiary

 

Part II. OTHER INFORMATION (CONTINUED)

 

ITEM 6.

EXHIBITS

 

	Exhibit 31.1	Certification of Chief Executive Officer and Financial Officer Pursuant to Rules 13A-14(A) and 15D-14(A) Under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit 101	The following financial statements for the quarter ended September 30, 2016, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

  

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)
November 10, 2016	/s/ Barry M. Yantis
Date	Barry M. Yantis
	Chairman of the Board, Chief Executive Officer and
	Chief Financial Officer, President and Treasurer