Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - CHASE GENERAL CORP | tm2111818d1_ex32-1.htm |
| EX-31.1 - EXHIBIT 31.1 - CHASE GENERAL CORP | tm2111818d1_ex31-1.htm |
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 March 31, 2021
| ¨ | 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 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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered |
| None | Not Applicable | Not Applicable |
Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes ¨ No x
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 every Interactive Data File required to be submitted 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 x | Smaller reporting company x |
| Emerging Growth Company ¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No 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 May 17, 2021, 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 NINE MONTHS ENDED March 31, 2021
Chase General Corporation and Subsidiary
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | June 30, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 305,342 | $ | 53,390 | ||||
| Trade Receivables, Net of Allowance for Doubtful Accounts of $14,071 and $13,171, Respectively | 114,676 | 144,239 | ||||||
| Inventories: | ||||||||
| Finished Goods | 95,413 | 85,632 | ||||||
| Goods in Process | 13,054 | 6,261 | ||||||
| Raw Materials | 71,773 | 65,555 | ||||||
| Packaging Materials | 165,992 | 156,038 | ||||||
| Prepaid Expenses | 25,500 | 7,653 | ||||||
| Total Current Assets | 791,750 | 518,768 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Land | 35,000 | 35,000 | ||||||
| Buildings | 77,348 | 77,348 | ||||||
| Machinery and Equipment | 851,791 | 851,791 | ||||||
| Trucks and Autos | 158,632 | 158,632 | ||||||
| Office Equipment | 33,025 | 33,025 | ||||||
| Leasehold Improvements | 72,068 | 72,068 | ||||||
| Total | 1,227,864 | 1,227,864 | ||||||
| Less: Accumulated Depreciation | 1,101,432 | 1,071,370 | ||||||
| Total Property and Equipment, Net | 126,432 | 156,494 | ||||||
| Other Long-Term Assets: | ||||||||
| Right of Use Assets | 274,462 | 318,537 | ||||||
| Total Long-Term Assets | 400,894 | 475,031 | ||||||
| Total Assets | $ | 1,192,644 | $ | 993,799 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
| (1) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
| March 31, | June 30, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 58,975 | $ | 47,905 | ||||
| Current Maturities of Notes Payable | 5,096 | 88,318 | ||||||
| Current Maturities of Lease Liability | 62,163 | 59,244 | ||||||
| Accrued Expenses | 30,592 | 22,207 | ||||||
| Refund Liability Owed to Customers | 6,138 | 10,176 | ||||||
| Deferred Income | 1,299 | 1,299 | ||||||
| Total Current Liabilities | 164,263 | 229,149 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes Payable, Less Current Maturities | 877 | 103,591 | ||||||
| Lease Liabilities, Less Current Maturities | 212,299 | 259,293 | ||||||
| Deferred Income | 3,895 | 4,869 | ||||||
| Total Long-Term Liabilities | 217,071 | 367,753 | ||||||
| Total Liabilities | 381,334 | 596,902 | ||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 8) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Capital Stock Issued and Outstanding: | ||||||||
| Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
| Series A (Liquidation Preference $2,392,500 and $2,370,000, Respectively) | 500,000 | 500,000 | ||||||
| Series B (Liquidation Preference $2,347,500 and $2,325,000, Respectively) | 500,000 | 500,000 | ||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| Series A (Liquidation Preference $5,355,762 and $5,311,862, Respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (Liquidation Preference $872,826 and $865,672, 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 | (5,654,686 | ) | (6,069,099 | ) | ||||
| Total Stockholders' Equity | 811,310 | 396,897 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 1,192,644 | $ | 993,799 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
| (2) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED
| Three Months Ended | ||||||||
| March 31st | ||||||||
| 2021 | 2020 | |||||||
| SALES | $ | 423,007 | $ | 316,113 | ||||
| COST OF SALES | 334,072 | 320,745 | ||||||
| Gross Profit (Loss) on Sales | 88,935 | (4,632 | ) | |||||
| OPERATING EXPENSES | ||||||||
| Selling | 64,908 | 62,645 | ||||||
| General and Administrative | 117,446 | 107,163 | ||||||
| Total Operating Expenses | 182,354 | 169,808 | ||||||
| Loss from Operations | (93,419 | ) | (174,440 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 3,515 | 568 | ||||||
| Interest Expense | (182 | ) | (392 | ) | ||||
| Total Other Income | 3,333 | 176 | ||||||
| Loss before Income Taxes | (90,086 | ) | (174,264 | ) | ||||
| INCOME TAX PROVISION | - | - | ||||||
| NET LOSS | $ | (90,086 | ) | $ | (174,264 | ) | ||
| LOSS PER SHARE | ||||||||
| Basic | $ | (0.13 | ) | $ | (0.21 | ) | ||
| Diluted | $ | (0.06 | ) | $ | (0.10 | ) | ||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
| (3) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Nine Months Ended | ||||||||
| March 31st | ||||||||
| 2021 | 2020 | |||||||
| SALES | $ | 2,436,136 | $ | 2,261,653 | ||||
| COST OF SALES | 1,515,684 | 1,616,045 | ||||||
| Gross Profit on Sales | 920,452 | 645,608 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 251,808 | 240,823 | ||||||
| General and Administrative | 431,449 | 363,387 | ||||||
| Total Operating Expenses | 683,257 | 604,210 | ||||||
| Income from Operations | 237,195 | 41,398 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 8,316 | 3,874 | ||||||
| Gain on Extinguishment of Debt (Note 3) | 171,500 | - | ||||||
| Interest Expense | (2,598 | ) | (5,589 | ) | ||||
| Total Other Income (Expense) | 177,218 | (1,715 | ) | |||||
| Income before Income Taxes | 414,413 | 39,683 | ||||||
| INCOME TAX PROVISION | - | - | ||||||
| NET INCOME | $ | 414,413 | $ | 39,683 | ||||
| EARNINGS (LOSS) PER SHARE | ||||||||
| Basic | $ | 0.33 | $ | (0.06 | ) | |||
| Diluted | $ | 0.16 | $ | (0.03 | ) | |||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(4)
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
| Nine Months Ended | ||||||||
| March 31st | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 414,413 | $ | 39,683 | ||||
| Adjustments to Reconcile Net Income to Net Cash | ||||||||
| Provided by Operating Activities: | ||||||||
| Depreciation and Amortization | 30,062 | 40,956 | ||||||
| Allowance for Bad Debts | 900 | 900 | ||||||
| Deferred Income Amortization | (974 | ) | (974 | ) | ||||
| Gain on Extinguishment of Debt (Note 3) | (171,500 | ) | - | |||||
| Effects of Changes in Operating Assets and Liabilities: | ||||||||
| Trade Receivables | 28,663 | 19,281 | ||||||
| Inventories | (32,746 | ) | 124,276 | |||||
| Prepaid Expenses | (17,847 | ) | (14,985 | ) | ||||
| Accounts Payable | 11,070 | 3,526 | ||||||
| Accrued Expenses | 8,385 | (5,336 | ) | |||||
| Refund Liability Owed to Customers | (4,038 | ) | (3,220 | ) | ||||
| Net Cash Provided by Operating Activities | 266,388 | 204,107 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Line-of-Credit | 210,000 | 227,000 | ||||||
| Principal Payments on Line-of-Credit | (210,000 | ) | (312,000 | ) | ||||
| Principal Payments on Notes Payable | (14,436 | ) | (9,030 | ) | ||||
| Net Cash Used by Financing Activities | (14,436 | ) | (94,030 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 251,952 | 110,077 | ||||||
| Cash and Cash Equivalents - Beginning of Period | 53,390 | 18,800 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 305,342 | $ | 128,877 | ||||
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(5)
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
General
The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as Chase, we, our, and us) at June 30, 2020 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 nine months ended March 31, 2021 and for the three and nine months ended March 31, 2020 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, 2020. The results of operations for the three and nine months ended March 31, 2021 and cash flows for the nine months ended March 31, 2021 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2021. 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.
Revenue Recognition
The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including 1) a candy bar marketed under the trade name “Cherry Mash” and 2) coconut, peanut, chocolate, and fudge confectioneries. The Company recognizes revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon shipment to the customer. Shipping and handling costs incurred to ship product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Generally, individual orders from customers are accounted for as a single performance obligation.
(6)
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The amount of consideration the Company expects to receive and revenue the Company recognizes includes estimates of variable consideration, including costs for trade promotional programs, customer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, and expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. The Company reviews and updates these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in the third quarter of the year ending June 30, 2021 resulting from updated estimates of revenue for prior year product sales were not significant. The Company has elected a practical expedient to recognize incremental costs incurred to obtain contracts, which primarily represent sales commissions where the amortization period would be less than one year, as a selling expense when incurred in the financial statements.
The majority of the Company’s products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. The Company operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Both divisions share a common labor force and utilize the same basic equipment and raw materials. Management considers these two divisions as one reportable segment. The various divisions of revenue are as follows:
| For the three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Sales - Chase Candy | $ | 410,186 | $ | 305,944 | ||||
| Sales - Seasonal Candy | 12,821 | 10,169 | ||||||
| Sales | $ | 423,007 | $ | 316,113 | ||||
(7)
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
| For the nine months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Sales - Chase Candy | $ | 1,347,915 | $ | 1,124,689 | ||||
| Sales - Seasonal Candy | 1,088,221 | 1,136,964 | ||||||
| Sales | $ | 2,436,136 | $ | 2,261,653 | ||||
Recently Issued Pronouncements
There have been no newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s consolidated financial statements.
Subsequent Events
No other events have occurred subsequent to March 31, 2021, 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 nine month period ended March 31, 2021.
NOTE 2 EARNINGS PER SHARE
The earnings per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.
(8)
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31st | March 31st | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Income (Loss) | $ | (90,086 | ) | $ | (174,264 | ) | $ | 414,413 | $ | 39,683 | ||||||
| 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 | $ | (122,104 | ) | $ | (206,282 | ) | $ | 318,359 | $ | (56,371 | ) | |||||
| 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 (Loss) per Share | $ | (0.13 | ) | $ | (0.21 | ) | $ | 0.33 | $ | (0.06 | ) | |||||
| Diluted Earnings (Loss) per Share | $ | (0.06 | ) | $ | (0.10 | ) | $ | 0.16 | $ | (0.03 | ) | |||||
| (9) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| note 2 | Earnings PER SHARE (continued) |
Cumulative Preferred Stock dividends in arrears at June 30, 2021 and 2020 totaled $8,557,148 and $8,429,076, respectively. Total dividends in arrears, on a per share basis, consist of the following:
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| 6% Convertible: | ||||||||
| Series A | $ | 19 | $ | 18 | ||||
| Series B | 18 | 18 | ||||||
| 5% Convertible: | ||||||||
| Series A | $ | 72 | $ | 71 | ||||
| Series B | 72 | 71 | ||||||
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.
| (10) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 3 | NOTES PAYABLE and line of credit |
The Company’s long-term debt consists of:
| March 31, | June 30, | |||||||||
| Payee | Terms | 2021 | 2020 | |||||||
| Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2022, 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. | $ | - | $ | - | |||||
| Ford Credit | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. Note paid in full during period ended March 31, 2021. | - | 10,824 | |||||||
| Toyota Credit | $444 monthly payments, interest of 6.49%; final payment due May 2022, secured by a vehicle. | 5,973 | 9,585 | |||||||
| Nodaway Valley Bank | Small Business Administration Paycheck Protection Program (PPP) Promissory Note, interest of 1%, beginning November 10, 2020 monthly payments of $9,652 including interest are due; final payment due April 10, 2022, under the terms of the PPP program, this loan was fully forgiven during December 2020. A gain on extinguishment of debt has been recognized as other income. | - | 171,500 | |||||||
| Total | 5,973 | 191,909 | ||||||||
| Less Current Portion | 5,096 | 88,318 | ||||||||
| Long-Term Portion | $ | 877 | $ | 103,591 | ||||||
Future minimum payments for the twelve months ending March 31 are:
| March 31 | Amount | |||
| 2022 | $ | 5,096 | ||
| 2023 | 877 | |||
| Total | $ | 5,973 | ||
| (11) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 recorded no income tax provision for the three and nine month periods ended March 31, 2021 due to net operating loss carryforward as of June 30, 2020 that is available to offset taxable income in the current period. A valuation allowance has been placed on the remaining net operating loss carryforward. The Company recognized no liability for unrecognized tax benefits at March 31, 2021. The Company has no material tax positions at March 31, 2021, 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 March 31, 2021. The Company’s federal income tax returns for the fiscal years ended 2018, 2019, and 2020 are subject to examination by the Internal Revenue Service taxing authority.
| NOTE 5 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 2,598 | $ | 5,589 | ||||
| NOTE 6 | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS |
The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these consolidated financial instruments. As of March 31, 2021, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.
| (12) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 7 | COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS |
The Company leases its office and manufacturing facility, located at 1307 South 59th, St. Joseph, Missouri under an operating lease from an entity that is partially owned by the son of the Chief Executive Officer of the Company. The lease term is from February 1, 2005 through March 31, 2025 with an option to extend for an additional term of five years. The Company does not believe that exercise of the renewal option is reasonably assured, and has not included the additional five years in the lease term. The lease currently requires payments of $6,500 per month.
Operating lease right-of-use assets and lease liabilities were recognized upon adoption of the lease standard based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 5.5 years and the present value of the lease payments is calculated using the lessor’s implicit rate of 6.43%. Operating lease expense is recognized on a straight-line basis over the lease term.
The Company’s lease agreement does not contain any residual value guarantees. Additionally, any other short-term leases are immaterial. The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. Operating lease expenses and cash paid for operating lease liabilities were $58,500 for the nine months ended March 31, 2021, of which, $53,673 is included in cost of sales and $4,827 is included in general and administrative expenses.
Minimum annual payments required under existing operating lease liabilities that have initial or remaining noncancelable terms in excess of one year as of March 31, 2021 are as follows:
| Twelve Months Ending March 31, | Amount | |||
| 2022 | $ | 78,000 | ||
| 2023 | 78,000 | |||
| 2024 | 78,000 | |||
| 2025 | 78,000 | |||
| Total Lease Payments | 312,000 | |||
| Less: Imputed Interest | 37,538 | |||
| Total Lease Liabilities | $ | 274,462 | ||
| (13) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| NOTE 8 | CURRENT ECONOMIC CONDITIONS |
The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. The Company put preparedness plans in place at the manufacturing facility. They have adjusted the number of people allowed at their facilities, enforced social distancing, maintained proper sanitation protocol and have asked that any high risk or employees feeling ill to not come in. The office and sales staff continues to work, while adhering to social distancing guidelines, implementing flexible hours, reducing person-to-person interaction and increasing safety measures.
The Company believes they have sufficient liquidity to satisfy current cash needs, however, they continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that the business can continue to operate during these uncertain times.
The potential impact to the Company’s consolidated financial statements could occur as early as the fourth quarter of fiscal year ending June 30, 2021 and include, but not limited to: impairment of long lived assets; including property and equipment and operating lease right-of-use assets related to the Company’s fair value and collectability of receivables and other financial assets.
| (14) |
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
| 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 March 31, 2021 Compared to Three Months Ended March 31, 2020, and Nine months Ended March 31, 2021 Compared to Nine months Ended March 31, 2020
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 sales and revenues for the periods presented:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31 | March 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of Sales | 79 | 101 | 62 | 71 | ||||||||||||
| Gross Profit on Sales | 21 | (1 | ) | 38 | 29 | |||||||||||
| Operating Expenses | 43 | 54 | 28 | 27 | ||||||||||||
| Income (Loss) from Operations | (22 | ) | (55 | ) | 10 | 2 | ||||||||||
| Other Income, Net | 1 | - | 7 | - | ||||||||||||
| Net Income (Loss) before Income Taxes | (21 | ) | (55 | ) | 17 | 2 | ||||||||||
| Income Tax Provision (Benefit) | - | - | - | - | ||||||||||||
| Net Income (Loss) | (21 | )% | (55 | )% | 17 | % | 2 | % | ||||||||
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Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
SALES
Sales increased $106,894 or 34% for the three months ended March 31, 2021 to $423,007 compared to $316,113 for the three months ended March 31, 2020. Sales for Chase Candy increased $104,242 to $410,186 for the three months ended March 31, 2021, compared to $305,944 for the three months ended March 31, 2020. Sales for Seasonal Candy increased $2,652 to $12,821 for the three months ended March 31, 2021, compared to $10,169 for the three months ended March 31, 2020.
The 34% increase in sales of Chase Candy of $104,242
for the three months ended
March 31, 2021 over the same period ended March 31, 2020, is primarily due to the effect of the following: 1) increased sales
of the L276 Cherry Mash Distributors Pack segment by approximately $52,000 versus the same period a year ago primarily due to increased
orders from existing customers; 2) increased net sales of the L100/L200/SK2100 Cherry Mash Merchandisers segment by approximately
$22,000 to existing customers; 3) increased sales of approximately $30,000 for the Mini Mash L278/L212 segments to existing customers.
The 26% increase in sales of Seasonal Candy of $2,652 for the three months ended March 31, 2021 over the same period ended March 31, 2020, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $1,000 versus the same period a year ago, primarily due to decreased sales to existing customers offset by 2) increased sales to existing customers in the clamshell division by approximately $3,600 versus the same period a year ago.
Sales increased $174,483 or 8% for the nine months ended March 31, 2021 to $2,436,136 compared to $2,261,653 for the nine months ended March 31, 2020. Sales for Chase Candy increased $223,226 to $1,347,915 for the nine months ended March 31, 2021, compared to $1,124,689 for the nine months ended March 31, 2020. Sales for Seasonal Candy decreased $48,743 to $1,088,221 for the nine months ended March 31, 2021, compared to $1,136,964 for the nine months ended March 31, 2020.
The 20% increase in sales of Chase Candy of $223,226
for the nine months ended
March 31, 2021 over the same period ended March 31, 2020, is primarily due to the net effect of the following: 1) increased
sales of the L276 Cherry Mash Distributors Pack segment by approximately $130,000 versus the same period a year ago primarily due to increased
orders from existing customers; 2) overall net increase in sales of the L278/L212 Mini Mash segment by approximately $40,000 versus the
same period a year ago primarily due to increases in orders from existing customers; 3) overall net increase in sales of the approximately
$8,000 for the L100/L200/SK2100 Cherry Mash Merchandisers Segment to existing customers; 4) increase in internet sales of approximately
$60,000; offset by 5) decreased sales of approximately $14,000 for the Bulk Mini Mash L279/L299 segments to existing customers.
The 4% decrease in sales of Seasonal Candy of $48,743 for the nine months ended March 31, 2021 over the same period ended March 31, 2020, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $25,000 versus the same period a year ago, primarily due to decreased sales to existing customers; 2) decreased sales in the clamshell division by approximately $45,000 versus the same period a year ago, primarily due to decreased sales to existing customers; offset by 3) increased sales in the generic segment of approximately $22,000 primarily due to increased sales to existing customers.
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Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
COST OF SALES
The cost of sales increased $13,327 to $334,072 or 79% of related revenues for the three months ended March 31, 2021, compared to $320,745 or 101% of related revenues for the three months ended March 31, 2020.
The 4% increase in cost of sales of $13,327 is primarily due to the increase in direct labor of $13,559 during the period.
The cost of sales decreased $100,361 to $1,515,684 or 62% of related revenues for the nine months ended March 31, 2021, compared to $1,616,045 or 71% of related revenues for the nine months ended March 31, 2020.
The 6% decrease in cost of sales of $100,361 is primarily due to the impact of 1) a sales increase that is partially attributed to a price increase in early 2021, with no impact on cost of sales, 2) a decrease in consumption of raw materials combined with lower sales during the prior quarter.
SELLING EXPENSES
Selling expenses for the three months ended March 31, 2021 increased $2,263 to $64,908, which is 15% of sales, compared to $62,645, or 20% of sales for the three months ended March 31, 2020.
The increase of $2,263 in selling expenses for the three months ended March 31, 2021 is primarily due to higher commissions and shipping costs with decreases in depreciation expense. Commissions expense increased $3,322 to approximately $15,500 for this period from approximately $12,200 for the three months ended March 31, 2020 and shipping costs increased $3,933 to approximately $11,500 for this period from approximately $7,500 for the three months ended March 31, 2020, primarily due to an increase in orders placed. Depreciation expense decreased approximately $3,100 for this period.
Selling expenses for the nine months ended March 31, 2021 increased $10,985 to $251,808, which is 10% of sales, compared to $240,823, or 11% of sales for the nine months ended March 31, 2020.
The increase of $10,985 in selling expenses for the nine months ended March 31, 2021 is primarily due to higher commissions and shipping costs with decreases in depreciation expense and customer shows. Commissions increased $10,221 to approximately $100,000 for this period from approximately $90,000 for the nine months ended March 31, 2020, and shipping costs increased $14,608 to approximately $40,000 for this period from approximately $25,000 for the nine months ended March 31, 2020, all of which was primarily due to an increase in sales. Depreciation expense decreased approximately $9,400 for this period. Customer show expense decreased $3,796 for this period from $6,996 for the nine months ended March 31, 2020, primarily due to effects of COVID 19 and not going on site for customer shows.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 2021 increased $10,283 to $117,446 and 28% of sales, compared to $107,163 or 34% of sales for the three months ended March 31, 2020.
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Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
The increase of $10,283 in general and administrative expenses for the three months ended March 31, 2021 is primarily due to higher professional fees and insurance expense. Professional fees increased approximately $8,200 to $31,945 for this period from $23,286 for the three months ended March 31, 2020 primarily due to increased audit and consulting fees. Insurance expense increased approximately $2,800 to $38,029 for the period from $35,149 for the three months ended March 31, 2020 due to the increase in insurance premiums.
General and administrative expenses for the nine months ended March 31, 2021 increased $68,062 to $431,449 and 18% of sales, compared to $363,387 or 16% of sales for the nine months ended March 31, 2020.
The increase of $68,062 in general and administrative expenses for the nine months ended March 31, 2021 is primarily due to higher professional fees and insurance expense. Professional fees increased approximately $57,000 to $178,988 for this period from $122,028 for the nine months ended March 31, 2020 primarily due to increased audit and consulting fees. Insurance expense increased approximately $12,200 to $108,115 for the period from $95,844 for the nine months ended March 31, 2020 due to the increase in insurance premiums.
OTHER INCOME (EXPENSE)
Other income (expense) increased by $3,157 for the three months ended March 31, 2021 to $3,333, compared to $176 for the three months ended March 31, 2020.
Other income (expense) increased by $178,993 for the nine months ended March 31, 2021 to $177,218, compared to $(1,715) for the nine months ended March 31, 2020.
The majority of this for the nine months ended March 31, 2021, change can be attributed to the gain on extinguishment of debt of $171,500 related to the forgiveness of debt from the PPP loan program. Another portion of the change can be attributed to a decrease in interest expense for the period.
PROVISION FOR INCOME TAXES
The Company recorded no income tax provision for the three and nine months ended March 31, 2021 due to the net operating loss carryforward as of June 30, 2020 that is available to offset taxable income in the current period with a corresponding valuation allowance placed on the remaining net operating loss carryforward.
NET INCOME (LOSS)
The Company reported a net loss for the three months ended March 31, 2021 of $(90,086), compared to a net loss of $(174,264) for the three months ended March 31, 2020. This increase of $84,178 is explained above. The Company reported a net income for the nine months ended March 31, 2021 of $414,413, compared to a net income of $39,683 for the nine months ended March 31, 2020. This increase of $374,730 is explained above.
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Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended March 31, 2021 and March 31, 2020, 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 $96,054 for the nine months ended March 31, 2021 and March 31, 2020, 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 March 31, 2021 was $(122,104) which is an increase of $84,178 as compared to the net loss applicable to common stockholders for the three months ended March 31, 2020 of $(206,282).
Net income applicable to common stockholders for the nine months ended March 31, 2021 was $318,359 which is an increase of $374,730 as compared to the net loss applicable to common stockholders for the nine months ended March 31, 2020 of $(56,371).
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net Cash Provided by Operating Activities | $ | 266,388 | $ | 204,107 | ||||
| Net Cash Used by Financing Activities | $ | (14,436 | ) | $ | (94,030 | ) | ||
Management has made no material commitments for capital expenditures during the remainder of fiscal 2021. The $266,388 of cash provided by operating activities for the nine months ended March 31, 2021 is fully detailed in the condensed consolidated statement of cash flows on page five. The $14,436 of cash used by financing activities for the nine months ended March 31, 2021 are primarily due to principal payments on equipment and vehicle loans.
The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to the Company, COVID-19 may impact various parts of its fiscal year ending June 30, 2021 operations and financial results, including the production and sales of goods. Management believes the Company is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as these events are still developing.
Management believes that the projected cash flow from operations, including the impact of the COVID-19 pandemic, combined with its availability on the line-of-credit, will be sufficient to meet its funding requirements for the foreseeable future.
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Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
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.
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.
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Chase General Corporation and Subsidiary
PART I. FINANCIAL INFORMATION
| 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 management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of evaluation.
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Chase General Corporation and Subsidiary
| 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 March 31, 2021 is $8,557,148. |
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| a. | Exhibits. |
Exhibit 31.1 Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification 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 101 The following financial statements for the quarter ended March 31, 2021, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of March 31, 2021 and June 30, 2020, (ii) Condensed Consolidated Statements of Operations for the Three months Ended March 31, 2021 and 2020, (iii) Condensed Consolidated Statement of Operations for the Nine months Ended March 31, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the Nine months Ended March 31, 2021 and 2020, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
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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 and Subsidiary | |
| (Registrant) | |
| May 17, 2021 | /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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