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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission File Number 2-5916
CHASE GENERAL CORPORATION
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(Exact name of registrant as specified in its Charter)
Missouri 36-2667734
- -------- ----------
State incorporation I.R.S. Employer Identification Number
3600 Leonard Road, St. Joseph, Missouri 64503
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code:
(816) 279-1625
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Indicate by check mark whether the registrant (1) has filed all reports,
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
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The number of the registrant's common stock outstanding as of October 31, 2002
was 969,834.
1
CHASE GENERAL CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2002
(Unaudited) and June 30, 2002 ................................................................... 3
Condensed Consolidated Statements of Operations -
Three months Ended September 30, 2002 and 2001 (Unaudited) ...................................... 5
Condensed Consolidated Statements of Cash Flows -
Three months Ended September 30, 2002 and 2001 (Unaudited) ...................................... 6
Notes to Condensed Consolidated Financial Statements ................................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................................... 11
Item 4. Controls and Procedures ........................................................................ 11
PART II - OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes In Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities ................................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K ............................................................... 12
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 ........................................... 13
Signatures ................................................................................................. 14
Certifications ............................................................................................. 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002 and June 30, 2002
ASSETS
September 30, June 30,
2002 2002
------------- ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 85,230 $ 188,528
Trade receivables, net of allowance of $11,439
and $9,834, respectively 133,374 121,918
Income tax receivable 14,535 7,053
Inventories:
Finished goods 207,255 79,382
Goods in process 9,948 2,557
Raw materials 43,561 23,377
Packaging materials 99,865 60,635
Prepaid expense 2,491 22,110
Prepaid income taxes -- 1,316
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Total current assets 596,259 506,876
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PROPERTY AND EQUIPMENT - AT COST 1,101,729 1,146,035
Less accumulated depreciation 921,593 941,495
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Total property and equipment 180,136 204,540
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TOTAL ASSETS $ 776,395 $ 711,416
========== ==========
3
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2002 2002
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(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 163,106 $ 66,600
Notes payable, Series B current maturities 51,010 51,010
Accrued expenses 34,372 36,490
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Total current liabilities 248,488 154,100
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Total liabilities 248,488 154,100
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STOCKHOLDERS' EQUITY
Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $1,312,500
and $1,305,000 respectively) 500,000 500,000
Series B (liquidation preference $1,267,500
and $1,260,000 respectively) 500,000 500,000
Cumulative preferred stock, $20 par value
Series A (liquidation preference $3,102,250
and $3,087,616 respectively) 1,170,660 1,170,660
Series B (liquidation preference $505,566
and $503,182 respectively) 190,780 190,780
Common stock, $1 par value 969,834 969,834
Paid-in capital in excess of par 3,134,722 3,134,722
Retained earnings (deficit) (5,938,089) (5,908,680)
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Total stockholders' equity 527,907 557,316
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 776,395 $ 711,416
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30
----------------------
2002 2001
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NET SALES $ 326,374 $ 311,977
COST OF SALES 261,403 241,638
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Gross profit on sales 64,971 70,339
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OPERATING EXPENSES
Selling expense 43,972 49,258
General and administrative expense 47,808 49,500
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Total operating expenses 91,780 98,758
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Net loss from operations (26,809) (28,419)
OTHER INCOME (EXPENSE) (9,924) (457)
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Net loss before income taxes (36,733) (28,876)
CREDIT FOR INCOME TAXES (7,324) (6,000)
--------- ---------
NET LOSS (29,409) (22,876)
Preferred dividends (32,018) (32,018)
--------- ---------
Net loss applicable to common shareholders $ (61,427) $ (54,894)
========= =========
LOSS PER SHARE OF COMMON STOCK $ (.06) $ (.06)
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30
-----------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (29,409) $ (22,876)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 8,853 12,016
Provision for bad debts 1,605 1,605
Loss on disposition of equipment 9,747 --
Effects of changes in operating assets and liabilities:
Receivables (20,543) (63,902)
Inventories (194,678) (167,632)
Prepaid expense 20,935 25,892
Accounts payable 96,506 163,061
Accrued expenses (2,118) 10,196
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Net cash used in operating activities (109,102) (41,640)
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 5,500 --
(Purchases) credit of property and equipment 304 (3,637)
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Net cash provided by (used in) investing activities 5,804 (3,637)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (103,298) (45,277)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 188,528 117,114
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 85,230 $ 71,837
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Chase General Corporation and subsidiary (`the Company') operates in the
confectionery products industry. As of September 30, 2002, the Company's
operations were primarily conducted through its wholly-owned subsidiary, Dye
Candy Company.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and
do not include certain information and disclosures required by accounting
principles generally accepted in the United States of America for complete
financial statements. However, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments considered necessary to present
fairly the Company's consolidated financial position and results of operations,
have been included. These interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 2002 Annual Report on Form 10-K. Results for interim
periods are not necessarily indicative of trends or of results for a full year.
A summary of the Company's significant accounting policies is presented on pages
19 and 20 (not shown) of its 2002 Annual Report to Shareholders. Users of
financial information produced for interim periods are encouraged to refer to
the footnotes contained in the Annual Report to Shareholders when reviewing
interim financial results. There has been no material change in the accounting
policies followed by the Company during the three months ended September 30,
2002.
Revenue Recognition
The Company recognizes revenues as product is shipped to the customers. Net
sales are comprised of the total sales billed during the period less the
estimated returns, customer allowances, freight paid on these shipped goods, and
customer discounts.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - EARNINGS PER SHARE
The earnings per share was computed on the weighted average of outstanding
common shares as follows:
Three Months Ended
September 30
---------------------------
2002 2001
------------ ------------
Net income (loss) $ (29,409) $ (22,876)
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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
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Net loss common shareholders $ (61,427) $ (54,894)
============ ============
Weighted average of outstanding common shares 969,834 969,834
============ ============
Loss per share $ (.06) $ (.06)
============ ============
No computation was made on common stock equivalents outstanding because loss per
share would be anti-dilutive.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Chase General and its wholly-owned subsidiary are engaged in the manufacture of
confectionery products which are sold primarily to wholesale houses, grocery
accounts, vendors, and repackers.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Income from Operations
Net sales for the three months ended September 30, 2002 increased 4.5% to $326
thousand from $312 thousand in the three months ended September 30, 2001. The
increase was primarily attributable to improved sales with a wider distribution
of mini mash product from a major customer.
The gross profit margin was 19.9% in the three months ended September 30, 2002
compared to 22.6% in the comparable 2001 period. Revamping packaging to a clam
shell, and manufacturing labor rate increases, had the impact of reducing the
2002 gross profit margin percentage by 12%. Selling, general and administrative
expenses decreased 7%, primarily due to reduced office personnel and lower sales
incentive bonuses.
Loss from operations for the three months ended September 30, 2002 was $26,809,
which represented a 6% decrease from the $28,419 loss reported during the
comparable 2001 period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, the Company has no commitments for capitalized
expenditures. Cash decreased $103,299 during the current three month period as a
result of normal seasonal build-up of inventories for the busy season.
The additional expense for the three months ended September 30, 2002 included a
$9,747 loss on disposition of fixed assets. The Company reduced several items in
the fleet that caused this loss.
Inventories increased $194,678 for this three month period ending September 30,
2002 as a part of the Company's normal seasonal build-up.
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CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company believes that cash flow from Dye Candy Company's operating
activities and cash on hand will be adequate to meet its liquidity requirements.
Cash and cash equivalents were $85,229 at September 30, 2002 compared to
$188,528 at June 30, 2002. Working capital at September 30, 2002 was $347,770
and the current ratio was 2.4 to 1 compared to working capital at June 30, 2002
of $352,776 and a current ratio of 3.3 to 1. The decrease in working capital is
primarily due to start of busy season and inventory build up.
CASH FLOW FROM OPERATING ACTIVITIES
Cash used by operating activities in the three months ended September 30, 2002
was $109,103 compared to cash used of $41,640 in the three months ended
September 30, 2001. Accounts receivable and inventories increased by $20,543 and
$194,678, respectively, in the three months ended September 30, 2002.
MARKET RISK
The Company's debt securities with a stated interest rate are not subject to
market risk for changes in interest rates. There have been no material changes
from the information provided in the June 30, 2002 Form 10-K.
FORWARD-LOOKING STATEMENTS
This report does not contain forward-looking statements.
10
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the "Market Risk" section under Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations.
ITEM 4. - CONTROLS AND PROCEDURES
Chase General's chief financial officer is charged with making an evaluation of
Chase General's disclosure controls and procedures. These controls and
procedures are designed to ensure that information required to be disclosed in
reports mandated by the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the required time periods. Additionally, these
controls and procedures are designed to ensure that the appropriate information
required to be disclosed in the reports is accumulated and communicated to Chase
General's management, including Chase General's chief executive officer, to
allow for timely decisions regarding disclosure. Chase General's chief financial
officer has concluded, based upon his evaluation of these controls and
procedures as of September 30, 2002, that Chase General's financial disclosure
controls and procedures are effective.
Chase General's chief financial officer is also charged with making an
evaluation as to the effectiveness of the design and operation of Chase
General's internal controls and procedures for financial reporting purposes.
Chase General's chief financial officer has concluded, based upon his evaluation
of these controls and procedures as of September 30, 2002, that Chase General's
internal controls and procedures are effective. Additionally, there have been no
significant changes in Chase General's internal controls or in other factors
that could significantly affect these controls subsequent to the date of his
evaluation.
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PART II. OTHER INFORMATION
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
a. None
b. The total cumulative preferred stock dividends contingency at
September 30, 2002 is $6,187,816
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits - 99.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
b. Reports on Form 8-K: There were no reports on Form 8-K filed
during July, August and September, 2002.
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