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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2002
Commission File Number 2-5916
CHASE GENERAL CORPORATION
(Exact name of registrant as specified in its Charter)
Missouri 36-2667734
(State of incorporation) (I.R.S. Employer Identification No.)
3600 Leonard Road, St. Joseph, Missouri 64503
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816)279-1625
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 969,834 as of January 31,
2003.
1
CHASE GENERAL CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2002
(Unaudited) and June 30, 2002......................................... 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended December 31, 2002 and 2001 (Unaudited)..... 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended December 31, 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
SIGNATURES..................................................................... 13
CERTIFICATIONS................................................................. 14
EXHIBIT INDEX.................................................................. 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2002 and June 30, 2002
ASSETS
December 31, June 30,
2002 2002*
------------ ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 251,891 $ 188,528
Trade receivables, net of allowance of $13,044
and $9,834, respectively 126,376 121,918
Income tax receivable -- 7,053
Inventories:
Finished goods 8,022 79,382
Goods in process 8,923 2,557
Raw materials 49,356 23,377
Packaging materials 130,216 60,635
Prepaid expense 266 22,110
Prepaid income taxes -- 1,316
---------- ----------
Total current assets 575,050 506,876
---------- ----------
PROPERTY AND EQUIPMENT - AT COST 1,101,730 1,146,035
Less accumulated depreciation 930,445 941,495
---------- ----------
Total property and equipment 171,285 204,540
---------- ----------
TOTAL ASSETS $ 746,335 $ 711,416
========== ==========
3
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
2002 2002*
------------ -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 34,979 $ 66,600
Notes payable, Series B current maturities 22,032 51,010
Accrued expenses 52,242 36,490
----------- -----------
Total current liabilities 109,253 154,100
----------- -----------
Total liabilities 109,253 154,100
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $1,320,000
and $1,305,000 respectively) 500,000 500,000
Series B (liquidation preference $1,275,000
and $1,260,000 respectively) 500,000 500,000
Cumulative preferred stock, $20 par value
Series A (liquidation preference $3,116,884
and $3,087,616 respectively) 1,170,660 1,170,660
Series B (liquidation preference $507,950
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) (5,828,914) (5,908,680)
----------- -----------
Total stockholders' equity 637,082 557,316
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 746,335 $ 711,416
=========== ===========
* The balance sheet at June 30, 2002 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
December 31 December 31
----------------------- ---------------------
2002 2001 2002 2001
---------- ---------- ---------- --------
NET SALES $1,348,429 $1,291,449 $1,022,055 $979,472
COST OF SALES 990,888 910,023 729,485 668,385
---------- ---------- ---------- --------
Gross profit on sales 357,541 381,426 292,570 311,087
---------- ---------- ---------- --------
OPERATING EXPENSES
Selling expense 136,591 139,168 92,619 89,910
General and administrative expense 103,638 104,182 55,830 54,682
---------- ---------- ---------- --------
Total operating expenses 240,229 243,350 148,449 144,592
---------- ---------- ---------- --------
Income from operations 117,312 138,076 144,121 166,495
OTHER INCOME (EXPENSE) (9,335) (1,163) 589 (706)
---------- ---------- ---------- --------
Income before income taxes 107,977 136,913 144,710 165,789
PROVISION FOR INCOME TAXES 28,210 41,224 35,534 47,224
---------- ---------- ---------- --------
NET INCOME 79,767 95,689 109,176 118,565
Preferred dividends (64,036) (64,036) (32,018) (32,018)
---------- ---------- ---------- --------
Net income applicable to common shareholders $ 15,731 $ 31,653 $ 77,158 $ 86,547
========== ========== ========== ========
INCOME PER SHARE OF COMMON STOCK $ .02 $ .03 $ .08 $ .09
========== ========== ========== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31
-------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79,767 $ 95,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,703 22,341
Provision for bad debts 3,210 3,210
Loss on disposition of equipment 9,747 --
Effects of changes in operating assets and liabilities:
Receivables (615) (25,929)
Inventories (30,566) 59,956
Prepaid expense 23,160 43,942
Accounts payable (31,621) 42,228
Accrued expenses 15,752 17,060
-------- --------
Net cash provided by operating activities 86,537 258,497
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 5,500 --
(Purchases) credit of property and equipment 304 (3,637)
-------- --------
Net cash provided by (used in) investing activities 5,804 (3,637)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on Series B notes (28,978) (26,662)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 63,363 228,198
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 188,528 117,114
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $251,891 $345,312
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest $ 3,860
Income taxes (7,053)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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 December 31, 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 six months ended December 31, 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.
7
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:
Six Months Three Months Ended
December 31 December 31
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income $ 79,767 $ 95,689 $109,176 $118,565
-------- -------- -------- --------
Preferred dividend requirements:
6% Prior Cumulative Preferred, $5 par value 30,000 30,000 15,000 15,000
5% Convertible Cumulative Preferred, $20 par value 34,036 34,036 17,018 17,018
-------- -------- -------- --------
Total dividend requirements 64,036 64,036 32,018 32,018
-------- -------- -------- --------
Net income to common shareholders $ 15,731 $ 31,653 $ 77,158 $ 86,547
-------- -------- -------- --------
Weighted average of outstanding common shares 969,834 969,834 969,834 969,834
======== ======== ======== ========
Income per share $ .02 $ .03 $ .08 $ .09
======== ======== ======== ========
No computation was made on common stock equivalents outstanding because loss per
share would be anti-dilutive.
8
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:
THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 2001:
Income from Operations
Net sales for the three months ended December 31, 2002 increased 4.4% to $1.022
million from $979 thousand in the three months ended December 31, 2001. The
increase was primarily attributable to improved sales from increase in prices to
retailers of their chocolate products.
The gross profit margin was 28.6% in the three months ended December 31, 2002
compared to 31.8% 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 10%. Selling, general and administrative
expenses increased 3%, primarily due to rate increase for health insurance,
samples given away and web site maintenance.
Income from operations for the three months ended December 31, 2002 was
$144,121, which represented a 13% decrease from the $166,495 profit reported
during the comparable 2001 period.
SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
2001:
Income from Operations
Net sales for the six months ended December 31, 2002 increased 4.4% to $1.348
million from $1.291 million in the six months ended December 31, 2001. The
increase was primarily attributable to improved sales with a wider distribution
of mini mash produced for a major customer and an increase in the prices to
retailers of their chocolate products.
The gross profit margin was 26.5% in the six months ended December 31, 2002
compared to 29.5% 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 10%. Selling, general and administrative
expenses decreased 1%, primarily due to reduced office personnel and lower sales
incentive bonuses.
Income from operations for the six months ended December 31, 2002 was $117,312,
which represented a 15% decrease from the $138,076 income reported during the
comparable 2001 period.
9
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002, the Company anticipates capital expenditures of $7,000
to upgrade production equipment. Cash increased $63,363 during the current six
month period as a result of completing the busy season.
The additional expense for the six months ended December 31, 2002 included a
$9,747 loss on disposition of fixed assets. The Company reduced several items in
the vehicle fleet that caused this loss.
Inventories increased $30,566 for this six month period ending December 31,
2002.
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 $251,891 at December 31, 2002 compared to
$188,528 at June 30, 2002. Working capital at December 31, 2002 was $465,797 and
the current ratio was 5.3 to 1 compared to working capital at June 30, 2002 of
$352,776 and a current ratio of 3.3 to 1. The increase in working capital is
primarily due to the Company's completion of busy season.
CASH FLOW FROM OPERATING ACTIVITIES
Cash provided by operating activities in the six months ended December 31, 2002
was $86,537 compared to cash provided of $258,497 in the six months ended
December 31, 2001. The decrease in cash provided by operations for the six
months ended December 31, 2002 compared to the same period ended December 31,
2001 was mainly due to increased inventories and reduced accounts payable.
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 December 31, 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 December 31, 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.
11
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
December 31, 2002 is $6,219,834
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits - 99.01 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 October, November and December, 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHASE GENERAL CORPORATION
Registrant
2-10-03 /s/ Barry M. Yantis
- ------------------------- ------------------------------
Date Barry M. Yantis
President, CEO and Treasurer
13
CERTIFICATIONS
I, Barry M. Yantis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chase General
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am the registrant's certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and I have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to me by others within
that entity, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report conclusions about the
effectiveness of the disclosure controls and procedures based on
my evaluation as of the evaluation date;
5. I am the registrant's officer and I have disclosed, based on our most
recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control;
14
CERTIFICATIONS
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
the most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 2-10-03 /s/ Barry M. Yantis
---------------------------------
Barry M. Yantis, President, CEO &
Treasurer
15
EXHIBIT INDEX
Exhibit No. Name
- ----------- ----
99.01 Certification of Chief Executive Officer and Treasurer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
16