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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 March 31, 2003
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 [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
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 April 30, 2003.
1
CHASE GENERAL CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2003
(Unaudited) and June 30, 2002 ............................................... 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 2003 and 2002 (Unaudited) ............. 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 2003 and 2002 (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
March 31, 2003 and June 30, 2002
ASSETS
March 31, June 30,
2003 2002*
-------------- --------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 213,642 $ 188,528
Trade receivables, net of allowance of $14,649
and $9,834, respectively 107,850 121,918
Income tax receivable -- 7,053
Inventories:
Finished goods 10,827 79,382
Goods in process 4,425 2,557
Raw materials 51,174 23,377
Packaging materials 106,149 60,635
Prepaid expense 6,132 22,110
Prepaid income taxes -- 1,316
-------------- --------------
Total current assets 500,199 506,876
-------------- --------------
PROPERTY AND EQUIPMENT - AT COST 1,086,899 1,146,035
Less accumulated depreciation 915,502 941,495
-------------- --------------
Total property and equipment 171,397 204,540
-------------- --------------
TOTAL ASSETS $ 671,596 $ 711,416
============== ==============
3
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
2003 2002*
-------------- --------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 19,172 $ 66,600
Notes payable, Series B current maturities 22,032 51,010
Accrued expenses 33,594 36,490
-------------- --------------
Total current liabilities 74,798 154,100
-------------- --------------
Total liabilities 74,798 154,100
-------------- --------------
STOCKHOLDERS' EQUITY
Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $1,327,500
and $1,305,000 respectively) 500,000 500,000
Series B (liquidation preference $1,282,500
and $1,260,000 respectively) 500,000 500,000
Cumulative preferred stock, $20 par value
Series A (liquidation preference $3,125,393
and $3,087,616 respectively) 1,170,660 1,170,660
Series B (liquidation preference $516,459
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) (5,869,198) (5,908,680)
-------------- --------------
Total stockholders' equity 596,798 557,316
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 671,596 $ 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)
Three Months Ended Nine Months Ended
March 31 March 31
---------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
NET SALES $ 248,108 $ 240,665 $ 1,596,537 $ 1,532,114
COST OF SALES 224,359 237,317 1,215,247 1,147,340
------------- ------------- ------------- -------------
Gross profit on sales 23,749 3,348 381,290 384,774
------------- ------------- ------------- -------------
OPERATING EXPENSES
Selling expense 31,846 48,401 168,437 187,569
General and administrative expense 51,455 53,567 155,093 157,749
Loss on sale of equipment -- -- 9,747 --
------------- ------------- ------------- -------------
Total operating expenses 83,301 101,968 333,277 345,318
------------- ------------- ------------- -------------
Income (loss) from operations (59,552) (98,620) 48,013 39,456
OTHER INCOME (EXPENSE) 58 (501) 470 (1,664)
------------- ------------- ------------- -------------
Income (loss) before income taxes (59,494) (99,121) 48,483 37,792
PROVISION (CREDIT) FOR INCOME TAXES (19,209) (33,689) 9,001 7,535
------------- ------------- ------------- -------------
NET INCOME (LOSS) (40,285) (65,432) 39,482 30,257
Preferred dividends (32,018) (32,018) (96,054) (96,054)
------------- ------------- ------------- -------------
Net loss applicable to common shareholders $ (72,303) $ (97,450) $ (56,572) $ (65,797)
============= ============= ============= =============
INCOME (LOSS) PER SHARE
OF COMMON STOCK $ (.07) $ (.10) $ (.06) $ (.07)
============= ============= ============= =============
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)
Nine Months Ended
March 31
-------------------------
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 39,482 $ 30,257
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,557 32,925
Provision for bad debts 4,815 4,815
Loss on disposition of equipment 9,747 --
Effects of changes in operating assets and liabilities:
Receivables 16,306 (8,077)
Inventories (6,624) 68,903
Prepaid expense 15,978 26,019
Prepaid income taxes 1,316 11,220
Accounts payable (47,428) (16,718)
Accrued expenses (2,896) 3,275
---------- ----------
Net cash provided by operating activities 57,253 152,619
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 5,500 --
Purchases of property and equipment (8,661) (4,215)
---------- ----------
Net cash used in investing activities (3,161) (4,215)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on Series B notes (28,978) (26,662)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,114 121,742
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 188,528 117,114
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 213,642 $ 238,856
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest $ 3,860
Income taxes (7,003)
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 March 31, 2003, 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 nine months ended March 31, 2003.
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:
Three Months Ended Nine Months Ended
March 31 March 31
-------------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss) $ (40,285) $ (65,432) $ 39,482 $ 30,257
---------- ---------- ---------- ----------
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 loss to common shareholders $ (72,303) $ (97,450) $ (56,572) $ (65,797)
========== ========== ========== ==========
Weighted average of outstanding common shares 969,834 969,834 969,834 969,834
========== ========== ========== ==========
Loss per share $ (.07) $ (.10) $ (.06) $ (.07)
========== ========== ========== ==========
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 MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2002:
Income from Operations
Net sales for the three months ended March 31, 2003 increased 3% to $248
thousand from $241 thousand in the three months ended March 31, 2002. The
increase was primarily attributable to improved sales from an increase in prices
to retailers of their chocolate products.
The gross profit margin was 9.57% in the three months ended March 31, 2003
compared to 1.4% in the comparable 2002 period. A reduction in the Company's
cost for raw peanuts and discontinuing several repackaging items had the impact
of improving the 2003 gross profit margin percentage. Selling, general and
administrative expenses decreased 18%, primarily due to termination of the
Company's sales manager in January and not putting a replacement into place
until late March, as well as paying less sales incentive bonuses.
Loss from operations for the three months ended March 31, 2003 was $59,552,
which represented a 40% decrease from the $98,620 loss reported during the
comparable 2002 period.
NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
2002:
Income from Operations
Net sales for the nine months ended March 31, 2003 increased 4% to $1.597
million from $1.532 million in the nine months ended March 31, 2002. The
increase was primarily attributable to 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 23.9% in the nine months ended March 31, 2003
compared to 25.1% in the comparable 2002 period. Revamping packaging to a clam
shell, and manufacturing labor rate increases, had the impact of increasing
costs by 5.9%. Selling, general and administrative expenses decreased 6%,
primarily due to reduced office and sales personnel and lower sales incentive
bonuses.
Income from operations for the nine months ended March 31, 2003 was $48,013,
which represented a 22% increase from the $39,456 income reported during the
comparable 2002 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 March 31, 2003, the Company anticipates no capital expenditures. Cash
increased $25,114 during the current nine month period.
Inventories increased $6,624 for this nine month period ending March 31, 2003,
which is indictive of the Company being in its slower business cycle.
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 $213,642 at March 31, 2003 compared to $188,528
at June 30, 2002. Working capital at March 31, 2003 was $425,401 and the current
ratio was 6.7 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 its busy season with an improvement in sales.
CASH FLOW FROM OPERATING ACTIVITIES
Cash provided by operating activities in the nine months ended March 31, 2003
was $57,253 compared to cash provided of $152,619 in the nine months ended March
31, 2002. The decrease in cash provided by operations for the nine months ended
March 31, 2003 compared to the same period ended March 31, 2002 was mainly due
to reduced payables.
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 March 31, 2003 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 March 31, 2003, 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 March
31, 2003 is $6,251,852.
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
January, February and March, 2003.
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
5-7-03 /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: 5-7-03 /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