Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - CHASE GENERAL CORP | tm215560d1_ex32-1.htm |
| EX-31.1 - EXHIBIT 31.1 - CHASE GENERAL CORP | tm215560d1_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 December 31, 2020
| ¨ | 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 February 12, 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 SIX MONTHS ENDED DECEMBER 31, 2020
Chase General Corporation and Subsidiary
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30, | |||||||
| 2020 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 285,839 | $ | 53,390 | ||||
| Trade Receivables, Net of Allowance for Doubtful Accounts of $13,771 and $13,171, Respectively | 312,676 | 144,239 | ||||||
| Inventories: | ||||||||
| Finished Goods | 46,788 | 85,632 | ||||||
| Goods in Process | 7,989 | 6,261 | ||||||
| Raw Materials | 69,395 | 65,555 | ||||||
| Packaging Materials | 117,428 | 156,038 | ||||||
| Prepaid Expenses | 47,449 | 7,653 | ||||||
| Total Current Assets | 887,564 | 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 | 1,091,676 | 1,071,370 | ||||||
| Total Property and Equipment, Net | 136,188 | 156,494 | ||||||
| Other Long-Term Assets: | ||||||||
| Right of Use Assets | 289,390 | 318,537 | ||||||
| Total Long-Term Assets | 425,578 | 475,031 | ||||||
| Total Assets | $ | 1,313,142 | $ | 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)
| December 31, | June 30, | |||||||
| 2020 | 2020 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 70,122 | $ | 47,905 | ||||
| Current Maturities of Notes Payable | 11,877 | 88,318 | ||||||
| Current Maturities of Lease Liability | 61,174 | 59,244 | ||||||
| Accrued Expenses | 10,099 | 22,207 | ||||||
| Refund Liability Owed to Customers | 22,556 | 10,176 | ||||||
| Deferred Income | 1,299 | 1,299 | ||||||
| Total Current Liabilities | 177,127 | 229,149 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes Payable, Less Current Maturities | 2,183 | 103,591 | ||||||
| Lease Liabilities, Less Current Maturities | 228,216 | 259,293 | ||||||
| Deferred Income | 4,220 | 4,869 | ||||||
| Total Long-Term Liabilities | 234,619 | 367,753 | ||||||
| Total Liabilities | 411,746 | 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 $2,385,000 and $2,370,000, Respectively) | 500,000 | 500,000 | ||||||
| Series B (Liquidation Preference $2,340,000 and $2,325,000, Respectively) | 500,000 | 500,000 | ||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| Series A (Liquidation Preference $5,341,129 and $5,311,862, Respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (Liquidation Preference $870,441 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 | (5,564,600 | ) | (6,069,099 | ) | ||||
| Total Stockholders' Equity | 901,396 | 396,897 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 1,313,142 | $ | 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 | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| SALES | $ | 1,147,882 | $ | 1,231,459 | ||||
| COST OF SALES | 678,776 | 806,670 | ||||||
| Gross Profit on Sales | 469,106 | 424,789 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 107,192 | 100,223 | ||||||
| General and Administrative | 133,961 | 111,835 | ||||||
| Total Operating Expenses | 241,153 | 212,058 | ||||||
| Income from Operations | 227,953 | 212,731 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 401 | 433 | ||||||
| Gain on Extinguishment of Debt (Note 3) | 171,500 | - | ||||||
| Interest Expense | (1,218 | ) | (3,515 | ) | ||||
| Total Other Income (Expense) | 170,683 | (3,082 | ) | |||||
| Income before Income Taxes | 398,636 | 209,649 | ||||||
| INCOME TAX PROVISION | - | - | ||||||
| NET INCOME | $ | 398,636 | $ | 209,649 | ||||
| EARNINGS PER SHARE | ||||||||
| Basic | $ | 0.38 | $ | 0.18 | ||||
| Diluted | $ | 0.18 | $ | 0.09 | ||||
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)
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| SALES | $ | 2,013,129 | $ | 1,945,540 | ||||
| COST OF SALES | 1,181,612 | 1,295,300 | ||||||
| Gross Profit on Sales | 831,517 | 650,240 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling | 186,900 | 178,178 | ||||||
| General and Administrative | 314,003 | 256,224 | ||||||
| Total Operating Expenses | 500,903 | 434,402 | ||||||
| Income from Operations | 330,614 | 215,838 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 4,801 | 3,306 | ||||||
| Gain on Extinguishment of Debt (Note 3) | 171,500 | - | ||||||
| Interest Expense | (2,416 | ) | (5,197 | ) | ||||
| Total Other Income (Expense) | 173,885 | (1,891 | ) | |||||
| Income before Income Taxes | 504,499 | 213,947 | ||||||
| INCOME TAX PROVISION | - | - | ||||||
| NET INCOME | $ | 504,499 | $ | 213,947 | ||||
| EARNINGS PER SHARE | ||||||||
| Basic | $ | 0.45 | $ | 0.15 | ||||
| Diluted | $ | 0.22 | $ | 0.07 | ||||
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 FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 504,499 | $ | 213,947 | ||||
| Adjustments to Reconcile Net Income to Net Cash | ||||||||
| Provided by Operating Activities: | ||||||||
| Depreciation and Amortization | 20,306 | 27,303 | ||||||
| Allowance for Bad Debts | 600 | 600 | ||||||
| Deferred Income Amortization | (649 | ) | (650 | ) | ||||
| Gain on Extinguishment of Debt (Note 3) | (171,500 | ) | - | |||||
| Effects of Changes in Operating Assets and Liabilities: | ||||||||
| Trade Receivables | (169,037 | ) | (26,857 | ) | ||||
| Inventories | 71,886 | 201,256 | ||||||
| Prepaid Expenses | (39,796 | ) | (36,566 | ) | ||||
| Accounts Payable | 22,217 | (12,416 | ) | |||||
| Accrued Expenses | (12,108 | ) | (17,436 | ) | ||||
| Refund Liability Owed to Customers | 12,380 | 10,201 | ||||||
| Net Cash Provided by Operating Activities | 238,798 | 359,382 | ||||||
| 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 | (6,349 | ) | (5,975 | ) | ||||
| Net Cash Used by Financing Activities | (6,349 | ) | (90,975 | ) | ||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 232,449 | 268,407 | ||||||
| Cash and Cash Equivalents - Beginning of Period | 53,390 | 18,800 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 285,839 | $ | 287,207 | ||||
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
NOTES 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 six months ended December 31, 2020 and for the three and six months ended December 31, 2019 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 six months ended December 31, 2020 and cash flows for the six months ended December 31, 2020 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 second 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 December 31,
| 2020 | 2019 | |||||||
| Sales - Chase Candy | $ | 551,386 | $ | 499,762 | ||||
| Sales - Seasonal Candy | 596,496 | 731,697 | ||||||
| Sales | $ | 1,147,882 | $ | 1,231,459 | ||||
(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 six months ended December 31,
| 2020 | 2019 | |||||||
| Sales - Chase Candy | $ | 931,591 | $ | 857,945 | ||||
| Sales - Seasonal Candy | 1,081,538 | 1,087,595 | ||||||
| Sales | $ | 2,013,129 | $ | 1,945,540 | ||||
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.
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.
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net Income | $ | 398,636 | $ | 209,649 | $ | 504,499 | $ | 213,947 | ||||||||
| Preferred Dividend Requirements: | ||||||||||||||||
| 6% Prior Cumulative Preferred,$5 Par Value | 15,000 | 15,000 | 30,000 | 30,000 | ||||||||||||
| 5% Convertible Cumulative Preferred, $20 Par Value | 17,018 | 17,018 | 34,036 | 34,036 | ||||||||||||
| Total Dividend Requirements | 32,018 | 32,018 | 64,036 | 64,036 | ||||||||||||
| Net Income- Common Stockholders | $ | 366,618 | $ | 177,631 | $ | 440,463 | $ | 149,911 | ||||||||
| 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 per Share | $ | 0.38 | $ | 0.18 | $ | 0.45 | $ | 0.15 | ||||||||
| Diluted Earnings per Share | $ | 0.18 | $ | 0.09 | $ | 0.22 | $ | 0.07 | ||||||||
(8)
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 December 31, 2020 and 2019 totaled $8,525,130 and $8,397,058, respectively. Total dividends in arrears, on a per share basis, consist of the following:
| Six Months Ended | ||||||||
| 31-Dec | ||||||||
| 2020 | 2019 | |||||||
| 6% Convertible: | ||||||||
| Series A | $ | 19 | $ | 18 | ||||
| Series B | 18 | 18 | ||||||
| 5% Convertible: | ||||||||
| Series A | $ | 71 | $ | 70 | ||||
| Series B | 71 | 70 | ||||||
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.
(9)
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:
| December 31, | June 30, | |||||||||
| Payee | Terms | 2020 | 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. | 6,863 | 10,824 | ||||||||
| Toyota Credit | $444 monthly payments, interest of 6.49%; final payment due May 2022, | |||||||||
| secured by a vehicle. | 7,197 | 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 | 14,060 | 191,909 | ||||||||
| Less Current Portion | 11,877 | 88,318 | ||||||||
| Long-Term Portion | $ | 2,183 | $ | 103,591 | ||||||
Future minimum payments for the twelve months ending December 31 are:
| December 31 | Amount | ||||
| 2021 | $ | 11,877 | |||
| 2022 | 2,183 | ||||
| Total | $ | 14,060 | |||
(10)
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 six month periods ended December 31, 2020 due to net operating loss carryforward as of June 30, 2020 that is available to offset taxable income in the current period. The Company recognized no liability for unrecognized tax benefits at December 31, 2020. The Company has no material tax positions at December 31, 2020, 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 December 31, 2020. 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
| Six Months Ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 2,416 | $ | 5,197 | ||||
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 December 31, 2020, 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.
(11)
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 $39,000 for the six months ended December 31, 2020, of which, $35,782 is included in cost of sales and $3,218 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 December 31, 2020 are as follows:
| Twelve Months Ending December 31, | Amount | ||||
| 2021 | $ | 78,000 | |||
| 2022 | 78,000 | ||||
| 2023 | 78,000 | ||||
| 2024 | 78,000 | ||||
| 2025 | 19,500 | ||||
| Total Lease Payments | 331,500 | ||||
| Less: Imputed Interest | 42,110 | ||||
| Total Lease Liabilities | $ | 289,390 | |||
(12)
Chase General Corporation and Subsidiary
pART i. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 Subsequent events,
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 third 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.
No other events have occurred subsequent to December 31, 2020, 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 six month period ended December 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
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 December 31, 2020 Compared to Three Months Ended December 31, 2019, and Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019
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 | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of Sales | 59 | 66 | 59 | 67 | ||||||||||||
| Gross Profit on Sales | 41 | 34 | 41 | 33 | ||||||||||||
| Operating Expenses | 21 | 17 | 25 | 22 | ||||||||||||
| Income from Operations | 20 | 17 | 16 | 11 | ||||||||||||
| Other Income, Net | 15 | - | 9 | - | ||||||||||||
| Net Income before Income Taxes | 35 | 17 | 25 | 11 | ||||||||||||
| Income Tax Expense (Benefit) | - | - | - | - | ||||||||||||
| Net Income | 35 | % | 17 | % | 25 | % | 11 | % | ||||||||
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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 decreased $83,577 or 7% for the three months ended December 31, 2020 to $1,147,882 compared to $1,231,459 for the three months ended December 31, 2019. Sales for Chase Candy increased $51,624 to $551,386 for the three months ended December 31, 2020, compared to $499,762 for the three months ended December 31, 2019. Sales for Seasonal Candy decreased $135,201 to $596,496 for the three months ended December 31, 2020, compared to $731,697 for the three months ended December 31, 2019.
The 10% increase in sales of Chase Candy of $51,624 for the three months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $35,600 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 $19,000; 3) increased website sales by approximately $16,500; offset by 4) decreased sales of approximately $19,500 for the Bulk Mini Mash L279/L299 segments to existing customers.
The 18% decrease in sales of Seasonal Candy of $135,201 for the three months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $60,000 versus the same period a year ago, primarily due to decreased sales to existing customers and 2) decreased sales to existing customers in the clamshell division by approximately $75,000 versus the same period a year ago.
Sales increased $67,589 or 3% for the six months ended December 31, 2020 to $2,013,129 compared to $1,945,540 for the six months ended December 31, 2019. Sales for Chase Candy increased $73,646 to $931,591 for the six months ended December 31, 2020, compared to $857,945 for the six months ended December 31, 2019. Sales for Seasonal Candy decreased $6,057 to $1,081,538 for the six months ended December 31, 2020, compared to $1,087,595 for the six months ended December 31, 2019.
The 9% increase in sales of Chase Candy of $73,646 for the six months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $77,500 versus the same period a year ago primarily due to increased orders from existing customers; 2) increased website sales of approximately $17,000; 3) increased net sales of the L278/L212 Mini Mash segment by approximately $7,000 versus the same period a year ago primarily due to increased orders from existing customers; offset by 3) decreased sales of approximately $14,000 for the Bulk Mini Mash L279/L299 segments to existing customers; and 4) decreased sales of the approximately $14,000 for the L100/L200/SK2100 Cherry Mash Merchandisers Segment to existing customers.
The 1% decrease in sales of Seasonal Candy of $6,057 for the six months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the effect of the following: 1) increased sales in the bulk seasonal division by approximately $31,000 versus the same period a year ago, primarily due to increased sales to existing customers along with a price increase of 5% effective first quarter ended September 30, 2020; offset by 2) decreased sales in the clamshell division by approximately $18,000 versus the same period a year ago, primarily due to decreased sales to existing customers; and 3) decreased sales in the generic segment of approximately $19,000 primarily due to decreased 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 decreased $127,894 to $678,776 or 59% of related revenues for the three months ended December 31, 2020, compared to $806,670 or 66% of related revenues for the three months ended December 31, 2019.
The 16% decrease in cost of sales of $127,894 is primarily due to the impact of 1) a 7% decrease in sales of $83,577, 2) a 37% decrease in freight out of $18,805 during the period, 3) a decrease in consumption of raw materials combined with lower sales during the period.
The cost of sales decreased $113,688 to $1,181,612 or 59% of related revenues for the six months ended December 31, 2020, compared to $1,295,300 or 67% of related revenues for the six months ended December 31, 2019.
The 9% decrease in cost of sales of $113,688 is primarily due to the impact of 1) a 3% increase in sales of $67,589, a portion of which is related to price increases noted above that did not have a direct impact on cost of sales, 2) a 29% decrease in freight out of $25,921 during the period, 3) a decrease in consumption of raw materials combined with lower sales during the period.
SELLING EXPENSES
Selling expenses for the three months ended December 31, 2020 increased $6,969 to $107,192, which is 9% of sales, compared to $100,223, or 8% of sales for the three months ended December 31, 2019.
The increase of $6,969 in selling expenses for the three months ended December 31, 2020 is primarily due to higher shipping costs with decreases in depreciation expense. Shipping costs increased $9,761 to approximately $25,500 for this period from approximately $15,600 for the three months ended December 31, 2019, primarily due to an increase in orders placed. Depreciation expense decreased approximately $3,100 for this period.
Selling expenses for the six months ended December 31, 2020 increased $8,722 to $186,900, which is 9% of sales, compared to $178,178, or 9% of sales for the six months ended December 31, 2019.
The increase of $8,722 in selling expenses for the six months ended December 31, 2020 is primarily due to higher commissions and shipping costs with decreases in depreciation expense and customer shows. Commissions increased $6,899 to approximately $83,800 for this period from approximately $76,900 for the six months ended December 31, 2019, and shipping costs increased $10,675 to approximately $28,000 for this period from approximately $17,000 for the six months ended December 31, 2019, all of which was primarily due to an increase in sales. Depreciation expense decreased approximately $6,200 for this period. Customer show expense decreased $3,081 for this period from $3,381 for the six months ended December 31, 2019, primarily due to effects of COVID 19 and not going on site for customer shows.
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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) |
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2020 increased $22,126 to $133,961 and 12% of sales, compared to $111,835 or 9% of sales for the three months ended December 31, 2019.
The increase of $22,126 in general and administrative expenses for the three months ended December 31, 2020 is primarily due to higher professional fees and insurance expense plus minimal increases in office related expenses. Professional fees increased approximately $17,300 to $47,109 for this period from $29,723 for the three months ended December 31, 2019 primarily due to increased audit and consulting fees. Insurance expense increased approximately $3,450 to $34,950 for the period from $31,500 for the three months ended December 31, 2019 due to the increase in insurance premiums. An increase in office related expenses of approximately $1,500 for this period also contributed to the increased noted above.
General and administrative expenses for the six months ended December 31, 2020 increased $57,779 to $314,003 and 16% of sales, compared to $256,244 or 13% of sales for the six months ended December 31, 2019.
The increase of $57,779 in general and administrative expenses for the six months ended December 31, 2020 is primarily due to higher professional fees and insurance expense offset by minimal decreases in office related expenses. Professional fees increased approximately $48,750 to $147,493 for this period from $98,742 for the six months ended December 31, 2019 primarily due to increased audit and consulting fees. Insurance expense increased approximately $9,400 to $70,086 for the period from $60,695 for the six months ended December 31, 2019 due to the increase in insurance premiums. A decrease in office related expenses of approximately $400 for this period offset the increases discussed above.
OTHER INCOME (EXPENSE)
Other income (expense) increased by $173,765 for the three months ended December 31, 2020 to $170,683, compared to $(3,082) for the three months ended December 31, 2019.
Other income (expense) increased by $175,776 for the six months ended December 31, 2020 to $173,885, compared to $(1,891) for the six months ended December 31, 2019.
The majority of this 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 six months ended December 31, 2020 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.
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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) |
NET INCOME
The Company reported a net income for the three months ended December 31, 2020 of $398,636, compared to a net income of $209,469 for the three months ended December 31, 2019. This increase of $188,987 is explained above. The Company reported a net income for the six months ended December 31, 2020 of $504,499, compared to a net income of $213,947 for the six months ended December 31, 2019. This increase of $290,552 is explained above.
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended December 31, 2020 and December 31, 2019, 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 $64,036 for the six months ended December 31, 2020 and December 31, 2019, 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 APPLICABLE TO COMMON STOCKHOLDERS
Net income applicable to common stockholders for the three months ended December 31, 2020 was $366,618 which is an increase of $188,987 as compared to the net income applicable to common stockholders for the three months ended December 31, 2019 of $177,631.
Net income applicable to common stockholders for the six months ended December 31, 2020 was $440,463 which is an increase of $290,552 as compared to the net income applicable to common stockholders for the six months ended December 31, 2019 of $149,911.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net Cash Provided by Operating Activities | $ | 238,798 | $ | 359,382 | ||||
| Net Cash Used by Financing Activities | $ | (6,349 | ) | $ | (90,975 | ) | ||
Management has made no material commitments for capital expenditures during the remainder of fiscal 2021. The $238,798 of cash used in operating activities for the six months ended December 31, 2020 is fully detailed in the condensed consolidated statement of cash flows on page five. The $6,349 of cash used by financing activities for the six months ended December 31, 2020 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.
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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 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.
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 December 31, 2020 is $8,525,130 |
| 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 December 31, 2020, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2020 and 2019, (iii) Condensed Consolidated Statement of Operations for the Six Months Ended December 31, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
(21)
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) | ||
| February 12, 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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