Company Quick10K Filing
Quick10K
Chase General
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-02-01 Other Events
8-K 2018-03-19 Officers
MDLZ Mondelez 72,460
FIVN Five9 3,050
MGIC Magic Software Enterprises 455
PFBI Premier Financial Bancorp 248
PEBK Peoples Bancorp of North Carolina 164
GSL Global Ship Lease 55
ZDGE Zedge 23
BIOC Biocept 19
ILCC International Leaders Capital 0
PCC Powercomm Holdings 0
CSGN 2018-12-31
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1Significant Accounting Policies
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 2Earnings (Loss) per Share
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 3Notes Payable
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 4Income Taxes
Note 5Supplemental Disclosures of Cash Flow Information
Note 6Disclosures About Fair Value of Financial Instruments
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II. Other Information
EX-31.1 tv512271_ex31-1.htm
EX-32.1 tv512271_ex32-1.htm

Chase General Earnings 2018-12-31

CSGN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv512271_10q.htm FORM 10-Q

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2018

 

¨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   (IRS Employer Identification No.)
incorporation or organization)    

 

1307 South 59th, St. Joseph, Missouri 64507
(Address of principal executive offices, Zip Code)

 

(816) 279-1625
(Issuer’s telephone number, including area code)

 

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 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 13, 2019, 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, 2018

 

Part I Financial Information  
       
  Item 1. Condensed Consolidated Financial Statements  
       
    Condensed Consolidated Balance Sheets as of December 31, 2018 (UNAUDITED) and June 30, 2018 1
       
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017  (UNAUDITED) 2
       
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED DECEMBER 31, 2018 AND 2017  (UNAUDITED) 3
       
    Notes to Condensed Consolidated Financial Statements (Unaudited) 6
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
       
  Item 4. Controls and Procedures 24
       
Part II Other Information  
       
  Item 1. Legal Proceedings 25
       

 

Item 1A. Risk Factors 25
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
       
  Item 3. Defaults Upon Senior Securities 25
       
  Item 4. Mine Safety Disclosures 25
       
  Item 5. Other Information 25
       
  Item 6. Exhibits 25
       
  Signatures 26

 

 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   December 31,   June 30, 
   2018   2018 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS          
Cash and Cash Equivalents  $249,130   $2,129 
Trade Receivables, Net of Allowance for Doubtful Accounts of $13,989 and $13,389, Respectively   187,218    135,331 
Inventories:          
Finished Goods   18,669    208,254 
Goods in Process   9,360    10,937 
Raw Materials   89,173    74,267 
Packaging Materials   135,889    152,184 
Prepaid Expenses   44,523    12,225 
Total Current Assets   733,962    595,327 
           
PROPERTY AND EQUIPMENT          
Land   35,000    35,000 
Buildings   77,348    77,348 
Machinery and Equipment   851,791    851,791 
Trucks and Autos   163,039    163,039 
Office Equipment   33,025    33,025 
Leasehold Improvements   72,068    72,068 
Total   1,232,271    1,232,271 
Less Accumulated Depreciation   1,025,520    997,091 
Total Property and Equipment, Net   206,751    235,180 
           
Total Assets  $940,713   $830,507 

  

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, 
   2018   2018 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
Accounts Payable  $92,379   $176,871 
Current Maturities of Notes Payable   11,507    11,224 
Accrued Expenses   7,089    30,852 
Refund Liability Owed to Customers   37,624    - 
Deferred Income   1,299    1,299 
Total Current Liabilities   149,898    220,246 
           
LONG-TERM LIABILITIES          
Deferred Income   6,817    7,466 
Notes Payable, Less Current Maturities   18,962    24,787 
Deferred Income Taxes   3,400    - 
Total Long-Term Liabilities   29,179    32,253 
           
Total Liabilities   179,077    252,499 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' EQUITY          
Capital Stock Issued and Outstanding:          
Prior Cumulative Preferred Stock, $5 Par Value:          
Series A (Liquidation Preference $2,325,000 and $2,310,000, Respectively)   500,000    500,000 
Series B (Liquidation Preference $2,280,000 and $2,265,000, Respectively)   500,000    500,000 
Cumulative Preferred Stock, $20 Par Value:          
Series A (Liquidation Preference $5,224,063 and $5,194,796, Respectively)   1,170,660    1,170,660 
Series B (Liquidation Preference $851,363 and $846,594, 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   (5,704,360)   (5,887,988)
Total Stockholders' Equity   761,636    578,008 
           
Total Liabilities and Stockholders' Equity  $940,713   $830,507 

 

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 
   2018   2017 
         
SALES  $1,130,629   $1,110,235 
           
COST OF SALES   752,454    786,390 
Gross Profit on Sales   378,175    323,845 
           
OPERATING EXPENSES          
Selling   95,514    118,216 
General and Administrative   97,329    122,627 
Total Operating Expenses   192,843    240,843 
           
Income from Operations   185,332    83,002 
           
OTHER INCOME (EXPENSE)          
Miscellaneous Income   3,462    392 
Interest Expense   (3,056)   (2,318)
Total Other Income (Expense)   406    (1,926)
           
Income before Income Taxes   185,738    81,076 
           
PROVISION FOR INCOME TAXES   3,400    8,682 
           
NET INCOME  $182,338   $72,394 
           
EARNINGS PER SHARE          
Basic  $0.14   $0.04 
           
Diluted  $0.07   $0.02 

 

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 
   2018   2017 
         
SALES  $1,872,149   $1,980,665 
           
COST OF SALES   1,278,775    1,447,482 
Gross Profit on Sales   593,374    533,183 
           
OPERATING EXPENSES          
Selling   168,417    230,548 
General and Administrative   235,813    269,663 
Total Operating Expenses   404,230    500,211 
           
Income from Operations   189,144    32,972 
           
OTHER INCOME (EXPENSE)          
Miscellaneous Income   3,825    762 
Interest Expense   (5,941)   (4,298)
Total Other Income (Expense)   (2,116)   (3,536)
           
Income before Income Taxes   187,028    29,436 
           
PROVISION FOR INCOME TAXES   3,400    13,891 
           
NET INCOME  $183,628   $15,545 
           
EARNINGS/(LOSS) PER SHARE          
Basic  $0.11   $(0.05)
           
Diluted  $0.05   $(0.05)

 

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

 

 4 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Six Months Ended 
   December 31 
   2018   2017 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Income  $183,628   $15,545 
Adjustments to Reconcile Net Income to Net Cash          
  Provided by Operating Activities:          
Depreciation and Amortization   28,429    34,017 
Allowance for Bad Debts   600    600 
Deferred Income Amortization   (649)   (649)
Deferred Income Taxes   3,400    59,683 
Effects of Changes in Operating Assets and Liabilities:          
Trade Receivables   (52,487)   (60,559)
Inventories   192,551    212,550 
Prepaid Expenses   (32,298)   (15,431)
Income Taxes Receivable   -    (41,371)
Accounts Payable   (84,492)   93,589 
Accrued Expenses   (23,763)   (14,583)
Income Taxes Payable   -    6,739 
Refund Liability Owed to Customers   37,624    - 
Net Cash Provided by Operating Activities   252,543    290,130 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from Line-of-Credit   340,000    330,000 
Principal Payments on Line-of-Credit   (340,000)   (330,000)
Principal Payments on Notes Payable   (5,542)   (7,981)
Net Cash Used by Financing Activities   (5,542)   (7,981)
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   247,001    282,149 
           
Cash and Cash Equivalents - Beginning of Period   2,129    46,182 
           
CASH AND CASH EQUIVALENTS - END OF PERIOD  $249,130   $328,331 

 

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 1SIGNIFICANT ACCOUNTING POLICIES

 

General

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2018 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, 2018 and for the three and six months ended December 31, 2017 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, 2018. The results of operations for the three and six months ended December 31, 2018 and cash flows for the six months ended December 31, 2018 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2019. 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.

 

No events have occurred subsequent to December 31, 2018, 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, 2018.

 

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 1SIGNIFICANT 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 add, 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 second quarter of the year ending June 30, 2019 resulting from updated estimates of revenue for prior year product sales were not significant.

 

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, 2018

 

   2018   2017 
Sales - Chase Candy  $473,685   $455,329 
Sales - Seasonal Candy   656,944    654,906 
Sales  $1,130,629   $1,110,235 

 

For the six months ended December 31, 2018

 

   2018   2017 
Sales - Chase Candy  $767,772   $797,757 
Sales - Seasonal Candy   1,104,377    1,182,908 
Sales  $1,872,149   $1,980,665 

 

 7 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Adopted Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On July 1, 2018, we adopted the requirements of ASC 606 and all the related amendments to contracts that have not been completed as of the initial adoption date using the modified retrospective method. Upon completing our implementation assessment of ASC 606, we concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

The Company identified certain amounts included in accounts payable that will be separately recorded as a current liability upon adoption of ASC 606. There will be no impact to working capital as a result of these reclassifications. The cumulative effects of the changes made to our consolidated July 1, 2018 balance sheet for the adoption of the new revenue standard were as follows:

 

   Balance at   Adjustment   Balance at 
   June 30, 2018   Upon Adoption   July 1, 2018 
Balance Sheet               
Accounts Payable  $135,311   $(12,900)  $122,411 
Refund Liability Owed to Customers   -    12,900    12,900 

 

 8 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Adopted Pronouncements (Continued)

There is no change in the timing of revenue recognition upon adoption of ASC 606. The Company has identified certain amounts paid to customers which are currently recorded as selling expense. Under ASC 606, these amounts will be recorded as a reduction to revenue as the Company does not receive a distinct good or service in exchange for the payment. The total impact of adoption on our consolidated statement of operation and balance sheet was as follows:

 

   For the three month period ended December 31, 2018 
   Current       Previous 
   Standard   Change   Standard 
Statement of Operations               
Sales  $1,130,629   $28,088   $1,158,717 
Selling Expenses   95,514    28,088    123,602 
     
   As of and for the six month period ended December 31, 2018 
   Current       Previous 
   Standard   Change   Standard 
Balance Sheet               
Accounts Payable  $92,382   $37,624   $130,006 
Refund Liability Owed to Customers   37,624    (37,624)   - 
                
Statement of Operations               
Sales  $1,872,149   $47,890   $1,920,039 
Selling Expenses   168,417    47,890    216,307 

 

 9 

 

 

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)

 

Recently Issued Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lessees to recognize most leases on their balance sheet as lease liabilities with corresponding right-of-use (ROU) assets. Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease. We are currently in the process of evaluating our existing lease portfolio, including accumulating all of the necessary information required to properly account for the leases under the new standard. ASU 2016-02 is effective for us beginning July 1, 2019. The guidance originally required entities to apply ASU 2016-02 on a modified retrospective basis; however, the FASB has recently proposed guidance that would allow adoption of this standard as of the effective date without restating prior periods. We expect adoption to result in a material increase in lease-related assets and liabilities on our consolidated balance sheets; however, we do not expect it to have a significant impact on our consolidated statements of operations or cash flows.

 

There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s consolidated financial statements.

 

 10 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2EARNINGS (Loss) PER SHARE

 

The earnings (loss) per share were 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 
   2018   2017   2018   2017 
Net Income  $182,338   $72,394   $183,628   $15,545 
                     
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 (Loss) - Common Stockholders  $150,320   $40,376   $119,592   $(48,491)
                     
Weighted Average Shares - Basic   969,834    969,834    969,834    969,834 
Dilutive Effect of Contingently Issuable Shares   1,033,334    1,033,334    1,033,334    1,033,334 
Weighted Average Shares – Diluted   2,003,168    2,003,168    2,003,168    2,003,168 
                     
Basic Earnings (Loss) per Share  $0.14   $0.04   $0.11   $(0.05)
                     
Diluted Earnings (Loss) per Share  $0.07   $0.02   $0.05   $(0.05)

 

The contingently issuable shares, for the six months ended December 31, 2017, were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.

 

 11 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

note 2EARNINGS (LOSS) PER SHARE (continued)

 

Cumulative Preferred Stock dividends in arrears at December 31, 2018 and 2017 totaled $8,268,986 and $8,140,914, respectively. Total dividends in arrears, on a per share basis, consist of the following:

 

   Six Months Ended 
   December 31 
   2018   2017 
6% Convertible        
Series A  $18   $18 
Series B   18    17 
5% Convertible          
Series A  $69   $68 
Series B   69    68 

 

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.

 

 12 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3NOTES PAYABLE

 

The Company’s long-term debt consists of:

 

      December 31,   June 30, 
Payee  Terms  2018   2018 
Nodaway Valley Bank  $350,000 line-of-credit agreement expiring on January 4, 2020, 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.   22,036    25,560 
              
Toyota Credit  $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle.   8,433    10,451 
              
Total      30,469    36,011 
Less Current Portion      11,507    11,224 
Long-Term Portion     $18,962   $24,787 

  

Future minimum payments for the twelve months ending December 31 are:

 

December 31:  Amount 
2019  $11,507 
2020   12,098 
2021   6,864 
Total  $30,469 

  

 13 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4INCOME TAXES

 

The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at December 31, 2018. The Company has no material tax positions at December 31, 2018 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, 2018. The Company’s federal income tax returns for the fiscal years ended 2016, 2017 and 2018 are subject to examination by the Internal Revenue Service taxing authority.

 

NOTE 5SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

   December 31 
   2018   2017 
         
Cash Paid for:          
Interest  $5,941   $4,298 

 

NOTE 6DISCLOSURES 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, 2018, 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.

 

 14 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

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, 2018 Compared to Three Months Ended December 31, 2017, and Six Months Ended December 31, 2018 Compared to Six Months Ended December 31, 2017

 

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 
   2018   2017   2018   2017 
Sales   100%   100%   100%   100%
Cost of Sales   67    71    68    73 
Gross Profit on Sales   33    29    32    27 
Operating Expenses   17    22    22    25 
Income from Operations   16    7    10    2 
Other Income (Expense), Net   -    -    -    - 
Income before Income Taxes   16    7    10    2 
Provision for Income Taxes   -    1    -    1 
Net Income   16%   6%   10%   1%

 

 15 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

SALES

 

Sales increased $20,394 or 2% for the three months ended December 31, 2018 to $1,130,629 compared to $1,110,235 for the three months ended December 31, 2017. Sales for Chase Candy increased $19,917 to $484,968 for the three months ended December 31, 2018, compared to $465,051 for the three months ended December 31, 2017. Sales for Seasonal Candy increased $9,701 to $689,844 for the three months ended December 31, 2018, compared to $680,143 for the three months ended December 31, 2017. Sales for other sales for the Company increased $3,826 to $11,846 for the three months ended December 31, 2018, compared to $8,020 for the three months ended December 31, 2017. Sales returns and allowances for the Company decreased $15,038 to $27,941 for the three months ended December 31, 2018, compared to $42,979 for the three months ended December 31, 2017. Due to the adoption of ASC 606, adjustments disclosed in Note 1 totaling $28,088 for the three months ended December 31, 2018 were recorded as a reduction to revenue.

 

The 4% increase in sales of Chase Candy of $19,917 for the three months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) increased sales of the L212/L278 Mini Mash division by approximately $16,000 versus the same period a year ago primarily due to increased orders from existing customers; 2) increased sales of L279/L299 Bulk Mini Mash division by approximately $14,000 versus the same period a year ago due to increased orders from existing customers; 3) increased sales of L100/L200/SK2100 Cherry Mash Merchandisers division by approximately $5,000 versus the same period a year ago primarily due to increased orders from existing customers; offset by 4) decreased sales of L276 Cherry Mash Distributors Pack division by approximately $15,000 versus the same period a year ago due to decreased orders from existing customers.

 

The 1% increase in sales of Seasonal Candy of $9,701 for the three months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) an increase orders in the clamshell division netting approximately $56,000 versus the same period a year ago, primarily due to existing customers increasing orders; 2) increased orders in the bulk seasonal division netting approximately $53,000, due to increased sales from existing customers; offset by 3) decreased orders from various customers in the general seasonal division netting approximately $98,500 versus the same period a year ago, primarily due to existing customers decreasing orders.

 

Sales returns and allowances decreased $15,038 for the three months ended December 31, 2018 over the same period ended December 31, 2017 primarily due to management’s anticipation of returns from one customer in the prior period.

 

 16 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

SALES (CONTINUED)

 

Sales decreased $108,516 or 5% for the six months ended December 31, 2018 to $1,872,149 compared to $1,980,665 for the six months ended December 31, 2017. Sales for Chase Candy decreased $26,922 to $787,150 for the six months ended December 31, 2018, compared to $814,072 for the six months ended December 31, 2017. Sales for Seasonal Candy decreased $68,153 to $1,150,128 for the six months ended December 31, 2018, compared to $1,218,281 for the six months ended December 31, 2017. Sales for other sales for the Company increased $4,232 to $12,785 for the six months ended December 31, 2018, compared to $8,553 for the six months ended December 31, 2017. Sales returns and allowances for the Company decreased $30,217 to $30,024 for the six months ended December 31, 2018, compared to $60,241 for the six months ended December 31, 2017. Due to the adoption of ASC 606, adjustments disclosed in Note 1 totaling $47,890 for the six months ended December 31, 2018 were recorded as a reduction to revenue.

 

The 3% decrease in sales of Chase Candy of $26,922 for the six months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $49,000 versus the same period a year ago primarily due to existing customers decreasing orders; offset by 2) increased sales of the L100/L200/SK2100 Cherry Mash Merchandisers division by approximately $18,000 versus the same period a year ago primarily due to existing customers increasing orders; 3) decreased sales of the L212/L278 Mini Mash division by approximately $2,000 versus the same period a year ago primarily due to existing customers increasing orders; and 4) other various increases netting to $2,000.

 

The 6% increase in sales of Seasonal Candy of $68,153 for the six months ended December 31, 2018 over the same period ended December 31, 2017, is primarily due to the net effect of the following: 1) decreased sales in the generic seasonal division netting approximately $28,000 versus the same period a year ago, primarily due to existing customers decreasing orders; 2) decreased sales in the bulk seasonal division netting approximately $25,000 versus the same period a year ago, primarily due to existing customers decreasing orders; and 3) decreased sales in the clamshell seasonal division netting approximately $14,500 versus the same period a year ago, primarily due to existing customers decreasing orders.

 

Sales returns and allowances decreased $30,217 for the six months ended December 31, 2018 over the same period ended December 31, 2017 is primarily due to management’s anticipation of returns from one customer in the prior period.

 

 17 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

COST OF SALES

 

The cost of sales decreased $33,936 to $752,454 or 67% of related revenues for the three months ended December 31, 2018, compared to $786,390 or 71% of related revenues for the three months ended December 31, 2017. The 4% decrease in cost of sales of $33,936 is primarily due to the net effect of 1) a 1% decrease in the price of peanuts; 2) decreased waste in packaging; offset by 3) a 2% increase in sales of $20,394; 4) an 4% increase in the price of corn syrup; and 5) a 2% increase in the price of chocolate.

 

The cost of sales decreased $168,707 to $1,278,775 or 68% of related revenues for the six months ended December 31, 2018, compared to $1,447,482 or 73% of related revenues for the six months ended December 31, 2017. The 12% decrease in cost of sales of $168,707 is primarily due to the net effect of 1) a 5% decrease in sales of $108,516; 2) a 3.3% decrease in the price of peanuts; 3) supervisor’s salary decreasing $14,050 to $92,510 for this period from $106,560 for the six months ended December 31, 2017 primarily due to retirement of one of the supervisors; 4) maintenance labor decreasing $13,023 to $3,892 for this period from $16,915 for the six months ended December 31, 2017 primarily due to not hiring a dedicated maintenance worker during the current period; offset by 5) an 5% increase in the price of corn syrup; and 6) a 1% increase in the price of chocolate.

 

Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

 

 18 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

SELLING EXPENSES

 

Selling expenses for the three months ended December 31, 2018 decreased $22,702 to $95,514, which is 8% of sales, compared to $118,216, or 11% of sales for the three months ended December 31, 2017. The decrease of $22,702 in selling expenses for the three months ended December 31, 2018 is primarily due to the adoption of ASC 606, lower sales salaries, lower vehicle depreciation, lower auto expense offset by shipping expenses. With the adoption of ASC 606, the Company no longer includes advertising and bill backs with selling expenses. The expenses included in selling expenses totaled $13,836 for the three months ended December 31, 2017. As disclosed in Note 1, adjustments of $28,088 were made to selling expenses for the three months ended December 31, 2018. Sales salaries decreased $5,500 to $23,125 for this period from $28,625 for the three months ended December 31, 2017 primarily due to retirement of one of the salespersons. Vehicle depreciation expense decreased $2,504 to $8,152 for this period from $10,656 for the three months ended December 31, 2017 and auto expense decreased $2,211 to $2,330 for this period from $4,541 for the three months ended December 31, 2017 primarily due to a selling a vehicle in the period ending June 30, 2018. Shipping expenses increased $2,574 to $18,507 for this period from $15,933 for the three months ended December 31, 2017 primarily due to an increase in shipment of online ordered items.

 

Selling expenses for the six months ended December 31, 2018 decreased $62,131 to $168,417, which is 9% of sales, compared to $230,548 or 11% of sales for the six months ended December 31, 2017. The decrease of $62,131 in selling expenses for the six months ended December 31, 2018 is primarily due to the adoption of ASC 606, lower sales salaries, lower vehicle depreciation, and lower auto expense. With the adoption of ASC 606, the Company no longer includes advertising and bill backs with selling expenses. The expenses included in selling expenses totaled $43,253 for the six months ended December 31, 2017. As disclosed in Note 1, adjustments of $47,890 were made to selling expenses for the six months ended December 31, 2018. Sales salaries decreased $11,000 to $46,250 for this period from $57,250 for the six months ended December 31, 2017 primarily due to retirement of one of the salespersons. Vehicle depreciation expense decreased $5,008 to $16,304 for this period from $21,312 for the six months ended December 31, 2017 and auto expense decreased $3,460 to $4,148 for this period from $7,608 for the six months ended December 31, 2017 primarily due to a selling a vehicle in the period ending June 30, 2018.

 

 19 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses for the three months ended December 31, 2018 decreased $25,298 to $97,329 and 9% of sales, compared to $122,627 or 11% of sales for the three months ended December 31, 2017. The decrease of $25,298 in general and administrative expenses for the three months ended December 31, 2018 is primarily due to lower website expense offset by higher insurance expense and office salaries. Website expense decreased $28,750 to $3,192 for this period from $31,942 for the three months ending December 31, 2017 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash in the prior year. Insurance expense increased $2,901 to $33,739 for this period from $30,838 for the three months ending December 31, 2017 primarily due to an increase in insurance premiums. Office salaries increased $1,320 to $23,351 for this period from $22,031 for the three months ending December 31, 2017 primarily due annual raises for employees.

 

General and administrative expenses for the six months ended December 31, 2018 decreased $33,850 to $235,813 or 13% of sales, compared to $269,663 or 14% of sales for the six months ended December 31, 2017. The decrease of $33,850 in general and administrative expenses for the six months ended December 31, 2018 is primarily due to lower website expense offset by higher insurance expense and office salaries. Website expense decreased $38,992 to $7,286 for this period from $46,278 for the three months ending December 31, 2017 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash in the prior year. Insurance expense increased $3,465 to $65,787 for this period from $62,322 for the three months ending December 31, 2017 primarily due to an increase in insurance premiums. Office salaries increased $3,117 to $46,456 for this period from $43,339 for the three months ending December 31, 2017 primarily due annual raises for employees.

 

OTHER INCOME (EXPENSE)

 

Other income (expense) increased by $2,332 for the three months ended December 31, 2018 to $406, compared to $(1,926) for the three months ended December 31, 2017 primarily due to $2,859 of miscellaneous income received from supplier.

 

Other income (expense) increased by $1,420 for the six months ended December 31, 2018 to $(2,116), compared to $(3,536) for the six months ended December 31, 2017 primarily due to $2,859 of miscellaneous income received from supplier.

 

PROVISION (BENEFIT) FOR INCOME TAXES

 

The Company recorded income tax expense for the three months ended December 31, 2018 of $3,400 as compared to income tax expense of $8,682 for the three months ended December 31, 2017. The Company recorded income tax expense for the six months ended December 31, 2018 of $3,400 as compared to income tax expense of $13,891 for the six months ended December 31, 2017. The net income tax expense (benefit) recorded for the three and six months ended December 31, 2018 is primarily due to recognizing income taxes in relation to the profitability of operations.

 

 20 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

NET INCOME

 

The Company reported net income for the three months ended December 31, 2018 of $182,338, compared to net income of $72,394 for the three months ended December 31, 2017. This increase of $109,944 is explained above. The Company reported net income for the six months ended December 31, 2018 of $183,628, compared to net income of $15,545 for the six months ended December 31, 2017. This increase of $168,083 is explained above.

 

PREFERRED DIVIDENDS

 

Preferred dividends were $32,018 for the three months ended December 31, 2018 and 2017, 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, 2018 and 2017, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

 

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

 

Net income applicable to common stockholders for the three months ended December 31, 2018 was $150,320 which is an increase of $109,944 as compared to the net income applicable to common stockholders for the three months ended December 31, 2017 of $40,376.

 

Net income applicable to common stockholders for the six months ended December 31, 2018 was $119,592 which is an increase of $168,083 as compared to the net loss applicable to common stockholders for the six months ended December 31, 2017 of $(48,491)

 

 21 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

LIQUIDITY AND CAPITAL RESOURCES

 

The table below presents the summary of cash flow for the fiscal period indicated.

 

   Six Months Ended 
   December 31 
   2018   2017 
Net Cash Provided by Operating Activities  $252,543   $290,130 
Net Cash Used by Financing Activities  $(5,542)  $(7,981)

 

Management has no material commitments for capital expenditures during the remainder of fiscal 2019. The $252,543 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $ 5,542 of cash used in financing activities is the principal payments on equipment and vehicle loans. At December 31, 2018, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.

 

Management believes that the projected cash flow from operations, combined with its existing cash balances, 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.

 

 22 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

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.

 

 23 

 

 

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

 

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2018, as a result of the material weakness discussed below.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over consolidated financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statement will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the period ending September 30, 2018, we identified a material weakness in our internal control over financial reporting related to our controls in the method used to estimate the ending inventory balances. This control deficiency resulted in a material adjustment to our ending inventory balance for the period ending September 30, 2018. If not remediated, this control deficiency could result in future material misstatement to inventory and cost of goods sold within the Company’s consolidated financial statements.

 

Management and the Board of Directors are committed to the continued improvement of the Company’s overall system of internal control over financial reporting. Management believes the remediation measures described below will remediate the identified control deficiency and strengthen the Company’s internal control over financial reporting.

 

Management has implemented the following measures to remediate the internal control deficiency with respect to its valuation of inventory.

 

·Management has calculated and reviewed the estimated ending inventory balances using the retail inventory method on a monthly basis; and has used an external vendor for verification of the calculation.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 24 

 

 

CHASE GENERAL CORPORATION AND SUBSIDIARY 

PART II. OTHER INFORMATION

 

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, 2018 is $8,268,986.
   
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, 2018, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2018 and 2017, (iii) Condensed Consolidated Statements of Operations for the Six Months Ended December 31, 2018 and 2017, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2018 and 2017, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

 25 

 

 

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 and Subsidiary
    (Registrant)
     
February 14, 2019   /s/ Barry M. Yantis
Date   Barry M. Yantis
    Chairman of the Board, Chief Executive Officer and
    Chief Financial Officer, President and Treasurer

 

 26