Company Quick10K Filing
Chase General
Price-0.00 EPS-0
Shares2 P/E0
MCap-0 P/FCF0
Net Debt-0 EBIT-0
TEV-0 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
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8-K 2019-02-01
8-K 2018-03-19

CSGN 10Q Quarterly Report

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 and Line of Credit
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 1. Condensed Consolidated Financial Statements
Note 7Commitment, Contingencies, and Related Party Transactions
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 8Subsequent Events
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II. Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tm2035492d1_ex31-1.htm
EX-32.1 tm2035492d1_ex32-1.htm

Chase General Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.81.41.10.70.40.02012201420172020
Assets, Equity
1.51.20.80.50.1-0.22012201420172020
Rev, G Profit, Net Income
0.70.50.30.0-0.2-0.42012201420172020
Ops, Inv, Fin

10-Q 1 tm2035492d1_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 September 30, 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  (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)

 

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 November 13, 2020, 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 THREE MONTHS ENDED SEPTEMBER 30, 2020

 

PART I FINANCIAL INFORMATION

 

  ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18

 

ITEM 4.CONTROLS AND PROCEDURES 18

 

PART II OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS 19

 

ITEM 1A.RISK FACTORS 19

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 19

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES 19

 

ITEM 4.MINE SAFETY DISCLOSURES 19

 

ITEM 5.OTHER INFORMATION 19

 

SIGNATURES  20

 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,   June 30, 
   2020   2020 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS          
Cash and Cash Equivalents  $-   $53,390 
Trade Receivables, Net of Allowance for Doubtful Accounts of $13,749 and $13,171, Respectively   649,530    144,239 
Inventories:          
Finished Goods   160,561    85,632 
Goods in Process   11,335    6,261 
Raw Materials   96,976    65,555 
Packaging Materials   162,510    156,038 
Prepaid Expenses   35,385    7,653 
Total Current Assets   1,116,297    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   1,081,619    1,071,370 
Total Property and Equipment, Net   146,245    156,494 
           
Other Long-Term Assets:          
Right of Use Assets   304,080    318,537 
Total Long-Term Assets   450,325    475,031 
           
Total Assets  $1,566,622   $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)

 

   September 30,   June 30, 
   2020   2020 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
Outstanding Checks in Excess of Bank Balance  $43,921   $- 
Accounts Payable   233,831    47,905 
Current Maturities of Notes Payable   298,515    88,318 
Current Maturities of Lease Liability   60,201    59,244 
Accrued Expenses   54,387    22,207 
Refund Liability Owed to Customers   23,042    10,176 
Deferred Income   1,299    1,299 
Total Current Liabilities   715,196    229,149 
           
LONG-TERM LIABILITIES          
Notes Payable, Less Current Maturities   100,243    103,591 
Lease Liabilities, Less Current Maturities   243,879    259,293 
Deferred Income   4,544    4,869 
Total Long-Term Liabilities   348,666    367,753 
           
Total Liabilities   1,063,862    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 $2,377,500 and $2,370,000, Respectively)   500,000    500,000 
Series B (Liquidation Preference $2,332,500 and $2,325,000, Respectively)   500,000    500,000 
Cumulative Preferred Stock, $20 Par Value:          
Series A (Liquidation Preference $5,326,496 and $5,311,862, Respectively)   1,170,660    1,170,660 
Series B (Liquidation Preference $868,057 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   (5,963,236)   (6,069,099)
Total Stockholders' Equity   502,760    396,897 
           
Total Liabilities and Stockholders' Equity  $1,566,622   $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 
   September 30 
   2020   2019 
SALES  $865,247   $714,081 
           
COST OF SALES   502,836    488,630 
Gross Profit on Sales   362,411    225,451 
           
OPERATING EXPENSES          
Selling   79,708    77,955 
General and Administrative   180,042    144,389 
Total Operating Expenses   259,750    222,344 
           
Income from Operations   102,661    3,107 
           
OTHER INCOME (EXPENSE)          
Miscellaneous Income   4,400    2,873 
Interest Expense   (1,198)   (1,682)
Total Other Income (Expense)   3,202    1,191 
           
Income before Income Taxes   105,863    4,298 
           
INCOME TAX BENEFIT   -    - 
           
NET INCOME  $105,863   $4,298 
           
EARNINGS (LOSS) PER SHARE          
Basic  $0.08   $(0.03)
           
Diluted  $0.08   $(0.03)

 

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 CASH FLOWS

(UNAUDITED)

 

   Three Months Ended 
   September 30 
    2020    2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Income  $105,863   $4,298 
Adjustments to Reconcile Net Income to Net Cash          
Provided by Operating Activities:          
Depreciation and Amortization   10,249    13,651 
Allowance for Bad Debts   300    300 
Deferred Income Amortization   (325)   (325)
Effects of Changes in Operating Assets and Liabilities:          
Trade Receivables   (505,591)   (309,962)
Inventories   (117,896)   (85,398)
Prepaid Expenses   (27,732)   (30,249)
Accounts Payable   185,926    187,441 
Refund Liability Owed to Customers   12,866    16,088 
Accrued Expenses   32,180    10,506 
Net Cash Used by Operating Activities   (304,160)   (193,650)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Outstanding Checks in Excess of Bank Balance   43,921    - 
Proceeds from Line-of-Credit   210,000    202,000 
Principal Payments on Notes Payable   (3,151)   (2,965)
Net Cash Provided by Financing Activities   250,770    199,035 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (53,390)   5,385 
           
Cash and Cash Equivalents - Beginning of Period   53,390    18,800 
           
CASH AND CASH EQUIVALENTS - END OF PERIOD  $-   $24,185 

 

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

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, 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 months ended September 30, 2020 and for the three months ended September 30, 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 months ended September 30, 2020 and cash flows for the three months ended September 30, 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.

 

(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 (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 first 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 September 30,

 

   2020   2019 
Sales - Chase Candy  $380,205   $355,825 
Sales - Seasonal Candy   485,042    358,256 
Sales  $865,247   $714,081 

 

(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)

 

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 2EARNINGS (LOSS) PER SHARE

 

The loss 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 
   September 30 
   2020   2019 
Net Income  $105,863   $4,298 
           
Preferred Dividend Requirements:          
6% Prior Cumulative Preferred, $5 Par Value   15,000    15,000 
5% Convertible Cumulative Preferred, $20 Par Value   17,018    17,018 
Total Dividend Requirements   32,018    32,018 
           
Net Income (Loss) - Common Stockholders  $73,845   $(27,720)
           
Weighted Average Shares - Basic   969,834    969,834 
Dilutive Effect of Contingently Issuable Shares   1,033,334    1,033,334 
Weighted Average Shares – Diluted   2,003,168    2,003,168 
           
Basic Earnings (Loss) per Share  $0.08   $(0.03)
           
Diluted Earnings (Loss) per Share  $0.08   $(0.03)

 

The contingently issuable shares, for the three months ended September 30, 2020 and 2019, were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.

 

(7)

 

 

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 September 30, 2020 and 2019 totaled $8,493,112 and $8,365,040, respectively. Total dividends in arrears, on a per share basis, consist of the following:

 

   Three Months Ended 
   September 30 
   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.

 

(8)

 

 

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 and line of credit

 

The Company’s long-term debt consists of:

 

      September 30,   June 30, 
Payee  Terms  2020   2020 
Nodaway Valley Bank  $350,000 line-of-credit agreement expiring on January 4, 2021, 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. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.  $210,000   $- 
              
Ford Credit  $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle.   8,858    10,824 
              
Toyota Credit  $444 monthly payments, interest of 6.49%; final payment due May 2022, secured by a vehicle.   8,400    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 has the potential to be partially or fully forgiven after certain conditions and requirements are satisfied.   171,500    171,500 
              
   Total   398,758    191,909 
   Less Current Portion   298,515    88,318 
   Long-Term Portion  $100,243   $103,591 

 

Future minimum payments for the twelve months ending September 30 are:

 

September 30,  Amount 
2021  $298,515 
2022   100,243 
Total  $398,758 

 

(9)

 

 

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 recorded no income tax provision for the three months ended September 30, 2020 due to the net operating loss carryforward as of June 30, 2020 that is available to offset taxable income in the current period. A valuation allowance has been placed on the remaining net operating loss carryforward. The Company recognized no liability for unrecognized tax benefits at September 30, 2020. The Company has no material tax positions at September 30, 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 September 30, 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 5SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

   Three Months Ended 
   September 30 
   2020   2019 
Cash Paid for:          
Interest  $1,198   $1,682 

 

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 September 30, 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.

 

(10)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 7COMMITMENT, 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 $19,500 for the three months ended September 30, 2020, of which, $17,891 is included in cost of sales and $1,609 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 September 30, 2020 are as follows:

 

Twelve Months Ending September 30,  Amount 
2021  $78,000 
2022   78,000 
2023   78,000 
2024   78,000 
2025   39,000 
Total Lease Payments   351,000 
Less: Imputed Interest   46,920 
Total Lease Liabilities  $304,080 

 

(11)

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 8Subsequent 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 second 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 September 30, 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 three month period ended September 30, 2020.

 

(12)

 

 

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 September 30, 2020 Compared to Three Months Ended September 30, 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 
   September 30, 
   2020   2019 
Sales   100%   100%
Cost of Sales   58    68 
Gross Profit on Sales   42    32 
Operating Expenses   30    31 
Income from Operations   12    1 
Other Income (Expense), Net   -    - 
Net Income before Income Taxes   12    1 
Income Tax Expense (Benefit)   -    - 
Net Income   12%   1%

 

(13) 

 

 

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 increased $151,166 or 21% for the three months ended September 30, 2020 to $865,247 compared to $714,081 for the three months ended September 30, 2019. Sales for Chase Candy increased $24,380 to $380,205 for the three months ended September 30, 2020, compared to $355,825 for the three months ended September 30, 2019. Sales for Seasonal Candy increased $126,786 to $485,042 for the three months ended September 30, 2020, compared to $358,256 for the three months ended September 30, 2019.

 

The 7% increase in sales of Chase Candy of $24,380 for the three months ended September 30, 2020 over the same period ended September 30, 2019, is primarily due to the net effect of the following: 1) increased sales of the L212/L278 Mini Mash division by approximately $7,700 versus the same period a year ago, primarily due to increased orders from existing customers, 2) various other fluctuations netting to a increase of approximately $4,800, 3) increased website sales by approximately $3,400 primarily due to existing customers increasing orders; 4) increased sales of the L276 Cherry Mash Distributor Pack by approximately $41,800 versus the same period a year ago, primarily due to existing customers increasing orders, offset by 5) decreased sales of the L100/L200/SK2100 Merchandisers division by approximately $33,600 versus the same period a year ago, primarily due to customers decreasing orders.

 

The 35% increase in sales of Seasonal Candy of $126,786 for the three months ended September 30, 2020 over the same period ended September 30, 2019, is primarily due to the effect of the following: 1) increased sales in the bulk seasonal division by approximately $38,100 versus the same period a year ago, primarily due to increased sales to existing customers along with a price increase of 5% effective this quarter ended, 2) increased sales in the clamshell division by approximately $57,400 versus the same period a year ago, primarily due to increased sales to existing customers along with a price increase of 6.6% effective this quarter ended, 3) increased sales in the generic segment of approximately $31,200 primarily due to increased sales to existing customers.

 

COST OF SALES

 

The cost of sales increased $14,206 to $502,836 or 58% of related revenues for the three months ended September 30, 2020, compared to $488,630 or 68% of related revenues for the three months ended September 30, 2019.

 

The 3% increase in cost of sales of $14,206 is primarily due to the impact of 1) a 21% increase in sales of $151,166, a portion of which is related to price increases noted above that did not have a direct impact on cost of sales, 2) a 56% increase in the price of peanuts during the period, 3) an 8% increase in the price of sugar during the period.

 

SELLING EXPENSES

 

Selling expenses for the three months ended September 30, 2020 increased $1,753 to $79,708, which is 9% of sales, compared to $77,955, or 11% of sales for the three months ended September 30, 2019.

 

The increase of $1,753 in selling expenses for the three months ended September 30, 2020 is primarily due to higher commissions with decreases in depreciation expense and customer shows. Commissions increased $7,428 to approximately $40,800 for this period from approximately $33,400 for the three months ended September 30, 2020, primarily due to an increase in sales. Depreciation expense decreased approximately $3,100 for this period. Customer show expense decreased $2,500 for this period from $2,600 for the three months ended September 30, 2020, primarily due to effects of COVID 19 and not going on site for customer shows.

 

(14) 

 

 

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 September 30, 2020 increased $35,653 to $180,042 and 21% of sales, compared to $144,389 or 20% of sales for the three months ended September 30, 2019.

 

The increase of $35,653 in general and administrative expenses for the three months ended September 30, 2020 is primarily due to higher professional fees and insurance expense offset by minimal decreases in office related expenses. Professional fees increased approximately $31,400 to $100,384 for this period from $69,019 for the three months ended September 30, 2019 primarily due increased audit and consulting fees. Insurance expense increased approximately $5,900 to $35,136 for the period from $29,195 for the three months ended September 30, 2019 due to the increase in insurance premiums. A decrease in office related expenses of approximately $2,900 for this period offset the increases discussed above.

 

OTHER INCOME (EXPENSE)

 

Other income (expense) increased by $2,011 for the three months ended September 30, 2020 to $3,202, compared to $1,191 for the three months ended September 30, 2019. A portion of the change can be attributed to a decrease in interest expense for the period.

 

PROVISION (BENEFIT) FOR INCOME TAXES

 

The Company recorded no income tax provision for the three months ended September 30, 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.

 

NET INCOME

 

The Company reported a net income for the three months ended September 30, 2020 of $105,863, compared to a net income of $4,298 for the three months ended September 30, 2019. This increase of $101,565 is explained above.

 

PREFERRED DIVIDENDS

 

Preferred dividends were $32,018 for the three months ended September 30, 2020 and September 30, 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 (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

 

Net income applicable to common stockholders for the three months ended September 30, 2020 was $73,845 which is an increase of $101,565 as compared to the net loss applicable to common stockholders for the three months ended September 30, 2019 of ($27,720).

 

(15) 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

   Three Months Ended 
   September 30, 
   2020   2019 
Net Cash Used by Operating Activities  $(304,160)  $(193,650)
Net Cash Provided by Financing Activities  $250,770   $199,035 

 

Management has made no material commitments for capital expenditures during the remainder of fiscal 2021. The $304,160 of cash used in operating activities for the three months ended September 30, 2020 is fully detailed in the condensed consolidated statement of cash flows on page four. The $250,770 of cash provided by financing activities for the three months ended September 30, 2020 are primarily due to the receipt of $210,000 drawn from a line-of-credit, an increase in outstanding checks in excess of bank balance of $43,921, net of $3,151 of principal payments on equipment and vehicle loans. The proceeds from the line-of-credit during the period ended September 30, 2020 were used to finance the buildup of inventories which is reflected in the cash used in operating activities. At September 30, 2020, the Company had $140,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.

 

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. 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.

 

(16) 

 

 

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

 

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.

 

(18) 

 

 

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 September 30, 2020 is $8,493,112

 

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 September 30, 2020, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2020 and June 30, 2020, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2020 and 2019, (iii) Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2020 and 2019, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

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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)
   
   
November 13, 2020 /s/ Barry M. Yantis
Date Barry M. Yantis
  Chairman of the Board, Chief Executive Officer and
  Chief Financial Officer, President, and Treasurer

 

(20)