UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of |
| (IRS Employer Identification No.) |
incorporation or organization) |
|
|
(Address of principal executive offices, Zip Code) |
( |
(Registrant’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 |
Not Applicable |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.
Indicate by check mark whether the registrant 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ |
| |
⌧ | Smaller reporting company |
| |
Emerging Growth Company |
If an emerging growth company, 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 ⌧
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
As of November 13, 2023, there were
CHASE GENERAL CORPORATION AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
FOR THE THREE months ENDED SEPTEMBER 30, 2023
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
| September 30, | June 30, | |||
2023 |
| 2023 | ||||
ASSETS |
|
| ||||
|
| |||||
CURRENT ASSETS |
|
| ||||
Cash and Cash Equivalents | $ | | $ | |||
Trade Receivables, Net of Allowance for Doubtful Accounts of $ | | | ||||
Inventories: |
|
|
|
| ||
Finished Goods |
| |
| | ||
Goods in Process |
| |
| | ||
Raw Materials |
| |
| | ||
Packaging Materials |
| |
| | ||
Prepaid Expenses |
| |
| | ||
Total Current Assets |
| | | |||
|
|
|
| |||
LONG-TERM ASSETS | ||||||
Property & Equipment |
|
|
|
| ||
Land |
| |
| | ||
Buildings |
| |
| | ||
Machinery and Equipment |
| |
| | ||
Trucks and Autos |
| |
| | ||
Office Equipment |
| |
| | ||
Leasehold Improvements |
| |
| | ||
Total |
| |
| | ||
Less: Accumulated Depreciation and Amortization |
| ( |
| ( | ||
Total Property and Equipment, Net |
| |
| | ||
Right-of-Use Asset | | | ||||
Total Long-Term Assets | | | ||||
Total Assets | $ | | $ | |
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)
(UNAUDITED)
| September 30, | June 30, | ||||
| 2023 |
| 2023 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Accounts Payable | $ | | $ | | ||
Current Maturities of Notes Payable |
| |
| | ||
Current Maturities of Lease Liability | | | ||||
Accrued Expenses |
|
| | |||
Refund Liability Owed to Customers | | | ||||
Deferred Income |
| |
| | ||
Total Current Liabilities |
| |
| | ||
LONG-TERM LIABILITIES | ||||||
Notes Payable, Less Current Maturities |
|
| | |||
Lease Liability, Less Current Maturities | ||||||
Deferred Income |
|
| ||||
Deferred Income Taxes | — | |||||
Total Long-Term Liabilities |
| |
| | ||
Total Liabilities |
| |
| | ||
COMMITMENTS AND CONTINGENCIES (NOTE 7) | ||||||
STOCKHOLDERS’ EQUITY | ||||||
Capital Stock Issued and Outstanding: | ||||||
Prior Cumulative Preferred Stock, $ | ||||||
Series A (Liquidation Preference $ |
| |
| | ||
Series B (Liquidation Preference $ |
| |
| | ||
Cumulative Preferred Stock, $ | ||||||
Series A (Liquidation Preference $ |
| |
| | ||
Series B (Liquidation Preference $ |
| |
| | ||
Common Stock, $ |
| |
| | ||
Paid-In Capital in Excess of Par |
| |
| | ||
Accumulated Deficit |
| ( |
| ( | ||
Total Stockholders’ Equity |
| |
| | ||
Total Liabilities and Stockholders’ Equity | $ | | $ | |
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, | |||||||
2023 |
| 2022 | |||||
SALES | $ | | | ||||
|
|
|
| ||||
COST OF SALES |
| |
| | |||
Gross Profit on Sales |
| |
| | |||
|
|
|
| ||||
OPERATING EXPENSES |
|
|
|
| |||
Selling |
| |
| | |||
General and Administrative |
| |
| | |||
Total Operating Expenses |
| |
| | |||
|
|
|
| ||||
Income from Operations |
| |
| | |||
|
|
|
| ||||
OTHER INCOME (EXPENSE) |
|
|
|
| |||
Miscellaneous Income |
| |
| | |||
Interest Expense |
| ( |
| ( | |||
Total Other Income (Expense), net |
| ( |
| ( | |||
|
|
|
| ||||
Income before Income Taxes |
| |
| | |||
|
|
|
| ||||
INCOME TAX BENEFIT (PROVISION) |
| ( |
| — | |||
|
|
|
| ||||
NET INCOME (LOSS) | $ | ( | $ | | |||
|
|
|
| ||||
EARNINGS (LOSS) PER SHARE |
|
|
|
| |||
Basic | $ | ( | $ | | |||
Diluted | $ | ( | $ | |
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 STOCKHOLDERS’ EQUITY
(UNAUDITED)
Prior Cumulative | Cumulative |
|
|
|
| |||||||||||||||||||
Preferred Stock | Preferred Stock | Common | Paid-In | Accumulated |
| |||||||||||||||||||
| Series A |
| Series B |
| Series A |
| Series B |
| Stock |
| Capital |
| Deficit |
| Total | |||||||||
BALANCE, June 30, 2022 | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Net Income, three months ended September 30, 2022 |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||||
BALANCE, September 30, 2022 | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Prior Cumulative | Cumulative |
|
|
|
| |||||||||||||||||||
Preferred Stock | Preferred Stock | Common | Paid-In | Accumulated |
| |||||||||||||||||||
| Series A |
| Series B |
| Series A |
| Series B |
| Stock |
| Capital |
| Deficit |
| Total | |||||||||
BALANCE, June 30, 2023 | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Net Loss, three months ended September 30, 2023 |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||||
BALANCE, September 30, 2023 | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(4)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended | |||||||
September 30, | |||||||
| 2023 |
| 2022 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
Net Income (Loss) | $ | ( | $ | | |||
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by/(Used in) Operating Activities: |
|
|
|
| |||
Depreciation and Amortization |
| |
| | |||
Allowance for Bad Debts |
| — |
| | |||
Deferred Income Amortization |
| ( |
| ( | |||
Deferred Income Taxes | | — | |||||
Effects of Changes in Operating Assets and Liabilities: |
|
|
|
| |||
Trade Receivables |
| ( |
| ( | |||
Inventories |
| ( |
| | |||
Prepaid Expenses |
| |
| ( | |||
Accounts Payable |
| |
| | |||
Refund Liability Owed to Customers | | | |||||
Accrued Expenses |
| |
| | |||
Net Cash Used in Operating Activities |
| ( |
| ( | |||
|
|
|
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
| |||
Outstanding Checks in Excess of Bank Balance | — | | |||||
Proceeds from Lines-of-Credit |
| |
| | |||
Proceeds from Note Payable - Stockholder | | — | |||||
Principal Payments on Notes Payable |
| ( |
| — | |||
Net Cash Provided by Financing Activities |
| |
| | |||
|
|
|
| ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| |
| ( | |||
|
|
|
| ||||
Cash and Cash Equivalents - Beginning of Period |
| |
| | |||
|
|
|
| ||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | | $ | — |
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
(5)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated financial statements
notes to condensed consolidated financial statements
(unaudited)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
General
The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as Chase, the Company, we, our, and us) at June 30, 2023 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, 2023 and for the three months ended September 30, 2022 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, 2023. The results of operations for the three months ended September 30, 2023 and cash flows for the three months ended September 30, 2023 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2024. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present the 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 trade receivables on the consolidated balance sheet and require payment on a short-term basis. Generally, individual orders from customers are accounted for as a single performance obligation.
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.
(6)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated financial statements
notes to condensed consolidated financial statements
(unaudited)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue Recognition (cont.)
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
For the three months ended September 30,
| 2023 |
| 2022 | |||
SALES | ||||||
Chase Candy |
| $ | |
| $ | |
Seasonal Candy |
| |
| | ||
Total |
| $ | |
| $ | |
Recently Issued Pronouncements
Effective July 1, 2023, the Company adopted ASU 2016-13, Financial Instrument – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments using the modified retrospective approach, which applies Topic 326 at the beginning of the earliest period presented. This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables. The Company evaluated and determined the amendment did not have a material affect on the condensed consolidated financial statements.
Subsequent Events
No other events have occurred subsequent to September 30, 2023, 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, 2023.
(7)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated financial statements
notes to condensed consolidated financial statements
(unaudited)
NOTE 2 EARNINGS (LOSS) PER SHARE
The earnings (loss) per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings (loss) per share are calculated by including contingently issuable shares with the weighted average shares outstanding.
Three Months Ended | |||||||
September 30, | |||||||
| 2023 |
| 2022 |
| |||
Net Income (Loss) | $ | ( | $ | | |||
Preferred Dividend Requirements: |
|
|
|
| |||
| |
| | ||||
| |
| | ||||
Total Dividend Requirements |
| |
| | |||
Net Income (Loss) attributable to Common Stockholders | $ | ( | $ | | |||
Weighted Average Shares - Basic | | | |||||
Effect of Contingently Issuable Shares, if Dilutive | | | |||||
Weighted Average Shares - Diluted | | | |||||
Basic Earnings (Loss) per Share | $ | ( | $ | | |||
Diluted Earnings (Loss) per Share | $ | ( | $ | |
The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. All of the preferred stock, which is convertible into $
Three Months Ended | |||||||
September 30, | |||||||
| 2023 |
| 2022 |
| |||
Series A | $ | | $ | | |||
Series B | $ | | $ | | |||
Series A | $ | | $ | | |||
Series B | $ | | $ | |
The
(8)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated financial statements
notes to condensed consolidated financial statements
(unaudited)
NOTE 2 EARNINGS (LOSS) PER SHARE (cont.)
The Company has the privilege of redemption of
NOTE 3 NOTES PAYABLE
The Company’s notes payable consists of:
September 30, | June 30, | |||||||
Payee |
| Terms |
| 2023 |
| 2023 | ||
Nodaway Valley Bank | $ | $ | | $ | | |||
Note Payable - Stockholder | $ |
| |
| — | |||
|
|
|
|
| ||||
Ford Motor Credit Company | $ |
| |
| | |||
|
|
|
| |||||
Total |
| |
| | ||||
Less Current Portion |
| |
| | ||||
Long-Term Portion | $ | | $ | |
Future minimum payments for the twelve months ended September 30 are:
September 30, |
| Amount | |
2024 | $ | | |
2025 | | ||
2026 | | ||
2027 |
| | |
Total | $ | |
(9)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated financial statements
notes to condensed consolidated financial statements
(unaudited)
NOTE 4 INCOME TAXES
The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recorded an income tax provision of $
The Company recognized a net deferred tax liability for unrecognized tax benefits and costs at September 30, 2023. The Company has no material tax positions at September 30, 2023, for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company had
NOTE 5 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Three Months Ended | |||||||
September 30, | |||||||
| 2023 |
| 2022 |
| |||
Supplemental Cash Flow Information: | |||||||
Interest paid | $ | | $ | — |
NOTE 6 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and lines-of-credit. There are no significant differences between the carrying value and fair value of any of these financial instruments.
NOTE 7 COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS
The Company leases its office and manufacturing facility located in 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
An operating lease right-of-use asset and lease liability was recognized based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of
(10)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated financial statements
notes to condensed consolidated financial statements
(unaudited)
NOTE 7 COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS (cont.)
The Company’s lease agreement does not contain any residual value guarantees. Additionally, any other short-term leases are immaterial. The Company elected the
Minimum annual payments required under the existing operating lease liability that has initial or remaining noncancelable terms in excess of one year as of September 30, 2023 is as follows:
Twelve Months Ending September 30, |
| Amount | |
2024 | $ | | |
2025 |
| | |
2026 |
| | |
2027 | | ||
2028 | | ||
Thereafter | | ||
Total Lease Payments | | ||
Less: Imputed Interest | ( | ||
Total Lease Liability | $ | |
(11)
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 second fiscal quarter, which includes the majority of the holiday shopping season, than in any other fiscal quarter.
RESULTS OF OPERATIONS - Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
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 for the periods presented:
| Three Months Ended |
|
| |||
September 30, |
| |||||
| 2023 |
| 2022 |
|
| |
Sales |
| 100 | % | 100 | % |
|
Cost of Sales |
| 72 | % | 67 | % |
|
Gross Profit on Sales |
| 28 | % | 33 | % |
|
Operating Expenses |
| 27 | % | 26 | % |
|
Income from Operations |
| 1 | % | 7 | % |
|
Other Income (Expense), Net |
| — | % | — | % |
|
Income before Income Taxes |
| 1 | % | 7 | % |
|
Income Tax Benefit (Provision) |
| (1) | % | — | % |
|
Net Income (Loss) |
| 0 | % | 7 | % |
|
SALES
Sales decreased $71,403 or 6% for the three months ended September 30, 2023 to $1,110,799 compared to $1,182,202 for the three months ended September 30, 2022. Sales for Chase Candy decreased $47,357 to $385,147 for the three months ended September 30, 2023, compared to $432,504 for the three months ended September 30, 2022. Sales for Seasonal Candy decreased $24,046 to $725,652 for the three months ended September 30, 2023, compared to $749,698 for the three months ended September 30, 2022.
The 11% decrease in sales of Chase Candy of $47,357 for the three months ended September 30, 2023 over the same period ended September 30, 2022, is primarily due to the effect of the following: 1) decreased sales of approximately $30,000 for the Mini Mash L278/L212 segments due to a decrease in orders from existing customers; 2) decreased sales of the L276 Cherry Mash Distributors Pack segment by approximately $25,000 versus the same period a year ago primarily due to decreased orders from existing customers; 3) decreased sales of the L299 Bulk Mini Mash segment by approximately $10,000 versus the same period a year ago primarily due to decreased orders from existing customers; an 4) increase in sales allowances and discounts by approximately $10,000 primarily related to returns from a large customer offset by 5) increased net sales of the L100/L200 Cherry Mash Merchandisers segment by approximately $25,000 to due to an increase in orders from existing customers.
(12)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I financial INFORMATION
item 2. management’s discussion and analysis of
financial condition and results of operations
SALES (cont.)
The 3% decrease in sales of Seasonal Candy of $24,046 for the three months ended September 30, 2023 over the same period ended September 30, 2022, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $45,000 versus the same period a year ago, primarily due to decreased sales to existing customers; and 2) increase in sales allowances and discounts by approximately $20,000 primarily related to returns from a large customer offset by 3) increased sales to existing customers in the regular produce category by approximately $25,000 versus the same period a year ago; and 4) increased sales to existing customers in the clamshell division by approximately $17,000 versus the same period a year ago.
COST OF SALES
Cost of sales increased $10,519 to $797,020 or 72% of sales for the three months ended September 30, 2023, compared to $786,501 or 67% of sales for the three months ended September 30, 2022.
The increase in cost of sales as a percentage of sales is related to increases in raw materials and labor. 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. All employees were given a 5-10% raise at the end of January 2023. The Company was able to implement a price increase in December 2022 for the majority of customers for Chase Candy products to mitigate increasing prices. The increase in pricing did not fully contribute to improving margins for the quarter ended September 30, 2023 because the price increases in late December 2022 still have not been fully implemented due to contractual pricing with one of the Company’s largest customers. Additionally, no pricing increases occurred for the Seasonal Candy division during the current fiscal year.
SELLING EXPENSES
Selling expenses for the three months ended September 30, 2023 increased $1,042 to $100,382, which is 9% of sales, compared to $99,340, or 8% of sales for the three months ended September 30, 2022.
The increase of $1,042 in selling expenses for the three months ended September 30, 2023 is primarily due to an increase in depreciation expense due to the purchase of new vehicles, offset by a decrease in commissions expense. Commissions expense decreased approximately $2,000 to approximately $55,000 for this period from approximately $57,000 for the three months ended September 30, 2022, primarily due to decreased sales.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended September 30, 2023 decreased $7,273 to $199,096 or 18% of sales, compared to $206,369 or 17% of sales for the three months ended September 30, 2022.
The decrease of $7,273 in general and administrative expenses for the three months ended September 30, 2023 is primarily due to decreases in professional fees of approximately $12,000. These amounts were offset by increases in other miscellaneous general and administrative expenses, specifically increases in labor costs of approximately $5,500 for the period ended September 30, 2023.
(13)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I financial INFORMATION
item 2. management’s discussion and analysis of
financial condition and results of operations
OTHER INCOME (EXPENSE)
Other expense increased by $3,555 for the three months ended September 30, 2023 to ($7,116), compared to ($3,561) for the three months ended September 30, 2022.
The majority of this change can be attributed to an increase in interest expense.
PROVISION FOR INCOME TAXES
The Company recorded an income tax provision of $7,744 for the three months ended September 30, 2023 as the Company removed the previously established full valuation allowance against its net deferred tax assets. The income tax expense is to establish the net deferred tax liability as well as federal and state income tax payable accounts..
The Company did not record an income tax provision for the three months ended September 30, 2022 due to the net operating loss carryforward as of June 30, 2022 that was available to offset taxable income. The remaining net operating loss was also subject to a full valuation allowance.
NET INCOME (LOSS)
The Company reported a net loss for the three months ended September 30, 2023 of $(559), compared to net income of $86,431 for the three months ended September 30, 2022. This decrease of $86,990 is explained above.
PREFERRED DIVIDENDS
Preferred dividends were $32,018 for the three months ended September 30, 2023 and September 30, 2022, 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 (loss) applicable to common stockholders for the three months ended September 30, 2023 was $(32,577) which is a decrease of $86,990 as compared to net income applicable to common stockholders for the three months ended September 30, 2022 of $54,413.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the summary of cash flow for the fiscal period indicated.
| Three Months Ended |
| |||||
September 30, | |||||||
| 2023 |
| 2022 |
| |||
Net Cash Used in Operating Activities | $ | (377,746) | $ | (363,369) | |||
Net Cash Provided by Financing Activities | $ | 386,936 | $ | 349,858 |
Management has made no material commitments for capital expenditures during the remainder of fiscal year 2024. The $377,746 of cash used by operating activities for the three months ended September 30, 2023 is fully detailed in the condensed consolidated statement of cash flows. The $386,936 of cash provided by financing activities for the three months ended September 30, 2023 is fully detailed in the condensed consolidated statement of cash flows.
(14)
CHASE GENERAL CORPORATION AND SUBSIDIARY
PART I financial INFORMATION
item 2. management’s discussion and analysis of
financial condition and results of operations
LIQUIDITY AND CAPITAL RESOURCES (cont.)
In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area and increase sales to its customers. Management also intends to continue tight control on all expenditures. 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. Management intends to make sales price adjustments in the future to correspond with changes in raw material prices. Management believes that the projected cash flow from operations combined with the Company’s ability to generate positive working capital will be sufficient to meet its funding requirements for the foreseeable future.
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.
(15)
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
ITEM 4.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, such officer has concluded that the Company’s disclosure controls and procedures are not effective as a result of a weakness in the design of internal control over financial reporting identified below.
Disclosure controls and procedures include controls and procedures designed 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.
A material weakness was identified in our internal control over financial reporting due to a lack of accounting personnel with the appropriate level of knowledge, experience and training to perform an assessment of its internal controls. This has also resulted in a failure to maintain appropriate segregation of duties over system access. Management believes that this material weakness did not have an adverse effect on the Company’s financial results reported herein.
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.
(16)
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, 2023 is $8,877,328.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS
a.Exhibits.
Exhibit 31.1 |
Exhibit 32.1 |
Exhibit 101 | The following financial statements for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2023 and June 30, 2022, (ii) Condensed Consolidated Statements of Operations for the Three months Ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2023 and 2022, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
(17)
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, 2023 | /s/ Barry M. Yantis | |
Date | Barry M. Yantis | |
Chairman of the Board, Chief Executive Officer and | ||
Chief Financial Officer, President, and Treasurer |
(18)