ITEM 1 BUSINESS --------
(a) General development of business -------------------------------
(1) Narrative history of business -----------------------------
Chase General Corporation was incorporated November 6, 1944 for the purpose of manufacturing confectionery products. In 1970 Chase General Corporation acquired a 100% interest in its wholly-owned subsidiary, Dye Candy Company. (Chase General Corporation and Dye Candy Company are sometimes referred herein as "the Company"). This subsidiary is the main operating company for the reporting entity. There were no material acquisitions, dispositions, new developments, or changes in conducting business during the past five fiscal years. However, as of June 30, 1987, the working capital of the Company became impaired due to the maturity of $696,000 of notes payable. During the fiscal year end 1991 a portion of the notes were paid in full and the remaining notes were extended to December 20, 1994. Negotiation of a second extension of the notes began during fiscal year ended 1995. An extension to December 20, 2002 was unanimously accepted December 20, 1995 with the agreement that this will be the final extension. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II of this filing for further information.
(2) Not applicable.
(b) Financial information about industry segments ---------------------------------------------
The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Company and Poe Candy Company. Operations in Chase Candy Company involve production and sale of a candy bar marketed under the trade name "Cherry Mash". Operations in Poe Candy Company involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Division products are sold to the same type of customers in the same geographical areas. In addition, both divisions share a common labor force and utilize the same basic equipment and raw materials. Due to the similarities in the products manufactured, segment reporting for the two divisions is not maintained by Management and, accordingly, is not available for inclusion in this filing.
(c) Narrative description of businesses -----------------------------------
(1) Description of business done and intended to be done by ------------------------------------------------------- dominant single industry ------------------------
(i) The principal products produced and methods of distribution are as follows:
(Continued)
ITEM 1 BUSINESS (CONTINUED) --------
Chase Candy Division of Dye Candy Company produces a candy bar under the trade name of "Cherry Mash". The bar is distributed in four case sizes:
(1) 60 count pack (2) 12 boxes of 24 bars per box (3) 200 count shipper box (4) 96 count shipper box
In addition to the regular size bar, a "mini-mash" is distributed in four case sizes:
(1) 24 - 12 oz. bags (2) 6 jars - 60 bars per jar (3) 23 # wrapped bars (4) 22 # unwrapped bars
The bars are sold primarily to wholesale candy and tobacco jobbing houses, grocery accounts, and vendors. "Cherry Mash" bars are marketed in the Midwest region of the United States. For the years ended June 30, 2001, 2000, and 1999, this division accounted for 57%, 61%, and 56%, respectively, of the consolidated revenue of Dye Candy Company.
Poe Candy Division of Dye Candy Company produces coconut, peanut, chocolate, and fudge confectioneries. These products are distributed in bulk or packaged. Principal products include:
(1) Coconut Bon-Bons (6) Peanut brittle (2) Coconut Stacks (7) Peanut clusters (3) Home Style Poe Fudge (8) Champion Creme Drops (4) Peco Flake (9) Jelly Candies (5) Peanut Squares (10) Coconut Cubes
The Poe line is sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For the years ended June 30, 2001, 2000, and 1999, this division accounted for 43%, 39%, and 44%, respectively, of the consolidated revenue of Dye Candy Company. The Company discontinued the coconut cubes during the year ended June 30, 2000.
(ii) Not applicable.
(iii) Raw materials and packaging materials are produced on a national basis with products coming from most of the states of the United States. Raw materials and packaging materials are generally widely available, depending, of course, on common market influences.
(Continued)
ITEM 1 BUSINESS (CONTINUED) --------
(iv) The largest single revenue producing product, the "Cherry Mash" bar, is protected by a trademark registered with the United States Government Patents Office. Management considers this trademark very important to the Company. The trademark was renewed during the fiscal year ended June 30, 1985. This trademark expires in the year 2002. Management and its legal representatives do not expect any impediment to renewing this trademark prior to its expiration.
(v) The Company is a seasonal business whereby the largest volume of sales occur in the spring and fall of each year. The net income per quarter of the Company varies in direct proportion to the seasonal sales volume.
(vi) Due to the seasonal nature of the business, there is a heavier demand on working capital in the summer and winter months of the year when the Company is building its inventories in anticipation of fall and spring sales. The fluctuation of demand on working capital due to the seasonal nature of the business is common to the confectionery industry. If necessary, the Company has the ability to borrow short-term funds in early fall to finance operations prior to receiving cash collections from fall sales. The Company occasionally offers extended payment terms of up to sixty days. Since this practice is infrequent, the effect on working capital is minimal.
(vii) For the years ending June 30, 2001, 2000, and 1999, Associated Wholesale Grocers, accounted for 25.64%, 20.01% and 19.64% of gross sales, respectively. For the years ending June 30, 2001, 2000, and 1999, Wal- Mart and its affiliates accounted for 28.54%, 20.08% and 12.06% of gross sales, respectively. The loss of Associated Wholesale Grocers would not have an adverse effect on the Company as the customer purchases and distributes to retail outlets and these outlets would continue to demand products offered by Dye Candy Company. However, due to the affiliation certain outlets have with Wal-Mart, a loss of this customer would reduce gross sales. The Company continues to seek additional markets for its products.
(viii) Prompt, efficient service are traits demanded in the confectionery industry, which results in a continual low volume of back-orders. Therefore, at no time during the year does the Company have a significant amount of back-orders.
(ix) Not applicable.
(Continued)
ITEM 1 BUSINESS (CONTINUED) --------
(x) The confectionery market for the type of product produced by the divisions of Dye Candy Company is very competitive and quality minded. The confectionery (candy) industry in which the divisions operate is highly competitive with many small companies and, within certain specialized areas, a few competitors dominate. In the United States, the dominant competitors in the coconut candy industry are Bradley Candy Company, Crown Candy Company, Vermico Candy Company, and the Poe Division of Dye Candy Company with approximately 70% of the market share among them. In the United States, Sophie Mae and Old Dominion have approximately 80% of the market share of the peanut candy business in which the Poe Division operates. Dye Candy Company sells approximately 90% of its products in the Midwest region with seasonal orders being shipped to the Southern and Eastern regions of the United States. Except for the coconut candy industry, Dye Candy Company is not a dominant competitor in any of the candy industries in which it competes. Dye Candy Company's Shares in the coconut industry approximates 15% to 20% annually. This does not vary significantly from year to year. Principal methods of competition the Company uses include quality of product, price, reduced transportation costs due to central location, and service. The Company's competitive position is positively influenced by labor costs being lower than industry average. Chase General Corporation is firmly established in the confectionery market and through its operating divisions has many years' experience associated with its name.
(xi) Not applicable.
(xii) To the best of management's knowledge, the Company is presently in compliance with all environmental laws and regulations and does not anticipate any future expenditures in this regard.
(xiii) The Company employs approximately 25 full time personnel year round. This expands to approximately 50 full time personnel during the two busy production seasons in spring and fall.
(d) Foreign and domestic operations and export sales ------------------------------------------------
The Company has no foreign operations or export sales. In addition, all domestic sales are primarily in the Midwest region of the United States.
ITEM 2
ITEM 2 PROPERTIES ----------
The registrant operates out of two buildings consisting of the following:
Chase and Poe Warehouse - This building located in St. Joseph, Missouri is owned by Dye Candy Company, a wholly-owned subsidiary of the registrant. The facilities are currently devoted entirely to the storage of supplies, and the warehousing and shipping of candy products. This warehouse consists of a sixty-eight year old building which is in fair condition and is adequate to meet present requirements. The warehouse has approximately 15,000 square feet and it is not encumbered.
Chase General Office and Dye Candy Company Operating Plant - The building housing the office and plant is located in St. Joseph, Missouri, and was originally owned by Chase Building Corporation, a wholly-owned subsidiary of Dye Candy Company. In March, 1975, the subsidiary was liquidated by Dye Candy Company. Subsequently, the Company sold this facility. The property was leased from the purchaser in March, 1975. Refer to Note 3, "Notes to Financial Statements," for terms of the lease. The building contains the general offices of Chase General Corporation, Dye Candy Company, and its divisions. The production plant of Dye Candy Company occupies the remainder of the building. The building was acquired new in 1964 and was specifically designed for the type of operations conducted by the registrant. The facility is adequate to meet present requirements. The operating plant is approximately 20,000 square feet and the office is approximately 2,000 square feet. The Company renegotiated the original lease on this building which expired March 31, 1995. The terms of the new lease began April 1, 1995 and continues for ten years.
ITEM 3
ITEM 3 LEGAL PROCEEDINGS -----------------
The Company is not, and has not been, a party in any material pending legal proceedings, other than ordinary litigation incidental to its business, during the fiscal year ended June 30, 2001, nor are any such proceedings contemplated.
ITEM 4
ITEM 4 RESULTS OF VOTES OF SECURITY HOLDERS ------------------------------------
No matters were submitted to a vote of security holders of the registrant during the fourth quarter of the fiscal year ended June 30, 2001.
PART II
ITEM 5
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER ---------------------------------------------------------------- MATTERS -------
(a) Market information ------------------
There is no established public trading market for the common stock (par value $1 per share) of the Company.
(b) Approximate number of security holders --------------------------------------
As of September 5, 2001, the latest practicable date, the approximate number of record holders of common stock was 1,439, including individual participants in security listings.
(c) Dividends ---------
(1) Dividend history and restrictions ---------------------------------
No dividends have been paid during the past three fiscal years. Refer to Note 1, "Notes to Financial Statements" for dividend restrictions.
(2) Dividend policy ---------------
There is no set policy on the payment of dividends due to the financial condition of the Company and other factors. It is not anticipated that cash dividends will be paid in the foreseeable future.
ITEM 6
ITEM 6 SELECTED FINANCIAL DATA -----------------------
(a) Last five years ---------------
(b) No additional years are necessary to keep the summary from being misleading.
* Refer to Note 6, "Notes to Financial Statements" for computation of income (loss) from continuing operations per common share.
ITEM 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
(a & b) Liquidity and capital resources -------------------------------
Positive cash flows from operating activities were generated for fiscal years ended June 30, 2001, 2000, and 1999 in the amounts of $74,261, $28,797, and $99,294, respectively.
At various times during the years, and in anticipation of heavier cash demands due to seasonal production, plant improvements, and/or major promotional programs, it is the Company's practice to invest in short term U.S. Treasury obligations or financial institution certificates of deposit. At June 30, 2001, 2000, and 1999 the Company had $50,000, $100,000, and $150,000, respectively invested in short term certificates of deposit to meet the 2001, 2000, and 1999 fall production season.
The Company continually monitors raw material pricing, and when a price increase/decrease is anticipated adjustments to inventory levels are made accordingly. Raw materials increased approximately $27,000 from June 30, 2000 to June 30, 2001. Raw materials at June 30, 2000 were comparable to prior year. Purchase commitments at June 30, 2001 were approximately $286,000 lower than at June 30, 2000. The decrease was due to the Company evaluating pricing and the market and having an adequate raw materials supply for current production. Purchase commitments at June 30, 2000 were approximately $125,000 higher than at June 30, 1999. This increase was due to $26,000 in peanut contracts over prior year and approximately $102,000 additional purchase commitments of chocolate over prior year. The Company's contracts for these products has been fulfilled and new contracts established. The Company watches markets for these commodities and purchases are made accordingly.
Packaging materials are purchased in large volumes and carried for several years due to the high cost from suppliers to cut dies and print materials. Therefore, when supplier pricing remains consistent over the years and is not predicted to increase, the Company utilizes its present inventory supply without making additional purchases necessary to lock in pricing. Packaging inventory decreased approximately $59,000 from June 30, 2000 to June 30, 2001. The decrease was due to the higher than normal purchase in 2000. Packaging materials inventory increased $35,000 from June 30, 1999 to June 30, 2000. These inventory items were purchased during the year ending June 30, 2000 to replenish inventory used in the current and prior years production. These items were purchased in quantities large enough to fulfill the Company's packaging needs for several seasons.
Finished goods inventory did not significantly change from June 30, 2000 to June 30, 2001. The slight decrease was due to timing of customer purchases of the Cherry Mash products.
Finished goods inventory did not significantly change from June 30, 1999 to June 30, 2000. The slight increase as due to timing of customer purchases of the Cherry Mash products. Goods in process remained comparable to prior years.
(Continued)
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS (CONTINUED) -----------------------------------
The Company continues to write off equipment that is no longer useful to the operations of the Company. These write offs have been immaterial over the past three years. The Company also continues to replace old equipment on a yearly basis in order to streamline operations. However, due to cash flow needs in other areas, the Company has not been able to update the equipment at any significant level. During the year ending June 30, 1999, $16,041 was spent to upgrade production equipment. Also, during 1999, $15,104 was used to add to transportation and office equipment. Expenditures of $13,574 were made to upgrade existing production equipment, in addition, $40,053 was made to update transportation and office equipment during the year ending June 30, 2000. Expenditures of $53,626 were made to upgrade and replace transportation and office equipment during the year-end June 30, 2001. Depending on results of operations and cash flows, the Company is hoping to replace their antiquated brittle cookers in the next several years with no set target date.
For the past nine years, the Company has not been indebted except for the series B notes. Of the original $630,000 Series B notes payable, $127,672 remain outstanding at June 30, 2000. On December 20, 1995, the Company received approval to extend the notes to December 20, 2002 at the current 6% rate of interest, with the agreement that this was the final note extension. Of the outstanding amount at June 30, 2001, $77,672 is classified long-term and $-0- is classified as current. Realizing that the minimum yearly principal payment required by the note indenture will not satisfy the notes on December 20, 2002, the Company has accelerated the principal payments on the notes during the past four fiscal years. It is anticipated that acceleration of principal payments will continue as cash flow has been adequate for operations and equipment replacement.
The Company's lease on its manufacturing facility expired March 31, 1995. The lease was renewed effective April 1, 1995 for a period of 10 years at $2,955 per month.
The Company realized success in 1999, and for the year ending June 30, 1999 net sales increased by 1% and the cost of sales decreased by 1% from the prior year. Operating expenses were closely monitored during 1999 and decreased by 13% for the year. This was accomplished by decreasing selling expenses by 12%, and general and administrative by 15%. During the year ending June 30, 2000, net sales and the cost of sales remained comparable to prior year.
(Continued)
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS (CONTINUED) -----------------------------------
Operating expenses increased by 2.9% from June 30, 1999 through June 30, 2000. This increase was due to increased general and administration expenses. While most general and administration expenses remained constant, insurance expense increased by $9,981 and bad debt expense increased by $24,615. Insurance increased as rates for general and liability insurance continue to go up. During the year ending June 30, 2000 the Company had several large customer accounts which had to be written off. Of the current year write off of $20,813, $9,240 was from one customer that purchased product and immediately declared bankruptcy. During the year ending June 30, 1999 the Company netted $4,012 more from collections of prior write-off than were ultimately written off. The Company continues a very aggressive collection effort. The aging of accounts receivable is reviewed on a regular basis and accounts which become overdue are pursued for collection.
Selling expenses decreased by $28,381 during the year ending June 30, 2000. This was due to the Company change in policy on brokers fees or commissions to customers. The Company discontinued allowing these fees as a reduction of selling price.
During the year ending June 30, 2001, net sales decreased 7% from June 30, 2000 through June 30, 2001. The decrease was due to promotions with customers in the prior year which were discontinued. Additionally, in the prior year receivables from certain customers were written off. The Company did not do business with these customers in the current year. Cost of sales decreased by 5% from June 30, 2000 through June 30, 2001 due to the decrease in net sales.
Operating expenses increased by 5.8% from June 30, 2000 through June 30, 2001. This increase was due to increased selling expenses. Selling expenses increased from the prior year by $15,252 due to commissions and bonuses given to employees during the year. While most general administration expenses remained constant, insurance expense increased by $9,265 as rates for general and liability insurance continues to go up. The Company was aggressive in their collection efforts and write offs decreased by $17,865 from June 30, 2000 through June 30, 2001. The aging of accounts receivable is reviewed on a regular basis and accounts which become overdue are pursued for collection.
Under the leadership of the CEO and his sales staff, the Company has stabilized its customer base. Certainly some customers were lost during 2001, but the Company is working to replace those customers. The Company continues to look for new markets but only when the addition of a new market is profitable.
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.
(Continued)
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS (CONTINUED) -----------------------------------
There has been no material impact from inflation and changing prices on net sales and revenues or on income from continuing operations for the last three fiscal years. The Company does not feel that any accounting changes, as proposed by the Financial Accounting Standards Board, with effective dates after the date of this report, will have a material effect on future financial statements of the Company.
The Company's only computer application, SBT software, involves the payroll processing accounting function.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
Not applicable. Refer to Note 7, "Notes to Financial Statements" for fair value of financial instruments as of June 30, 2001.
ITEM 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
Financial statements meeting the requirements of Regulation S-X are contained on pages 13 through 26 of the filing.
(a) Selected quarterly financial data ---------------------------------
Exempt from requirements per second major condition for smaller companies.
(b) Information about oil and gas producing activities --------------------------------------------------
Registrant is not engaged in any oil and gas producing activities.
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS --------------------------------------------- ON ACCOUNTING AND FINANCIAL DISCLOSURE --------------------------------------
Not applicable. There has been no change in accountants for approximately twenty-five years and no disagreements on accounting or financial disclosure.
INDEPENDENT AUDITOR'S REPORT
Board of Directors Chase General Corporation St. Joseph, Missouri
We have audited the accompanying consolidated balance sheets of Chase General Corporation and subsidiary as of June 30, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chase General Corporation and subsidiary as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ Clifton Gunderson LLP
Clifton Gunderson LLP St. Joseph, Missouri September 5, 2001
CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, 2001 and 2000
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended June 30, 2001, 2000, and 1999
These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended June 30, 2001, 2000, and 1999
These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 2001, 2000, and 1999
These consolidated financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chase General Corporation was incorporated on November 6, 1944 in the State of Missouri for the purpose of manufacturing confectionery products. The Company grants credit terms to substantially all customers, consisting of repackers, grocery accounts, and national syndicate accounts, who are primarily located in the Midwest region of the United States. The Company's fiscal year ends June 30. Significant accounting policies followed by the Company are presented below:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Dye Candy Company. All intercompany transactions and balances have been eliminated in consolidation.
SEGMENT REPORTING OF THE BUSINESS
The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Company and Poe Candy Company. Operations in Chase Candy Company involve production and sale of a candy bar marketed under the trade name "Cherry Mash". Operations in Poe Candy Company involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Division products are sold to the same type of customers in the same geographical areas. In addition, both divisions share a common labor force and utilize the same basic equipment and raw materials. Due to the similarities in the products manufactured, segment reporting for the two divisions is not maintained by Management and, accordingly, has not been disclosed in these financial statements.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.
CHASE GENERAL CORPORATION AND SUBSIDIARY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are carried at the "lower of cost or market value," with cost being determined on the "first-in, first-out" basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.
PROPERTY AND EQUIPMENT
The Company's property and equipment are being depreciated on straight-line and accelerated methods over the following estimated useful lives:
Buildings 25 years Machinery and equipment 3 - 10 years Trucks and autos 3 - 5 years Office Equipment 5 - 10 years Leasehold improvements 8 - 31.5 years
INCOME TAXES
The Company has no significant timing differences that would give rise to deferred tax items.
This information is an integral part of the accompanying consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NOTES PAYABLE, SERIES B
On December 1, 1967, the Company issued Collateral Sinking Fund 6% Income Registered Notes in the amount of $680,000. These notes were issued to extend and consolidate notes and certificates of indebtedness then held by F. S. Yantis & Co., Inc. (Yantis & Co.), aggregating approximately $569,000 together with unpaid accrued interest of $111,000. Interest is payable from "surplus net earnings" on the 20th day of December following the year-end.
Pursuant to a supplemental indenture, dated April 1, 1968 and executed in compliance with a request by Yantis & Co. in furtherance of the winding-up of its affairs, the original notes aggregating $680,000 were reissued in two series designated as A and B, respectively. The Series A notes aggregating $50,000 had priority and were retired during the year ended June 30, 1984. The Series B notes totaling $630,000 are held by the former shareholders of Yantis & Co. During the years ended June 30, 2001 and 2000, $50,000 and $35,000 principal was paid on the Series B notes, respectively.
As of June 30, 2001 and 2000, the outstanding Series B notes total $77,672 and $127,672, respectively. Of these amounts $29,376 and $48,286 are owed to officers and directors of the Company.
The Company has agreed to secure the payment of principal and interest on the notes by the pledge of the capital stock of Dye Candy Company under an indenture dated December 1, 1967, and supplemental indenture dated June 30, 1970.
The indenture provides for a sinking fund deposit to be made by the Company each year of not less than one-fourth of the Company's fiscal year "surplus net earnings," which exceeds the amount of interest required to be paid on the outstanding notes. If at any time the sinking fund deposits aggregate $10,000 or more, the same will be applied to prepayment of the notes outstanding. At June 30, 2001, there was no sinking fund requirement, and in 2000, all sinking fund deposits had been disbursed to the noteholders. The "surplus net earnings" is the amount by which the consolidated net income, after adding back the current year's interest on the outstanding notes, exceeds a $25,000 working capital reserve.
See Note 2 for computation of "surplus net earnings" and sinking fund requirements for years ended June 30, 2001, 2000, and 1999.
CHASE GENERAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NOTES PAYABLE, SERIES B (CONTINUED)
Principal payments are made by the trustee under terms of the indenture and may be prepaid at the option of the Company. During the year ended June 30, 1991, the notes were extended to December 20, 1994. Effective December 20, 1995, the notes were extended to December 20, 2002 at the same 6% interest rate and with the agreement that this will be the final note extension. Due to the nature of sinking fund requirements, it is not practicable to include a schedule of future principal payments.
Dividends, other than stock dividends, may not be paid on capital stock at any time interest on the notes is not current.
NOTE 2 - "SURPLUS NET EARNINGS" AND SINKING FUND REQUIREMENTS
The following is an analysis of the computation of the "surplus net earnings (loss)" and sinking fund requirements for years ended June 30:
CHASE GENERAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - COMMITMENTS
Dye Candy Company leases its manufacturing facilities located at 3600 Leonard Road, St. Joseph, Missouri. The period of the lease is from April 1, 1995 through March 31, 2005, and requires payments of $2,955 per month. Rental expense was $35,460 for the years ended June 30, 2001, 2000, and 1999. The amounts are included in cost of sales.
Future minimum lease payments under this lease are as follows:
NOTE 4 - CAPITAL STOCK
Capital stock authorized, issued and outstanding as of June 30, 2001 and 2000 is as follows:
CHASE GENERAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - CAPITAL STOCK (CONTINUED)
Cumulative Preferred Stock dividends in arrears at June 30, 2001 and 2000, totaled $6,027,726 and $5,899,654, respectively. Total dividends in arrears, on a per share basis, consist of the following at June 30:
Six percent 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 four 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.
NOTE 5 - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following as of June 30:
The Company's provision for income taxes differs from the tax that would result from applying statutory federal and state income tax rates primarily because of nondeductible expenses.
CHASE GENERAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LOSS PER SHARE
The loss per share was computed on the weighted average of outstanding common shares during the years as follows:
No computation was made on common stock equivalents outstanding at year-end because earnings per share would be anti-dilutive.
NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these financial instruments.
NOTE 8 - CONCENTRATION OF CREDIT RISK
For the years ending June 30, 2001 and 2000, two customers accounted for 54.18% and 40.09%, respectively, of the gross sales. For the year ending June 30, 2001 one customer accounted for 38.89% of accounts receivable and for the year ending June 30, 2000 two customers accounted for 53.01% of accounts receivable.
This information is an integral part of the accompanying consolidated financial statements.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT --------------------------------------------------
An insufficient number of proxies were returned by the shareholders for the January 19, 2001 annual stockholder meeting. Therefore, the Directors noted above are continuing for an additional one-year term.
See Item 10(b) for offices held by Barry M. Yantis and Brian A. Yantis.
(c) Certain Significant Employees -----------------------------
There are no significant employees other than above.
(d) Family Relationships --------------------
Barry M. Yantis, and Brian A. Yantis are brothers. Brett A. Yantis is the Son of Barry M. Yantis.
(e) Business Experience -------------------
(1) Barry M. Yantis, president and treasurer has been an officer of the Company for twenty-two years, fourteen years as vice- president and eight years as president. He has been on the board of directors for twenty-two years and has been associated with the candy business for twenty-six years.
Brian A. Yantis, vice-president and secretary has been an officer of the Company for eight years as vice-president and since May, 1992 as secretary. He has been associated with the insurance business for twenty-seven years and has been a vice-president of Aon Risk Services in Chicago, Illinois during the past twelve years.
Brett A. Yantis was elected to the position of director during the year ending June 30, 1999. Brett has been associated with the Company for seven years.
(Continued)
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) --------------------------------------------------
(2) The directors and executive officers listed above are also the directors and executive officers of Dye Candy Company.
(f) Involvement in Certain Legal Proceedings ----------------------------------------
Not applicable
(g) Promoters and Control Persons -----------------------------
Not applicable
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION --------------------------------
(a) General -------
Executive officers are compensated for their services as set forth in the Summary Compensation Table. These salaries are approved yearly by the Board of Directors.
(b) Summary Compensation Table
1) CEO
2) No other compensation than that which is listed in compensation table.
3) No other officers are compensated for their services besides those listed in this compensation table.
(c) Option/SAR grants table -----------------------
Not applicable
(d) Aggregated option/SAR exercises and fiscal year-end option/SAR -------------------------------------------------------------- value table -----------
Not applicable
(Continued)
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED) --------------------------------
(e) Long-term incentive awards table --------------------------------
Not applicable
(f) Defined benefit or actuarial plan disclosure --------------------------------------------
Not applicable
(g) Compensation of Directors -------------------------
Directors are not compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings. During the fiscal year 2001, $83 of travel expenses were reimbursed to board members, Brian A. Yantis, and Barry M. Yantis, respectively.
(h) Employment contracts and termination of employment and change in ---------------------------------------------------------------- control arrangements --------------------
No employment contracts exist with any executive officers. In addition, there are no contracts currently in place regarding termination of employment or change in control arrangements.
(i) Report on repricing of option/SARs ----------------------------------
Not applicable
(j) Additional information with respect to compensation committee ------------------------------------------------------------- interlocks and insider participation in compensation decisions --------------------------------------------------------------
The registrant has no formal compensation committee. The board of directors, Brian A. Yantis, Barry M. Yantis, and Brett A. Yantis annually approve the compensation of Barry M. Yantis, CEO.
(k) Board compensation committee report on executive compensation -------------------------------------------------------------
The board bases the annual salary of the CEO on the Company's prior year performance. The criteria is based upon, but is not limited to, market area expansion, gross profit improvement, control of operating expenses, generation of positive cash flow, and hours devoted to the business during the previous fiscal year.
(l) Performance graph -----------------
Not applicable as there are no dividends available to distribute to common stockholders after preferred dividends are met. In addition, there is no market value price for the common stock (par value $1 per share) as there is no public trading market for the Company's stock.
(Continued)
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND --------------------------------------------------- MANAGEMENT ----------
(1) Includes 180,721 shares which could be received within 30 days upon conversion of preferred stock.
(2) Reflects the percentage 291,577 shares would represent if the 180,721 shares above were converted to common stock.
(c) No known change of control is anticipated.
(Continued)
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
(a) Transactions with management and others ---------------------------------------
No reportable transactions with management and others, to which the registrant or its subsidiary was a party, have occurred since the registrant's last fiscal year. In addition, there are no such currently proposed transactions.
(b) Certain business relationships ------------------------------
Not applicable
(c) Indebtedness of management --------------------------
Not applicable
(d) Transactions with promoters ---------------------------
Not applicable
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ---------------------------------------------------- ON FORM 8-K -----------
(a) Documents filed as part of the Form 10-K ----------------------------------------
(1) The following are included in Part II of this report:
(Continued)
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ---------------------------------------------------- ON FORM 8-K (CONTINUED) -----------
(2) The following are included in Part IV of this report:
(b) Reports on Form 8-K -------------------
No reports on Form 8-K were filed during the fourth quarter of the year ended June 30, 2001.
(c) Exhibits required by Item 601 of Regulation S-K -----------------------------------------------
The following have been previously filed and are incorporated by reference to prior years' Forms 10-K filed by the Registrant:
(3) Articles of Incorporation and By-Laws
The following explanations are included in "Notes to Financial Statements" in Part II of this report:
(4) Rights of security holders including indentures - Refer to Notes 1 and 4.
(11) Computation of per share earnings - Refer to Note 6.
(21) Subsidiaries of registrant - Refer to "Summary of Significant Accounting Policies".
(d) Financial statement schedules required by Regulation S-X --------------------------------------------------------
Schedules required by Regulation S-X contained on page 34 through 38 have been excluded from the annual report to the shareholders.
SUPPLEMENTAL INFORMATION TO BE FURNISHED, FILED PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934.
(1) With this filing, the Registrant is furnishing to the Commission four (4) copies of the Proxy Statement regarding the January 19, 2001 annual meeting mailed to security holders during the 2001 fiscal year.
(2) For the 2001 fiscal year, the Registrant will furnish a copy of the annual report and any Proxy information to the Commission at time the aforementioned are mailed to security holders.
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULES
In connection with the audits of the consolidated financial statements of Chase General Corporation and subsidiary, we have also audited supplemental schedules I and II. In our opinion, these schedules present fairly, in all material respects, in relation to the consolidated financial statements taken as a whole, the information required to be stated therein.
Clifton Gunderson LLP St. Joseph, Missouri September 5, 2001
SCHEDULE I
CHASE GENERAL CORPORATION AND SUBSIDIARY CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CHASE GENERAL CORPORATION (Registrant Only) CONDENSED BALANCE SHEETS
June 30, 2001 and 2000
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(1) The restricted assets of 100% consolidated subsidiary, Dye Candy Company, are $714,901 and $800,691 as of June 30, 2001 and 2000, respectively. See "Notes to Financial Statements" in Part II of this report for restrictions.
(2) No cash dividends have been paid by the registrants' wholly-owned subsidiary, Dye Candy Company, during the past three fiscal years.
(Continued)
SCHEDULE I (Continued)
CHASE GENERAL CORPORATION AND SUBSIDIARY CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CHASE GENERAL CORPORATION (Registrant Only) CONDENSED STATEMENTS OF OPERATIONS Years Ended June 30, 2001, 2000 and 1999
(Continued)
SCHEDULE I (Continued)
CHASE GENERAL CORPORATION AND SUBSIDIARY CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CHASE GENERAL CORPORATION (Registrant Only) CONDENSED STATEMENTS OF CASH FLOWS Years Ended June 30, 2001, 2000 and 1999
(Continued)
SCHEDULE I (Continued)
CHASE GENERAL CORPORATION AND SUBSIDIARY CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CHASE GENERAL CORPORATION (Registrant Only) CONDENSED STATEMENTS OF CASH FLOWS Years Ended June 30, 2001, 2000 and 1999
This information should be read only in connection with the accompanying independent auditor's report on supplemental schedules.
SCHEDULE II
CHASE GENERAL CORPORATION AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS June 30, 2001, 2000, and 1999
---------------- * Represents accounts written off, net of (recoveries), for the respective years.
This information should be read only in connection with the accompanying independent auditor's report on supplemental schedules.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHASE GENERAL CORPORATION (Registrant)
Date: 9-26-01 By: /s/ Barry M. Yantis ------- -------------------------- Barry M. Yantis, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
President, Treasurer (Principal Executive Officer and Chief Financial and Accounting /s/ Barry M. Yantis Officer) and Director 9-26-01 --------------------------- ------- Barry M. Yantis Date
/s/ Brian A. Yantis Vice-President, Secretary and Director 9-25-01 --------------------------- ------- Brian A. Yantis Date