MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis
of our consolidated financial condition, results of operations and cash flows are based upon the accompanying interim condensed
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States (GAAP). This discussion should be read in conjunction with our recent SEC filings, including our Form 10-K as of
and for the year ended May 29, 2015. The preparation of these interim condensed consolidated financial statements requires us to
make estimates and judgments about future events that affect the reported amounts of assets, liabilities, revenues and expenses,
and the related disclosures. Future events and their effects cannot be determined with absolute certainty. Therefore, management’s
determination of estimates and judgments about the carrying values of assets and liabilities requires the exercise of judgment
in the selection and application of assumptions based on various factors, including experience, current and expected economic conditions
and other factors believed to be reasonable under the circumstances. We routinely evaluate our estimates including those considered
significant and discussed in detail in our Form 10-K as of and for the year ended May 29, 2015. Actual results may differ from
these estimates under different assumptions or conditions and such differences may be material.
Overview
Golden Enterprises, Inc. (the “Company”,
“we”, or “our”) is a holding company that owns all of the issued and outstanding capital stock of Golden
Flake Snack Foods, Inc., a wholly-owned subsidiary (“Golden Flake”). Since 1923, Golden Flake has developed a reputation
for manufacturing and distributing a full line of high-quality snack items, such as potato chips, tortilla chips, corn chips, fried
pork skins, baked and fried cheese curls, onion rings, popcorn, and puff corn. The Company also sells canned dips, pretzels, peanut
butter crackers, cheese crackers, dried meat products, and nuts packaged by other manufacturers using the Golden Flake label.
Raw materials used in manufacturing and
processing the Company’s snack food products are purchased on the open market and under contract through brokers and directly
from growers. A large part of the raw materials used by the Company consists of farm commodities which are subject to precipitous
changes in supply and price. Weather varies from season to season and directly affects both the quality and supply of farm commodities
available. The Company has no control of the agricultural aspects, and its profits are affected accordingly.
The Company sells its products, through
both its own sales organization and independent distributors, principally to commercial establishments such as grocery stores,
convenience stores and other outlets that sell food products primarily in the southeastern United States. We believe the Golden
Flake brand is well recognized throughout the markets that it serves.
Financial Condition
Accounts Receivable and Allowance for
Doubtful Accounts
As of March 4, 2016 and May 29, 2015 the
Company had net accounts receivables in the amount of $10,661,928 and $11,085,689 respectively. The change in accounts receivable
is primarily due to the timing of collections from some of our largest customers. This timing change is also reflected in the change
in cash and cash equivalents which went from $1,159,449 as of May 29, 2015 to $1,538,052 as of March 4, 2016. The Company monitors
accounts receivable and collections on a daily basis and strives to keep customer accounts as current as possible.
Line Of Credit Outstanding
As of March 4, 2016 and May 29, 2015 the
Company had a line of credit outstanding in the amount of $733,803 and $2,823,477 respectively. The Company has been able to take
advantage of lower commodity prices and a reduction in overall spending to pay down the line of credit. The Company expects to
continue to pay down debt as cash flows permit.
Results of Operations
This year’s period ended March 4,
2016 included fourteen weeks of sales and costs versus thirteen weeks in the same period for the prior year. The results of operations
analyze the results of the fourteen week period as well as a normalized result of the period (using the same number of weeks in
the current period as compared to the prior period) to show a more comparable period of time.
Sales
For the fourteen weeks ended March 4, 2016,
net sales increased 11.6% from the thirteen weeks ended February 27, 2015. On a normalized basis, total revenues for the same quarter
were up 3.7%. For the forty weeks ended March 4, 2016, net sales increased 3.3% from the thirty-nine weeks ended February 27, 2015.
On a normalized basis, total revenues for the year to date were up 0.7%. The increase in the current quarter is primarily related
to contract sales to new and previous customers that commenced near the end of the third quarter. These contract sales are renewed
periodically and may not continue in the future.
Cost of Sales
This year’s third quarter cost of
sales was 50.0% of net sales compared to 50.8% for last year’s third quarter. This year’s cost of sales year to date
was 49.6% of net sales compared to 50.7% for last year’s year to date. This year’s decrease in cost of sales was primarily
due to a reduction in the price of commodities. These prices may be impacted by future increases in fuel surcharge costs and commodities’
prices due to availability, neither of which may continue in the future.
Selling, General and Administrative Expenses
This year’s third quarter, selling,
general and administrative expenses were 46.6% of net sales compared to 47.0% for last year’s third quarter. This year’s
selling, general and administrative expenses year to date were 46.7% of net sales compared to 47.3% for last year’s year
to date. The Company continues to benefit from reduced fuel costs associated with transportation and delivery.
Liquidity and Capital Resources
As of March 4, 2016 and May 29, 2015, working
capital was $9,391,580 and $6,584,930, respectively. The Company’s current ratio was 1.85:1.00 at March 4, 2016 compared
to 1.47:1.00 at May 29, 2015. The Company used net cash provided by operating activities to reduce the line of credit which has
resulted in the improvement in this ratio. The Company expects to be able to maintain this ratio into the future. However, if there
is a decrease in sales, an increase in costs or if there are new capital needs, this ratio could be negatively impacted.
For the forty weeks ended March 4, 2016,
purchases of property, plant and equipment were $695,531 compared to $2,584,672 for the thirty-nine weeks ended February 27, 2015.
The prior year amount was due to the purchase of transport and route sales vehicles of $1.2 million and two other manufacturing
equipment projects. In addition, there has been an overall reduction in the level of capital spending in an effort to improve cash
flow to reduce debt. Currently, capital spending is not anticipated to significantly increase. Management evaluates capital projects
and determines if the anticipated return justifies the investment.
Available cash, cash from operations and
available credit under the line-of-credit are expected to be sufficient to meet anticipated cash expenditures and normal operating
requirements for the foreseeable future.
Market Risk
The principal market
risks (i.e., the risk of loss arising from adverse changes in market rates and prices), to which the Company is exposed, are interest
rates on its cash equivalents and bank loans, fuel costs, and commodity prices affecting the cost of its raw materials.
The Company is subject
to market risk with respect to commodities because its ability to recover increased costs through higher pricing may be limited
by the competitive environment in which it operates. The Company purchases its raw materials on the open market and under contract
through brokers or directly from growers. Future contracts have been used occasionally to hedge immaterial amounts of commodity
purchases, but none are presently being used.
Inflation
Certain costs and expenses
of the Company are affected by inflation. The Company’s prices for its products over the past several years have remained
relatively flat. The Company plans to contend with the effect of further inflation through efficient purchasing, improved manufacturing
methods, pricing, and by monitoring and controlling expenses.
Environmental Matters
Management believes Golden Flake’s
waste water treatment plant is an environmentally-friendly way to dispose of process water at the Birmingham plant. The treatment
plant has allowed Golden Flake to release the processing water into a neighboring creek which, we believe, has improved the flow
of water in the creek and has positively impacted the environment in the area surrounding the plant. This treatment plant, we believe,
has also helped to reduce expenses associated with sewer charges by the elimination of the disposal of process water through the
public sewer system.
Forward-Looking Statements
This discussion contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from
those forward-looking statements. Factors that may cause actual results to differ materially include, but are not limited to, price
competition, industry consolidation, raw material costs, and effectiveness of sales and marketing activities, as described in the
Company’s filings with the Securities and Exchange Commission.
ITEM 3
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (Section
229.305(e)) the Company is not required to provide the Information under this item, as it is a “Smaller Reporting Company”
as defined by Rule 229.10(f)(1).
ITEM 4
CONTROLS AND PROCEDURES
The Company’s management, with the participation
of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’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. Any controls and procedures,
no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives. Based
on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, the Company’s disclosure controls and procedures provided reasonable assurance that the disclosure controls
and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act and in accumulating and communicating such
information to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
The Company’s management, with the participation
of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the Company’s internal
control over financial reporting to determine whether any changes occurred during the Company’s third fiscal quarter ended
March 4, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting. Based on that evaluation, there has been no such change during the period covered by this report.