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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2009

 

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

For the transition period from             to             

Commission File Number 2-5916

 

 

Chase General Corporation

(Exact name of small business issuer as specified in its charter)

 

 

 

MISSOURI		36-2667734
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1307 South 59th, St. Joseph, Missouri 64507

(Address of principal executive offices, Zip Code)

(816) 279-1625

(Issuer’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)    Yes  ¨    No  x

As of October 31, 2009, there were 969,834 shares of common stock, $1.00 par value, outstanding.

 

 

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

Quarterly Report on Form 10-Q

For the Three Months Ended September 30, 2009

TABLE OF CONTENTS

 

PART I.		FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and June 30, 2009		3
		Condensed Consolidated Statements of Operations For the Three Months ended September 30, 2009 and 2008 (Unaudited)		5
		Condensed Consolidated Statements of Cash Flows For the Three Months ended September 30, 2009 and 2008 (Unaudited)		6
		Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		19
Item 4T.		Controls and Procedures		19
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings		20
Item 1A.		Risk Factors		20
Item 3.		Defaults Upon Senior Securities		20
Item 4.		Submission of Matters to Vote of Security Holders		20
Item 6.		Exhibits		20
SIGNATURES				21

 

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PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

 

		September 30, 2009			June 30, 2009
		(Unaudited)			(Audited)
CURRENT ASSETS
Cash and cash equivalents		$	70,277		$	28,771
Trade receivables, net			432,812			229,909
Inventories:
Finished goods			321,181			119,116
Goods in process			8,447			4,932
Raw materials			63,511			69,960
Packaging materials			168,021			172,764
Prepaid expenses			6,796			16,858
Deferred income taxes			3,536			4,626
Total current assets			1,074,581			646,936
PROPERTY AND EQUIPMENT - NET			312,338			328,482
TOTAL ASSETS		$	1,386,919		$	975,418

The accompanying notes are an integral part of the

condensed consolidated financial statements.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

		September 30, 2009				June 30, 2009
		(Unaudited)				(Audited)
CURRENT LIABILITIES
Accounts payable		$	278,407			$	158,570
Current maturities of notes payable			239,900				30,142
Accrued expenses			20,235				15,487
Deferred income			1,299				1,299
Income taxes payable			22,052				185
Total current liabilities			561,893				205,683
LONG-TERM LIABILITIES
Deferred income			18,831				19,155
Notes payable, less current maturities			35,526				42,604
Deferred income taxes			20,109				21,986
Total long-term liabilities			74,466				83,745
Total liabilities			636,359				289,428
STOCKHOLDERS’ EQUITY
Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $2,047,500 and $2,040,000 respectively)			500,000				500,000
Series B (liquidation preference $2,002,500 and $1,995,000 respectively)			500,000				500,000
Cumulative preferred stock, $20 par value
Series A (liquidation preference $4,682,634 and $4,668,001 respectively)			1,170,660				1,170,660
Series B (liquidation preference $763,126 and $760,741 respectively)			190,780				190,780
Common stock, $1 par value			969,834				969,834
Paid-in capital in excess of par			3,134,722				3,134,722
Accumulated deficit			(5,715,436	)			(5,780,006	)
Total stockholders’ equity			750,560				685,990
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,386,919			$	975,418

The accompanying notes are an integral part of the

condensed consolidated financial statements.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended September 30
		2009				2008
NET SALES		$	760,891			$	688,457
COST OF SALES			487,663				428,271
Gross profit on sales			273,228				260,186
OPERATING EXPENSES
Selling			71,913				73,547
General and administrative			114,725				105,722
Total operating expenses			186,638				179,269
Income from operations			86,590				80,917
OTHER INCOME (EXPENSE)			(809	)			(2,665	)
Net income before income taxes			85,781				78,252
PROVISION FOR INCOME TAXES			21,211				9,132
NET INCOME			64,570				69,120
Preferred dividends			(32,018	)			(32,018	)
Net income applicable to common stockholders		$	32,552			$	37,102
NET INCOME PER SHARE OF COMMON STOCK - BASIC		$	.03			$	.04
DILUTED		$	.02			$	.02
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING			969,834				969,834

The accompanying notes are an integral part of the

condensed consolidated financial statements.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended September 30
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	64,570			$	69,120
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation and amortization			18,718				16,644
Provision for bad debts			300				300
Deferred income amortization			(324	)			(325	)
Deferred income taxes			(787	)			9,132
Effects of changes in operating assets and liabilities:
Trade receivables			(203,203	)			(181,007	)
Inventories			(194,388	)			(275,252	)
Prepaid expenses			10,062				1,956
Accounts payable			119,837				253,818
Accrued expenses			4,748				16,634
Income taxes payable			21,867				—
Net cash (used in) operating activities			(158,600	)			(88,980	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment			(2,574	)			(4,873	)
Net cash (used in) investing activities			(2,574	)			(4,873	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line-of-credit			210,000				95,000
Principal payments on vehicle notes payable			(7,320	)			(3,872	)
Net cash provided by financing activities			202,680				91,128
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			41,506				(2,725	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			28,771				24,828
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	70,277			$	22,103

The accompanying notes are an integral part of the

condensed consolidated financial statements.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - GENERAL

The condensed consolidated balance sheet of Chase General Corporation (“Chase” or “we”, “us”, or “our”) at June 30, 2009 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, 2009 and for the three months ended September 30, 2008 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, 2009. The results of operations and cash flows for the three months ended September 30, 2009 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2010. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the periods have been included.

Pursuant to SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, the FASB Accounting Standards Codification (“ASC”) (FASB ASC 105) became the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The Company adopted this standard during the first quarter of 2009. Reference to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate section of the ASC.

Management has performed an evaluation of events that have occurred subsequent to September 30, 2009, and as of November 11, 2009 (the date of filing of this Form 10-Q). There have been no other subsequent events that occurred during such period 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, 2009.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 - NET INCOME PER SHARE

The income per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share is calculated by including contingently issuable shares with the weighted average shares outstanding.

 

		Three Months Ended September 30
		2009			2008
Net income		$	64,570		$	69,120
Preferred dividend requirements:
6% Prior Cumulative Preferred, $5 par value			15,000			15,000
5% Convertible Cumulative Preferred, $20 par value			17,018			17,018
Total dividend requirements			32,018			32,018
Net income applicable to common stockholders		$	32,552		$	37,102
		Three Months Ended September 30
		2009			2008
Weighted average shares - basic			969,834			969,834
Dilutive effect of contingently issuable shares			1,033,334			1,033,334
Weighted Average Shares – Diluted			2,003,168			2,003,168
Basic earnings per share		$	.03		$	.04
Diluted earnings per share		$	.02		$	.02

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2 - NET INCOME PER SHARE (CONTINUED)

 

Cumulative Preferred Stock dividends in arrears at September 30, 2009 and 2008, totaled $7,084,320 and $6,956,248, respectively. Total dividends in arrears, on a per share basis, consist of the following at September 30:

 

		Three Months Ended September 30
		2009			2008
6% Convertible
Series A		$	15		$	15
Series B			15			14
5% Convertible
Series A			60			59
Series B			60			59

The 6% convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 a share plus unpaid accrued dividends to date of redemption. In the event of voluntary liquidation, holders of this stock are entitled to receive $5.25 per share plus accrued dividends. It may be exchanged for common stock at the option of the shareholders in the ratio of 4 common shares for one share of Series A and 3.75 common shares for one share of Series B.

The Company has the privilege of redemption of 5% convertible cumulative preferred stock at $21.00 a share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20.00 a share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 - FORGIVABLE LOAN AND DEFERRED INCOME

During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of January 3, 2010. The Company met the criteria of occupying a 20,000 square foot building and creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs during the five year term. Notice was received February 6, 2009 from the Buchanan County Commission, that the Company had fulfilled its minimum loan requirements so that the loan was forgiven in full with no further obligations. Since the Company was no longer legally required to return the monies, the liability was reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. At June 30, 2009, a total of $25,000 has been reclassified to deferred revenue. Deferred revenue is recognized on a straight-line basis over the lease term of 20 years. During the three months ended September 30, 2009 and 2008, deferred revenue of $324 and $325, respectively, was amortized into income for each period.

NOTE 4 - NOTES PAYABLE - VEHICLES

The Company has four vehicle loans payable as follows:

 

Payee		Terms		September 30, 2009			June 30, 2009
Ford Credit		$1,001 monthly payments including interest of 0%; final payment due March 2011, secured by a vehicle.		$	18,008		$	21,010
Ford Credit		$573 monthly payments including interest of 6.99%; final payment due July 2012, secured by a vehicle.			17,675			19,039
Honda		$508 monthly payments including interest of 1.9%; final payment due December 15, 2011, secured by a vehicle.			13,416			14,871

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 - NOTE PAYABLE - VEHICLES (CONTINUED)

 

Payee		Terms		September 30, 2009			June 30, 2009
Nissan		$557 monthly payments including interest of 3.9%; final payment due April 2012, secured by a vehicle.			16,327			17,826
		Total			65,426			72,746
		Less current portion			29,900			30,142
		Long-term portion		$	35,526		$	42,604
Future minimum payments are:
		2010		$	29,900
		2011			24,639
		2012			10,887
		Total		$	65,426

NOTE 5 - NOTE PAYABLE - BANK

Effective June 30, 2009, the Company had a $250,000 line-of-credit agreement which will expire on January 3, 2010. The line-of-credit with a variable interest rate (5.0% and 3.25% at September 30, 2009 and June 30, 2009, respectively) at prime is collateralized by certain equipment. At September 30, 2009 and June 30, 2009, the outstanding balance on the line-of-credit was $210,000 and $-0-, respectively.

NOTE 6 - INCOME TAXES

The Company adopted the provisions of Financial Accounting Standard Board Interpretation No. 48 (FASB ASC 740-10) Accounting for Uncertainty in Income Taxes – An Interpretation of FASB No. 109 effective July 1, 2007, which clarified the accounting for uncertainty in tax positions. The Company had no unrecognized tax benefits as of the date of adoption, the income tax positions taken for open years are appropriately stated and supported for all open years, and the adoption of FIN 48 did not have a material effect on the Company’s consolidated financial statements.

As of June 30, 2009, the Company has a net operating loss carryforward of approximately $4,512 and unused contributions carryforward of $874 of which the Company’s profit for the three months ended September 30, 2009 absorbed these amounts.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

		Three Months Ended September 30
		2009			2008
Cash paid for:
Interest		$	1,230		$	1,305
Income taxes			131			—
Non-cash transaction:
Financing of new vehicle			—			23,954

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

OVERVIEW

Chase General Corporation (Chase) is a holding company for its wholly-owned subsidiary, Dye Candy Company. This subsidiary is the main operating company that is engaged in the manufacture of confectionery products which are sold primarily to wholesale houses, grocery accounts, vendors, and repackers. The subsidiary (Company) operates two divisions, Chase Candy division and Seasonal Candy division, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two divisions is not maintained by Management.

RESULTS OF OPERATIONS - Three Months Ended September 30, 2009 Compared with Three Months Ended September 30, 2008

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 net sales and revenues for the periods presented:

 

		Three Months Ended September 30
		2009			2008
Net sales		100	%		100	%
Cost of sales		64			62
Gross profit		36			38
Operating expenses		25			26
Earnings from operations		11			12
Net earnings before income taxes		11			11
Provision for income taxes		(3	)		(1	)
Net income		8	%		10	%

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

 

NET SALES

Net sales increased $72,434 or 11% for the three months ended September 30, 2009 from $688,457 to $760,891. Gross sales for Chase Candy division decreased $5,228 from $447,273 to $442,045. Gross sales for Seasonal Candy division increased $80,762 from $252,604 to $333,366.

The decrease in gross sales, for the three month period ended September 30, 2009 for the Chase Candy division, is due to two customers reducing orders by approximately $5,000. The increase in gross sales for the Seasonal Candy division is due to timing of shipping bulk orders of $82,000 that were shipped in the second quarter last year.

COST OF SALES

Cost of sales increased $59,392 from $428,271 or 62% of related revenues for the three months ended September 30, 2008, to $487,663 or 64% of related revenues for the three months ended September 30, 2009.

The increase in cost of sales of $59,392 is a 14% increase. Increases included: direct cost in packaging materials of $5,270 from $126,453 to $131,723 as well as direct labor of $9,375 from $97,783 to $107,158. Temporary labor was able to be utilized earlier in the season and also contributed to this change. In addition, a new supervisor was hired to replace a long time supervisor who will be retiring in December 2009. As a result, indirect labor costs of $72,303 for the three months ended September 30, 2009 increased 22% or $13,257 from $59,046 for the three months ended September 30, 2008. Change in goods-in-process and finished goods inventory decreased $71,660 or 26% from $(277,240) for the three months ended September 30, 2008 to $(205,580) for the three months ended September 30, 2009 as a result of building up finished goods for product to be delivered in October 2009.

SELLING EXPENSE

Selling expense for the three months ended September 30, 2009 decreased $1,634 from $73,547, (11% of sales), to $71,913 or 9% of sales for the three months ended September 30, 2008. The decrease in selling expenses is due to lower promotion expenses for the period.

GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense for the three months ended September 30, 2009 increased $9,003 from $105,722 or 14% of sales, to $114,725 or 15% of sales for the three months ended September 30, 2009, primarily for a $6,808 increase in employee health insurance.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

 

OTHER INCOME (EXPENSE)

Other income and (expense) decreased by $1,856 for the three months ended September 30, 2009 from $(2,665), to $(809) for the three months ended September 30, 2008 due to a decrease in interest expense.

PROVISION FOR INCOME TAXES

The Company recorded tax expense for the three months ended September 30, 2009 of $21,211 as compared to the tax expense of $9,132 for the three months ended September 30, 2008. The net tax expense recorded for the three months ended September 30, 2009 is primarily due to recognizing taxes related to current operations. The net tax expense recorded for the three months ended September 30, 2008 was primarily due to recognizing deferred taxes related to a carryover of operating losses.

NET INCOME

The Company reported net income for the three months ended September 30, 2009 of $64,570, compared to $69,120 for the three months ended September 30, 2008. This decrease of $4,550 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended September 30, 2009 and 2008.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders was $32,552 for the three months ended September 30, 2009 compared to $37,102 for the three months ended September 30, 2008 for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2009, Chase had $70,277 in cash and cash equivalents compared to $28,771 as of June 30, 2009 and $22,103 as of September 30, 2008. Management had to draw $210,000 from its line-of-credit, since this is the start of busy season for Chase as reflected in increased receivables of $203,203, inventories of $194,388, and accounts payable of $119,387.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

 

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

 

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

 

		2009				2008
Net cash used in operating activities		$	(158,600	)		$	(88,980	)
Net cash used in investing activities		$	(2,574	)		$	(4,873	)
Net cash provided by financing activities		$	202,680			$	91,128

The $2,574 of cash used in investing activities was the result of capital expenditures. Management has no material commitments for capital expenditures during the remainder of fiscal 2010. The $202,680 of cash provided by financing activities is the receipt of $210,000 proceeds from the line-of-credit net of principal payments on the vehicle loans. Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future. Chase does have $40,000 remaining on its bank line-of-credit, which could be utilized to help fund any working capital requirements.

Management believes that inflation will have only a minimal effect on future operations since such effects will be offset by sales price increases, which are not expected to have a significant effect upon demand.

CRITICAL ACCOUNTING POLICIES

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates used in preparing these condensed consolidated financial statements include those assumed in computing the carrying value of equipment and allowance for doubtful accounts receivable. Accordingly, actual results could differ from those estimates. Any changes in estimates are recorded in the period in which they become known.

Credit Risk

Financial instruments that potentially subject Chase to concentrations of credit risk consist principally of cash and accounts receivable. Chase grants unsecured credit to substantially all of its customers. Management does not believe that it is exposed to any extraordinary credit risk as a result of this policy. Chase deposits all monies at the Nodaway Valley Bank. These accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation. Chase has not experienced any losses in such accounts. Management does not believe Chase is exposed to any significant credit risk with respect to its cash and cash equivalents.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

 

CRITICAL ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition

The Company recognizes revenues as product is shipped to the customers. Net sales are comprised of the total sales billed during the period including shipping and handling charges to customers, less the estimated returns, customer allowances and customer discounts.

Allowance for Doubtful Accounts

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.

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

Property and equipment is recorded at cost. The Company’s property and equipment are being depreciated on straight-line and accelerated methods over the following estimated useful lives:

 

Buildings		39 years
Machinery and equipment		5 – 7 years
Trucks and autos		5 years
Office equipment		5 – 7 years
Leasehold improvements		Lesser of estimated useful life or the lease term

Cash Flows

For purposes of the statements of cash flows, Chase considers all short-term investments purchased with original maturity dates of three months or less to be cash equivalents.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

 

CRITICAL ACCOUNTING POLICIES (CONTINUED)

 

New Accounting Pronouncements

Pursuant to SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, the FASB Accounting Standards Codification (“ASC”) (FASB ASC 105) became the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The Company adopted this standard during the first quarter of 2009. The adoption of ASC 105 did not have any effect on Chase’s results of operations, financial condition and cash flows. The adoption impacted references to specific accounting standards in the footnotes to our consolidated financial statements which have been changed to refer to the appropriate section of the ASC.

Effective July 1, 2008, Chase adopted FASB Statement of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FASB ASC 825) – Including an amendment of FASB Statement of Financial Accounting Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (FASB ASC 320). ASC 825 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings cause by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. ASC 825 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to ASC 320 applies to all entities with available-for-sale and trading securities. The adoption of ASC 825 did not have any effect on Chase’s results of operations, financial condition and cash flows.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FASB ASC 805) and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements (FASB ASC 810). These statements significantly change the accounting for and reporting of business combinations and noncontrolling (minority) interests in consolidated financial statements. These statements will require noncontrolling interests to be reclassified to equity, consolidated net income to be adjusted to include net income attributed to the noncontrolling interest, and consolidated comprehensive income to be adjusted to include the comprehensive income attributed to the noncontrolling interest. ASC 805 and ASC 810 are required to be adopted simultaneously. ASC 805 is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. ASC 810 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted except for the presentation and disclosure requirements which will be applied retrospectively for all periods. Early adoption is prohibited. The adoption of ASC 805 and ASC 810 did not have any effect on Chase’s results of operations, financial condition and cash flows.

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

 

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

 

CRITICAL ACCOUNTING POLICIES (CONTINUED)

 

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.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

ITEM 4T. - CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Chase’s management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as mended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, this officer has concluded that Chase’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to management, including those officers, and to members of the Board of Directors, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no significant changes in Chase’s internal control over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of the evaluation.

 

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PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

a.

None

 

ITEM 1A.

RISK FACTORS

Not applicable to a smaller reporting company.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

a.

None

 

b.

The total cumulative preferred stock dividends contingency at September 30, 2009 is $7,084,320.

 

ITEM 4.

SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

 

ITEM 6.

EXHIBITS

 

a.

Exhibits.

 

Exhibit 31.1		Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Exhibit 32.1		Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				Chase General Corporation and Subsidiary (Registrant)
November 11th, 2009						/S/    BARRY M. YANTIS
Date				By:		Barry M. Yantis
						Chairman of the Board, Chief Executive Officer,
						President and Treasurer

 

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