CHASE GENERAL CORP - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 - CHASE GENERAL CORP	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - CHASE GENERAL CORP	ex32-1.htm
EXCEL - IDEA: XBRL DOCUMENT - CHASE GENERAL CORP	Financial_Report.xls

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 December 31, 2012

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

For the transition period from to

Commission File Number 2-5916

Chase General Corporation

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

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

1307 South 59th, St. Joseph, Missouri 64507

(Address of principal executive offices, Zip Code)

(816) 279-1625

(Issuer’s telephone number, including area code)

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 o

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 x No o

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 o	Accelerated filer o

	Non-accelerated filer o (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 o No x

As of February 7, 2013, there were 969,834 shares of common stock, $1.00 par value, outstanding.

CHASE GENERAL CORPORATION AND SUBSIDIARY

Quarterly Report on Form 10-Q

For the Three Months Ended December 31, 2012

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION

Item 1.		Condensed Consolidated Financial Statements

		Condensed Consolidated Balance Sheets as of December 31, 2012 (Unaudited) and June 30, 2012	3

		Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2012 and 2011 (Unaudited)	5

		Condensed Consolidated Statements of Operations for the Six Months Ended December 31, 2012 and 2011 (Unaudited)	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2012 and 2011 (Unaudited)	7

		Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.		Controls and Procedures	16

PART II.	OTHER INFORMATION

Item 1.		Legal Proceedings	17

Item 1A.		Risk Factors	17

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.		Defaults Upon Senior Securities	17

Item 4.		Mine Safety Disclosures	17

Item 5.		Other Information	17

Item 6.		Exhibits	17

SIGNATURES			18

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31,		June 30,
	2012		2012
	(Unaudited)
CURRENT ASSETS

Cash and cash equivalents	$	343,149	$	17,949
Trade receivables, net of allowance for doubtful accounts of $15,702 and $15,102, respectively		253,161		139,963
Inventories:
Finished goods		50,912		237,569
Goods in process		9,144		12,864
Raw materials		81,218		65,912
Packaging materials		115,680		131,687
Prepaid expenses		26,992		11,517
Deferred income taxes		6,113		7,277

Total current assets		886,369		624,738

PROPERTY AND EQUIPMENT - NET		405,035		448,616

TOTAL ASSETS	$	1,291,404	$	1,073,354

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS’ EQUITY


	December 31,			June 30,
	2012			2012
	(Unaudited)

CURRENT LIABILITIES

Accounts payable	$	132,862		$	78,798
Current maturities of notes payable		58,529			97,266
Income taxes payable		40,271			-
Accrued expenses		13,750			23,896
Deferred income		1,299			1,299

Total current liabilities		246,711			201,259

LONG-TERM LIABILITIES

Deferred income		14,610			15,259
Notes payable, less current maturities		74,187			105,938
Deferred income taxes		103,368			49,498

Total long-term liabilities		192,165			170,695

Total liabilities		438,876			371,954

STOCKHOLDERS’ EQUITY

Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $2,145,000 and $2,130,000 respectively)		500,000			500,000
Series B (liquidation preference $2,100,000 and $2,085,000 respectively)		500,000			500,000
Cumulative preferred stock, $20 par value:
Series A (liquidation preference $4,872,865 and $4,843,598 respectively)		1,170,660			1,170,660
Series B (liquidation preference $794,129 and $789,360 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		(5,613,468	)		(5,764,596	)

Total stockholders’ equity		852,528			701,400

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,291,404		$	1,073,354

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended
	December 31
	2012			2011

NET SALES	$	1,475,203		$	1,218,132

COST OF SALES		986,482			861,942

Gross profit on sales		488,721			356,190

OPERATING EXPENSES

Selling		164,742			141,699
General and administrative		91,803			90,305
Loss on sale of equipment		246			-

Total operating expenses		256,791			232,004

Income from operations		231,930			124,186

OTHER INCOME (EXPENSE)
Miscellaneous income		397			412
Interest expense		(1,296	)		(3,711	)

Total other income (expense)		(899	)		(3,299	)

Net income before income taxes		231,031			120,887

PROVISION FOR INCOME TAXES		90,454			21,144

NET INCOME		140,577			99,743

Preferred dividends		(32,018	)		(32,018	)

Net income applicable to common stockholders	$	108,559		$	67,725

NET INCOME PER SHARE OF COMMON STOCK
- BASIC	$	0.11		$	0.07

- DILUTED	$	0.05		$	0.03

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING - BASIC		969,834			969,834

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING - DILUTED		2,003,168			2,003,168

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Six Months Ended
	December 31
	2012			2011

NET SALES	$	2,272,795		$	2,124,061

COST OF SALES		1,570,127			1,575,502

Gross profit on sales		702,668			548,559

OPERATING EXPENSES
Selling		257,116			240,721
General and administrative		217,105			219,679
Gain on sale of equipment		(22,254	)		-

Total operating expenses		451,967			460,400

Income from operations		250,701			88,159

OTHER INCOME (EXPENSE)
Miscellaneous income		762			776
Interest expense		(5,030	)		(8,116	)

Total other income (expense)		(4,268	)		(7,340	)

Net income before income taxes		246,433			80,819

PROVISION FOR INCOME TAXES		95,305			16,113

NET INCOME		151,128			64,706

Preferred dividends		(64,036	)		(64,036	)

Net income applicable to common stockholders	$	87,092		$	670

NET INCOME PER SHARE OF COMMON STOCK
- BASIC	$	0.09		$	0.00

- DILUTED	$	0.04		$	0.00

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING - BASIC		969,834			969,834

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING - DILUTED		2,003,168			2,003,168

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	December 31
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	151,128		$	64,706
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		45,560			56,389
Allowance for bad debts		600			600
Deferred income amortization		(649	)		(650	)
Deferred income taxes		55,034			(6,927	)
Gain on sale of equipment		(22,254	)		-
Effects of changes in operating assets and liabilities:
Trade receivables		(113,798	)		(22,966	)
Inventories		191,078			165,157
Prepaid expenses		(15,475	)		(16,829	)
Accounts payable		54,064			(16,216	)
Accrued expenses		(10,146	)		(6,414	)
Income taxes payable		40,271			22,952

Net cash provided by operating activities		375,413			239,802

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		22,500			-
Purchases of property and equipment		(2,225	)		(2,613	)

Net cash provided by (used in) investing activities		20,275			(2,613	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line-of-credit		310,050			250,000
Principal payments on line-of-credit		(350,050	)		(250,000	)
Principal payments on notes payable		(30,488	)		(28,576	)

Net cash used in financing activities		(70,488	)		(28,576	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		325,200			208,613

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		17,949			18,772

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	343,149		$	227,385

The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - GENERAL

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2012 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 and six months ended December 31, 2012 and for the three months and six months ended December 31, 2011 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, 2012. The results of operations for the three months and six months ended December 31, 2012 and cash flows for the three months and six months ended December 31, 2012 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2013. 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.

Other than those disclosed in Note 3, no events have occurred subsequent to December 31, 2012, through the date of filing this form, that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the six month period ended December 31, 2012.

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				Six Months Ended
	December 31				December 31
	2012		2011		2012		2011

Net income	$	140,577	$	99,743	$	151,128	$	64,706

Preferred dividend requirements:
6% Prior Cumulative Preferred, $5 par value		15,000		15,000		30,000		30,000
5% Convertible Cumulative Preferred, $20 par value		17,018		17,018		34,036		34,036

Total dividend requirements		32,018		32,018		64,036		64,036

Net income applicable to common stockholders	$	108,559	$	67,725	$	87,092	$	670

Weighted average shares - basic		969,834		969,834		969,834		969,834

Dilutive effect of contingently issuable shares		1,033,334		1,033,334		1,033,334		1,033,334

Weighted average shares - diluted		2,003,168		2,003,168		2,003,168		2,003,168

Basic earnings per share	$	.11	$	.07	$	.09	$	.00

Diluted earnings per share	$	.05	$	.03	$	.04	$	.00

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 December 31, 2012 and 2011 totaled $7,500,554 and $7,372,482, respectively. Total dividends in arrears, on a per share basis, consist of the following:


	Six Months Ended
	December 31
	2012		2011
6% Convertible
Series A	$	16	$	16
Series B		16		15

5% Convertible
Series A		63		62
Series B		63		62

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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - NOTES PAYABLE

The Company’s long-term debt consists of:

Payee	Terms	December 31, 2012			June 30, 2012

Nodaway Valley Bank	$100,000 line-of-credit agreement expiring on January 3, 2013 with an interest rate of 5%. The line-of-credit is collateralized by substantially all assets of the Company.	$	-		$	-

Nodaway Valley Bank	$250,000 line-of-credit agreement expiring on January 3, 2013 with a variable interest rate at prime but not less than 5%. The line-of-credit had an interest rate of 5% at December 31, 2012. The line-of-credit is collateralized by substantially all assets of the Company.		-			40,000

Ford Credit	$679 monthly payments, 0% interest; final payment due March 2016, secured by a vehicle.		26,488			30,563

Ford Credit	$517 monthly payments, 0% interest; final payment due March 2016, secured by a vehicle.		20,150			23,250

Toyota Financial Services	$502 monthly payments including interest of 4.9%; final payment due March 2015, secured by a vehicle.		12,777			15,438

Toyota Financial Services	$305 monthly payments including interest of 2.9%; final payment due March 2015, secured by a vehicle.		7,404			9,644

Nodaway Valley Bank	$3,192 monthly payments including interest of 6.25%; final payment due June 2015, secured by certain equipment.		65,897			84,309

	Total		132,716			203,204
	Less current portion		(58,529	)		(97,266	)
	Long-term portion	$	74,187		$	105,938

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - NOTES PAYABLE (CONTINUED)

Upon expiration of the line-of-credit agreements on January 3, 2013, the Company entered into a $350,000 line-of-credit agreement that expires on January 3, 2014 with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.

Future minimum payments for the twelve months ending December 31 are:

2013	$	58,529
2014		54,448
2015		16,151
2016		3,588

Total	$	132,716

NOTE 4 - INCOME TAXES

The recognition of income tax expense related to uncertain tax positions is determined under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) – 740-10. As of December 31, 2012, the Company has not identified any uncertain tax positions requiring recognition in the condensed consolidated financial statements. The income tax positions taken for open years are appropriately stated and supported for all open years. The Company’s federal income tax returns for the fiscal years ended 2010, 2011 and 2012 are subject to examination by the IRS taxing authority.

NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Six Months Ended
	December 31
	2012		2011
Cash paid for:
Interest	$	5,030	$	8,116

NOTE 6 - CONTINGENCIES

The Company has received correspondence from the legal counsel for the Public Building Commission of Chicago (PBC), alleging that the Company previously owned and operated a manufacturing facility in Chicago and that the Company is a liable party for environmental response costs incurred by the PBC in the amount of $822,642. It is the opinion of management, after reviewing the letter with counsel, that further information is required to determine the validity of the claim, the likelihood of an unfavorable outcome to the Company, and an amount of potential loss to the Company if any at all. Management believes significant questions need to be resolved and answered before completing its assessment of the validity of the claim. In the event that a loss were to be incurred by the Company in connection with this claim, the loss would be material.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

OVERVIEW

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

The Company’s business, like that of many other confectionary product manufacturers, is seasonal. Historically, the Company has realized more of its revenue and earnings in the fiscal second quarter, which includes the majority of the holiday shopping season, than in any other fiscal quarter.

RESULTS OF OPERATIONS - Three Months Ended December 31, 2012 Compared with Three Months Ended December 31, 2011, and Six Months Ended December 31, 2012 Compared with Six Months Ended December 31, 2011.

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 for the periods presented:

	Three Months Ended						Six Months Ended
	December 31						December 31
	2012			2011			2012			2011

Net sales		100	%		100	%		100	%		100	%

Cost of sales		67			71			69			74

Gross profit		33			29			31			26

Operating expenses		17			19			20			22
Income from operations		16			10			11			4
Net income before income taxes		16			10			11			4
Provision for income taxes		6			2			4			1

Net income		10	%		8	%		7	%		3	%

NET SALES

Net sales increased $257,071 or 21% for the three months ended December 31, 2012 to $1,475,203 compared to $1,218,132 for the three months ended December 31, 2011. Gross sales for Chase Candy increased $118,921 to $561,097 for the three months ended December 31, 2012, compared to $442,176 for 2011. Gross sales for Seasonal Candy increased $121,521 to $923,540 for the three months ended December 31, 2012, compared to $802,019 for 2011.

The 27% increase in gross sales of Chase Candy of $118,921 for the three months ended December 31, 2012 over the same period ended December 31, 2011, is primarily due to the effect of the following changes in volume and pricing: 1) one customer increasing orders by approximately $89,000 versus the same quarter a year ago primarily due to a new warehouse opening; 2) increased sales of approximately $21,000 for Mini Mash bars due to stronger movement at three retail customers and; 3) increased sales to two Cherry Mash Merchandisers of approximately $14,000 primarily due to increased sales of the C-Store Display Shipper.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

NET SALES (CONTINUED)

The 15% increase in gross sales of Seasonal Candy of $121,521 for the three months ended December 31, 2012 over the same period ended December 31, 2011, is primarily due to the net effect of the following: 1) orders from one customer totaling approximately $147,000 that shipped in October this year, compared to September in the prior year partially offset by; 2) decreased orders from one customer in the generic segment of $34,000 due to competitive activity.

Net sales increased $148,734 or 7% for the six months ended December 31, 2012 to $2,272,795 compared to $2,124,061 for the six months ended December 31, 2011. Gross sales for Chase Candy increased $160,090 to $968,518 for the six months ended December 31, 2012 compared to $808,428 for 2011. Gross sales for Seasonal Candy decreased $36,018 to $1,326,967 for the six months ended December 31, 2012 compared to $1,362,985 for 2011.

The 20% increase in gross sales of Chase Candy of $160,090 for the six months ended December 31, 2012 over the same period ended December 31, 2011 is primarily due to the net effect of the following: 1) increased sales of Cherry Mash Bar of approximately $138,000 to two customers; 2) increased sales of the 24/12oz. bag of Bite Size Mini Mash by approximately $42,000 due to the timing of Halloween orders and; 3) overall decreased sales of Cherry Mash Merchandisers of approximately $10,000.

The 3% decrease in gross sales of Seasonal Candy of $36,018 for the six months ended December 31, 2012 over the same period ended December 31, 2011, is primarily due to the following: 1) decreased sales of bulk segment product of $13,000; 2) decreased sales in the clamshell seasonal product category of approximately $15,000, primarily from decreased sales and timing of order of one customer; 3) decreased sales from one customer in the bulk seasonal product category of approximately $35,000 offset by increases to another customer in the same category of $29,000.

COST OF SALES

The cost of sales increased $124,540 to $986,482 decreasing to 67% of related revenues for the three months ended December 31, 2012, compared to $861,942 or 71% of related revenues for the three months ended December 31, 2011.

The 14% increase in cost of sales of $124,540 is primarily due to the 21% increase in net sales of $257,071 combined with a 53% decrease in the raw material costs of peanuts compared to the same period ended December 31, 2011. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

The cost of sales decreased $5,375 or 0.3% to $1,570,127 or 69% of related revenues for the six months ended December 31, 2012, compared to $1,575,502 or 74% of related revenues for the six months ended December 31, 2011.

The 0.3% decrease in cost of sales of $5,375 is primarily due the 7% increase in net sales of $148,734 combined with a 53% decrease in the raw material costs of peanuts compared to the same period ended December 31, 2011. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

The Company decreased total inventory $191,078 or 43% to $256,954 at December 31, 2012 from $448,032 held in inventory at June 30, 2012 due to the Company’s busy season coming to an end. The Company decreased finished goods inventory 79% during the six months ended December 31, 2012 to $50,912 from the June 30, 2012 finished goods inventory levels of $237,569. The Company decreased goods in process inventory 29% during the six months ended December 31, 2012 to $9,144 from the June 30, 2012 goods in process inventory levels of $12,864. The Company increased raw materials inventory 23% during the six months ended December 31, 2012 to $81,218 from the June 30, 2012 raw materials inventory levels of $65,912. The Company decreased packaging materials inventory 12% during the six months ended December 31, 2012 to $115,680 from the June 30, 2012 packaging materials inventory levels of $131,687.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2012 increased $23,043 to $164,742, which is 11% of sales, compared to $141,699 or 12% of sales for the three months ended December 31, 2011.

The increase of $23,043 in selling expenses for the three months ended December 31, 2012 is primarily due to higher commissions and premium promotions being paid, and higher sample costs for the period in an effort to increase sales volume. Commissions and premium promotions, and sample costs increased $20,769 to $112,594 for this period from $91,825 for the three months ended December 31, 2011.

Selling expenses for the six months ended December 31, 2012 increased $16,395 to $257,116, which is 11% of net sales, compared to $240,721 or 11% of net sales for the six months ended December 31, 2011.

The increase of $16,395 in selling expenses for the six months ended December 31, 2012 is primarily due to higher commissions and premium promotions being paid, and higher sample costs for the period in an effort to increase sales volume. Commissions and premium promotions, and sample costs increased $12,630 to $158,004 for this period from $145,374 for the six months ended December 31, 2011.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2012 increased $1,498 to $91,803 and decreased to 6% of sales, compared to $90,305 or 7% of sales for the three months ended December 31, 2011. These increased costs are primarily reflected in professional fees and insurance.

General and administrative expenses for the six months ended December 31, 2012 decreased $2,574 to $217,105 and 10% of net sales, compared to $219,679 or 10% of net sales for the six months ended December 31, 2011. These decreased costs are primarily reflected in general taxes and licenses and dues and subscriptions.

OTHER INCOME (EXPENSE)

Other income and (expense) decreased by $2,400 for the three months ended December 31, 2012 to $(899), compared to $(3,299) for the three months ended December 31, 2011 primarily due to a decrease in interest expense.

Other income and (expense) decreased by $3,072 for the six months ended December 31, 2012 to $(4,268), compared to $(7,340) for the six months ended December 31, 2011 primarily due to a decrease in interest expense.

PROVISION FOR INCOME TAXES

The Company recorded a tax provision for the three months ended December 31, 2012 of $90,454 as compared to a tax provision of $21,144 for the three months ended December 31, 2011, resulting in effective tax rates of 39.15% and 17.49% respectively. The Company recorded a tax provision for the six months ended December 31, 2012 of $95,305 as compared to a tax provision of $16,113 for the six months ended December 31, 2011, resulting in effective tax rates of 38.67% and 19.94% respectively. The increase in the net tax expense recorded for the three and six months ended December 31, 2012 and the corresponding increase in the effective tax rate is primarily due to recognizing taxes related to current profitable operations and the resulting increase in graduated income tax rates.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

NET INCOME

The Company reported net income for the three months ended December 31, 2012 of $140,577, compared to net income of $99,743 for the three months ended December 31, 2011. This increase of $40,834 is explained above. The Company reported net income for the six months ended December 31, 2012 of $151,128, compared to net income of $64,706 for the six months ended December 31, 2011. This increase of $86,422 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended December 31, 2012 and 2011 which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

Preferred dividends were $64,036 for the six months ended December 31, 2012 and 2011 which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders for the three months ended December 31, 2012 was $108,559 which is an increase of $40,834 as compared to the net income for the three months ended December 31, 2011 of $67,725.

Net income applicable to common stockholders for the six months ended December 31, 2012 was $87,092 which is an increase of $86,422 as compared to the net income for the six months ended December 31, 2011 of $670.

LIQUIDITY AND CAPITAL RESOURCES

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


	2012			2011

Net cash provided by operating activities	$	375,413		$	239,802
Net cash provided by (used in) investing activities	$	20,275		$	(2,613	)
Net cash used in financing activities	$	(70,488	)	$	(28,576	)

Management has no material commitments for capital expenditures during the remainder of fiscal 2013. The $70,488 of cash used in financing activities is due to the principal payments on line-of-credit and equipment and vehicle loans. The Company has $350,000 available on its bank line-of-credit agreements, which could be utilized to help fund working capital requirements. Upon expiration of the line-of-credit agreements on January 3, 2013, the Company entered into a $350,000 line-of-credit agreement that expires on January 3, 2014 with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.

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.

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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CRITICAL ACCOUNTING POLICIES

Forward-Looking Information

This report, as well as our other reports filed with the Securities and Exchange Commission (“SEC”), contains forward-looking statements made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, and management’s plans and objectives. Accordingly, these forward-looking statements are based on assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks and uncertainties that could cause actual results to be different from what appear here. These risk factors include: the ability to adequately pass through customers unanticipated future increases in raw material costs, decreased demand for products, expected orders that do not occur, loss of key customers, the impact of competition and price erosion as well as supply and manufacturing constraints, and other risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will prove accurate, and our actual results may differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements made herein.

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

ITEM 4. - CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Chase’s management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Not applicable to a smaller reporting company.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

The total cumulative preferred stock dividends contingency at December 31, 2012 is $7,500,554.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibits.

Exhibit 31.1

Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

Exhibit 32.1

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

Exhibit 101

The following financial statements for the quarter ended December 31, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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)

February 8, 2013	/s/ Barry M. Yantis
Date	Barry M. Yantis
	Chairman of the Board, Chief Executive Officer and Chief Financial Officer, President and Treasurer

Attached files

CHASE GENERAL CORP Reports

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