CHASE GENERAL CORP - FORM 10-Q

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

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, 2011

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)

	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 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 January 31, 2011, there were 969,834 shares of common stock, $1.00 par value, outstanding.

Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

Quarterly Report on Form 10-Q

For the Three Months Ended December 31, 2011

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

Item 1.		Condensed Consolidated Financial Statements

		Condensed Consolidated Balance Sheets as of December 31, 2011 (Unaudited) and June 30, 2011	3

		Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2011 and 2010 (Unaudited)	5

		Condensed Consolidated Statements of Operations for the Six Months Ended December 31, 2011 and 2010 (Unaudited)	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2011 and 2010 (Unaudited)	7

		Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.		Controls and Procedures	15

PART II.	OTHER INFORMATION

Item 1.		Legal Proceedings	16

Item 1A.		Risk Factors	16

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3.		Defaults Upon Senior Securities	16

Item 4.		[Reserved]	16

Item 5.		Other Information	16

Item 6.		Exhibits	16

SIGNATURES			17

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31,		June 30,
	2011		2011
	(Unaudited)		(Audited)
CURRENT ASSETS

Cash and cash equivalents	$	227,385	$	18,772
Trade receivables, net of allowance for doubtful
accounts, of $15,983 and $15,383, respectively		184,036		161,670
Inventories:
Finished goods		85,426		263,934
Goods in process		11,082		3,275
Raw materials		110,554		88,490
Packaging materials		171,505		188,025
Prepaid expenses		21,876		5,047
Deferred income taxes		5,612		6,900

Total current assets		817,476		736,113

PROPERTY AND EQUIPMENT - NET		444,133		497,909

TOTAL ASSETS	$	1,261,609	$	1,234,022



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

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

	December 31,			June 30,
	2011			2011
	(Unaudited)			(Audited)

CURRENT LIABILITIES

Accounts payable	$	88,580		$	104,796
Current maturities of notes payable		49,579			54,844
Accrued expenses		10,796			17,210
Income taxes payable		22,952			-
Deferred income		1,299			1,299

Total current liabilities		173,206			178,149

LONG-TERM LIABILITIES

Deferred income		15,908			16,558
Notes payable, less current maturities		113,499			136,810
Deferred income taxes		92,004			100,219

Total long-term liabilities		221,411			253,587

Total liabilities		394,617			431,736

STOCKHOLDERS' EQUITY

Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $2,115,000
and $2,100,000 respectively)		500,000			500,000
Series B (liquidation preference $2,070,000
and $2,055,000 respectively)		500,000			500,000
Cumulative preferred stock, $20 par value
Series A (liquidation preference $4,814,332
and $4,785,065 respectively)		1,170,660			1,170,660
Series B (liquidation preference $784,590
and $779,821 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		(5,599,004	)		(5,663,710	)

Total stockholders' equity		866,992			802,286

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,261,609		$	1,234,022



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

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	December 31
	2011			2010

NET SALES	$	1,218,132		$	1,426,702

COST OF SALES		861,942			984,747

Gross profit on sales		356,190			441,955

OPERATING EXPENSES

Selling		141,699			150,046
General and administrative		90,305			76,942

Total operating expenses		232,004			226,988

Income from operations		124,186			214,967

OTHER INCOME (EXPENSE)
Miscellaneous income		412			-
Interest expense		(3,711	)		(2,512	)

Total other income (expense)		(3,299	)		(2,512	)

Net income before income taxes		120,887			212,455

PROVISION FOR INCOME TAXES		21,144			76,461

NET INCOME		99,743			135,994

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

Net income applicable to common stockholders	$	67,725		$	103,976

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

- DILUTED	$	0.03		$	0.05

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



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

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Six Months Ended
	December 31
	2011			2010

NET SALES	$	2,124,061		$	2,195,538

COST OF SALES		1,575,502			1,502,367

Gross profit on sales		548,559			693,171

OPERATING EXPENSES

Selling		240,721			230,971
General and administrative		219,679			197,269
Gain on sale of equipment		-			(500	)

Total operating expenses		460,400			427,740

Income from operations		88,159			265,431

OTHER INCOME (EXPENSE)
Miscellaneous income		776			-
Interest expense		(8,116	)		(4,908	)

Total other income (expense)		(7,340	)		(4,908	)

Net income before income taxes		80,819			260,523

PROVISION FOR INCOME TAXES		16,113			85,155

NET INCOME		64,706			175,368

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

Net income applicable to common stockholders	$	670		$	111,332

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

- DILUTED	$	-		$	0.06

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



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

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	December 31
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	64,706		$	175,368
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization		56,389			55,016
Allowance for bad debts		600			600
Deferred income amortization		(650	)		(650	)
Deferred income taxes		(6,927	)		(8,718	)
Gain on sale of equipment		-			(500	)
Effects of changes in operating assets and liabilities:
Trade receivables		(22,966	)		(11,557	)
Inventories		165,157			102,747
Prepaid expenses		(16,829	)		(16,580	)
Accounts payable		(16,216	)		20,798
Accrued expenses		(6,414	)		(5,821	)
Income taxes payable		22,952			93,676

Net cash provided by operating activities		239,802			404,379

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		-			500
Purchases of property and equipment		(2,613	)		(10,786	)

Net cash used in investing activities		(2,613	)		(10,286	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line-of-credit		250,000			40,000
Principal payments on line-of-credit		(250,000	)		(40,000	)
Principal payments on notes payable		(28,576	)		(32,288	)

Net cash used in financing activities		(28,576	)		(32,288	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		208,613			361,805

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		18,772			106,508

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	227,385		$	468,313



The accompanying notes are an integral part of the
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, 2011 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, 2011 and for the three months and six months ended December 31, 2010 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, 2011. The results of operations for the three and six months ended December 31, 2011 and cash flows for the six months ended December 31, 2011 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2012. 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.

Management has performed an evaluation of events that have occurred subsequent to December 31, 2011, through the date of filing of this Form 10-Q. There have been no 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 six month period ended December 31, 2011.

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
	2011		2010		2011		2010

Net income	$	99,743	$	135,994	$	64,706	$	175,368

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 common stockholders	$	67,725	$	103,976	$	670	$	111,332

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	$	.07	$	.11	$	.00	$	.11

Diluted earnings per share	$	.03	$	.05	$	.00	$	.06

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, 2011 and 2010 totaled $7,372,482 and $7,244,410, respectively. Total dividends in arrears, on a per share basis, consist of the following:

	Six Months Ended
	December 31
	2011		2010
6% Convertible
Series A	$	16	$	16
Series B		15		15

5% Convertible
Series A		62		61
Series B		62		61

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.

NOTE 3 - NOTES PAYABLE

The Company’s long-term debt consists of:

		December 31,		June 30,
Payee	Terms	2011		2011

Nodaway Valley Bank	Line-of-credit agreement expiring on	$	-	$	-
	January 3, 2013 with a variable interest rate
	at prime, which was 5% at December 31,
	2011. The line-of-credit is collateralized
	by substantially all assets of the Company.

Ford Credit	$679 monthly payments including interest		34,638		38,713
	of 0%; final payment due March 2016,
	secured by a vehicle.

Ford Credit	$517 monthly payments including interest		26,350		29,450
	of 0%; final payment due March 2016,
	secured by a vehicle.

Honda	$508 monthly payments including interest		-		3,030
	of 1.9%; final payment was due December 15,
	2011, secured by a vehicle.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - NOTES PAYABLE (CONTINUED)

		December 31,		June 30,
Payee	Terms	2011		2011

Nissan	$557 monthly payments including interest		2,176		5,425
	of 3.9%; final payment due April 2012,
	secured by a vehicle.

Nodaway Valley Bank	$3,192 monthly payments including		99,914		115,036
	interest of 6.25%; final payment
	due June 2015, secured by certain equipment.

	Total		163,078		191,654
	Less current portion		49,579		54,844
	Long-term portion	$	113,499	$	136,810
Future minimum payments are:

	2012	$	49,579
	2013		49,529
	2014		46,030
	2015		14,350
	2016		3,590

	Total	$	163,078

NOTE 4 - INCOME TAXES

The recognition of income tax expense related to uncertain tax positions is determined under the provisions of FASB ASC – 740-10. As of December 31, 2011, 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 tax returns for the fiscal years ended 2009, 2010 and 2011 are subject to examination by the IRS taxing authority.

NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Six Months Ended
	December 31
	2011			2010
Cash paid for:
Income taxes		$	-		$	197
Interest			8,116			6,024

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, 2011 Compared with Three Months Ended December 31, 2010 and Six Months Ended December 31, 2011 Compared with Six Months Ended December 31, 2010

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						Six Months Ended
	December 31						December 31
	2011			2010			2011			2010

Net sales		100	%		100	%		100	%		100	%

Cost of sales		71			69			74			68

Gross profit		29			31			26			32

Operating expenses		19			16			22			20
Income from operations		10			15			4			12
Net income before income taxes		10			15			4			12
Provision for income taxes		2			5			1			4

Net income		8	%		10	%		3	%		8	%

NET SALES

Net sales decreased $208,570 or 15% for the three months ended December 31, 2011 to $1,218,132 compared to $1,426,702 for the three months ended December 31, 2010. Gross sales for Chase Candy decreased $474 to $442,176 for the three months ended December 31, 2011 compared to $442,650 for 2010. Gross sales for Seasonal Candy decreased $209,015 to $802,019 for the three months ended December 31, 2011 compared to $1,011,034 for 2010.

The .1% decrease in gross sales of Chase Candy of $474 for the three months ended December 31, 2011 over the same period ended December 31, 2010, is primarily due to the net effect of increased sales of the Cherry Mash Bar to two customers of approximately $39,000 offset by decreases of sales of the 12/12oz. Mini Mash bag to one customer by approximately $40,000. The 21% decrease in gross sales of Seasonal Candy of $209,015 for the three months ended December 31, 2011 over the same period ended December 31, 2010, is primarily due to decreased orders from two customer totaling approximately $196,000 versus second quarter a year ago due to timing of orders combined with approximately $13,000 of overall decreased orders from the three seasonal product categories of bulk, clamshell, and generic.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

NET SALES (CONTINUED)

Net sales decreased $71,477 or 3% for the six months ended December 31, 2011 to $2,124,061 compared to $2,195,538 for the six months ended December 31, 2010. Gross sales for Chase Candy decreased $59,771 to $808,428 for the six months ended December 31, 2011 compared to $868,199 for 2010. Gross sales for Seasonal Candy decreased $11,421 to $1,362,985 for the six months ended December 31, 2011 compared to $1,374,406 for 2010.

The 7% decrease in gross sales of Chase Candy of $59,771 for the six months ended December 31, 2011 over the same period ended December 31, 2010 is primarily due to the net effect of the following: 1) increased sales of Cherry Mash Bar of approximately $40,000 offset by; 2) decreased sales of the 12/12oz. Mini Mash bag to one customer by approximately $71,000 due to reduced distribution; 3) decreased sales of the 24/12oz. Mini Mash bag to another customer by approximately $25,000 due to the timing of Halloween orders and; 4) overall decreased sales to Cherry Mash Merchandisers of approximately $3,000. The 1% decrease in gross sales of Seasonal Candy of $11,421 for the six months ended December 31, 2011 over the same period ended December 31, 2010, is primarily due to the net effect of increased sales from two customers in the clamshell seasonal product category of approximately $66,000 offset by decreased sales from two customers in the bulk seasonal product category of approximately $69,000 and overall decreases in the generic seasonal product category of $7,000.

COST OF SALES

The cost of sales decreased $122,805 to $861,942 increasing to 71% of related revenues for the three months ended December 31, 2011, compared to $984,747 or 69% of related revenues for the three months ended December 31, 2010.

The 12% decrease in cost of sales of $122,805 is primarily due to the 15% decrease in net sales of $208,570 offset by the raw material price increases in chocolate, peanuts, and sugar which were not passed along to customers. Direct costs of goods for materials manufactured and net change in inventories for the three months ended December 31, 2011, decreased $71,255 or 11% to $566,243 as compared to $637,498 for the three months ended December 31, 2010. Increases in chocolate prices were primarily caused by civil unrest in cocoa producing areas of West Africa where decreased supply lead to increased costs. Increases in the price of peanuts was primarily caused by a drought in Texas where decreased supply lead to increased costs. Increases in the price of sugar were primarily caused by unintentional decreased production levels by sugar producers where decreased supply lead to increased costs. Management does not anticipate the prices of these raw materials to return to previous levels in the near future. Management is considering and evaluating the need to increase prices charged to customers for future sales. Freight in/out for the three months ended December 31, 2011 increased $5,167 or 12% to $48,046 as compared to $42,879 for the three months ended December 31, 2010 primarily due to an increase in shipping rates. Direct labor cost decreased $31,441 or 20% to $124,024 as compared to $155,465 for the three months ended December 31, 2010, which is primarily due to a decrease of 1,996 production hours worked for the three months ended December 31, 2011 of 8,096 production hours as compared to 10,092 production hours worked for the three months ended December 31, 2010.

The cost of sales increased $73,135 or 5% to $1,575,502 or 74% of related revenues for the six months ended December 31, 2011, compared to $1,502,367 or 68% of related revenues for the six months ended December 31, 2010.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

COST OF SALES (CONTINUED)

The 5% increase in cost of sales of $73,135 is primarily due to the 3% decrease in net sales of $71,477 offset by the raw material price increases in chocolate, peanuts, and sugar which were not passed along to customers. Direct costs of goods for materials manufactured and net change in inventories for the six months ended December 31, 2011, increased $135,852 or 16% to $961,571 as compared to $825,719 for the six months ended December 31, 2010. Increased chocolate prices were primarily caused by civil unrest in cocoa producing areas of West Africa where decreased supply lead to increased costs. Increases in the price of peanuts was primarily caused by a drought in Texas where decreased supply lead to increased costs. Increases in the price of sugar were primarily caused by unintentional decreased production levels where decreased supply lead to increased costs. Management does not anticipate the prices of these raw materials to return to previous levels in the near future. Management is considering and evaluating the need to increase prices charged to customers for future sales. Freight in/out for the six months ended December 31, 2011 increased $5,684 or 6% to $102,768 as compared to $97,084 for the six months ended December 31, 2010 primarily due to an increase in shipping rates. Direct labor cost decreased $46,798 or 17% to $233,053 as compared to $279,851 for the six months ended December, 2010, which is primarily due to a decrease of 2,124 production hours worked for the six months ended December 31, 2011 of 15,503 production hours compared to 17,627 production hours worked for the six months ended December 31, 2010.

The Company decreased total inventory $165,157 or 30% to $378,567 at December 31, 2011 from $543,724 at June 30, 2011 due to the Company’s busy season coming to an end. The Company decreased finished goods inventory 68% at December 31, 2011 to $85,426 from June 30, 2011 of $263,934. The Company increased goods in process inventory 238% at December 31, 2011 to $11,082 from June 30, 2011 of $3,275. The Company increased raw materials inventory 25% at December 31, 2011 to $110,554 from June 30, 2011 of $88,490. The increase in raw materials inventory was primarily due to price increases in chocolate, peanuts, and sugar. The Company decreased packaging materials inventory 9% at December 31, 2011 to $171,505 from June 30, 2011 of $188,025.

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2011 decreased $8,347 to $141,699, which is 12% of net sales, compared to $150,046 or 11% of net sales for the three months ended December 31, 2010.

The decrease of $8,347 or 6% in selling expenses for the three months ended December 31, 2011 is primarily due to lower commissions and premium promotions being paid, and sample costs for the period as sales volume decreased 15% during the same period. Commissions and premium promotions, and sample costs decreased $11,393 to $91,826 for this period from $103,219 for the three months ended December 31, 2010.

Selling expenses for the six months ended December 31, 2011 increased $9,750 to $240,721, which is 11% of net sales, compared to $230,971 or 11% of net sales for the six months ended December 31, 2010.

The increase of $9,750 or 4% in selling expenses for the six months ended December 31, 2011 is primarily due to higher commissions and premium promotions being paid, and sample costs for the period in an effort to increase sales volume. Commissions and premium promotions, and sample costs increased $4,399 to $145,374 for this period from $140,975 for the six months ended December 31, 2010.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2011 increased $13,363 to $90,305 and increased to 7% of net sales, compared to $76,942 or 5% of net sales for the three months ended December 31, 2010. These increased costs are primarily reflected in insurance expense, professional fees, general taxes and licenses and office salaries.

General and administrative expenses for the six months ended December 31, 2011 increased $22,410 to $219,679 and increased to 10% of net sales, compared to $197,269 or 9% of net sales for the six months ended December 31, 2010. These increased costs are primarily reflected in insurance expense, professional fees, general taxes and licenses and office salaries.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

OTHER INCOME (EXPENSE)

Other income and (expense) increased by $787 for the three months ended December 31, 2011 to $(3,299), compared to $(2,512) for the three months ended December 31, 2010 primarily due to an increase in interest expenses.

Other income and (expense) increased by $2,432 for the six months ended December 31, 2011 to $(7,340), compared to $(4,908) for the six months ended December 31, 2010 primarily due to an increase in interest expenses.

PROVISION FOR INCOME TAXES

The Company recorded a tax provision for the three months ended December 31, 2011 of $21,144 as compared to a tax provision of $76,461 for the three months ended December 31, 2010. The Company recorded a tax provision for the six months ended December 31, 2011 of $16,113 as compared to a tax provision of $85,155 for the six months ended December 31, 2010. The net tax expense recorded for the three and six months ended December 31, 2011 and 2010 is primarily due to recognizing taxes related to current profitable operations. The reduction in tax rates from the six months ended December 31, 2010 to the six months ended December 31, 2011 is caused by less income taxed in the higher tax brackets.

NET INCOME

The Company reported a net income for the three months ended December 31, 2011 of $99,743, compared to net income of $135,994 for the three months ended December 31, 2010. This decrease of $36,251 is explained above.

The Company reported a net income for the six months ended December 31, 2011 of $64,706, compared to net income of $175,368 for the three months ended December 31, 2010. This decrease of $110,662 is explained above.

PREFERRED DIVIDENDS

These amounts reflect additional preferred stock dividends in arrears for the three and six months ended December 31, 2011 and 2010, respectively, 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, 2011 was $67,725 which is a decrease of $36,251 as compared to the net income for the three months ended December 31, 2010 of $103,976.

Net income applicable to common stockholders for the six months ended December 31, 2011 was $670 which is a decrease of $110,662 as compared to the net income for the six months ended December 31, 2010 of $111,332.

LIQUIDITY AND CAPITAL RESOURCES

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

	2011			2010

Net cash provided by operating activities	$	239,802		$	404,379
Net cash used in investing activities	$	(2,613	)	$	(10,286	)
Net cash used in financing activities	$	(28,576	)	$	(32,288	)

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The $2,613 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 2012. The $28,576 of cash used in financing activities was for principal payments on equipment and vehicle loans. Management believes projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future. The Company has $250,000 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.

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, 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.

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS

	a.	None

ITEM 1A.	RISK FACTORS

	Not applicable to a smaller reporting company.

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

	a.	None

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

	a.	None

	b.	The total cumulative preferred stock dividends contingency at December 31, 2011 is $7,372,482.

ITEM 4.	[RESERVED]

ITEM 5.	OTHER INFORMATION

	a.	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
		Exhibit 101	The following financial statements for the quarter ended December 31, 2011, 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 10, 2012	/s/ Barry M. Yantis
Date	Barry M. Yantis
	Chairman of the Board, Chief Executive Officer and
	Chief Financial Officer, President and Treasurer

CHASE GENERAL CORP - FORM 10-Q - February 14, 2012

Attached files

CHASE GENERAL CORP Reports