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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, 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
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)

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 November 8, 2012, 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 September 30, 2012

TABLE OF CONTENTS
 
 
 
 
       
 
15
       
 
15
       
 
15
       
 
15
       
 
15
       
 
15
       
 
15
       
 
16

 
2
 
 
 
             
       
             
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
ASSETS
 
             
   
September 30,
   
June 30,
 
   
2012
   
2012
 
   
(Unaudited)
       
CURRENT ASSETS
           
             
Cash and cash equivalents
  $ 40,851     $ 17,949  
Trade receivables, net of allowance for doubtful accounts, of $15,402 and $15,102, respectively
    532,419       139,963  
Inventories:
               
Finished goods
    353,294       237,569  
Goods in process
    15,275       12,864  
Raw materials
    90,767       65,912  
Packaging materials
    117,763       131,687  
Prepaid expenses
    14,949       11,517  
Deferred income taxes
    7,528       7,277  
                 
Total current assets
    1,172,846       624,738  
                 
PROPERTY AND EQUIPMENT - NET
    425,584       448,616  
                 
TOTAL ASSETS
  $ 1,598,430     $ 1,073,354  
                 
                 
The accompanying notes are an integral part of the unaudited
 
condensed consolidated financial statements.
 
 
 
3
 
 
 
CHASE GENERAL CORPORATION AND SUBSIDIARY
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
LIABILITIES AND STOCKHOLDERS' EQUITY  
             
   
September 30,
   
June 30,
 
   
2012
   
2012
 
   
(Unaudited)
       
             
CURRENT LIABILITIES
           
             
Accounts payable
  $ 293,898     $ 78,798  
Current maturities of notes payable
    382,893       97,266  
Accrued expenses
    47,279       23,896  
Deferred income
    1,299       1,299  
                 
Total current liabilities
    725,369       201,259  
                 
LONG-TERM LIABILITIES
               
                 
Deferred income
    14,934       15,259  
Notes payable, less current maturities
    91,576       105,938  
Deferred income taxes
    54,600       49,498  
                 
Total long-term liabilities
    161,110       170,695  
                 
Total liabilities
    886,479       371,954  
                 
STOCKHOLDERS' EQUITY
               
                 
Capital stock issued and outstanding:
               
Prior cumulative preferred stock, $5 par value:
               
Series A (liquidation preference $2,137,500 and $2,130,000 respectively)
    500,000       500,000  
Series B (liquidation preference $2,092,500 and $2,085,000 respectively)
    500,000       500,000  
Cumulative preferred stock, $20 par value:
               
Series A (liquidation preference $4,858,232 and $4,843,598 respectively)
    1,170,660       1,170,660  
Series B (liquidation preference $791,745 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
    (5,754,045 )     (5,764,596 )
                 
Total stockholders' equity
    711,951       701,400  
                 
TOTAL LIABILITIES AND
               
STOCKHOLDERS' EQUITY
  $ 1,598,430     $ 1,073,354  
                 
                 
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
 
 
4
 
 
 
CHASE GENERAL CORPORATION AND SUBSIDIARY
 
 
   
(Unaudited)
 
             
   
Three Months Ended
 
   
September 30
 
   
2012
   
2011
 
             
NET SALES
  $ 797,592     $ 905,929  
                 
COST OF SALES
    583,645       713,560  
                 
Gross profit on sales
    213,947       192,369  
                 
OPERATING EXPENSES
               
                 
Selling
    92,374       99,022  
General and administrative
    125,302       129,374  
Gain on sale of equipment
    (22,500 )     -  
                 
Total operating expenses
    195,176       228,396  
                 
Income (loss) from operations
    18,771       (36,027 )
                 
OTHER INCOME (EXPENSE)
               
Miscellaneous income
    365       364  
Interest expense
    (3,734 )     (4,405 )
                 
Total other income (expense)
    (3,369 )     (4,041 )
                 
Net income (loss) before income taxes
    15,402       (40,068 )
                 
PROVISION (CREDIT) FOR INCOME TAXES
    4,851       (5,031 )
                 
NET INCOME (LOSS)
    10,551       (35,037 )
                 
Preferred dividends
    (32,018 )     (32,018 )
                 
Net loss applicable to common stockholders
  $ (21,467 )   $ (67,055 )
                 
NET LOSS PER SHARE OF COMMON
               
STOCK - BASIC AND DILUTED
  $ (0.02 )   $ (0.07 )
                 
WEIGHTED AVERAGE SHARES OF COMMON
               
STOCK OUTSTANDING
    969,834       969,834  
                 
                 
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
 
 
5
 
 
 
CHASE GENERAL CORPORATION AND SUBSIDIARY
 
 
             
(Unaudited)
 
             
   
Three Months Ended
 
   
September 30
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income (loss)
  $ 10,551     $ (35,037 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
               
Depreciation and amortization
    23,032       30,152  
Allowance for bad debts
    300       300  
Deferred income amortization
    (325 )     (325 )
Deferred income taxes
    4,851       (4,919 )
Gain on sale of equipment
    (22,500 )     -  
Effects of changes in operating assets and liabilities:
               
Trade receivables
    (392,756 )     (540,377 )
Inventories
    (129,067 )     (25,910 )
Prepaid expenses
    (3,432 )     (4,080 )
Accounts payable
    215,100       231,263  
Accrued expenses
    23,383       23,595  
                 
Net cash used in operating activities
    (270,863 )     (325,338 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from sale of equipment
    22,500       -  
                 
Net cash provided by investing activities
    22,500       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from line-of-credit
    285,000       250,000  
Proceeds from notes payable - stockholder
    -       100,000  
Principal payments on notes payable
    (13,735 )     (14,219 )
                 
Net cash provided by financing activities
    271,265       335,781  
 
               
NET INCREASE IN CASH AND CASH EQUIVALENTS
    22,902       10,443  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    17,949       18,772  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 40,851     $ 29,215  
                 
                 
The accompanying notes are an integral part of the unaudited
               
condensed consolidated financial statements.
               
 
 
6
 
 
 
CHASE GENERAL CORPORATION AND SUBSIDIARY

(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 ended September 30, 2012 and for the three months ended September 30, 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 ended September 30, 2012 and cash flows for the three months ended September 30, 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.

No events have occurred subsequent to September 30, 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 three month period ended September 30, 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
September 30
 
    2012     2011  
Net income (loss)   $ 10,551     $ (35,037 )
                 
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 loss applicable to common stockholders
  $ (21,467 )   $ (67,055 )
 
 
7
 
 

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


NOTE 2 - NET INCOME (LOSS) PER SHARE (CONTINUED)
 
    Three Months Ended  
    September 30  
      2012       2011  
                 
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 and diluted earnings per share
  $ (0.02 )   $ (0.07 )
 
Cumulative Preferred Stock dividends in arrears at September 30, 2012 and 2011 totaled $7,468,536 and $7,340,464, respectively.  Total dividends in arrears, on a per share basis, consist of the following:
 
     
Three Months Ended
September 30
 
      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.

 
8
 
 


CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
 
NOTE 3 - NOTES PAYABLE

The Company’s long-term debt consists of:
 
       
September 30,
   
June 30,
 
Payee  
Terms
 
2012
   
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.
  $ 75,000     $ -  
                     
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 September 30, 2012.  The line-of-credit is collateralized by substantially all assets of the Company.
    250,000       40,000  
                     
Ford Credit    $679 monthly payments including interest of 0%; final payment due March 2016, secured by a vehicle.      28,525       30,563  
                     
Ford Credit    $517 monthly payments including interest of 0%; final payment due March 2016, secured by a vehicle     21,700       23,250  
                     
Toyota Financial Services   $502 monthly payments including interest of 4.9%; final payment due March 2015, secured by a vehicle.     14,116       15,438  
                     
 Toyota Financial  Services   $305 monthly payments including interest of 2.9%; final payment due March 2015, secured by a vehicle.     8,805       9,644  
                     
Nodaway Valley Bank
$3,192 monthly payments including interest of 6.25%; final payment due June 2015, secured by certain equipment.
    76,323       84,309  
                     
   
Total
    474,469       203,204  
   
Less current portion
    382,893       97,266  
   
Long-term portion
  $ 91,576     $ 105,938  
 

 
9
 
 

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
 
NOTE 3 - NOTES PAYABLE (CONTINUED)

Management anticipates renewal of both lines-of-credit at similar terms upon expiration.

Future minimum payments for the twelve months ending September 30 are:
 
2013
  $ 382,893  
2014
    60,496  
2015
    23,905  
2016
    7,175  
         
Total
  $ 474,469  
 
 
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 September 30, 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.

As of September 30, 2012, the Company has unused contributions carryforward of $4,821 and a net operating loss carryforward of $121,691.  The unused contributions will expire in tax years ranging from 2012 through 2016.  The net operating loss carryforward is available to be used over the next twenty years.  A valuation allowance has not been provided against the deferred income tax asset for the net operating loss carryforward as management believes the Company will more likely than not be able to utilize the net operating loss carryforward prior to its expiration.
 
 
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
   
 
 
Three Months Ended
September 30
 
   
 
 
2012
   
2011
 
Cash paid for:
             
 
Interest
    $ 4,253     $ 3,886  
                     
Non-cash transaction:
                 
 
Equipment in accounts payable
    $ -     $ 1,700  
 
 
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.

 
10
 
 

CHASE GENERAL CORPORATION AND SUBSIDIARY



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 September 30, 2012 Compared with Three Months Ended September 30, 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 and revenues for the periods presented:
 
   
Three Months Ended
 
   
September 30
 
     
2012
   
2011
 
Net sales
    100 %    100 %
Cost of sales
    73       79  
                 
Gross profit
    27       21  
                 
Operating expenses
    25       25  
Income (loss) from operations
    2       (4 )
Net income (loss) before income taxes
    2       (4 )
Provision (credit) for income taxes
    1       -  
                 
Net income (loss)
    1 %     (4 )%
 
NET SALES

Net sales decreased $108,337 or 12% for the three months ended September 30, 2012 to $797,592 compared to $905,929 for the three months ended September 30, 2011.  Gross sales for Chase Candy increased $41,169 to $407,421 for the three months ended September 30, 2012, compared to $366,252 for 2011.  Gross sales for Seasonal Candy decreased $157,539 to $403,427 for the three months ended September 30, 2012, compared to $560,966 for 2011.

The 11% increase in gross sales of Chase Candy of $41,169 for the three months ended September 30, 2012 over the same period ended September 30, 2011, is primarily due to the net effect of the following:  1) one customer increasing orders by approximately $42,000 versus the first quarter a year ago primarily due to a new warehouse opening; 2) one customer increasing orders by approximately $27,000 versus first quarter a year ago due to timing of orders offset by; 3) decreased sales for the Mini Mash Barrel, Mini Mash Keg, and Cherry Mash Merchandisers of approximately $18,000; 4) decreased sales of the 12/12oz. Mini Mash bag to one customer by approximately $10,000 due to decreased distribution.

 
11
 
 

CHASE GENERAL CORPORATION AND SUBSIDIARY


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

NET SALES (CONTINUED)

The 28% decrease in gross sales of Seasonal Candy of $157,539 for the three months ended September 30, 2012 over the same period ended September 30, 2011, is primarily due to the net effect of the following:  1) decreased orders from one customer totaling approximately $147,000 versus first quarter a year ago due to timing of orders which will occur during the second quarter of the current fiscal year; 2) increased orders from two customers of approximately $29,000 due to increased business; 3) decreased orders from various other customers in the bulk seasonal and clamshell seasonal product categories totaling approximately $39,000 versus first quarter a year ago due to timing of orders.

COST OF SALES

The cost of sales decreased $129,915 to $583,645 decreasing to 73% of related revenues for the three months ended September 30, 2012, compared to $713,560 or 79% of related revenues for the three months ended September 30, 2011.

The 18% decrease in cost of sales of $129,915 is primarily due to the 12% decrease in net sales of $108,337 combined with a 47% decrease in the raw material costs of peanuts compared to the same period ended September 30, 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 increased total inventory $129,067 or 29% to $577,099 at September 30, 2012 from $448,032 held in inventory at June 30, 2012 as a result of building up inventory product to be delivered in October and November 2012.  The Company increased finished goods inventory 49% during the three months ended September 30, 2012 to $353,294 from the June 30, 2012 finished goods inventory levels of $237,569.  The Company increased goods in process inventory 19% during the three months ended September 30, 2012 to $15,275 from the June 30, 2012 goods in process inventory levels of $12,864. The Company increased raw materials inventory 38% during the three months ended September 30, 2012 to $90,767 from the June 30, 2012 raw materials inventory levels of $65,912. The Company decreased packaging materials inventory 11% during the three months ended September 30, 2012 to $117,763 from the June 30, 2012 packaging materials inventory levels of $131,687.

SELLING EXPENSES

Selling expenses for the three months ended September 30, 2012 decreased $6,648 to $92,374, which is 12% of sales, compared to $99,022 or 11% of sales for the three months ended September 30, 2011.

The decrease of $6,648 in selling expenses for the three months ended September 30, 2012 is primarily due to lower commissions and premium promotions being paid for the period.  Commissions and premium promotions, and sample costs decreased $8,139 to $45,410 for this period from $53,549 for the three months ended September 30, 2011.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended September 30, 2012 decreased $4,072 to $125,302 and increased to 16% of sales, compared to $129,374 or 14% of sales for the three months ended September 30, 2011.  The decreased costs are primarily because of a $2,729 decrease in insurance expense and a $2,004 decrease in professional fees.

OTHER INCOME (EXPENSE)

Other income and (expense) decreased by $672 for the three months ended September 30, 2012 to $(3,369), compared to $(4,041) for the three months ended September 30, 2011 primarily due to a decrease in interest expense.

 
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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

PROVISION (CREDIT) FOR INCOME TAXES

The Company recorded a tax expense for the three months ended September 30, 2012 of $4,851 as compared to a tax benefit of $(5,031) for the three months ended September 30, 2011.  The net tax expense recorded for the three months ended September 30, 2012 is primarily due to the change in deferred income taxes as a result of various timing differences between book income and taxable income.

NET INCOME (LOSS)

The Company reported a net income for the three months ended September 30, 2012 of $10,551, compared to net loss of $(35,037) for the three months ended September 30, 2011.  This increase of $45,588 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended September 30, 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 (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

Net loss applicable to common stockholders for the three months ended September 30, 2012 was $(21,467) which is a decrease of $45,588 as compared to the net loss for the three months ended September 30, 2011 of $(67,055).

LIQUIDITY AND CAPITAL RESOURCES

The table below presents the summary of cash flow for the fiscal period indicated.
 
   
2012
   
2011
 
             
Net cash used in operating activities
  $ (270,863 )   $ (325,388 )
Net cash used in investing activities
  $ 22,500     $ -  
Net cash provided by (used in) financing activities
  $ 271,265     $ 335,781  
 
Management has no material commitments for capital expenditures during the remainder of fiscal 2013.  The $271,265 of cash provided by financing activities is the receipt of $285,000 drawn from two lines-of-credit, net of principal payments on equipment and vehicle loans.  One line-of-credit was fully drawn at September 30, 2012.  The Company had $25,000 remaining on another bank line-of-credit until October 5, 2012 when it was utilized to help fund working capital requirements. Since September 30, 2012, the Company has made principal payments totaling $125,000 through November 9, 2012 on the lines-of-credit.  At November 9, 2012, the Company had $125,000 remaining on the lines-of-credit, which could be utilized to help fund any working capital requirements.  Management expects that projected cash flows will enable the Company to pay the full balance on the lines-of-credit prior to December 31, 2012.

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.

 
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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.


Not applicable to a smaller reporting company.


(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.

 
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ITEM 1.   LEGAL PROCEEDINGS
     
   
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.
     
ITEM 1A.
 
     
   
Not applicable to a smaller reporting company.
     
ITEM 2.
 
       
   
 
None
     
ITEM 3.
 
       
   
a.
None
       
   
b.
The total cumulative preferred stock dividends contingency at September 30, 2012 is $7,468,536.
       
ITEM 4.
 
     
   
Not applicable.
     
ITEM 5.
 
       
   
a.
None
       
ITEM 6.
 
       
   
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 September 30, 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
 
 
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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 9, 2012
 
/s/ Barry M. Yantis  
Date
  Barry M. Yantis  
   
Chairman of the Board, Chief Executive Officer and
 
   
Chief Financial Officer, President and Treasurer
 
 
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