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 MarchDecember 31, 2014

o       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
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
 
 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
   
 
Large accelerated filer  ☐
Accelerated filer  ☐
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 May 9, 2014,February 12, 2015, 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 MarchDecember 31, 2014

TABLE OF CONTENTS
    
PART I  FINANCIAL INFORMATION
FINANCIAL INFORMATION 
 
Item 1.
Condensed Consolidated Financial Statements
3
    
 
Item 1.Condensed Consolidated Balance Sheets as of December 31, 2014 (Unaudited) and June 30, 2014
 
Condensed Consolidated Financial Statements
3
    
 
Condensed Consolidated Balance Sheets asStatements of MarchIncome for the Three Months Ended December 31, 2014 (Unaudited) and June 30, 2013 (Unaudited)
35
    
 
Condensed Consolidated Statements of OperationsIncome for the ThreeSix Months Ended MarchDecember 31, 2014 and 2013 (Unaudited)
5
Condensed Consolidated Statements of Operations for the Nine Months Ended March 31, 2014 and 2013 (Unaudited)
6
    
 
Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended MarchDecember 31, 2014 and 2013 (Unaudited)
7
    
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
8
    
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1314
    
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
21
    
Item 4.
Controls and Procedures
21
    
PART II  OTHER INFORMATION
OTHER INFORMATION 
    
Item 1.
Legal Proceedings
22
    
Item 1A.
Risk Factors
22
    
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22
Item 3.
Defaults Upon Senior Securities
22
    
Item 4.3.
Defaults Upon Senior Securities
 
Mine Safety Disclosures
22
    
Item 5.4.
Mine Safety Disclosures
 
Other Information
22
    
Item 5.
Other Information
 22
 
Item 6.
Exhibits
23
    
Signatures
24
 
PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
         
  March 31,  June 30, 
  2014  2013 
  (Unaudited)    
CURRENT ASSETS      
Cash and cash equivalents $336,355  $28,564 
Trade receivables, net of allowance for doubtful accounts of $17,196 and $16,196, respectively
  178,368   166,585 
Inventories:        
Finished goods  67,514   258,392 
Goods in process  6,650   10,942 
Raw materials  97,588   81,515 
Packaging materials  120,323   158,283 
Prepaid expenses  15,256   5,414 
Deferred income taxes  6,748   6,863 
         
Total current assets  828,802   716,558 
         
PROPERTY AND EQUIPMENT        
Land  35,000   35,000 
Buildings  77,348   77,348 
Machinery and equipment  738,633   717,985 
Trucks and autos  188,594   188,594 
Office equipment  31,518   30,826 
Leasehold improvements  72,068   72,068 
Total  1,143,161   1,121,821 
Less accumulated depreciation  819,356   759,996 
         
Total property and equipment, net  323,805   361,825 
         
TOTAL ASSETS $1,152,607  $1,078,383 
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
         
  March 31,  June 30, 
  2014  2013 
  (Unaudited)    
       
CURRENT LIABILITIES      
Accounts payable $55,947  $66,598 
Current maturities of notes payable  31,568   54,172 
Accrued expenses  38,381   27,466 
Income taxes payable  58,464   3,711 
Deferred income  1,299   1,299 
         
Total current liabilities  185,659   153,246 
         
LONG-TERM LIABILITIES        
Deferred income  12,986   13,960 
Notes payable, less current maturities  6,200   39,787 
Deferred income taxes  81,327   93,973 
         
Total long-term liabilities  100,513   147,720 
         
Total liabilities  286,172   300,966 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ EQUITY
        
Capital stock issued and outstanding:        
Prior cumulative preferred stock, $5 par value:        
Series A (liquidation preference $2,182,500 and $2,160,000, respectively)
  500,000   500,000 
Series B (liquidation preference $2,137,500 and $2,115,000, respectively)
  500,000   500,000 
Cumulative preferred stock, $20 par value:        
Series A (liquidation preference $4,946,031 and $4,902,131, respectively)
  1,170,660   1,170,660 
Series B (liquidation preference $806,053 and $798,899, 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  (5,599,561)  (5,688,579)
         
Total stockholders’ equity
  866,435   777,417 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 $1,152,607  $1,078,383 
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 
  March 31 
  2014  2013 
       
NET SALES $462,112  $452,217 
         
COST OF SALES  372,767   352,654 
         
Gross profit on sales  89,345   99,563 
         
OPERATING EXPENSES        
Selling  70,054   74,865 
General and administrative  108,816   110,915 
         
Total operating expenses  178,870   185,780 
         
Loss from operations  (89,525)  (86,217)
         
OTHER INCOME (EXPENSE)        
Miscellaneous income  602   640 
Interest expense  (440)  (1,317)
         
Total other income (expense), net  162   (677)
         
Net loss before income taxes  (89,363)  (86,894)
         
CREDIT FOR INCOME TAX BENEFIT  (31,412)  (31,129)
         
NET LOSS $(57,951) $(55,765)
         
NET LOSS PER SHARE OF COMMON STOCK        
- BASIC $(0.09) $(0.09)
- DILUTED $(0.09) $(0.09)
       
ASSETS
       
  December 31,  June 30, 
  2014  2014 
  (Unaudited)    
CURRENT ASSETS      
Cash and cash equivalents $452,930  $162,435 
Trade receivables, net of allowance for doubtful accounts of $17,858 and $16,508, respectively
  268,933   178,686 
Inventories:        
Finished goods  58,389   258,726 
Goods in process  15,108   11,950 
Raw materials  70,826   80,088 
Packaging materials  106,760   145,046 
Prepaid expenses  34,621   12,233 
Deferred income taxes  6,991   7,047 
         
Total current assets  1,014,558   856,211 
         
PROPERTY AND EQUIPMENT        
Land  35,000   35,000 
Buildings  77,348   77,348 
Machinery and equipment  753,837   739,962 
Trucks and autos  196,982   188,594 
Office equipment  31,518   31,518 
Leasehold improvements  72,068   72,068 
Total  1,166,753   1,144,490 
Less accumulated depreciation  839,352   841,445 
         
Total property and equipment, net  327,401   303,045 
         
TOTAL ASSETS $1,341,959  $1,159,256 
 
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, 
  2014  2014 
  (Unaudited)    
       
CURRENT LIABILITIES      
Accounts payable $104,898  $51,947 
Current maturities of notes payable  10,832   21,537 
Accrued expenses  15,072   139,098 
Income taxes payable  99,925   21,203 
Deferred income  1,299   1,299 
         
Total current liabilities  232,026   235,084 
         
LONG-TERM LIABILITIES        
Deferred income  12,012   12,661 
Notes payable, less current maturities  18,146   4,650 
Deferred income taxes  74,850   79,176 
         
Total long-term liabilities  105,008   96,487 
         
Total liabilities  337,034   331,571 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ EQUITY        
Capital stock issued and outstanding:        
Prior cumulative preferred stock, $5 par value:        
Series A (liquidation preference $2,205,000 and $2,190,000, respectively)
  500,000   500,000 
Series B (liquidation preference $2,160,000 and $2,145,000, respectively)
  500,000   500,000 
Cumulative preferred stock, $20 par value        
Series A (liquidation preference $4,989,931 and $4,960,664, respectively)
  1,170,660   1,170,660 
Series B (liquidation preference $813,207 and $808,438, 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  (5,461,071)  (5,638,311)
         
Total stockholders’ equity  1,004,925   827,685 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,341,959  $1,159,256 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

  Three Months Ended 
  December 31 
  2014  2013 
       
NET SALES $1,291,273  $1,402,545 
         
COST OF SALES  846,057   938,247 
         
Gross profit on sales  445,216   464,298 
         
OPERATING EXPENSES        
Selling  149,763   161,115 
General and administrative  90,453   95,111 
Loss (gain) on sale of equipment  (15,912)  93 
         
Total operating expenses  224,304   256,319 
         
Income from operations  220,912   207,979 
         
OTHER INCOME (EXPENSE)        
Miscellaneous income  422   1,972 
Interest expense  (1,069)  (555)
         
Total other income (expense), net  (647)  1,417 
         
Net income before income taxes  220,265   209,396 
         
PROVISION FOR INCOME TAXES  77,726   73,564 
         
NET INCOME $142,539  $135,832 
         
NET INCOME PER SHARE OF COMMON STOCK        
- BASIC $0.11  $0.11 
- DILUTED $0.06  $0.05 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(Unaudited)


      
 Nine Months Ended  Six Months Ended 
 March 31  December 31 
 2014  2013  2014  2013 
            
NET SALES $2,775,917  $2,725,012  $2,283,181  $2,313,805 
                
COST OF SALES  1,969,368   1,922,781   1,561,127   1,596,601 
                
Gross profit on sales  806,549   802,231   722,054   717,204 
                
OPERATING EXPENSES                
Selling  328,091   331,981   264,404   258,037 
General and administrative  342,317   328,020   211,834   233,501 
Loss (gain) on sale of equipment  93   (22,254)  (15,912)  93 
                
Total operating expenses  670,501   637,747   460,326   491,631 
                
Income from operations  136,048   164,484   261,728   225,573 
                
OTHER INCOME (EXPENSE)                
Miscellaneous income  2,938   1,402   12,444   2,336 
Interest expense  (3,581)  (6,347)  (1,956)  (3,141)
                
Total other income (expense), net  (643)  (4,945)  10,488   (805)
                
Net income before income taxes  135,405   159,539   272,216   224,768 
                
PROVISION FOR INCOME TAXES  46,387   64,176   94,976   77,799 
                
NET INCOME $89,018  $95,363  $177,240  $146,969 
                
NET INCOME (LOSS) PER SHARE OF COMMON STOCK        
NET INCOME PER SHARE OF COMMON STOCK        
- BASIC $(0.01) $0.00  $0.12  $0.09 
- DILUTED $(0.01) $0.00  $0.06  $0.04 
 
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 
 
Nine Months Ended
March 31
  December 31 
 2014  2013  2014  2013 
CASH FLOWS FROM OPERATING ACTIVITIES            
Net income $89,018  $95,363  $177,240  $146,969 
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization  65,366   68,015   50,127   43,294 
Allowance for bad debts  400   600   1,350   600 
Deferred income amortization  (974)  (974)  (649)  (649)
Deferred income taxes  (12,531)  46,653   (4,270)  (10,519)
Loss (gain) on sale of equipment  93   (22,254)  (15,912)  93 
Effects of changes in operating assets and liabilities:                
Trade receivables  (12,183)  (3,668)  (91,597)  (76,808)
Inventories  217,057   165,504   244,727   268,049 
Prepaid expenses  (9,842)  (3,916)  (22,388)  (21,010)
Accounts payable  (10,651)  (37,932)  49,484   43,068 
Accrued expenses  10,915   14,899   (124,026)  (11,603)
Income taxes payable  54,753   17,523   78,722   84,135 
                
Net cash provided by operating activities  391,421   339,813   342,808   465,619 
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Proceeds from sale of equipment  -   22,500 
Purchases of property and equipment  (27,439)  (2,225)  (33,876)  (21,132)
        
Net cash (used in) provided by investing activities  (27,439)  20,275 
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from line-of-credit  290,000   310,050   265,000   290,000 
Principal payments on line-of-credit  (290,000)  (350,050)  (265,000)  (290,000)
Principal payments on notes payable  (56,191)  (54,284)  (18,437)  (34,403)
                
Net cash used in financing activities  (56,191)  (94,284)  (18,437)  (34,403)
                
NET INCREASE IN CASH AND CASH EQUIVALENTS  307,791   265,804   290,495   410,084 
                
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  28,564   17,949   162,435   28,564 
                
CASH AND CASH EQUIVALENTS, END OF PERIOD $336,355  $283,753  $452,930  $438,648 

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)

(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, 20132014 has been taken from audited consolidated financial statements at that date and condensed.  The condensed consolidated financial statements as of and for the three and ninesix months ended MarchDecember 31, 2014 and for the three and ninesix months ended MarchDecember 31, 2013 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, 2013.2014.  The results of operations for the three and ninesix months ended MarchDecember 31, 2014 and cash flows for the ninesix months ended MarchDecember 31, 2014 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2014.2015.  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 MarchDecember 31, 2014, 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 and nine monthssix month period ended MarchDecember 31, 2014.

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
(Unaudited)

NOTE 2 - EARNINGS 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
March 31
  
Nine Months Ended
March 31
  Three Months Ended  Six Months Ended 
 2014  2013  2014  2013  December 31  December 31 
             2014  2013  2014  2013 
Net (loss) income $(57,951) $(55,765) $89,018  $95,363 
            
Net income $142,539  $135,832  $177,240  $146,969 
                                
Preferred dividend requirements:                                
6% Prior Cumulative Preferred, $5 par value
  15,000   15,000   45,000   45,000   15,000   15,000   30,000   30,000 
5% Convertible Cumulative Preferred, $20 par value
  17,018   17,018   51,054   51,054   17,018   17,018   34,036   34,036 
                                
Total dividend requirements  32,018   32,018   96,054   96,054   32,018   32,018   64,036   64,036 
                                
Net loss - common stockholders
 $(89,969) $(87,783) $(7,036) $(691)
Net income - common stockholders
 $110,521  $103,814  $113,204  $82,933 
                                
Weighted average shares - basic  969,834   969,834   969,834   969,834   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   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   2,003,168   2,003,168   2,003,168   2,003,168 
                                
Basic earnings per share $(0.09) $(0.09) $(0.01) $0.00  $0.11  $0.11  $0.12  $0.09 
                                
Diluted earnings per share $(0.09) $(0.09) $(0.01) $0.00  $0.06  $0.05  $0.06  $0.04 
 
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 - EARNINGS PER SHARE (CONTINUED)

Cumulative Preferred Stock dividends in arrears at MarchDecember 31, 2014 and 2013 totaled $7,660,644$7,756,698 and $7,532,572,$7,628,626, respectively.  Total dividends in arrears, on a per share basis, consist of the following:
        
  Six Months Ended 
  December 31 
  2014  2013 
6% Convertible      
Series A $17  $17 
Series B $16  $16 
         
5% Convertible        
Series A $65  $64 
Series B $65  $64 
         
  
Nine Months Ended
March 31
 
  2014  2013 
       
6% Convertible      
Series A $17  $16 
Series B  16   16 
         
5% Convertible        
Series A  65   64 
Series B  65   64 
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:
                
   March 31,  June 30,    December 31,  June 30, 
Payee Terms 2014  2013  Terms 2014  2014 
                
Nodaway Valley Bank $350,000 line-of-credit agreement expiring on January 3, 2015, with a variable interest rate at prime but not less than 5%. The line-of-credit agreement replaced an existing line-of-credit agreement that expired on January 3, 2014. The line-of-credit is collateralized by substantially all assets of the Company.  $-  $-  $350,000 line-of-credit agreement expiring on January 3, 2016, 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. $-  $- 
                    
Ford Credit 
$679 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle.
  -   22,413  $468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle.  21,228   - 
                    
Ford Credit 
$517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle.
  12,400   17,050  $517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle.  7,750   10,850 
                    
Nodaway Valley Bank 
$3,192, including interest of 5.75%; final payment due June 2015, secured by equipment.
  21,687   48,698  $3,192, including interest of 5.75%; final payment due June 2015, secured by equipment; paid in full in December 2014.  -   12,547 
                    
Toyota Financial Services
 
$305 monthly payments including interest of 2.9% due March 2015, secured by a vehicle.
  3,681   5,798  $305 monthly payments including interest of 2.9% due March 2015, secured by a vehicle; paid in full in December 2014.  -   2,790 
                    
 Total  37,768   93,959  Total  28,978   26,187 
 Less current portion  31,568   54,172  Less current portion  10,832   21,537 
 Long-term portion $6,200  $39,787  Long-term portion $18,146  $4,650 
 
Upon expiration of the line-of-credit agreement on January 3, 2015, the Company entered into a $350,000 line-of-credit agreement that expires on January 3, 2016 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - NOTES PAYABLE (CONTINUED)

Future minimum payments for the twelve months ending MarchDecember 31 are:
     
2015 $31,568 
2016  6,200 
     
Total $37,768 
     
2015 $10,832 
2016  6,772 
2017  5,375 
2018  5,533 
2019  466 
     
Total $28,978 
 
NOTE 4 - INCOME TAXES

The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10.  The Company recognized no liability for unrecognized tax benefits at MarchDecember 31, 2014.  The Company has no material tax positions at MarchDecember 31, 2014 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility.  The Company had no accruals for interest or penalties at December 31, 2014.  The Company’s federal income tax returns for the fiscal years ended 2011, 2012, 2013 and 20132014 are subject to examination by the IRS taxing authority. The Company had no accruals for interest and penalties at March 31, 2014.
 
NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         
  
Nine Months Ended
March 31
 
  2014  2013 
       
Cash paid for:      
Interest $3,563  $6,347 
Income taxes  4,105   - 

NOTE 6 - CONTINGENCIES

The Company has received correspondence from the legal counsel for the Public Building Commission of Chicago (PBC) in August 2012, 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.
        
  Six Months Ended 
  December 31 
  2014  2013 
       
Cash paid for:      
Interest $1,956  $3,141 
Income taxes  28,504   4,105 
Non-cash transactions:        
Financing of new vehicle  21,228   - 
Sales tax on new vehicle in accounts payable  3,467   - 
 
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 6 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board issued new accounting guidance for the recognition of revenue from contracts with customers, which will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.  The new standard is effective for the Company’s fiscal year 2018, and early adoption is not permitted.  The Company is evaluating the effect the new guidance will have on its consolidated financial statements and related disclosures.  The Company has not yet determined the effect of the standard on its ongoing financial reporting.
There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s financial statements.
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, 2014 Compared to Three Months Ended December 31, 2013, and Six Months Ended December 31, 2014 Compared to Six Months Ended December 31, 2013
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 
   2014  2013  2014  2013 
              
 Net sales  100%  100%  100%  100%
 Cost of sales  66   67   68   69 
 Gross profit on sales  34   33   32   31 
 Operating expenses  17   18   20   21 
 Income from operations  17   15   12   10 
 Other income (expense), net  -   1   -   - 
 Income before income taxes  17   16   12   10 
 Provision for income taxes  6   5   4   3 
 Net income  11%  11%  8%  7%
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET SALES
Net sales decreased $111,272 or 8% for the three months ended December 31, 2014 to $1,291,273 compared to $1,402,545 for the three months ended December 31, 2013.  Gross sales for Chase Candy decreased $10,569 to $546,728 for the three months ended December 31, 2014, compared to $557,297 for the three months ended December 31, 2013.  Gross sales for Seasonal Candy decreased $90,077 to $757,403 for the three months ended December 31, 2014, compared to $847,480 for the three months ended December 31, 2013. 
The 11% decrease in gross sales of Seasonal Candy of $90,077 for the three months ended December 31, 2014 over the same period ended December 31, 2013, is primarily due to the net effect of the following:  1) decreased sales in the clamshell seasonal division by approximately $64,000 versus the same period a year ago primarily due to the timing of orders from three customers; 2) decreased sales in the bulk seasonal division by approximately $54,000 versus the same period a year ago primarily due to the timing of orders from three customers and decreased orders from one customer; offset by 3) increased sales in the generic seasonal product division by approximately $28,000 due to increased orders from one customer along with the introduction of new packaging. 
The 2% decrease in gross sales of Chase Candy of $10,569 for the three months ended December 31, 2014 over the same period ended December 31, 2013, is primarily due to the net effect of the following:  1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $34,000 versus the same period a year ago primarily due to one customer decreasing orders; 2) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $16,000 versus the same period a year ago primarily due to the timing of orders from one customer and to one customer decreasing orders; 3) various other fluctuations netting to a decrease of approximately $3,000; 4) decreased sales of the L260 Changemaker Jar division by approximately $1,000 versus the same period a year ago primarily due to one customer decreasing orders; offset by 5) increased sales of the L278/L212 Mini Mash division by approximately $27,000 versus the same period a year ago primarily due to four customers increasing orders; and 6) increased sales of the Cherry Mash Merchandiser division by approximately $16,000 versus the same period a year ago primarily due to four customers increasing orders.
Net sales decreased $30,624 or 1% for the six months ended December 31, 2014 to $2,283,181 compared to $2,313,805 for the six months ended December 31, 2013.  Gross sales for Chase Candy decreased $26,586 to $1,038,808 for the six months ended December 31, 2014, compared to $1,065,394 for the three months ended December 31, 2013.  Gross sales for Seasonal Candy increased $1,820 to $1,265,027 for the six months ended December 31, 2014, compared to $1,263,207 for the three months ended December 31, 2013.
 
OVERVIEW
15

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 March 31, 2014 Compared to Three Months Ended March 31, 2013, and Nine Months Ended March 31, 2014 Compared to Nine Months Ended March 31, 2013

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:CHASE GENERAL CORPORATION AND SUBSIDIARY
 
  Three Months Ended  Nine Months Ended 
  March 31  March 31 
  2014  2013  2014  2013 
             
Net sales  100%  100%  100%  100%
Cost of sales  81   78   71   71 
Gross profit on sales  19   22   29   29 
Operating expenses  39   41   24   23 
Income (loss) from operations  (20)  (19)  5   6 
Other income (expense), net  -   -   -   - 
Income (loss) before income taxes  (20)  (19)  5   6 
Provision (benefit) for income taxes  (7)  (7)  2   2 
Net income (loss)  (13) %  (12) %  3%  4%
                 
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET SALES  (CONTINUED)
The 3% decrease in gross sales of Chase Candy of $26,586 for the six months ended December 31, 2014 over the same period ended December 31, 2013, is primarily due to the net effect of the following:  1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $75,000 versus the same period a year ago primarily due to one customer decreasing orders; 2) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $15,000 versus the same period a year ago primarily due to two customers decreasing orders; 3) various other fluctuations netting to a decrease of approximately $2,000; 4) decreased sales of the L260 Changemaker Jar division by approximately $1,000 versus the same period a year ago primarily due to one customer decreasing orders; offset by 5) increased sales of the L278/L212 Mini Mash division by approximately $51,000 versus the same period a year ago primarily due to two customers increasing orders; and 6) increased sales of the Cherry Mash Merchandiser division by approximately $16,000 versus the same period a year ago primarily due to four customers increasing orders.
The slight increase in gross sales of Seasonal Candy of $1,820 for the six months ended December 31, 2014 over the same period ended December 31, 2013, is primarily due to the net effect of the following:  1) increased sales in the generic seasonal product division by approximately $17,000 due to increased orders from one customer along with the introduction of new packaging; 2) increased sales in the clamshell seasonal division by approximately $7,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the bulk seasonal division by approximately $22,000 versus the same period a year ago primarily due to decreased orders from three customers.
COST OF SALES
The cost of sales decreased $92,190 to $846,057 or 66% of related revenues for the three months ended December 31, 2014, compared to $938,247 or 67% of related revenues for the three months ended December 31, 2013.
The 10% decrease in cost of sales of $92,190 is primarily due to the 8% decrease in net sales of $111,272 and a 5% decrease in price of peanuts.
The cost of sales decreased $35,474 to $1,561,127 or 68% of related revenues for the six months ended December 31, 2014, compared to $1,596,601 or 69% of related revenues for the six months ended December 31, 2013.
 
1316
 

 

 
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 2% decrease in cost of sales of $35,474 is primarily due to the 1% decrease in net sales of $30,624 and a 5% decrease in the price of peanuts.  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.
SELLING EXPENSES
Selling expenses for the three months ended December 31, 2014 decreased $11,352 to $149,763, which is 12% of sales, compared to $161,115, or 11% of sales for the three months ended December 31, 2013.

The decrease of $11,352 in selling expenses for the three months ended December 31, 2014 is primarily due to lower premium promotions expense and lower commissions expense offset by higher depreciation expense. Premium promotions, which are paid to customers for various marketing reasons, decreased $9,861 to $36,833 for this period from $46,694 for the three months ended December 31, 2013. Commissions expense, which are based on sales, decreased $3,842 to $42,019 for this period from $45,861 for the three months ended December 31, 2013. Depreciation expense increased $3,532 to $11,908 for this period from $8,376 primarily due to the purchases of property and equipment of $28,767 during the year ended June 30, 2014 combined with the acquisition of a vehicle in December 2014.

Selling expenses for the six months ended December 31, 2014 increased $6,367 to $264,404, which is 12% of sales, compared to $258,037 or 11% of sales for the six months ended December 31, 2013.
The increase of $6,367 in selling expenses for the six months ended December 31, 2014 is primarily due to higher depreciation expense for the period.  Depreciation expense increased $4,795 to $21,546 for this period from $16,751 primarily due to the purchases of property and equipment of $28,767 during the year ended June 30, 2014 combined with the acquisition of a vehicle in December 2014.
17

CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2014 decreased $4,658 to $90,453 and 7% of sales, compared to $95,111 or 7% of sales for the three months ended December 31, 2013.  The decreased costs are primarily because of a $3,688 decrease in insurance expense.
General and administrative expenses for the six months ended December 31, 2014 decreased $21,667 to $211,834 or 9% of sales, compared to $233,501 or 10% of sales for the six months ended December 31, 2013.  The decreased costs are primarily because of an $18,436 decrease in professional fees and a $6,317 decrease in insurance expense.
OTHER INCOME (EXPENSE)
Other income (expense) decreased by $2,064 for the three months ended December 31, 2014 to $(647), compared to $1,417 for the three months ended December 31, 2013 primarily due to a increase of $514 in interest expense and an decrease of $1,550 in miscellaneous income.
Other income (expense) increased by $11,293 for the six months ended December 31, 2014 to $10,488, compared to $(805) for the six months ended December 31, 2013 primarily due to a decrease of $1,185 in interest expense, a freight claim of approximately $4,000 and a refund of approximately $7,000 from a customer related to an underpayment written off during the year ending June 30, 2014.
PROVISION FOR INCOME TAXES
The Company recorded income tax expense for the three months ended December 31, 2014 of $77,726 as compared to income tax expense of $73,564 for the three months ended December 31, 2013.  The Company recorded income tax expense for the six months ended December 31, 2014 of $94,976 as compared to income tax expense of $77,799 for the six months ended December 31, 2013.  The net income tax expense recorded for the three and six months ended December 31, 2014 is primarily due to recognizing income taxes related to current profitable operations.
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, 2014 of $142,539, compared to net income of $135,832 for the three months ended December 31, 2013.  This increase of $6,707 is explained above.  The Company reported net income for the six months ended December 31, 2014 of $177,240, compared to net income of $146,969 for the six months ended December 31, 2013.  This increase of $30,271 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended December 31, 2014 and 2013, 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, 2014 and 2013, 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, 2014 was $110,521 which is an increase of $6,707 as compared to the net income for the three months ended December 31, 2013 of $103,814.

Net income applicable to common stockholders for the six months ended December 31, 2014 was $113,204 which is an increase of $30,271 as compared to the net income for the six months ended December 31, 2013 of $82,933.
LIQUIDITY AND CAPITAL RESOURCES

The table below presents the summary of cash flow for the fiscal period indicated.
     
   Six Months Ended 
   December 31 
   2014  2013 
        
 Net cash provided by operating activities $342,808  $465,619 
 Net cash used in investing activities $(33,876) $(21,132)
 Net cash used in financing activities $(18,437) $(34,403)
CHASE GENERAL CORPORATION AND SUBSIDIARY
 
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET SALES

Net sales increased $9,895 or 2% for the three months ended March 31, 2014 to $462,112 compared to $452,217 for the three months ended March 31, 2013. Gross sales for Chase Candy increased $29,268 to $460,349 for the three months ended March 31, 2014, compared to $431,081 for 2013. Gross sales for Seasonal Candy decreased $24,193 to $18,076 for the three months ended March 31, 2014, compared to $42,269 for 2013.

The 7% increase in gross sales of Chase Candy of $29,268 for the three months ended March 31, 2014 over the same period ended March 31, 2013, is primarily due to the net effect of the following: 1) increased sales of the L278/L212 Mini Mash division by approximately $17,000 versus the third quarter a year ago due to three customers increasing orders; 2) increased sales of the Cherry Mash Merchandiser division by approximately $12,000 versus the third quarter a year ago primarily due to four customers increasing orders; 3) increased sales of the L279/L299 Bulk Mini Mash division by approximately $1,000 versus the third quarter a year ago; and offset by 4) decreased sales of the L260 Changemaker Jar division by approximately $1,000 versus the third quarter a year ago primarily due to one customer decreasing orders.

The 57% decrease in gross sales of Seasonal Candy of $24,193 for the three months ended March 31, 2014 over the same period ended March 31, 2013, is primarily due to the net effect of the following: 1) decreased sales in the clamshell seasonal division totaling approximately $25,000 versus third quarter a year ago primarily due to decreased orders from one customer and a sales price decrease of approximately 5%; 2) decreased sales in the generic seasonal division by approximately $1,000 versus the third quarter a year ago primarily due to decreased sales to one customer; offset by 3) increased sales in the bulk seasonal division by approximately $1,000 versus the third quarter a year ago primarily due to increased orders from one customer; 4) various other fluctuations netting an increase of approximately $1,000.

Net sales increased $50,905 or 2% for the nine months ended March 31, 2014 to $2,775,917 compared to $2,725,012 for the nine months ended March 31, 2013. Gross sales for Chase Candy increased $126,144 to $1,525,743 for the nine months ended March 31, 2014, compared to $1,399,599 for 2013. Gross sales for Seasonal Candy decreased $87,953 to $1,281,283 for the nine months ended March 31, 2014, compared to $1,369,236 for 2013.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. 
MANAGEMENT’S DISCUSSIONLIQUIDITY AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCAPITAL RESOURCES (CONTINUED)

Management has no material commitments for capital expenditures during the remainder of fiscal 2015.  The $33,876 of cash used in investing activities is the purchase of equipment used during the manufacturing process and an automobile.  The $342,808 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page seven.  The $18,437 of cash used in financing activities is the principal payments on equipment and vehicle loans. At December 31, 2014, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.

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.
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.
 
NET SALES (CONTINUED)

The 9% increase in gross sales of Chase Candy of $126,144 for the nine months ended March 31, 2014 over the same period ended March 31, 2013, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributor Pack division by approximately $71,000 versus the same period a year ago primarily due to two customers increasing orders; 2) increased sales of the L278 Mini Mash division by approximately $2,000 versus the same period a year ago primarily due to one customer increasing orders 3) increased sales of the L212 Mini Mash division by approximately $20,000 versus the same period a year ago due to one customer increasing orders; 4) increased sales of the Cherry Mash Merchandisers division by approximately $19,000 versus the same period a year ago primarily due to four customers increasing orders; 5) increased sales of the L279/L299 Bulk Mini Mash division by approximately $19,000 versus the same period a year ago primarily due to one customer increasing orders; 6) various other fluctuations netting an increase of approximately $4,000; and offset by 7) decreased sales of the L260 Changemaker Jar division by approximately $9,000 versus the same period a year ago primarily due to two customers decreasing orders.

The 6% decrease in gross sales of Seasonal Candy of $87,953 for the nine months ended March 31, 2014 over the same period ended March 31, 2013, is primarily due to the net effect of the following: 1) decreased orders from various customers in the bulk seasonal division netting approximately $16,000 versus the same period a year ago primarily due a sales price decrease of approximately 5%; 2) decreased orders from various customers in the clamshell seasonal division totaling approximately $109,000 versus the same period a year ago due to decreased orders and a sales price decrease of approximately 5%; 3) various other fluctuations netting a decrease of approximately $3,000; and offset by 4) increased orders in the generic seasonal division by approximately $40,000 due to increased sales to one customer.
COST OF SALES

The cost of sales increased $20,113 to $372,767 or 81% of related revenues for the three months ended March 31, 2014, compared to $352,654 or 78% of related revenues for the three months ended March 31, 2013.

The 6% increase in cost of sales of $20,113 is primarily due to the 2% increase in net sales of $9,895 and a 12% increase in the raw material costs of peanuts compared to the same period ended March 31, 2013. 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)20
COST OF SALES (CONTINUED)

The cost of sales increased $46,587 to $1,969,368 or 71% of related revenues for the nine months ended March 31, 2014, compared to $1,922,781 or 71% of related revenues for the nine months ended March 31, 2013.

The 2% increase in cost of sales of $46,587 is primarily due to the 2% increase in net sales of $50,905.

The Company decreased total inventory $217,057 or 43% to $292,075 at March 31, 2014 from $509,132 held in inventory at June 30, 2013 due to the Company’s busy season coming to an end. The Company decreased finished goods inventory 74% during the nine months ended March 31, 2014 to $67,514 from the June 30, 2013 finished goods inventory levels of $258,392. The Company decreased goods in process inventory 39% during the nine months ended March 31, 2014 to $6,650 from the June 30, 2013 goods in process inventory levels of $10,942. The Company increased raw materials inventory 20% during the nine months ended March 31, 2014 to $97,588 from the June 30, 2013 raw materials inventory levels of $81,515. The Company decreased packaging materials inventory 24% during the nine months ended March 31, 2014 to $120,323 from the June 30, 2013 packaging materials inventory levels of $158,283.

 
SELLING EXPENSES

Selling expenses for the three months ended March 31, 2014 decreased $4,811 to $70,054, which is 15% of sales, compared to $74,865 or 17% of sales for the three months ended March 31, 2013.

The decrease of $4,811 in selling expenses for the three months ended March 31, 2014 is primarily due to lower commissions, lower premium promotions being paid, lower sample costs, and decreased advertising expense for the period. Commissions, promotions, sample costs, and advertising decreased $4,612 to $23,525 for this period from $28,137 for the three months ended March 31, 2013.

Selling expenses for the nine months ended March 31, 2014 decreased $3,890 to $328,091, which is 12% of sales, compared to $331,981 or 12% of sales for the nine months ended March 31, 2013.

The decrease of $3,890 in selling expenses for the nine months ended March 31, 2014 is primarily due to the net effect of the following: 1) lower depreciation expense of $4,000, 2) lower advertising costs of $3,000, 3) lower commissions of $2,000, 4) lower truck expense of $1,000 offset by 5) increased promotions of $2,000, 6) increased sales salaries of $2,000, 7) increased customer shows of $1,000 and 8) various other fluctuations netting an increase of approximately $1,000.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended March 31, 2014 decreased $2,099 to $108,816 and decreased to 24% of sales, compared to $110,915 or 25% of sales for the three months ended March 31, 2013. The decreased costs are primarily because of a $10,322 decrease in professional fees offset by a $5,541 increase in insurance expense and a $1,670 increase in office salaries.

General and administrative expenses for the nine months ended March 31, 2014 increased $14,297 to $342,317 or 12% of sales, compared to $328,020 or 12% of sales for the nine months ended March 31, 2013. The increased costs are primarily because of a $13,913 increase in professional fees, a $2,577 increase in office salaries offset by a $4,829 decrease in insurance expense.
OTHER INCOME (EXPENSE)

Other income and (expense) increased by $839 for the three months ended March 31, 2014 to $162, compared to $(677) for the three months ended March 31, 2013 primarily due to a decrease of $895 in interest expense and a decrease of $38 in miscellaneous income.

Other income and (expense) increased by $4,302 for the nine months ended March 31, 2014 to $(643), compared to $(4,945) for the nine months ended March 31, 2013 primarily due to a decrease of $3,141 in interest expense and an increase of $1,536 in miscellaneous income.
PROVISION (BENEFIT) FOR INCOME TAXES

The Company recorded an income tax benefit for the three months ended March 31, 2014 of $31,412 as compared to a tax benefit of $31,129 for the three months ended March 31, 2013. The Company recorded an income tax expense for the nine months ended March 31, 2014 of $46,387 as compared to an income tax expense of $64,176 for the nine months ended March 31, 2013. The net income tax expense recorded for the nine months ended March 31, 2014 is primarily due to recognizing income taxes related to current profitable operations.
CHASE GENERAL CORPORATION AND SUBSIDIARY
 
ITEM 2.3.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INCOME (LOSS)

The Company reported a net loss for the three months ended March 31, 2014 of $57,951, compared to a net loss of $55,765 for the three months ended March 31, 2013. This decrease in earnings of $2,186 is explained previously in this filing. The Company reported net income for the nine months ended March 31, 2014 of $89,018, compared to net income of $95,363 for the nine months ended March 31, 2013. This decrease in earnings of $6,345 is explained previously in this filing.
PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended March 31, 2014 and 2013, 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 $96,054 for the nine months ended March 31, 2014 and 2013, 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 March 31, 2014 was $89,969 which is a increase of $2,186 as compared to the net loss for the three months ended March 31, 2013 of $87,783.

Net loss applicable to common stockholders for the nine months ended March 31, 2014 was $7,036 which is a increase of $6,345 as compared to the net loss for the nine months ended March 31, 2013 of $691.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES

The table below presents the summary of cash flow for the fiscal period indicated.
  Nine Months Ended 
  March 31 
  2014  2013 
       
Net cash provided by operating activities $391,421  $339,813 
Net cash (used in) provided by investing activities $(27,439) $20,275 
Net cash used in financing activities $(56,191) $(94,284)
Management has no material commitments for capital expenditures during the next 12 months. The $56,191 of cash used in financing activities is due to principal payments on equipment and vehicle loans. At March 31, 2014, the Company had $350,000 available on the line-of-credit, which could be utilized to help fund any working capital requirements.

Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements in 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.
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Not applicable to a smaller reporting company.
ITEM 4.CONTROLS AND PROCEDURES
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 and Management has concluded that Chase’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to management, including those officers, and to members of the Board of Directors, to allow timely decisions regarding required disclosure.
  
(b)Changes in Internal Control over Financial Reporting
  
 There were no significant changes in Chase’s internal control over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of the evaluation.
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PART II.  OTHER INFORMATION
 
ITEM 1.              LEGAL PROCEEDINGS

    None.

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

ITEM 1.LEGAL PROCEEDINGS
     a.    None
The Company has received correspondence from the legal counsel for the Public Building Commission of Chicago (PBC) in August 2012, 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.

     b.    
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
a.None
b.The total cumulative preferred stock dividends contingency at MarchDecember 31, 2014 is $7,660,644.$7,756,698.

ITEM 4.              MINE SAFETY DISCLOSURES

    Not applicable.
ITEM 5.              OTHER INFORMATION

     a.    
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
a.None
 
PART II.  OTHER INFORMATION (CONTINUED)
 
ITEM 6.             EXHIBITS

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 32.1Certification 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 MarchDecember 31, 2014, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of MarchDecember 31, 2014 and June 30, 2013,2014, (ii) Condensed Consolidated Statements of OperationsIncome for the Three Months Ended MarchDecember 31, 2014 and 2013, (iii) Condensed Consolidated Statements of OperationsIncome for the NineSix Months Ended MarchDecember 31, 2014 and 2013, (iv) Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended MarchDecember 31, 2014 and 2013, and (v) 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)
   
May 9, 2014 Chase General Corporation and Subsidiary
(Registrant)
February 13, 2015 /s/ Barry M. Yantis
DateBarry M. Yantis
 Chairman of the Board, Chief Executive Officer and
 Chief Financial Officer, President and Treasurer
 
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