UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
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)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ¨
As of April 30, 2005, there were 969,834 shares of common stock, $1 par value, issued and outstanding. Transitional Small Business Disclosure Format Yes ¨ No x
Index
Form 10-QSB for the Quarter Ended December 31, 2004
PART I -FINANCIAL INFORMATION | ||
Condensed Consolidated Balance Sheets at March 31, 2005 (Unaudited) and June 30, 2004 | 3 | |
| 5 | ||
| 6 | ||
| 7 | ||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 8 | |
Item 2.Management’s Discussion and Analysis or Plan of Operation | 10 | |
Item 3.Controls and Procedures | 14 | |
PART II -OTHER INFORMATION | ||
Item 1. Legal proceedings - None | ||
Item 2. Unregistered Shares of Equity Securities and Use of Proceeds - None | ||
| 15 | ||
Item 4. Submission of Matters to a Vote of Security Holders - None | ||
Item 5. Other Information - None | ||
Item 6.Exhibits | 15 | |
| 15 | ||
| Exhibit 31 - | Certification of Chief Executive Officer and Treasurer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | 16 | ||
| Exhibit 32 - | Certification 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 18 | ||
2
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
| March 31, 2005 | June 30, 2004 | |||||
| (Unaudited) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 154,691 | $ | 177,919 | ||
Trade receivables, net | 145,105 | 141,297 | ||||
Inventories: | ||||||
Finished goods | 50,336 | 111,351 | ||||
Goods in process | 8,409 | 3,609 | ||||
Raw materials | 35,641 | 36,156 | ||||
Packaging materials | 89,376 | 124,846 | ||||
Prepaid expenses | 6,157 | 2,940 | ||||
Total current assets | 489,715 | 598,118 | ||||
PROPERTY AND EQUIPMENT - NET | 341,058 | 180,198 | ||||
TOTAL ASSETS | $ | 830,773 | $ | 778,316 | ||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
| March 31, 2005 | June 30, 2004 | |||||||
| (Unaudited) | ||||||||
CURRENT LIABILITIES | ||||||||
Forgivable loan - bank (Note 3) | $ | 5,000 | $ | — | ||||
Notes payable - Series B | — | 7,032 | ||||||
Accounts payable | 48,389 | 94,651 | ||||||
Accrued expenses | 29,453 | 27,930 | ||||||
Income taxes payable | 933 | 24,852 | ||||||
Total current liabilities | 83,775 | 154,465 | ||||||
Long-term liabilities | ||||||||
Forgivable loan | 20,000 | — | ||||||
Deferred income taxes | 7,261 | — | ||||||
Total long-term liabilities | 27,261 | — | ||||||
Total liabilities | 111,036 | 154,465 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock issued and outstanding: | ||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||
Series A (liquidation preference $1,912,500 and $1,890,000 respectively) | 500,000 | 500,000 | ||||||
Series B (liquidation preference $1,867,500 and $1,845,000 respectively) | 500,000 | 500,000 | ||||||
Cumulative preferred stock, $20 par value | ||||||||
Series A (liquidation preference $4,419,240 and $4,375,341 respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (liquidation preference $720,196 and $713,041 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 | (5,746,259 | ) | (5,842,145 | ) | ||||
Total stockholders’ equity | 719,737 | 623,851 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 830,773 | $ | 778,316 | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31 | ||||||||
| 2005 | 2004 | |||||||
NET SALES | $ | 396,156 | $ | 332,479 | ||||
COST OF SALES | 359,845 | 289,671 | ||||||
Gross profit on sales | 36,311 | 42,808 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 51,429 | 54,180 | ||||||
General and administrative expenses | 52,017 | 53,916 | ||||||
Total operating expenses | 103,446 | 108,096 | ||||||
Loss from operations | (67,135 | ) | (65,288 | ) | ||||
OTHER INCOME (EXPENSE) | 340 | 544 | ||||||
Net loss before income taxes | (66,795 | ) | (64,744 | ) | ||||
PROVISION FOR INCOME TAXES (BENEFITS) | (25,431 | ) | (21,991 | ) | ||||
NET LOSS | (41,364 | ) | (42,753 | ) | ||||
Preferred dividends | (32,018 | ) | (32,018 | ) | ||||
Net loss applicable to common stockholders | $ | (73,382 | ) | $ | (74,771 | ) | ||
NET LOSS PER SHARE OF COMMON STOCK - BASIC | $ | (.08 | ) | $ | (.08 | ) | ||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended March 31 | ||||||||
| 2005 | 2004 | |||||||
NET SALES | $ | 2,114,478 | $ | 1,844,164 | ||||
COST OF SALES | 1,579,399 | 1,332,011 | ||||||
Gross profit on sales | 535,079 | 512,153 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 221,198 | 203,776 | ||||||
General and administrative expenses | 188,614 | 180,306 | ||||||
Total operating expenses | 409,812 | 384,082 | ||||||
Income from operations | 125,267 | 128,071 | ||||||
OTHER INCOME (EXPENSE) | (1,267 | ) | 4,237 | |||||
Net income before income taxes | 124,000 | 132,308 | ||||||
PROVISION FOR INCOME TAXES (BENEFITS) | 28,114 | 39,284 | ||||||
NET INCOME | 95,886 | 93,024 | ||||||
Preferred dividends | (96,054 | ) | (96,054 | ) | ||||
Net loss applicable to common stockholders | $ | (168 | ) | $ | (3,030 | ) | ||
NET LOSS PER SHARE OF COMMON STOCK - BASIC | $ | — | $ | — | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended March 31 | ||||||||
| 2005 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 95,886 | $ | 93,024 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 37,216 | 31,061 | ||||||
Provision for bad debts | 3,195 | 4,815 | ||||||
(Gain) on sale of equipment | (5,849 | ) | — | |||||
Deferred income taxes | 7,261 | — | ||||||
Effects of changes in operating assets and liabilities: | ||||||||
Receivables | (7,003 | ) | (30,612 | ) | ||||
Inventories | 92,200 | (16,540 | ) | |||||
Prepaid expense | (3,217 | ) | 17,486 | |||||
Accounts payable | (46,262 | ) | 32,983 | |||||
Accrued expenses | 1,523 | (17,138 | ) | |||||
Income taxes payable | (23,919 | ) | 38,024 | |||||
Net cash provided by operating activities | 151,031 | 153,103 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of equipment | (207,227 | ) | (36,003 | ) | ||||
Proceeds from sale of equipment | 15,000 | — | ||||||
Net cash (used in) investing activities | (192,227 | ) | (36,003 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Principal payments on notes payable, Series B | (7,032 | ) | (15,000 | ) | ||||
Proceeds from forgivable loan | 25,000 | — | ||||||
Proceeds from line-of-credit | 80,010 | — | ||||||
Principal payments on line-of-credit | (80,010 | ) | — | |||||
Net cash provided by (used in) financing activities | 17,968 | (15,000 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (23,228 | ) | 102,100 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 177,919 | 138,806 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 154,691 | $ | 240,906 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash payments for: | ||||||||
Income taxes | $ | 44,772 | $ | 2,228 | ||||
Interest | $ | 2,140 | $ | 1,322 | ||||
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
The condensed consolidated balance sheet of Chase General Corporation (“Chase” or “we”, “us”, or “our”) at June 30, 2004 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months and nine months ended March 31, 2005 and for the three months and nine months ended March 31, 2004 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-KSB for the year ended June 30, 2004. The results of operations for the three months and nine months ended March 31, 2005 and cash flows for the nine months ended March 31, 2005 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2005. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation.
NOTE 2 - NET LOSS PER SHARE
The basic income (loss) per share was computed on the weighted average of outstanding common shares as follows:
| Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
Net (loss) income | $ | (41,364 | ) | $ | (42,753 | ) | $ | 95,886 | $ | 93,024 | ||||||
Preferred dividend requirements: | ||||||||||||||||
6% Prior Cumulative Preferred, $5 par value | 15,000 | 15,000 | 45,000 | 45,000 | ||||||||||||
5% Convertible Cumulative Preferred, $20 par value | 17,018 | 17,018 | 51,054 | 51,054 | ||||||||||||
Total dividend requirements | 32,018 | 32,018 | 96,054 | 96,054 | ||||||||||||
Net loss common stockholders | $ | (73,382 | ) | $ | (74,771 | ) | $ | (168 | ) | $ | (3,030 | ) | ||||
Weighted average of outstanding common shares | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||||||
Net loss per share - basic | $ | (.08 | ) | $ | (.08 | ) | $ | — | $ | — | ||||||
No computation was made on common stock equivalents outstanding because loss per share would be anti-dilutive.
8
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTE 2 - NET LOSS PER SHARE (CONTINUED)
Cumulative Preferred Stock dividends in arrears at March 31, 2005 and 2004, totaled $6,507,996 and $6,379,924, respectively. Total dividends in arrears, on a per share basis, consist of the following at December 31:
| Nine Months Ended December 31 | ||||||
| 2005 | 2004 | |||||
6% Convertible | ||||||
Series A | $ | 14 | $ | 14 | ||
Series B | 13 | 13 | ||||
5% Convertible | ||||||
Series A | 56 | 55 | ||||
Series B | 56 | 55 | ||||
Six percent convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 a share plus unpaid accrued dividends to date of redemption. In the event of voluntary liquidation, holders of this stock are entitled to receive $5.25 per share plus accrued dividends. It may be exchanged for common stock at the option of the shareholders in the ratio of 4 common shares for one share of Series A and 3.75 common shares for one share of Series B.
The Company has the privilege of redemption of 5% convertible cumulative preferred stock at $21.00 a share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20.00 a share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.
NOTE 3 - FORGIVABLE LOAN
The Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Company must meet the criteria of constructing a 20,000 square foot building, create a minimum of two new full-time equivalent jobs during the first year of operation in the new facility, and maintain 19 existing jobs each year thereafter until the five year term has expired. The building was occupied during March 2005 with production beginning April 2005.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made to the 2004 presentation to conform to the 2005 presentation. The reclassifications had no effect on net income or shareholders’ equity.
9
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management’s Discussion and Analysis of Financial Condition and Results of Operations section and other parts of this Report contain forward-looking statements that involve risks and uncertainties. The Company’s actual results and the timing of certain events may differ significantly from the results and timing discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed or referred to in this report and in Item 7 of the Annual Report on Form 10-KSB for the year ended June 30, 2004.
The following discussion is intended to provide a better understanding of the significant changes in trends relating to Chase’s financial condition and results of operations. Management’s Discussion and Analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto.
OVERVIEW
Chase General 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 Company and Poe Candy Company, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two division is not maintained by Management.
RESULTS OF OPERATIONS
The following table sets forth certain items as a percentage of net sales and revenues for the periods presented:
| Three Months Ended March 31 | Nine Months Ended March 31 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Cost of sales | 91 | 87 | 75 | 72 | ||||||||
Gross profit | 9 | 13 | 25 | 28 | ||||||||
Operating expenses | 26 | 33 | 19 | 21 | ||||||||
Income (loss) from operations | (17 | ) | (20 | ) | 6 | 7 | ||||||
Net income (loss) before income taxes | (17 | ) | (20 | ) | 6 | 7 | ||||||
Provision (credit) for income taxes | (6 | ) | (7 | ) | 1 | 2 | ||||||
Net income (loss) | (11 | )% | (13 | )% | 5 | % | 5 | % | ||||
10
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
NET SALES
Net sales increased $63,677 or 19% for the three months ended March 31, 2005 to $396,156 compared to $332,479 for the three months ended March 31, 2004. Gross sales for Chase Candy Company increased $66,364 to $401,405 for the three months ended March 31, 2005 compared to $335,041 for 2004. Gross sales for Poe Candy Company decreased $4,029 to $2,568 for the three months ended March 31, 2005 compared to $6,597 for 2004.
Net sales increased $270,314 or 15% for the nine months ended March 31, 2005 to $2,114,478 compared to $1,844,164 for the nine months ended March 31, 2004. Gross sales for Chase Candy Company increased $220,977 to $1,278,249 for the nine months ended March 31, 2005 compared to $1,057,272 for 2004. Gross sales for Poe Candy Company increased $60,526 to $868,919 for the nine months ended March 31, 2005 compared to $808,393 for 2004.
The overall increase in net sales for the three and nine month periods ended March 31, 2005 is primarily due to the new sales representative’s aggressive efforts, whom was hired in March 2003 to search and realize product growth outside of busy season. The Company has set a record of continued sales increases for 10 consecutive months.
COST OF SALES
The cost of sales increased $70,174 to $359,845 increasing to 91% of related revenues for the three months ended March 31, 2005, compared to $289,671 or 87% of related revenues for the three months ended March 31, 2004. The cost of sales increased $247,388 to $1,579,399 increasing to 75% of related revenues for the nine months ended March 31, 2005, compared to $1,332,011 or 72% of related revenues for the nine months ended March 31, 2004.
This dollar increase in cost of sales is anticipated due to the increased volume of sales. Included in the cost of sales are increases of labor rates 3-4%, shipping cost of 31%, and packaging material of 14% year to date. The multiple changes in rates for fuel and petroleum products have caused these increases for freight and packaging material.
During the last month of the current quarter, production labor and supplies included $67,457 costs to prepare the production equipment to be moved to the new manufacturing plant. In addition, the last two weeks of March, production lines were stopped in anticipation of moving to the new facility.
11
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
SELLING EXPENSES
Selling expenses for the three months ended March 31, 2005 decreased $2,751 to $51,429, which is 13% of sales, compared to $54,180 or 16% of sales for the three months ended March 31, 2004. Selling expenses for the nine months ended March 31, 2005 increased $17,422 to $221,198, which is 10% of sales, compared to $203,776 or 11% of sales for the nine months ended March 31, 2004. The increase in selling expenses consisting of commissions, sales salaries, promotions and samples are due to the Company’s increased sales and marketing activity which resulted in the net sales increase, along with an increase in sales to house accounts, as explained above.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31, 2005 decreased $1,899 to $52,017, and decreased to 13% of sales, compared to $53,916 or 16% of sales for the three months ended March 31, 2004. General and administrative expenses for the nine months ended March 31, 2005 increased $8,308 to $188,614, and decreased to 9% of sales, compared to $180,306 or 10% of sales for the nine months ended March 31, 2004. The increase in costs for the nine months ended March 31, 2005 is due to increased professional fees. The decrease for the three months ended March 31, 2005 was due to a gain on a sale of equipment.
INCOME (LOSS) FROM OPERATIONS
(Loss) from operations was $(67,135) for the three months ended March 31, 2005 as compared to $(65,288) for the three months ended March 31, 2004. Income from operations was $125,267 for the nine months ended March 31, 2005 as compared to $128,071 for the nine months ended March 31, 2004. The changes are explained above.
OTHER INCOME (EXPENSE)
Other income and expense decreased by $204 for the three months ended March 31, 2005 to $340, compared to $544 for the three months ended March 31, 2004. Other income and expense decreased by $5,504 for the nine months ended March 31, 2005 to $(1,267), compared to $4,237 for the nine months ended March 31, 2004. This was due to a decrease in miscellaneous income of $4,285 and an increase in interest expense of $1,402 due to obtaining a short-term operating note during this period.
PROVISION FOR INCOME TAXES (BENEFITS)
The Company recorded a tax credit provision for the three months ended March 31, 2005 of $(25,431) as compared to $(21,991) for the three months ended March 31, 2004. The Company recorded a tax provision for the nine months ended March 31, 2005 of $28,114 as compared to $39,284 for the nine months ended March 31, 2004.
12
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
NET INCOME
The Company reported a net loss for the quarter ended March 31, 2005 of $(41,364), compared to a net loss of $(42,753) for the quarter ended March 31, 2004. This decrease of $1,389 is explained above.
The Company reported a net income for the nine months ended March 31, 2005 of $95,886, compared to a net income of $93,024 for the nine months ended March 31, 2004. This increase of $2,862 is explained above.
PREFERRED DIVIDENDS
These amounts reflect additional preferred stock dividends in arrears for the three and nine months ended March 31, 2005 and 2004, respectively, on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Net loss applicable to common stockholders for the three months ended March 31, 2005 was $(73,382) as compared to ($74,771), for the three months ended March 31, 2004.
Net loss applicable to common stockholders for the nine months ended March 31, 2005 was $(168) as compared to the loss of $(3,030) for the nine months ended March 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 2005, the Company obtained bank financing totaling $80,010, of which $68,730 was used to complete the purchase of a new bagger machine and $11,280 was used to fund operations. This loan was paid in full during the second quarter ended December 31, 2004. In addition, the Company purchased two vehicles for $62,776.
The Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Company must meet the criteria of building a 20,000 square foot building, create a minimum of two new full-time equivalent jobs during the first year of operation in the new facility, and maintain 19 existing jobs each year thereafter until the five year term has expired. The Company began moving its production equipment in late March 2005 with the intention of being fully relocated and back in production April 23, 2005.
The Company’s series B notes to a related party were paid in full on December 20, 2004 at the current 6% rate of interest.
Net cash provided by (used in) financing activities was $17,968 and $(15,000) for the nine months ended March 31, 2005 and 2004, respectively.
13
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company’s lease on its office and plant facility was effective through March 31, 2005 at $2,955 per month, which the Company did not renew. The Company’s new lease of office/warehouse facility is with BDY Properties L.L.C. that is owned by a Company director and his spouse. The new lease terms call for rental of $6,500 per month for five years and the Company is responsible for insurance, taxes and repairs. The Company has expended $80,730 to date for various costs in anticipation of the move to the new facilities. The Company has no plans for acquiring major acquisitions for the new facility.
The Company believes it will have sufficient resources to finance its current operations for at least the next twelve months through working capital. Cash and cash equivalents decreased $(23,228) to $154,691 at March 31, 2005 from $177,919 at June 30, 2004. To date, there are no material commitments by the Company for capital expenditures. At March 31, 2005, the Company’s accumulated deficit was $5,746,259, compared to accumulated deficit of $5,842,145 as of June 30, 2004. Working capital as of March 31, 2005 decreased 8% to $405,940 from $443,653 as of June 30, 2004.
In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area and increase sales to its existing customers. Management also intends to continue tight control on all expenditures.
There has been no material impact from inflation and changing prices on net sales or on income from continuing operations for the last three months.
ITEM 3. - CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
| a. | None |
| b. | The total cumulative preferred stock dividends contingency at March 31, 2005 is $6,507,996. |
| Exhibits. | ||
| 31 | Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | Certification of Chief Executive Officer and Treasurer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
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
Registrant
| Dated: May 9, 2005 | By: | /s/ Barry M. Yantis | ||
| Barry M. Yantis | ||||
| President, Chief Executive Officer, | ||||
| Treasurer and Chairman of the Board |
Dated:
15
