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 December 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 12, 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 ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
As of January 31, 2006, 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, 2005
PART I -FINANCIAL INFORMATION | ||||||
Condensed Consolidated Balance Sheets at December 31, 2005 (Unaudited) and June 30, 2005 | 3 | |||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 8 | |||||
Item 2. Management’s Discussion and Analysis or Plan of Operation | 12 | |||||
| 16 | ||||||
PART II -OTHER INFORMATION | ||||||
| 17 | ||||||
Item 2. Unregistered Shares of Equity Securities and Use of Proceeds - None | ||||||
| 17 | ||||||
Item 4. Submission of Matters to a Vote of Security Holders - None | ||||||
Item 5. Other Information - None | ||||||
| 17 | ||||||
| 18 | ||||||
| Exhibit 31 - | Certification of Chief Executive Officer and Treasurer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | 19 | ||
| Exhibit 32 - | Certification 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 21 | ||
2
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
| December 31, 2005 | June 30, 2005 | |||||
| (Unaudited) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 222,316 | $ | 60,805 | ||
Trade receivables, net | 138,131 | 185,521 | ||||
Income tax refund claims receivable | — | 18,425 | ||||
Inventories: | ||||||
Finished goods | 14,637 | 110,403 | ||||
Goods in process | 5,411 | 4,440 | ||||
Raw materials | 38,787 | 38,188 | ||||
Packaging materials | 149,665 | 90,845 | ||||
Prepaid expenses | 5,950 | 3,197 | ||||
Deferred income taxes | 4,230 | 4,230 | ||||
Total current assets | 579,127 | 516,054 | ||||
PROPERTY AND EQUIPMENT - NET | 371,981 | 384,096 | ||||
TOTAL ASSETS | $ | 951,108 | $ | 900,150 | ||
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
| December 31, 2005 | June 30, 2005 | |||||||
| (Unaudited) | ||||||||
CURRENT LIABILITIES | ||||||||
Forgivable loan - bank | $ | 5,000 | $ | 5,000 | ||||
Accounts payable | 60,513 | 104,380 | ||||||
Accrued expenses | 5,509 | 23,029 | ||||||
Income taxes payable | 25,767 | — | ||||||
Total current liabilities | 96,789 | 132,409 | ||||||
LONG-TERM LIABILITIES | ||||||||
Deferred income | 5,000 | — | ||||||
Deferred income taxes | 29,812 | 29,812 | ||||||
Forgivable loan - bank | 15,000 | 20,000 | ||||||
Total long-term liabilities | 49,812 | 49,812 | ||||||
Total liabilities | 146,601 | 182,221 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock issued and outstanding: | ||||||||
Prior cumulative preferred stock, $5 par value: | ||||||||
Series A (liquidation preference $1,935,000 and $1,920,000 respectively) | 500,000 | 500,000 | ||||||
Series B (liquidation preference $1,890,000 and $1,875,000 respectively) | 500,000 | 500,000 | ||||||
Cumulative preferred stock, $20 par value | ||||||||
Series A (liquidation preference $4,463,139 and $4,433,873 respectively) | 1,170,660 | 1,170,660 | ||||||
Series B (liquidation preference $727,351 and $722,581 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 | (5,661,489 | ) | (5,748,067 | ) | ||||
Total stockholders’ equity | 804,507 | 717,929 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 951,108 | $ | 900,150 | ||||
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 December 31 | ||||||||
| 2005 | 2004 | |||||||
NET SALES | $ | 1,259,180 | $ | 1,216,367 | ||||
COST OF SALES | 879,175 | 833,436 | ||||||
Gross profit on sales | 380,005 | 382,931 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 112,827 | 110,596 | ||||||
General and administrative expenses | 58,725 | 54,496 | ||||||
Total operating expenses | 171,552 | 165,092 | ||||||
Income from operations | 208,453 | 217,839 | ||||||
OTHER INCOME (EXPENSE) | (2,974 | ) | (854 | ) | ||||
Net income before income taxes | 205,479 | 216,985 | ||||||
PROVISION FOR INCOME TAXES | 49,042 | 58,766 | ||||||
NET INCOME | 156,437 | 158,219 | ||||||
Preferred dividends | (32,018 | ) | (32,018 | ) | ||||
Net income applicable to common stockholders | $ | 124,419 | $ | 126,201 | ||||
NET INCOME PER SHARE OF COMMON STOCK - BASIC | $ | .13 | $ | .13 | ||||
NET INCOME PER SHARE OF COMMON STOCK - DILUTED | $ | .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)
| Six Months Ended December 31 | ||||||||
| 2005 | 2004 | |||||||
NET SALES | $ | 1,682,129 | $ | 1,718,322 | ||||
COST OF SALES | 1,249,175 | 1,219,554 | ||||||
Gross profit on sales | 432,954 | 498,768 | ||||||
OPERATING EXPENSES | ||||||||
Selling expense | 167,912 | 169,769 | ||||||
General and administrative expenses | 148,057 | 136,597 | ||||||
Total operating expenses | 315,969 | 306,366 | ||||||
Income from operations | 116,985 | 192,402 | ||||||
OTHER INCOME (EXPENSE) | (3,140 | ) | (1,607 | ) | ||||
Net income before income taxes | 113,845 | 190,795 | ||||||
PROVISION FOR INCOME TAXES | 27,267 | 53,545 | ||||||
NET INCOME | 86,578 | 137,250 | ||||||
Preferred dividends | (64,036 | ) | (64,036 | ) | ||||
Net income applicable to common stockholders | $ | 22,542 | $ | 73,214 | ||||
NET INCOME PER SHARE OF COMMON STOCK - BASIC | $ | .02 | $ | .08 | ||||
NET INCOME PER SHARE OF COMMON STOCK - DILUTED | $ | .02 | $ | .06 | ||||
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)
| Six Months Ended December 31 | ||||||||
| 2005 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 86,578 | $ | 137,250 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 30,667 | 23,755 | ||||||
Provision for bad debts | 1,056 | 2,130 | ||||||
Effects of changes in operating assets and liabilities: | ||||||||
Trade receivables | 46,334 | (24,115 | ) | |||||
Income tax refund claims receivable | 18,425 | — | ||||||
Inventories | 35,376 | 61,290 | ||||||
Prepaid expenses | (2,753 | ) | 372 | |||||
Accounts payable | (43,867 | ) | (64,198 | ) | ||||
Accrued expenses | (17,520 | ) | (13,021 | ) | ||||
Income taxes payable | 25,767 | 15,413 | ||||||
Net cash provided by operating activities | 180,063 | 138,876 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of equipment | (18,552 | ) | (136,832 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Principal payments on notes payable, Series B | — | (7,032 | ) | |||||
Proceeds from forgivable loan | — | 25,000 | ||||||
Net cash provided by financing activities | — | 17,968 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 161,511 | 20,012 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 60,805 | 177,919 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 222,316 | $ | 197,931 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash payments for: | ||||||||
Income taxes, net of (refunds) | $ | (16,925 | ) | $ | 38,132 | |||
Interest | $ | 3,216 | $ | 2,140 | ||||
Non-cash transaction: | ||||||||
Reclass of forgivable loan to deferred income | $ | 5,000 | $ | — | ||||
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, 2005 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months and six months ended December 31, 2005 and for the three months and six months ended December 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, 2005. The results of operations for the three months and six months ended December 31, 2005 and cash flows for the six months ended December 31, 2005 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2006. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation.
NOTE 2 - NET INCOME PER SHARE
The basic income per share was computed on the weighted average of outstanding common shares as follows:
| Three Months Ended December 31 | Six Months Ended December 31 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Net income | $ | 156,437 | $ | 158,219 | $ | 86,578 | $ | 137,250 | ||||
Preferred dividend requirements: | ||||||||||||
6% Prior Cumulative Preferred, $5 par value | 15,000 | 15,000 | 30,000 | 30,000 | ||||||||
5% Convertible Cumulative Preferred, $20 par value | 17,018 | 17,018 | 34,036 | 34,036 | ||||||||
Total dividend requirements | 32,018 | 32,018 | 64,036 | 64,036 | ||||||||
Net income common stockholders | $ | 124,419 | $ | 126,201 | $ | 22,542 | �� | $ | 73,214 | |||
Weighted average of outstanding common shares | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||
Net income per share - basic | $ | .13 | $ | .13 | $ | .02 | $ | .08 | ||||
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CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTE 2 - NET INCOME PER SHARE(CONTINUED)
The diluted earnings per share was computed on the weighted average of outstanding common shares plus potential dilutive common shares as follows:
| Three Months Ended December 31 | Six Months Ended December 31 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Net income | $ | 156,437 | $ | 158,219 | $ | 86,578 | $ | 137,250 | ||||
Preferred dividend requirements: | ||||||||||||
6% Series Convertible | ||||||||||||
Series A | — | — | 15,000 | — | ||||||||
Series B | — | — | 15,000 | — | ||||||||
5% Series Convertible | ||||||||||||
Series A | — | — | 29,266 | 29,266 | ||||||||
Series B | — | — | 4,770 | 4,770 | ||||||||
Total Dividend Requirements | — | — | 64,036 | 34,036 | ||||||||
Net Income Common Stockholders | 156,437 | 158,219 | 22,542 | 103,214 | ||||||||
Weighted average of outstanding common shares | 969,834 | 969,834 | 969,834 | 969,834 | ||||||||
Dilutive effect of conversion: | ||||||||||||
6% Series Convertible | ||||||||||||
Series A | 400,000 | 400,000 | — | 400,000 | ||||||||
Series B | 375,000 | 375,000 | — | 375,000 | ||||||||
5% Series Convertible | ||||||||||||
Series A | 222,133 | 222,133 | — | — | ||||||||
Series B | 36,201 | 36,201 | — | — | ||||||||
Weighted average of diluted outstanding common shares | 2,003,168 | 2,003,168 | 969,834 | 1,744,834 | ||||||||
Diluted Earnings Per Share | $ | .08 | $ | .08 | $ | .02 | $ | .06 | ||||
9
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTE 2 - NET INCOME PER SHARE(CONTINUED)
Cumulative Preferred Stock dividends in arrears at December 31, 2005 and 2004, totaled $6,604,050, respectively. Total dividends in arrears, on a per share basis, consist of the following at December 31:
| Six Months Ended December 31 | ||||||
| 2005 | 2004 | |||||
6% Convertible | ||||||
Series A | $ | 14 | $ | 14 | ||
Series B | 14 | 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 - NOTE PAYABLE - BANK
Effective June 3, 2005 the Company has a line-of-credit agreement with an original maturity date of June 3, 2006. The line-of-credit is collateralized by certain equipment and bears interest at an annual rate of 6%. At December 31, 2005 the outstanding balance on the line-of-credit was $-0-.
NOTE 4 - FORGIVABLE LOAN
During 2004, 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 has met the criteria of occupying a 20,000 square foot building and the criteria of creating a minimum of two new full-time equivalent jobs during the first year of operations in the new facility. In addition, the Company must maintain 19 existing jobs each year thereafter until the five year term has expired. Once the Company is no longer legally entitled to return the monies, the liability is reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility the forgivable loan related to.
10
CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - LEGAL PROCEEDINGS
On December 16, 2005, a lawsuit was filed by 3600 S. Leonard Road, LLC., (the Plaintiff) against the Company in the Circuit Court of Buchanan County, Missouri. The Plaintiff alleges that the Company failed to honor certain sections of a lease agreement entered into between the Plaintiff, as owner and landlord of the premises subject to the lease agreement, and the Company, as tenant to the premises. The Plaintiff is seeking damages in an amount in excess of $200,000. The Company has filed a response with the Circuit Court denying all material allegations made by the Plaintiff. A status review hearing is set for March 15, 2006 in the Circuit Court. The Company believes the claim is without merit and intend to contest it vigorously, however the outcome of this lawsuit cannot be predicted at this time.
11
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 6 of the Annual Report on Form 10-KSB for the year ended June 30, 2005.
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 December 31 | Six Months Ended December 31 | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Net sales | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Cost of sales | 70 | 69 | 74 | 71 | ||||||||
Gross profit | 30 | 31 | 26 | 29 | ||||||||
Operating expenses | 14 | 13 | 19 | 18 | ||||||||
Net income from operations | 16 | 18 | 7 | 11 | ||||||||
Net income before income taxes | 16 | 18 | 7 | 11 | ||||||||
Provision for income taxes | 4 | 5 | 2 | 3 | ||||||||
Net income | 12 | % | 13 | % | 5 | % | 8 | % | ||||
12
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS ON PLAN OF OPERATION (CONTINUED)
NET SALES
Net sales increased $42,813 or 4% for the three months ended December 31, 2005 to $1,259,180 compared to $1,216,367 for the three months ended December 31, 2004. Gross sales for Chase Candy Company increased $5,741 to $422,075 for the three months ended December 31, 2005 compared to $416,334 for 2004. Gross sales for Poe Candy Company increased $35,606 to $854,539 for the three months ended December 31, 2005 compared to $818,933 for 2004.
Net sales decreased $36,193 or 2% for the six months ended December 31, 2005 to $1,682,129 compared to $1,718,322 for the six months ended December 31, 2004. Gross sales for Chase Candy Company decreased $49,105 to $827,739 for the six months ended December 31, 2005 compared to $876,844 for 2004. Gross sales for Poe Candy Company increased $14,958 to $881,309 for the six months ended December 31, 2005 compared to $866,351 for 2004.
The 4% increase in net sales of $42,813 for the three month period ended December 31, 2005, over the same period ended December 31, 2004, is primarily due to delivery of Poe orders in the current quarter, to customers whom received their 2004 orders in the quarter ending September 30, 2004. Year to date net sales had a slight decrease of 2% without any loss of significant customers.
COST OF SALES
The cost of sales increased $45,739 to $879,175 increasing to 70% of related revenues for the three months ended December 31, 2005, compared to $833,436 or 69% of related revenues for the three months ended December 31, 2004. The cost of sales increased $29,621 to $1,249,175 increasing to 74% of related revenues for the six months ended December 31, 2005, compared to $1,219,554 or 71% of related revenues for the six months ended December 31, 2004.
This dollar increase in cost of sales is anticipated due to the increased costs of labor rates of 3-4%, shipping costs of 15%, and production supplies of 36% to date. The multiple increases in rates for fuel and petroleum products have caused the increases for shipping and production supply cost.
SELLING EXPENSES
Selling expenses for the three months ended December 31, 2005 increased $2,231 to $112,827, which is 9% of sales, compared to $110,596 or 9% of sales for the three months ended December 31, 2004. Selling expenses for the six months ended December 31, 2005 decreased $1,857 to $167,912, which is 10% of sales, compared to $169,769 or 10% of sales for the six months ended December 31, 2004. No significant change in selling expenses was expected due to the fact that there have been no significant changes in the nature of operations and management’s efforts to control these costs.
13
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS ON PLAN OF OPERATION (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended December 31, 2005 increased $4,229 to $58,725, and increased to 5% of sales, compared to $54,496 or 4% of sales for the three months ended December 31, 2004. General and administrative expenses for the six months ended December 31, 2005 increased $11,460 to $148,057, and increased to 9% of sales, compared to $136,597 or 8% of sales for the six months ended December 31, 2004. The increase in costs is due to increased professional fees, office supplies and health insurance costs.
OTHER INCOME (EXPENSE)
Other income and expense increased by $(2,120) for the three months ended December 31, 2005 to $(2,974), compared to $(854) for the three months ended December 31, 2004. Other income and expense increased by $(1,533) for the six months ended December 31, 2005 to $(3,140), compared to $(1,607) for the six months ended December 31, 2004. This was primarily due to an increase in interest expense of $1,981 due to paying off a short-term operating note during this period.
PROVISION FOR INCOME TAXES
The Company recorded a tax provision for the three months ended December 31, 2005 of $49,042 as compared to $58,766 for the three months ended December 31, 2004. The Company recorded a tax provision for the six months ended December 31, 2005 of $27,267 as compared to $53,545 for the six months ended December 31, 2004. The effective tax rate of 24% for the six months ended December 31, 2005 decreased from 28% for the six months ended December 31, 2004.
NET INCOME
The Company reported a net income for the quarter ended December 31, 2005 of $156,437, compared to a net income of $158,219 for the quarter ended December 31, 2004. This decrease of $1,782 is explained above.
The Company reported a net income for the six months ended December 31, 2005 of $86,578, compared to a net income of $137,250 for the six months ended September 30, 2004. This decrease of $50,672 is explained above.
PREFERRED DIVIDENDS
These amounts reflect additional preferred stock dividends in arrears for the three and six months ended December 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.
14
CHASE GENERAL CORPORATION AND SUBSIDIARY
ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS ON PLAN OF OPERATION (CONTINUED)
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS
Net income applicable to common stockholders for the three months ended December 31, 2005 was $124,419 which is a decrease of $1,782 as compared to the three months ended December 31, 2004 of $126,201.
Net income applicable to common stockholders for the six months ended December 31, 2005 was $22,542 which is a decrease of $50,672 as compared to the six months ended December 31, 2004 of $73,214. These items are explained above.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 2005, the Company obtained bank financing totaling $125,000, which was used to fund operations. This loan was paid in full during the second quarter ended December 31, 2005.
Cash and cash equivalents increased $161,511 to $222,316 at December 31, 2005 from $60,805 at June 30, 2005.
The Company believes it will have sufficient resources to finance its current operations for at least the next twelve months through working capital. To date, there are no material commitments by the Company for capital expenditures. At December 31, 2005, the Company’s accumulated deficit was $5,661,489, compared to accumulated deficit of $5,748,067 as of June 30, 2005. Working capital as of December 31, 2005 increased 26% to $482,338 from $383,645 as of June 30, 2005.
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.
15
CHASE GENERAL CORPORATION AND SUBSIDIARY
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.
16
On December 16, 2005, a lawsuit was filed by 3600 S. Leonard Road, LLC., (the Plaintiff) against the Company in the Circuit Court of Buchanan County, Missouri. The Plaintiff alleges that the Company failed to honor certain sections of a lease agreement entered into between the Plaintiff, as owner and landlord of the premises subject to the lease agreement, and the Company, as tenant to the premises. The Plaintiff is seeking damages in an amount in excess of $200,000. The Company has filed a response with the Circuit Court denying all material allegations made by the Plaintiff. A status review hearing is set for March 15, 2006 in the Circuit Court. The Company believes the claim is without merit and intend to contest it vigorously, however the outcome of this lawsuit cannot be predicted at this time.
The Company is not subject to any other material pending or threatened litigation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
| a. | None | |
| b. | The total cumulative preferred stock dividends contingency at December 31, 2005 is $6,604,050. | |
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. | |
17
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: February 9, 2006 | By: | /s/ Barry M. Yantis | ||
| Barry M. Yantis | ||||
| President, Chief Executive Officer, | ||||
| Treasurer and Chairman of the | ||||
| Board | ||||
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