Chase General (CSGN) 10-Q 2015 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number 2-5916

Chase General Corporation

(Exact name of small business issuer as specified in its charter)

	MISSOURI		36-2667734
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

	1307 South 59th, St. Joseph, Missouri 64507
(Address of principal executive offices, Zip Code)

	(816) 279-1625
(Issuer’s telephone number, including area code)

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 ☒     No ☐

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 ☒     No ☐

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☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company☒

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  ☐     No  ☒

As of May 7, 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 March 31, 2015

TABLE OF CONTENTS

PART I           FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements	3
		Condensed Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and June 30, 2014	3
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	5
		Condensed Consolidated Statements of Operations for the Nine Months Ended March 31, 2015 and 2014 (Unaudited)	6
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014 (Unaudited)	7
		Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	22
PART II           OTHER INFORMATION
	Item 1.	Legal Proceedings	23
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	23
	Item 4.	Mine Safety Disclosures	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	24
	Signatures		25

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
	March 31, 2015		June 30, 2014
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	305,173	$	162,435
Trade receivables, net of allowance for doubtful accounts of $18,458 and $16,508, respectively		141,092		178,686
Inventories:
Finished goods		174,175		258,726
Goods in process		11,313		11,950
Raw materials		85,959		80,088
Packaging materials		152,284		145,046
Prepaid expenses		38,332		12,233
Deferred income taxes		7,532		7,047
Total current assets		915,860		856,211
PROPERTY AND EQUIPMENT
Land		35,000		35,000
Buildings		77,348		77,348
Machinery and equipment		754,193		739,962
Trucks and autos		198,845		188,594
Office equipment		31,518		31,518
Leasehold improvements		72,068		72,068
Total		1,168,972		1,144,490
Less accumulated depreciation		839,100		841,445
Total property and equipment, net		329,872		303,045
TOTAL ASSETS	$	1,245,732	$	1,159,256

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

3

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS’ EQUITY
	March 31, 2015			June 30, 2014
	(Unaudited)
CURRENT LIABILITIES
Accounts payable	$	44,802		$	51,947
Current maturities of notes payable		10,793			21,537
Accrued expenses		34,805			139,098
Income taxes payable		79,525			21,203
Deferred income		1,299			1,299
Total current liabilities		171,224			235,084
LONG-TERM LIABILITIES
Deferred income		11,687			12,661
Notes payable, less current maturities		15,305			4,650
Deferred income taxes		77,394			79,176
Total long-term liabilities		104,386			96,487
Total liabilities		275,610			331,571
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $2,212,500 and $2,190,000, respectively)		500,000			500,000
Series B (liquidation preference $2,167,500 and $2,145,000, respectively)		500,000			500,000
Cumulative preferred stock, $20 par value
Series A (liquidation preference $5,004,564 and $4,960,664, respectively)		1,170,660			1,170,660
Series B (liquidation preference $815,592 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		(5,495,874	)		(5,638,311	)
Total stockholders’ equity		970,122			827,685
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,245,732		$	1,159,256

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

4

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended March 31
	2015			2014
NET SALES	$	450,836		$	462,112
COST OF SALES		356,567			372,767
Gross profit on sales		94,269			89,345
OPERATING EXPENSES
Selling		74,670			70,054
General and administrative		83,890			108,816
Gain on sale of equipment		(10,590	)		-
Total operating expenses		147,970			178,870
Loss from operations		(53,701	)		(89,525	)
OTHER INCOME (EXPENSE)
Miscellaneous income		626			602
Interest expense		(125	)		(440	)
Total other income (expense), net		501			162
Net loss before income taxes		(53,200	)		(89,363	)
INCOME TAX BENEFIT		(18,397	)		(31,412	)
NET LOSS	$	(34,803	)	$	(57,951	)
NET LOSS PER SHARE OF COMMON STOCK
- BASIC	$	(0.07	)	$	(0.09	)
- DILUTED	$	(0.07	)	$	(0.09	)

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

5

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Nine Months Ended March 31
	2015			2014
NET SALES	$	2,734,017		$	2,775,917
COST OF SALES		1,917,694			1,969,368
Gross profit on sales		816,323			806,549
OPERATING EXPENSES
Selling		339,074			328,091
General and administrative		295,724			342,317
Loss (gain) on sale of equipment		(26,502	)		93
Total operating expenses		608,296			670,501
Income from operations		208,027			136,048
OTHER INCOME (EXPENSE)
Miscellaneous income		13,070			2,938
Interest expense		(2,081	)		(3,581	)
Total other income (expense), net		10,989			(643	)
Net income before income taxes		219,016			135,405
PROVISION FOR INCOME TAXES		76,579			46,387
NET INCOME	$	142,437		$	89,018
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
- BASIC	$	0.05		$	(0.01	)
- DILUTED	$	0.02		$	(0.01	)

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

6

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended March 31
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	142,437		$	89,018
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		74,904			65,366
Allowance for bad debts		1,950			400
Deferred income amortization		(974	)		(974	)
Deferred income taxes		(2,267	)		(12,531	)
Loss (gain) on sale of equipment		(26,502	)		93
Effects of changes in operating assets and liabilities:
Trade receivables		35,644			(12,183	)
Inventories		72,079			217,057
Prepaid expenses		(26,099	)		(9,842	)
Accounts payable		(7,145	)		(10,651	)
Accrued expenses		(104,293	)		10,915
Income taxes payable		58,322			54,753
Net cash provided by operating activities		218,056			391,421
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(54,001	)		(27,439	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line-of-credit		265,000			290,000
Principal payments on line-of-credit		(265,000	)		(290,000	)
Principal payments on notes payable		(21,317	)		(56,191	)
Net cash used in financing activities		(21,317	)		(56,191	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		142,738			307,791
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		162,435			28,564
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	305,173		$	336,355

The accompanying notes are an integral part of the unaudited
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 (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2014 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 nine months ended March 31, 2015 and for the three and nine months ended March 31, 2014 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, 2014. The results of operations for the three and nine months ended March 31, 2015 and cash flows for the nine months ended March 31, 2015 are not necessarily indicative of the results for the entire fiscal year ending June 30, 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 March 31, 2015, 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 nine month period ended March 31, 2015.

8

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – EARNINGS (LOSS) 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
	2015			2014			2015		2014
Net income (loss)	$	(34,803	)	$	(57,951	)	$	142,437	$	89,018
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 income (loss) - common stockholders	$	(66,821	)	$	(89,969	)	$	46,383	$	(7,036	)
Weighted average shares - basic		969,834			969,834			969,834		969,834
Dilutive effect of contingently issuable shares		1,033,334			1,033,334			1,033,334		1,033,334
Weighted average shares - diluted		2,003,168			2,003,168			2,003,168		2,003,168
Basic earnings (loss) per share	$	(0.07	)	$	(0.09	)	$	0.05	$	(0.01	)
Diluted earnings (loss) per share	$	(0.07	)	$	(0.09	)	$	0.02	$	(0.01	)

9

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - EARNINGS (LOSS) PER SHARE (CONTINUED)

Cumulative Preferred Stock dividends in arrears at March 31, 2015 and 2014 totaled $7,788,716 and $7,660,644, respectively. Total dividends in arrears, on a per share basis, consist of the following:

	Nine Months Ended March 31
	2015		2014
6% Convertible
Series A	$	17	$	17
Series B	$	16	$	16
5% Convertible
Series A	$	66	$	65
Series B	$	66	$	65

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.

10

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,
Payee	Terms	2015		2014
Nodaway Valley Bank	$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	$468 monthly payments, interest of 2.9%; final payment due January 2019, secured by a vehicle.		20,415		-
Ford Credit	$517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle.		5,683		10,850
Nodaway Valley Bank	$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; paid in full in December 2014.		-		2,790
	Total		26,098		26,187
	Less current portion		10,793		21,537
	Long-term portion	$	15,305	$	4,650

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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 March 31 are:

2016	$	10,793
2017		5,260
2018		5,414
2019		4,631
Total	$	26,098

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 March 31, 2015. The Company has no material tax positions at March 31, 2015 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 March 31, 2015. The Company’s federal income tax returns for the fiscal years ended 2012, 2013 and 2014 are subject to examination by the IRS taxing authority.

NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Nine Months Ended March 31
	2015		2014
Cash paid for:
Interest	$	2,081	$	3,563
Income taxes		32,494		4,105
Non-cash transactions:
Financing of new vehicle		21,228		-

12

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.

In August 2014, the Financial Accounting Standards Board issued an accounting standards update which requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. If substantial doubt exists, additional disclosures are required. This update will be effective for the Company’s fiscal year 2015. The adoption of the new standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.

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.

13

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 March 31, 2015 Compared to Three Months Ended March 31, 2014, and Nine Months Ended March 31, 2015 Compared to Nine Months Ended March 31, 2014

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						Nine Months Ended
	March 31						March 31
	2015			2014			2015			2014
Net sales		100	%		100	%		100	%		100	%
Cost of sales		79			81			70			71
Gross profit on sales		21			19			30			29
Operating expenses		33			39			22			24
Income (loss) from operations		(12	)		(20	)		8			5
Other income (expense), net		1			-			-			-
Income (loss) before income taxes		(11	)		(20	)		8			5
Provision (benefit) for income taxes		(4	)		(7	)		3			2
Net income (loss)		(7	)%		(13	)%		5	%		3	%

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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

NET SALES

Net sales decreased $11,276 or 2% for the three months ended March 31, 2015 to $450,836 compared to $462,112 for the three months ended March 31, 2014. Gross sales for Chase Candy decreased $10,516 to $449,833 for the three months ended March 31, 2015, compared to $460,349 for 2014. Gross sales for Seasonal Candy decreased $7,370 to $10,706 for the three months ended March 31, 2015, compared to $18,076 for 2014.

The 2% decrease in gross sales of Chase Candy of $10,516 for the three months ended March 31, 2015 over the same period ended March 31, 2014, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $21,000 versus the same period a year ago, primarily due to one customer decreasing orders; 2) decreased sales of the Cherry Mash Merchandiser division by approximately $15,000 versus the same period a year ago, primarily due to three customers decreasing orders; and offset by 3) increased sales of the L278/L212 Mini Mash division by approximately $26,000 versus the third quarter a year ago due to one customer increasing orders.

The 41% decrease in gross sales of Seasonal Candy of $7,370 for the three months ended March 31, 2015 over the same period ended March 31, 2014, is primarily due to the net effect of the following: 1) decreased sales in the clamshell seasonal division by approximately $8,000 versus third quarter a year ago primarily due to decreased orders from two customers; and offset set by 2) various other fluctuations netting an increase of approximately $1,000.

Net sales decreased $41,900 or 2% for the nine months ended March 31, 2015 to $2,734,017 compared to $2,775,917 for the nine months ended March 31, 2014. Gross sales for Chase Candy decreased $37,102 to $1,488,641 for the nine months ended March 31, 2015, compared to $1,525,743 for 2014. Gross sales for Seasonal Candy decreased $5,550 to $1,275,733 for the nine months ended March 31, 2015, compared to $1,281,283 for 2014.

15

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

NET SALES (CONTINUED)

The 2% decrease in gross sales of Chase Candy of $37,102 for the nine months ended March 31, 2015 over the same period ended March 31, 2014, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $97,000 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 $14,000 versus the same period a year ago primarily due to two customers decreasing orders; 3) various other fluctuations netting to a decrease of approximately $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 $77,000 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 $1,000 versus the same period a year ago primarily due to the net impact of two customers increasing orders and two customers decreasing orders.

The slight decrease in gross sales of Seasonal Candy of $5,550 for the nine months ended March 31, 2015 over the same period ended March 31, 2014, is primarily due to the net effect of the following: 1) 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; 2) decreased sales in the clamshell seasonal division by approximately $1,000 versus the same period a year ago primarily due to decreased orders from one customer; offset by 3) 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.

COST OF SALES

The cost of sales decreased $16,200 to $356,567 or 79% of related revenues for the three months ended March 31, 2015, compared to $372,767 or 81% of related revenues for the three months ended March 31, 2014.

The 4% decrease in cost of sales of $16,200 is primarily due to the 2% decrease in net sales and a 3% decrease in the raw material costs of peanuts compared to the same period ended March 31, 2014.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

COST OF SALES (CONTINUED)

The cost of sales decreased $51,674 to $1,917,694 or 70% of related revenues for the nine months ended March 31, 2015, compared to $1,969,368 or 71% of related revenues for the nine months ended March 31, 2014.

The 3% decrease in cost of sales of $51,674 is primarily due to the 2% decrease in net sales net of a 5% increase in the raw material costs of peanuts compared to the same period ended March 31, 2014.

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 March 31, 2015 increased $4,616 to $74,670, which is 17% of sales, compared to $70,054 or 15% of sales for the three months ended March 31, 2014.

The increase of $4,616 in selling expenses for the three months ended March 31, 2015 is primarily due to higher premium promotions expense and higher depreciation expense. Premium promotions, which are paid to customers for various marketing reasons, increased $2,314 to $3,694 for this period from $1,380 for the three months ended March 31, 2014. Depreciation expense increased $2,069 to $10,444 for this period from $8,375 for the three months ended March 31, 2014 primarily due to purchases of property and equipment of $28,767 during the year ended June 30, 2014 combined with the purchases of property and equipment of $54,001 during the nine months ended March 31, 2015.

Selling expenses for the nine months ended March 31, 2015 increased $10,983 to $339,074, which is 12% of sales, compared to $328,091 or 12% of sales for the nine months ended March 31, 2014.

The increase of $10,983 in selling expenses for the nine months ended March 31, 2015 is primarily due to higher depreciation expense and higher sales salaries expense. Depreciation expense increased $6,864 to $31,990 for this period from $25,126 for the nine months ended March 31, 2014 primarily due to purchases of property and equipment of $28,767 during the year ended June 30, 2014 combined with the purchases of property and equipment of $54,001 during the nine months ended March 31, 2015. Sales salaries expense increased $4,979 to $83,918 for this period from $78,939 for the nine months ended March 31, 2014 primarily due to salary rate adjustments.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended March 31, 2015 decreased $24,926 to $83,890 and decreased to 19% of sales, compared to $108,816 or 24% of sales for the three months ended March 31, 2014. The decrease of $24,926 in general and administrative expense is primarily because of lower professional fees expense and lower insurance expense offset by various other fluctuations netting to an increase of approximately $2,000. Professional fees expense decreased $13,380 to $11,894 for this period from $25,274 for the three months ended March 31, 2014 primarily due to decreased legal costs. Insurance expense decreased $13,757 to $29,806 for this period from $43,563 for the three months ended March 31, 2014 primarily due to a few employees declining health insurance coverage.

General and administrative expenses for the nine months ended March 31, 2015 decreased $46,593 to $295,724 or 11% of sales, compared to $342,317 or 12% of sales for the nine months ended March 31, 2014. The decrease of $46,593 in general and administrative expense is primarily because of lower professional fees expense, lower insurance expense offset by various other fluctuations netting to an increase of approximately $5,000. Professional fees expense decreased $31,816 to $79,124 for this period from $110,940 for the nine months ended March 31, 2014 primarily due to decreased legal costs. Insurance expense decreased $20,074 to $98,104 for this period from $118,178 for the nine months ended March 31, 2014 primarily due to a few employees declining health insurance coverage.

OTHER INCOME (EXPENSE)

Other income and (expense) increased by $339 for the three months ended March 31, 2015 to $501, compared to $162 for the three months ended March 31, 2014 primarily due to a decrease of $315 in interest expense.

Other income and (expense) increased by $11,632 for the nine months ended March 31, 2015 to $10,989, compared to $(643) for the nine months ended March 31, 2014 primarily due to a decrease of $1,500 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.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

PROVISION (BENEFIT) FOR INCOME TAXES

The Company recorded an income tax benefit for the three months ended March 31, 2015 of $18,397 as compared to a tax benefit of $31,412 for the three months ended March 31, 2014. The Company recorded an income tax expense for the nine months ended March 31, 2015 of $76,579 as compared to an income tax expense of $46,387 for the nine months ended March 31, 2014. The net income tax expense recorded for the nine months ended March 31, 2015 is primarily due to recognizing income taxes related to current profitable operations.

NET INCOME (LOSS)

The Company reported a net loss for the three months ended March 31, 2015 of $34,803, compared to a net loss of $57,951 for the three months ended March 31, 2014. This change in earnings of $23,148 is explained previously in this filing. The Company reported net income for the nine months ended March 31, 2015 of $142,437, compared to net income of $89,018 for the nine months ended March 31, 2014. This change in earnings of $53,419 is explained previously in this filing.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND 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
	2015			2014
Net cash provided by operating activities	$	218,056		$	391,421
Net cash used in investing activities	$	(54,001	)	$	(27,439	)
Net cash used in financing activities	$	(21,317	)	$	(56,191	)

Management has made commitments of approximately $54,000 to purchase equipment to be used in the manufacturing process before the end of fiscal 2015. The $54,001 of cash used in investing activities is the purchase of equipment used during the manufacturing process and two vehicles. The $218,056 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page seven. The $21,317 of cash used in financing activities is the principal payments on equipment and vehicle loans. At March 31, 2015, 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.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND 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.

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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

(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

 a.  None.

 b.  The total cumulative preferred stock dividends contingency at March 31, 2015 is $7,788,716.

ITEM 4.        MINE SAFETY DISCLOSURES

 Not applicable.

ITEM 5.        OTHER INFORMATION

 a.  None.

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PART II. OTHER INFORMATION (CONTINUED)

ITEM 6.          EXHIBITS

a. Exhibits.

Exhibit 31.1 Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101 The following financial statements for the quarter ended March 31, 2015, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of March 31, 2015 and June 30, 2014, (ii) Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014, (iii) Condensed Consolidated Statements of Income for the Nine Months Ended March 31, 2015 and 2014, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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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 8, 2015	/s/ Barry M. Yantis
Date	Barry M. Yantis
	Chairman of the Board, Chief Executive Officer and Chief Financial Officer, President and Treasurer

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