Chase General (CSGN) 10-Q 2022 Q1 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 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the quarterly period ended September 30, 2021

☐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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Ticker symbol(s)	Name of each exchange on which registered
None	Not Applicable	Not Applicable

Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes ◻ No ⌧

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 every Interactive Data File required to be submitted 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 nonaccelerated 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 ◻
Nonaccelerated filer ⌧	Smaller reporting company ☒
Emerging Growth Company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ◻ No ⌧

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 November 15, 2021, there were 969,834 shares of common stock, $1.00 par value, outstanding.

CHASE GENERAL CORPORATION AND SUBSIDIARY

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

PART I	FINANCIAL INFORMATION
	ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2021 (UNAUDITED) AND JUNE 30, 2021	1
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)	3
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)	4
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	5
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15
	ITEM 4.	CONTROLS AND PROCEDURES	15
PART II	OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	16
	ITEM 1A.	RISK FACTORS	16
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	16
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	16
	ITEM 4.	MINE SAFETY DISCLOSURES	16
	ITEM 5.	OTHER INFORMATION	16
	ITEM 6.	EXHIBITS	16
	SIGNATURES		17

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		June 30,
	2021		2021
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	5,804	$	7,115
Trade Receivables, Net of Allowance for Doubtful Accounts of $15,248 and $14,948, Respectively		666,951		196,802
Inventories:
Finished Goods		256,710		287,245
Goods in Process		16,823		11,254
Raw Materials		158,442		97,324
Packaging Materials		210,641		224,318
Prepaid Expenses		31,627		10,137
Total Current Assets		1,346,998		834,195
PROPERTY AND EQUIPMENT
Land		35,000		35,000
Buildings		77,348		77,348
Machinery and Equipment		867,691		867,691
Trucks and Autos		158,632		158,632
Office Equipment		33,025		33,025
Leasehold Improvements		72,068		72,068
Total		1,243,764		1,243,764
Less: Accumulated Depreciation		1,121,057		1,111,377
Total Property and Equipment, Net		122,707		132,387
Other Long-Term Assets:
Right of Use Assets		243,879		259,293
Total Long-Term Assets		366,586		391,680
Total Assets	$	1,713,584	$	1,225,875

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

(1)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

	September 30,		June 30,
	2021		2021
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	234,398	$	40,274
Current Maturities of Notes Payable		338,467		124,730
Current Maturities of Lease Liability		64,188		63,137
Accrued Expenses		56,553		26,285
Refund Liability Owed to Customers		28,000		9,794
Deferred Income		1,299		1,299
Total Current Liabilities		722,905		265,519
LONG-TERM LIABILITIES
Lease Liabilities, Less Current Maturities		179,691		196,156
Deferred Income		3,246		3,570
Total Long-Term Liabilities		182,937		199,726
Total Liabilities		905,842		465,245
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS’ EQUITY
Capital Stock Issued and Outstanding:
Prior Cumulative Preferred Stock, $5 Par Value:
Series A (Liquidation Preference $2,407,500 and $2,400,000, Respectively)		500,000		500,000
Series B (Liquidation Preference $2,362,500 and $2,355,000, Respectively)		500,000		500,000
Cumulative Preferred Stock, $20 Par Value:
Series A (Liquidation Preference $5,385,029 and $5,370,395, Respectively)		1,170,660		1,170,660
Series B (Liquidation Preference $877,595 and $875,211, 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		(5,658,254)		(5,705,366)
Total Stockholders’ Equity		807,742		760,630
Total Liabilities and Stockholders’ Equity	$	1,713,584	$	1,225,875

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

(2)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	September 30,
	2021		2020
SALES	$	877,576		865,247
COST OF SALES		582,867		502,836
Gross Profit on Sales		294,709		362,411
OPERATING EXPENSES
Selling		85,890		79,708
General and Administrative		159,438		180,042
Total Operating Expenses		245,328		259,750
Income from Operations		49,381		102,661
OTHER INCOME (EXPENSE)
Miscellaneous Income		368		4,400
Interest Expense		(2,637)		(1,198)
Total Other Income (Expense)		(2,269)		3,202
Income before Income Taxes		47,112		105,863
INCOME TAX BENEFIT (PROVISION)		—		—
NET INCOME	$	47,112	$	105,863
EARNINGS PER SHARE
Basic	$	0.02	$	0.08
Diluted	$	0.01	$	0.08

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

(3)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED)

	Three Months Ended
	September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	47,112	$	105,863
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
Depreciation and Amortization		9,680		10,249
Allowance for Bad Debts		300		300
Deferred Income Amortization		(324)		(325)
Effects of Changes in Operating Assets and Liabilities:
Trade Receivables		(470,449)		(505,591)
Inventories		(22,475)		(117,896)
Prepaid Expenses		(21,490)		(27,732)
Accounts Payable		194,124		185,926
Refund Liability Owed to Customers		18,206		12,866
Accrued Expenses		30,268		32,180
Net Cash Used in Operating Activities		(215,048)		(304,160)
CASH FLOWS FROM FINANCING ACTIVITIES
Outstanding Checks in Excess of Bank Balance		—		43,921
Proceeds from Line-of-Credit		215,000		210,000
Principal Payments on Notes Payable		(1,263)		(3,151)
Net Cash Provided by Financing Activities		213,737		250,770
DECREASE IN CASH AND CASH EQUIVALENTS		(1,311)		(53,390)
Cash and Cash Equivalents - Beginning of Period		7,115		53,390
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	5,804	$	—

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

(4)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1       SIGNIFICANT ACCOUNTING POLICIES

General

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as Chase, we, our, and us) at June 30, 2021 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months ended September 30, 2021 and for the three months ended September 30, 2020 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, 2021. The results of operations for the three months ended September 30, 2021 and cash flows for the three months ended September 30, 2021 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2022. 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.

Revenue Recognition

The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including 1) a candy bar marketed under the trade name “Cherry Mash” and 2) coconut, peanut, chocolate, and fudge confectioneries. The Company recognizes revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon shipment to the customer. Shipping and handling costs incurred to ship product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Generally, individual orders from customers are accounted for as a single performance obligation.

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The amount of consideration the Company expects to receive and revenue the Company recognizes includes estimates of variable consideration, including costs for trade promotional programs, customer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, and expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. The Company reviews and updates these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in the first quarter of the year ending June 30, 2022 resulting from updated estimates of revenue for prior year product sales were not significant. The Company has elected a practical expedient to recognize incremental costs incurred to obtain contracts, which primarily represent sales commissions where the amortization period would be less than one year, as a selling expense when incurred in the financial statements.

(5)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

The majority of the Company’s products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. The Company operates 2 divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Both divisions share a common labor force and utilize the same basic equipment and raw materials. Management considers these 2 divisions as 1 reportable segment. The various divisions of revenue are as follows:

For the three months ended September 30,

	2021		2020
Sales - Chase Candy	$	366,788	$	380,205
Sales - Seasonal Candy		510,788		485,042
Sales	$	877,576	$	865,247

Recently Issued Pronouncements

There have been no newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’s consolidated financial statements.

Subsequent Events

No other events have occurred subsequent to September 30, 2021, through the date of filing this form, that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the three-month period ended September 30, 2021.

(6)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2       EARNINGS PER SHARE

The earnings per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share are calculated by including contingently issuable shares with the weighted average shares outstanding.

	Three Months Ended
	September 30,
	2021		2020
Net Income	$	47,112	$	105,863
Preferred Dividend Requirements:
6% Prior Cumulative Preferred, $5 Par Value		15,000		15,000
5% Convertible Cumulative Preferred, $20 Par Value		17,018		17,018
Total Dividend Requirements		32,018		32,018
Net Income - Common Stockholders	$	15,094	$	73,845
Weighted Average Shares - Basic		969,834		969,834
Dilutive Effect of Contingently Issuable Shares		1,033,334		1,033,334
Weighted Average Shares - Diluted		2,003,168		2,003,168
Basic Earnings per Share	$	0.02	$	0.08
Diluted Earnings per Share	$	0.01	$	0.08

Cumulative Preferred Stock dividends in arrears at September 30, 2021 and 2020 totaled $8,621,184 and $8,493,112, respectively. Total dividends in arrears, on a per share basis, consist of the following:

	Three Months Ended
	September 30,
	2021		2020
6% Convertible:
Series A	$	19	$	19
Series B	$	18	$	18
5% Convertible:
Series A	$	72	$	71
Series B	$	72	$	71

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 1 share of Series A and 3.75 common shares for 1 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 1 of preferred.

(7)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3       NOTES PAYABLE AND LINE OF CREDIT

The Company’s long-term debt consists of:

		September 30,		June 30,
Payee	Terms	2021		2021
Nodaway Valley Bank	$350,000 line-of-credit agreement expiring on January 4, 2022, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.	$	335,000	$	120,000
Toyota Credit	$444 monthly payments, interest of 6.49%; final payment due May 2022, secured by a vehicle.		3,467		4,730
	Total		338,467		124,730
	Less Current Portion		338,467		124,730
	Long-Term Portion	$	—	$	—

Future minimum payments for the twelve months ending September 30 are:

September 30,	Amount
2022	$	338,467
2023		—
Total	$	338,467

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 recorded 0 income tax provision for the three-month period ended September 30, 2021 due to net operating loss carryforward as of June 30, 2021 that is available to offset taxable income in the current period.  A valuation allowance has been placed on the remaining net operating loss carryforward.  The Company recognized 0 liability for unrecognized tax benefits at September 30, 2021.  The Company has no material tax positions at September 30, 2021, for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility.  The Company had 0 accruals for interest or penalties at September 30, 2021.  The Company’s federal income tax returns for the fiscal years ended 2019, 2020, and 2021 are subject to examination by the Internal Revenue Service taxing authority.

NOTE 5       SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Three Months Ended
	September 30,
	2021		2020
Cash Paid for:
Interest	$	70	$	1,198

(8)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these consolidated financial instruments. As of September 30, 2021, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.

NOTE 7       COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

The Company leases its office and manufacturing facility, located at 1307 South 59^th, St. Joseph, Missouri under an operating lease from an entity that is partially owned by the son of the Chief Executive Officer of the Company. The lease term is from February 1, 2005 through March 31, 2025 with an option to extend for an additional term of five years. The Company does not believe that exercise of the renewal option is reasonably assured, and has not included the additional five years in the lease term. The lease currently requires payments of $6,500 per month.

Operating lease right-of-use assets and lease liabilities were recognized upon adoption of the lease standard based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 3.5 years and the present value of the lease payments is calculated using the lessor’s implicit rate of 6.43%. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease agreement does not contain any residual value guarantees. Additionally, any other short-term leases are immaterial. The Company elected the practical expedient to not separate lease and non-lease components and also elected the short-term practical expedient for all leases that qualify. As a result, the Company will not recognize right-of-use assets or liabilities for short-term leases that qualify for the short-term practical expedient, but instead will recognize the lease payments as lease cost on a straight-line basis over the lease term. Operating lease expenses and cash paid for operating lease liabilities were $19,500 for the three months ended September 30, 2021, of which, $17,891 is included in cost of sales and $1,609 is included in general and administrative expenses.

Minimum annual payments required under existing operating lease liabilities that have initial or remaining noncancelable terms in excess of one year as of September 30, 2021 are as follows:

Twelve Months Ending September 30,	Amount
2022	$	78,000
2023		78,000
2024		78,000
2025		39,000
Total Lease Payments		273,000
Less: Imputed Interest		29,121
Total Lease Liabilities	$	243,879

(9)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8       CURRENT ECONOMIC CONDITIONS

The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. The Company put preparedness plans in place at the manufacturing facility. They have adjusted the number of people allowed at their facilities, enforced social distancing, maintained proper sanitation protocol and have asked that any high risk or employees feeling ill to not come in. The office and sales staff continues to work, while adhering to social distancing guidelines, implementing flexible hours, reducing person-to-person interaction and increasing safety measures.

The Company believes they have sufficient liquidity to satisfy current cash needs, however, they continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that the business can continue to operate during these uncertain times.

The potential impact to the Company’s consolidated financial statements could occur as early as the second quarter of fiscal year ending June 30, 2022 and include, but not limited to: impairment of long lived assets; including property and equipment and operating lease right-of-use assets related to the Company’s fair value and collectability of receivables and other financial assets.

(10)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

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 September 30, 2021 Compared to Three Months Ended September 30, 2020

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 sales and revenues for the periods presented:

	Three Months Ended
	September 30,
	2021		2020
Sales	100	%	100	%
Cost of Sales	66	%	58	%
Gross Profit on Sales	34	%	42	%
Operating Expenses	28	%	30	%
Income from Operations	6	%	12	%
Other Income, Net	—	%	—	%
Net Income before Income Taxes	6	%	12	%
Income Tax Provision (Benefit)	—	%	—	%
Net Income	6	%	12	%

SALES

Sales increased $12,329 or 1.42% for the three months ended September 30, 2021 to $877,576 compared to $865,247 for the three months ended September 30, 2020. Sales for Chase Candy decreased $13,417 to $366,788 for the three months ended September 30, 2021, compared to $380,205 for the three months ended September 30, 2020. Sales for Seasonal Candy increased $25,746 to $510,788 for the three months ended September 30, 2021, compared to $485,042 for the three months ended September 30, 2020.

The 3.5% decrease in sales of Chase Candy of $13,417 for the three months ended September 30, 2021 over the same period ended September 30, 2020, is primarily due to the effect of the following: 1) decreased net sales of the L100/L200/SK2100 Cherry Mash Merchandisers segment by approximately $5,500 to existing customers; 2) decreased net sales of approximately $10,000 for the Mini Mash L278/L212 segments to existing customers  3) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $6,000 versus the same period a year ago primarily due to increased orders from existing customers.

(11)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SALES (cont.)

The 5.3% increase in sales of Seasonal Candy of $25,746 for the three months ended September 30, 2021 over the same period ended September 30, 2020, is primarily due to the effect of the following: 1) increased sales to existing customers

in the regular produce category by approximately $88,000 versus the same period a year ago offset by 2) decreased sales to existing customers in the clamshell division by approximately $37,000 versus the same period a year ago 3) decreased sales in the bulk seasonal division by approximately $18,000 versus the same period a year ago, primarily due to decreased sales to existing customers.

COST OF SALES

The cost of sales increased $80,031 to $582,867 or 66% of related revenues for the three months ended September 30, 2021, compared to $502,836 or 58% of related revenues for the three months ended September 30, 2020.

The 16% increase in cost of sales of $80,031 is primarily due to the increased cost of raw materials.  The raw material cost of chocolate increased 27% and raw material price of corn syrup increased by 12%.  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 September 30, 2021 increased $6,182 to $85,890, which is 10% of sales, compared to $79,708, or 9% of sales for the three months ended September 30, 2020.

The increase of $6,182 in selling expenses for the three months ended September 30, 2021 is primarily due to higher commissions and auto costs. Commissions expense increased $3,500 to approximately $44,000 for this period from approximately $40,800 for the three months ended September 30, 2020 and auto costs increased $1,848 to approximately $3,500 for this period from approximately $1,600 for the three months ended September 30, 2020, primarily due to increased road travel now that pandemic restrictions are lifting.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended September 30, 2021 decreased $20,604 to $159,438 and 18% of sales, compared to $180,042 or 21% of sales for the three months ended September 30, 2020.

The decrease of $20,604 in general and administrative expenses for the three months ended September 30, 2021 is primarily due to lower professional fees offset by increase in miscellaneous other general and administrative expenses. Professional fees decreased approximately $25,000 to $75,267 for this period from $100,384 for the three months ended September 30, 2020 primarily due to decreased audit and consulting fees.

OTHER INCOME (EXPENSE)

Other income (expense) decreased by $5,471 for the three months ended September 30, 2021 to ($2,269), compared to $3,202 for the three months ended September 30, 2020.

The majority of this for the three months ended September 30, 2021, change can be attributed to a decrease in miscellaneous income of approximately $4,000. Another portion of the change can be attributed to an increase in interest expense for the period of approximately $1,500.

(12)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PROVISION FOR INCOME TAXES

The Company recorded no income tax provision for the three months ended September 30, 2021 due to the net operating loss carryforward as of June 30, 2021 that is available to offset taxable income in the current period with a corresponding valuation allowance placed on the remaining net operating loss carryforward.

NET INCOME

The Company reported a net income for the three months ended September 30, 2021 of $47,112, compared to a net income of $105,863 for the three months ended September 30, 2020. This decrease of $58,751 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended September 30, 2021 and September 30, 2020, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders for the three months ended September 30, 2021 was $15,094 which is a decrease of $58,751 as compared to the net income applicable to common stockholders for the three months ended September 30, 2020 of $73,845.

LIQUIDITY AND CAPITAL RESOURCES

The table below presents the summary of cash flow for the fiscal period indicated.

	Three Months Ended
	September 30,
	2021		2020
Net Cash Used in Operating Activities	$	(215,048)	$	(304,160)
Net Cash Provided by Financing Activities	$	213,737	$	250,770

Management has made no material commitments for capital expenditures during the remainder of fiscal 2022. The $215,048 of cash used by operating activities for the three months ended September 30, 2021 is fully detailed in the condensed consolidated statement of cash flows on page five. The $213,737 of cash provided by financing activities for the three months ended September 30, 2021 are primarily due advances received on the line of credit.

The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to the Company, COVID-19 may impact various parts of its fiscal year ending June 30, 2022 operations and financial results, including the production and sales of goods. Management believes the Company is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as these events are still developing.

Management believes that the projected cash flow from operations, including the impact of the COVID-19 pandemic, combined with its availability on the line-of-credit, 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.

(13)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

(14)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

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, such officer has concluded that the Company’s disclosure controls and procedures are not effective as a result of a weakness in the design of internal control over financial reporting identified below.

Disclosure controls and procedures include controls and procedures designed 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.

A material weakness was identified in our internal control over financial reporting due to a lack of accounting personnel with the appropriate level of knowledge, experience and training to perform an assessment of its internal controls. This has also resulted in a failure to maintain appropriate segregation of duties over system access. Management believes that this material weakness did not have an adverse effect on the Company’s financial results reported herein.  We believe that this material weakness can be remedied or mitigated through further use of our outside, independent financial consultant.

(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 management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of evaluation.

(15)

CHASE GENERAL CORPORATION AND SUBSIDIARY

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 September 30, 2021 is $8,621,184.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

None.

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 September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and June 30, 2021, (ii) Condensed Consolidated Statements of Operations for the Three months Ended September 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2021 and 2020, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

(16)

CHASE GENERAL CORPORATION AND SUBSIDIARY

Part II Other information

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)
November 15, 2021	/s/ Barry M. Yantis
Date	Barry M. Yantis
	Chairman of the Board, Chief Executive Officer and
	Chief Financial Officer, President, and Treasurer

(17)