Chase General (CSGN) 10-Q 2022 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, 2022

☐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 registrant 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

(Registrant’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 whether the registrant (1) has filed all reports required to be filed by Section 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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, 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 May13, 2022, 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 Nine months ENDED MARCH 31, 2022

PART I	FINANCIAL INFORMATION
	ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2022 AND JUNE 30, 2021 (Unaudited)	1
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)	3
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)	4
		CONDENSED CONSOLIDATED STATEMENT OF stockholders’ equity FOR THE THREE AND NINE MONTHS ENDED march 31, 2022 (UNAUDITED)	5
		CONDENSED CONSOLIDATED STATEMENTS OF Cash flows FOR THE Nine months ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)	6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
	ITEM 4.	CONTROLS AND PROCEDURES	19
PART II	OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	20
	ITEM 1A.	RISK FACTORS	20
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	20
	ITEM 4.	MINE SAFETY DISCLOSURES	20
	ITEM 5.	OTHER INFORMATION	20
	ITEM 6.	EXHIBITS	20
	SIGNATURES		21

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31,		June 30,
	2022		2021
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	252,893	$	7,115
Trade Receivables, Net of Allowance for Doubtful Accounts of $711 and $14,948
Respectively		219,351		196,802
Inventories:
Finished Goods		53,581		287,245
Goods in Process		16,360		11,254
Raw Materials		105,638		97,324
Packaging Materials		269,282		224,318
Prepaid Expenses		18,626		10,137
Total Current Assets		935,731		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		(1,140,312)		(1,111,377)
Total Property and Equipment, Net		103,452		132,387
Other Long-Term Assets:
Right of Use Assets		212,299		259,293
Total Long-Term Assets		315,751		391,680
Total Assets	$	1,251,482	$	1,225,875

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(UNAUDITED)

	March 31,		June 30,
	2022		2021
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	135,729	$	40,274
Current Maturities of Notes Payable		878		124,730
Current Maturities of Lease Liability		66,280		63,137
Accrued Expenses		34,484		26,285
Refund Liability Owed to Customers		8,000		9,794
Deferred Income		1,299		1,299
Total Current Liabilities		246,670		265,519
LONG-TERM LIABILITIES
Lease Liabilities, Less Current Maturities		146,019		196,156
Deferred Income		2,596		3,570
Total Long-Term Liabilities		148,615		199,726
Total Liabilities		395,285		465,245
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDERS’ EQUITY
Capital Stock Issued and Outstanding:
Prior Cumulative Preferred Stock, $5 Par Value:
Series A (Liquidation Preference $2,422,500 and $2,400,000, Respectively)		500,000		500,000
Series B (Liquidation Preference $2,377,500 and $2,355,000, Respectively)		500,000		500,000
Cumulative Preferred Stock, $20 Par Value:
Series A (Liquidation Preference $5,414,295 and $5,370,395, Respectively)		1,170,660		1,170,660
Series B (Liquidation Preference $882,365 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		(5,609,799)		(5,705,366)
Total Stockholders’ Equity		856,197		760,630
Total Liabilities and Stockholders’ Equity	$	1,251,482	$	1,225,875

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	March 31st
	2022		2021
SALES	$	565,035		423,007
COST OF SALES		417,064		334,072
Gross Profit on Sales		147,971		88,935
OPERATING EXPENSES
Selling		75,451		64,908
General and Administrative		138,287		117,446
Total Operating Expenses		213,738		182,354
Loss from Operations		(65,767)		(93,419)
OTHER INCOME (EXPENSE)
Miscellaneous Income		546		3,515
Interest Expense		(29)		(182)
Total Other Income, net		517		3,333
Loss before Income Taxes		(65,250)		(90,086)
INCOME TAX BENEFIT (PROVISION)		—		—
NET LOSS	$	(65,250)	$	(90,086)
LOSS PER SHARE
Basic	$	(0.10)	$	(0.13)
Diluted	$	(0.10)	$	(0.13)

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Nine Months Ended
	March 31,
	2022		2021
SALES	$	2,663,343		2,436,136
COST OF SALES		1,839,094		1,515,684
Gross Profit on Sales		824,249		920,452
OPERATING EXPENSES
Selling		259,360		251,808
General and Administrative		466,592		431,449
Total Operating Expenses		725,952		683,257
Income from Operations		98,297		237,195
OTHER INCOME (EXPENSE)
Miscellaneous Income		1,327		8,316
Gain on Extinguishment of Debt (Note 3)		—		171,500
Interest Expense		(4,057)		(2,598)
Total Other Income (Expense), net		(2,730)		177,218
Income before Income Taxes		95,567		414,413
INCOME TAX BENEFIT (PROVISION)		—		—
NET INCOME	$	95,567	$	414,413
EARNINGS PER SHARE
Basic	$	(0.00)	$	0.33
Diluted	$	(0.00)	$	0.16

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, January 1, 2022	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,544,549)	$	921,447
Net Loss, three months ended March 31, 2022		—		—		—		—		—		—		(65,250)		(65,250)
BALANCE, March 31, 2022	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,609,799)	$	856,197
	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, January 1, 2021	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,564,600)	$	901,396
Net Loss, three months ended March 31, 2021		—		—		—		—		—		—		(90,086)		(90,086)
BALANCE, March 31, 2021	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,654,686)	$	811,310
	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, July 1, 2021	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,705,366)	$	760,630
Net Income, nine months ended March 31, 2022		—		—		—		—		—		—		95,567		95,567
BALANCE, March 31, 2022	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,609,799)	$	856,197
	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, July 1, 2020	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(6,069,099)	$	396,897
Net Income, nine months ended March 31, 2021		—		—		—		—		—		—		414,413		414,413
BALANCE, March 31, 2021	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,654,686)	$	811,310

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	95,567	$	414,413
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		28,935		30,062
Allowance for Bad Debts		(14,237)		900
Deferred Income Amortization		(974)		(974)
Gain on Extinguishment of Debt (Note 3)		—		(171,500)
Effects of Changes in Operating Assets and Liabilities:
Trade Receivables		(8,312)		28,663
Inventories		175,280		(32,746)
Prepaid Expenses		(8,489)		(17,847)
Accounts Payable		95,455		11,070
Accrued Expenses		8,199		(4,038)
Refund Liability Owed to Customers		(1,794)		8,385
Net Cash Provided by Operating Activities		369,630		266,388
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Line-of-Credit		255,000		210,000
Principal Payments on Line-of-Credit		(375,000)		(210,000)
Principal Payments on Notes Payable		(3,852)		(14,436)
Net Cash Used in Financing Activities		(123,852)		(14,436)
INCREASE IN CASH AND CASH EQUIVALENTS		245,778		251,952
Cash and Cash Equivalents - Beginning of Period		7,115		53,390
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	252,893	$	305,342

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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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, the Company, 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 and nine months ended March 31, 2022 and for the three and nine months ended March 31, 2021 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 and nine months ended March 31, 2022 and cash flows for the nine months ended March 31, 2022 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 trade receivable 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 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.

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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 (cont.)

Revenue Recognition (cont.)

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 March 31,

	2022		2021
SALES
Chase Candy	$	552,692	$	410,186
Seasonal Candy		12,343		12,821
Total	$	565,035	$	423,007

For the nine months ended March 31,

	2022		2021
SALES
Chase Candy	$	1,458,699	$	1,347,915
Seasonal Candy		1,204,644		1,088,221
Total	$	2,663,343	$	2,436,136

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 March 31, 2022, 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, 2022.

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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
	March 31,
	2022		2021
Net Loss	$	(65,250)	$	(90,086)
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 Loss attributable to Common Stockholders	$	(97,268)	$	(122,104)
Weighted Average Shares - Basic		969,834		969,834
Anti-Dilutive Effect of Contingently Issuable Shares		1,033,334		1,033,334
Weighted Average Shares - Diluted		2,003,168		2,003,168
Basic Loss per Share	$	(0.10)	$	(0.13)
Anti-Diluted Loss per Share	$	(0.10)	$	(0.13)

	Nine Months Ended
	March 31,
	2022		2021
Net Income	$	95,567	$	414,413
Preferred Dividend Requirements:
6% Prior Cumulative Preferred, $5 Par Value		45,000		45,000
5% Convertible Cumulative Preferred, $20 Par Value		51,054		51,054
Total Dividend Requirements		96,054		96,054
Net Income (Loss) attributable to Common Stockholders	$	(487)	$	318,359
Weighted Average Shares - Basic		969,834		969,834
Anti-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	$	(0.00)	$	0.33
Diluted Earnings per Share	$	(0.00)	$	0.16

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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 (cont.)

Cumulative Preferred Stock dividends in arrears at March 31, 2022 and 2021 totaled $8,685,220 and $8,557,148, respectively. Total dividends in arrears, on a per share basis, consist of the following:

	Nine Months Ended
	March 31,
	2022		2021
6% Convertible:
Series A	$	19	$	19
Series B	$	19	$	18
5% Convertible:
Series A	$	73	$	72
Series B	$	73	$	72

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.

NOTE 3       NOTES PAYABLE AND LINE OF CREDIT

The Company’s long-term debt consists of:

		March 31,		June 30,
Payee	Terms	2022		2021
Nodaway Valley Bank	$350,000 line-of-credit agreement expiring on January 4, 2023, 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.	$	—	$	120,000
Toyota Credit	$444 monthly payments, interest of 6.49%; final payment due May 2022, secured by a vehicle.		878		4,730
	Total		878		124,730
	Less Current Portion		878		124,730
	Long-Term Portion	$	—	$	—

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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 (cont.)

Future minimum payments for the twelve months ending March 31 are:

March 31,	Amount
2022	$	878
2023		—
Total	$	878

During fiscal year 2020, the Company received a Small Business Administration Paycheck Protection Program (PPP) Promissory Note totaling $171,500. The Company accounted for this note under Accounting Standards Codification (ASC) 470, Debt. Under ASC 470, the initial recognition of the debt is a financial liability that accrues interest. Under ASC 470, derecognition of the liability will occur when the Company has been “legally released” or pays off the loan at which time forgiveness will be recorded as a gain on extinguishment. This loan was fully forgiven during December 2020 and a gain on extinguishment of debt has been recognized as other income.

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 and nine month period ended March 31, 2022 due to net operating loss carryforwards 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 March 31, 2022.  The Company has no material tax positions at March 31, 2022, 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 March 31, 2022.  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

	Nine Months Ended
	March 31,
	2022		2021
Cash Paid for:
Interest	$	4,057	$	2,598

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 March 31, 2022, 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.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.     FINANCIAL INFORMATION

Item 1. Condensed Consolidated financial statements

notes to condensed consolidated financial statements

(unaudited)

NOTE 7       COMMITMENT, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

The Company leases its office and manufacturing facility located in 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 three 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 $58,500 for the nine months ended March 31, 2022, of which, $53,673 is included in cost of sales and $4,827 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 March 31, 2022 are as follows:

Twelve Months Ending March 31,	Amount
2023	$	78,000
2024		78,000
2025		78,000
Total Lease Payments		234,000
Less: Imputed Interest		(21,701)
Total Lease Liabilities	$	212,299

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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. We have adjusted the number of people allowed at our 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 we have sufficient liquidity to satisfy current cash needs, however, we 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 fourth 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.

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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 March 31, 2022 Compared to Three Months Ended March 31, 2021, and Nine months Ended March 31, 2022 Compared to Nine months Ended March 31, 2021

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 for the periods presented:

	Three months ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Sales	100	%	100	%	100	%	100	%
Cost of Sales	74	%	79	%	69	%	62	%
Gross Profit on Sales	26	%	21	%	31	%	38	%
Operating Expenses	38	%	43	%	27	%	28	%
Income (Loss) from Operations	(12)	%	(22)	%	4	%	10	%
Other Income, Net	—	%	1	%	—	%	7	%
Net Income (Loss) before Income Taxes	(12)	%	(21)	%	4	%	17	%
Income Tax Provision (Benefit)	—	%	—	%	—	%	—	%
Net Income (Loss)	(12)	%	(21)	%	4	%	17	%

SALES

Sales increased $142,028 or 34% for the three months ended March 31, 2022 to $565,035 compared to $423,007 for the three months ended March 31, 2021. Sales for Chase Candy increased $142,506 to $552,692 for the three months ended March 31, 2022, compared to $410,186 for the three months ended March 31, 2021. Sales for Seasonal Candy decreased $478 to $12,343 for the three months ended March 31, 2022, compared to $12,821 for the three months ended March 31, 2021.

The 35% increase in sales of Chase Candy of $142,506 for the three months ended
March 31, 2022 over the same period ended March 31, 2021, is primarily due to the effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $163,000 versus the same period a year ago primarily due to increased orders from existing customers; 2) decreased sales allowances and discounts sales of approximately $17,500; offset by 3) decreased net sales of the L100/L200/SK2100 Cherry Mash Merchandisers segment by approximately $18,000 to existing customers; 4) net decreased sales of approximately $20,000 for the Mini Mash L278/L212 segments to existing customers.  

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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 4% decrease in sales of Seasonal Candy of $478 for the three months ended March 31, 2022 over the same period ended March 31, 2021, is primarily due to the effect of the following: 1) increased sales in the bulk seasonal division and other categories by approximately $2,800 versus the same period a year ago, primarily due to increased sales to existing customers offset by 2) decreased sales to existing customers in the clamshell division by approximately $3,300 versus the same period a year ago.  

Sales increased $227,207 or 9% for the nine months ended March 31, 2022 to $2,663,343 compared to $2,436,136 for the nine months ended March 31, 2021. Sales for Chase Candy increased $110,784 to $1,458,699 for the nine months ended March 31, 2022, compared to $1,347,915 for the nine months ended March 31, 2021. Sales for Seasonal Candy increased $116,423 to $1,204,644 for the nine months ended March 31, 2022, compared to $1,088,221 for the nine months ended March 31, 2021.

The 8% increase in sales of Chase Candy of $110,784 for the nine months ended
March 31, 2022 over the same period ended March 31, 2021, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $220,000 versus the same period a year ago primarily due to increased orders from existing customers; 2) increased sales of approximately $16,000 for the Bulk Mini Mash L279/L299 segments to existing customers; offset by 3) overall net decrease in sales of the L278/L212 Mini Mash segment by approximately $37,000 versus the same period a year ago primarily due to decreases in orders from existing customers; 4) overall net decrease in sales of the approximately $73,000 for the L100/L200/SK2100 Cherry Mash Merchandisers Segment to existing customers; 5) decrease in internet sales of approximately $16,000.  

The 11% increase in sales of Seasonal Candy of $116,423 for the nine months ended March 31, 2022 over the same period ended March 31, 2021, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $23,500 versus the same period a year ago, primarily due to decreased sales to existing customers; offset by 2) increased sales in the clamshell division by approximately $45,000 versus the same period a year ago, primarily due to increased sales to existing customers; 3) increased sales in the generic segment of approximately $95,000 primarily due to increased sales to existing customers.  

COST OF SALES

The cost of sales increased $82,992 to $417,064 or 74% of related sales for the three months ended March 31, 2022, compared to $334,072 or 79% of related sales for the three months ended March 31, 2021.

The 25% increase in cost of sales of $82,992 is primarily due to the increased cost of raw materials and labor costs.  The raw material increase is primarily due to the cost of chocolate increasing 43%.  Other raw materials of peanuts, sugar and corn syrup saw price increases ranging from 4 to 7%.  Due to the volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials will continue to fluctuate primarily based on supply and demand.  Labor costs increased approximately $8,000 as production capacity continue to increase due to the mitigated effects of COVID-19.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I     financial INFORMATION

item 2. management’s discussion and analysis of

financial condition and results of operations

COST OF SALES (cont.)

The cost of sales increased $323,410 to $1,839,094 or 69% of related sales for the nine months ended March 31, 2022, compared to $1,515,684 or 62% of related sales for the nine months ended March 31, 2021.

The 21% increase in cost of sales of $323,410 is primarily due to the increased cost of raw materials and labor costs.  The raw material increase is primarily due to the cost of chocolate increasing on average 33% over the nine months ended March 31, 2022.  Other raw materials of peanuts, sugar and corn syrup saw price increases ranging from 4 to 12% during this same period.  Due to the volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials will continue to fluctuate primarily based on supply and demand.  Labor costs increased approximately $58,000 as production capacity continues to increase due to the mitigated effects of COVID-19.

SELLING EXPENSES

Selling expenses for the three months ended March 31, 2022 increased $10,543 to $75,451, which is 13% of sales, compared to $64,908, or 15% of sales for the three months ended March 31, 2021.

The increase of $10,543 in selling expenses for the three months ended March 31, 2022 is primarily due to higher commissions and related travel costs due to the increase in sales.  

Selling expenses for the nine months ended March 31, 2022 increased $7,552 to $259,360, which is 10% of sales, compared to $251,808, or 10% of sales for the nine months ended March 31, 2021.

The increase of $7,552 in selling expenses for the nine months ended March 31, 2022 is primarily due to higher commissions and related travel costs due to the increase in sales.  

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended March 31, 2022 increased $20,841 to $138,287 and 24% of sales, compared to $117,446 or 28% of sales for the three months ended March 31, 2021.

The increase of $20,841 in general and administrative expenses for the three months ended March 31, 2022 is primarily due to an increase in professional fees and insurance expense of approximately $17,000 plus additional increases related to miscellaneous other general and administrative expenses.

General and administrative expenses for the nine months ended March 31, 2022 increased $35,143 to $466,592 and 18% of sales, compared to $431,449 or 18% of sales for the nine months ended March 31, 2021.

The increase of $35,143 in general and administrative expenses for the nine months ended March 31, 2022 is primarily due to an increase in professional fees and insurance expense of approximately $39,000 offset by a decrease in miscellaneous other general and administrative expenses of approximately $14,000 related to the reduction in allowance for bad debt.  

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I     financial INFORMATION

item 2. management’s discussion and analysis of

financial condition and results of operations

OTHER INCOME (EXPENSE)

Other income (expense) decreased by $2,816 for the three months ended March 31, 2022 to $517, compared to $3,333 for the three months ended March 31, 2021.  

Other income (expense) decreased by $179,948 for the nine months ended March 31, 2022 to $(2,730), compared to $177,218 for the nine months ended March 31, 2021.  

The majority of this decrease for the nine months ended March 31, 2022, can be attributed to the gain on extinguishment of debt of $171,500 related to the forgiveness of debt from the PPP loan program in 2021.

PROVISION FOR INCOME TAXES

The Company recorded no income tax provision for the three and nine months ended March 31, 2022 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 (LOSS)

The Company reported a net loss for the three months ended March 31, 2022 of $(65,250), compared to a net loss of $(90,086) for the three months ended March 31, 2021. This increase of $24,836 is explained above.  The Company reported a net income for the nine months ended March 31, 2022 of $95,567, compared to a net income of $414,413 for the nine months ended March 31, 2021. This decrease of $318,846 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended March 31, 2022 and March 31, 2021, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

Preferred dividends were $96,054 for the nine months ended March 31, 2022 and March 31, 2021, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

Net loss applicable to common stockholders for the three months ended March 31, 2022 was $(97,268) which is an increase of $24,836 as compared to the net loss applicable to common stockholders for the three months ended March 31, 2021 of $(122,104).

Net income (loss) applicable to common stockholders for the nine months ended March 31, 2022 was $(487) which is a decrease of $318,846 as compared to the net income applicable to common stockholders for the nine months ended March 31, 2021 of $318,359.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I     financial INFORMATION

item 2. management’s discussion and analysis of

financial condition and results of operations

LIQUIDITY AND CAPITAL RESOURCES

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

	Nine Months Ended
	March 31,
	2022		2021
Net Cash Provided by Operating Activities	$	369,630	$	266,388
Net Cash Used in Financing Activities	$	(123,852)	$	(14,436)

Management has made no material commitments for capital expenditures during the remainder of fiscal 2022. The $369,630 of cash provided by operating activities for the nine months ended March 31, 2022 is fully detailed in the condensed consolidated statement of cash flows. The $123,852 of cash used in financing activities for the nine months ended March 31, 2022 is fully detailed in the condensed consolidated statement of cash flows.

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 operations and financial results for the fiscal year ending June 30, 2022, 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.

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

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.

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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 March 31, 2022 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 March 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021, (ii) Condensed Consolidated Statements of Operations for the Three months Ended March 31, 2022 and 2021, (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021, 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).

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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)
May 13, 2022	/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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