Chase General 10Q 2024 Q1 Quarterly report

Table of Contents

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 September 30, 2023

☐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 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 November 13, 2023, there were 969,834 shares of common stock, $1.00 par value, outstanding.

Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

FOR THE THREE months ENDED SEPTEMBER 30, 2023

PART I	FINANCIAL INFORMATION

	ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2023 AND JUNE 30, 2023 (UNAUDITED)	1

		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)	3

		CONDENSED CONSOLIDATED STATEMENTS OF stockholders’ Equity FOR THE Three months ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)	4

		CONDENSED CONSOLIDATED STATEMENTS OF Cash flows FOR THE Three months ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)	5

		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	6

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	16

	ITEM 4.	CONTROLS AND PROCEDURES	16

PART II	OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS	17

	ITEM 1A.	RISK FACTORS	17

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	17

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	17

	ITEM 4.	MINE SAFETY DISCLOSURES	17

	ITEM 5.	OTHER INFORMATION	17

	ITEM 6.	EXHIBITS	17

	SIGNATURES		18

Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	September 30,		June 30,
	2023		2023

ASSETS

CURRENT ASSETS
Cash and Cash Equivalents	$	20,485	$	11,295
Trade Receivables, Net of Allowance for Doubtful Accounts of $1,896		960,707		253,900
Inventories:
Finished Goods		365,352		393,898
Goods in Process		26,036		9,156
Raw Materials		163,360		131,549
Packaging Materials		273,438		269,028
Prepaid Expenses		4,162		21,884
Total Current Assets		1,813,540		1,090,710

LONG-TERM ASSETS
Property & Equipment
Land		35,000		35,000
Buildings		77,348		77,348
Machinery and Equipment		886,341		886,341
Trucks and Autos		170,378		170,378
Office Equipment		33,025		33,025
Leasehold Improvements		72,068		72,068
Total		1,274,160		1,274,160
Less: Accumulated Depreciation and Amortization		(1,086,973)		(1,076,030)
Total Property and Equipment, Net		187,187		198,130
Right-of-Use Asset		401,880		413,595
Total Long-Term Assets		589,067		611,725

Total Assets	$	2,402,607	$	1,702,435

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(UNAUDITED)


	September 30,		June 30,
	2023		2023

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts Payable	$	350,110	$	100,754
Current Maturities of Notes Payable		612,490		222,400
Current Maturities of Lease Liability		42,646		41,724
Accrued Expenses		77,299		31,996
Refund Liability Owed to Customers		34,110		10,000
Deferred Income		1,299		1,299
Total Current Liabilities		1,117,954		408,173

LONG-TERM LIABILITIES
Notes Payable, Less Current Maturities		28,337		31,491
Lease Liability, Less Current Maturities		352,734		365,371
Deferred Income		648		972
Deferred Income Taxes		7,065		—
Total Long-Term Liabilities		388,784		397,834

Total Liabilities		1,506,738		806,007

COMMITMENTS AND CONTINGENCIES (NOTE 7)

STOCKHOLDERS’ EQUITY
Capital Stock Issued and Outstanding:
Prior Cumulative Preferred Stock, $5 Par Value:
Series A (Liquidation Preference $2,467,500 and $2,460,000, Respectively)		500,000		500,000
Series B (Liquidation Preference $2,422,500 and $2,415,000, Respectively)		500,000		500,000
Cumulative Preferred Stock, $20 Par Value:
Series A (Liquidation Preference $5,502,095 and $5,487,461, Respectively)		1,170,660		1,170,660
Series B (Liquidation Preference $896,674 and $894,289, 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		(5,570,127)		(5,569,568)
Total Stockholders’ Equity		895,869		896,428

Total Liabilities and Stockholders’ Equity	$	2,402,607	$	1,702,435

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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Table of Contents

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,
	2023		2022
SALES	$	1,110,799		1,182,202

COST OF SALES		797,020		786,501
Gross Profit on Sales		313,779		395,701

OPERATING EXPENSES
Selling		100,382		99,340
General and Administrative		199,096		206,369
Total Operating Expenses		299,478		305,709

Income from Operations		14,301		89,992

OTHER INCOME (EXPENSE)
Miscellaneous Income		357		366
Interest Expense		(7,473)		(3,927)
Total Other Income (Expense), net		(7,116)		(3,561)

Income before Income Taxes		7,185		86,431

INCOME TAX BENEFIT (PROVISION)		(7,744)		—

NET INCOME (LOSS)	$	(559)	$	86,431

EARNINGS (LOSS) PER SHARE
Basic	$	(0.03)	$	0.06

Diluted	$	(0.03)	$	0.04

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)



	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, June 30, 2022	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,726,735)	$	739,261

Net Income, three months ended September 30, 2022		—		—		—		—		—		—		86,431		86,431

BALANCE, September 30, 2022	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,640,304)	$	825,692

	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, June 30, 2023	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,569,568)	$	896,428

Net Loss, three months ended September 30, 2023		—		—		—		—		—		—		(559)		(559)

BALANCE, September 30, 2023	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,570,127)	$	895,869

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended
	September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)	$	(559)	$	86,431
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by/(Used in) Operating Activities:
Depreciation and Amortization		10,943		7,966
Allowance for Bad Debts		—		237
Deferred Income Amortization		(324)		(324)
Deferred Income Taxes		7,065		—
Effects of Changes in Operating Assets and Liabilities:
Trade Receivables		(706,807)		(829,667)
Inventories		(24,555)		178,926
Prepaid Expenses		17,722		(30,068)
Accounts Payable		249,356		175,170
Refund Liability Owed to Customers		24,110		21,819
Accrued Expenses		45,303		26,141
Net Cash Used in Operating Activities		(377,746)		(363,369)

CASH FLOWS FROM FINANCING ACTIVITIES
Outstanding Checks in Excess of Bank Balance		—		19,858
Proceeds from Lines-of-Credit		290,000		330,000
Proceeds from Note Payable - Stockholder		100,000		—
Principal Payments on Notes Payable		(3,064)		—
Net Cash Provided by Financing Activities		386,936		349,858

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9,190		(13,511)

Cash and Cash Equivalents - Beginning of Period		11,295		13,511

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	20,485	$	—

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

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Table of Contents

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, 2023 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, 2023 and for the three months ended September 30, 2022 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, 2023. The results of operations for the three months ended September 30, 2023 and cash flows for the three months ended September 30, 2023 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2024. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present the 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 receivables on the consolidated 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.

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Table of Contents

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 two 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 two divisions as one reportable segment. The various divisions of revenue are as follows:

For the three months ended September 30,


	2023		2022
SALES
Chase Candy	$	385,147	$	432,504
Seasonal Candy		725,652		749,698
Total	$	1,110,799	$	1,182,202

Recently Issued Pronouncements

Effective July 1, 2023, the Company adopted ASU 2016-13, Financial Instrument – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments related to the impairment of financial instruments using the modified retrospective approach, which applies Topic 326 at the beginning of the earliest period presented. This guidance, commonly referred to as Current Expected Credit Loss (“CECL”), changes impairment recognition to a model that is based on expected losses rather than incurred losses. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables. The Company evaluated and determined the amendment did not have a material affect on the condensed consolidated financial statements.

Subsequent Events

No other events have occurred subsequent to September 30, 2023, 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, 2023.

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Table of Contents

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 (LOSS) PER SHARE

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


	Three Months Ended
	September 30,
	2023			2022
Net Income (Loss)	$	(559)	��	$	86,431

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 (Loss) attributable to Common Stockholders	$	(32,577)		$	54,413

Weighted Average Shares - Basic		969,834			969,834
Effect of Contingently Issuable Shares, if Dilutive		1,033,334			1,033,334
Weighted Average Shares - Diluted		2,003,168			2,003,168

Basic Earnings (Loss) per Share	$	(0.03)		$	0.06

Diluted Earnings (Loss) per Share	$	(0.03)		$	0.04

The Company excludes equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive. All of the preferred stock, which is convertible into $1,033,334 shares of common stock were excluded at September 30, 2023 as its conversion would have an anti-dilutive effect. Cumulative Preferred Stock dividends in arrears at September 30, 2023 and 2022 totaled $8,877,328 and $8,749,256, respectively. Total dividends in arrears, on a per share basis, consist of the following:


	Three Months Ended
	September 30,
	2023		2022
6% Convertible:
Series A	$	19	$	19
Series B	$	19	$	19
5% Convertible:
Series A	$	74	$	73
Series B	$	74	$	73

The 6% convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 per 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 four common shares for one share of Series A and 3.75 common shares for one share of Series B.

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Table of Contents

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 (LOSS) PER SHARE (cont.)

The Company has the privilege of redemption of 5% convertible cumulative preferred stock at $21 per share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20 per share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.

NOTE 3 NOTES PAYABLE

The Company’s notes payable consists of:


		September 30,		June 30,
Payee	Terms	2023		2023
Nodaway Valley Bank	$500,000 line-of-credit agreement expiring on January 4, 2024, with a variable interest rate at prime but not less than 5% (8.5% as of September 30, 2023). The line of credit is collateralized by substantially all assets of the Company.	$	500,000	$	210,000

Note Payable - Stockholder	$100,000 unsecured promissory note from stockholder due December 30, 2023, with interest rate at 8.25% per annum.		100,000		—

Ford Motor Credit Company	$1,126 monthly payments, interest of 2.90%; final payment due November 2026, secured by a vehicle.		40,827		43,891


	Total		640,827		253,891
	Less Current Portion		612,490		222,400
	Long-Term Portion	$	28,337	$	31,491

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


September 30,	Amount
2024	$	612,490
2025		12,857
2026		13,235
2027		2,245
Total	$	640,827

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Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated financial statements

notes to condensed consolidated financial statements

(unaudited)

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 an income tax provision of $7,744 for the three months ended September 30, 2023 as the Company recognized a return to provision adjustment related to the recognition of a net deferred tax liability as well as federal and state income tax payable accounts. As the company is utilizing 80% limited net operating loss, the current year taxable income is partially offset, resulting in a current tax liability.

The Company recognized a net deferred tax liability for unrecognized tax benefits and costs at September 30, 2023. The Company has no material tax positions at September 30, 2023, 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 September 30, 2023. The Company’s federal income tax returns for the fiscal years ended 2021, 2022, and 2023 are subject to examination by the Internal Revenue Service taxing authority.

NOTE 5 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


	Three Months Ended
	September 30,
	2023		2022
Supplemental Cash Flow Information:
Interest paid	$	313	$	—

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 lines-of-credit. There are no significant differences between the carrying value and fair value of any of these financial instruments.

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. During the year ended June 30, 2023, the Company determined the exercise of the renewal option is reasonably assured and has therefore remeasured the right-of-use asset and lease liability to include the additional five years at the current rate so that the new term expires on March 31, 2030. The lease currently requires payments of $6,500 per month, as noted the Company does not believe the payments in the renewal period will vary significantly from the current amount.

An operating lease right-of-use asset and lease liability was recognized based on the present value of minimum lease payments over the remaining lease term. The Company’s operating lease has a remaining term of 6.5 years and the present value of the lease payments is calculated using the Company’s estimated incremental borrowing rate of 7.6% as of the remeasurement date. Operating lease expense is recognized on a straight-line basis over the lease term.

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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 (cont.)

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. Cash paid for operating lease liabilities was $19,500 and operating lease expense was $19,500 for the three months ended September 30, 2023, 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 the existing operating lease liability that has initial or remaining noncancelable terms in excess of one year as of September 30, 2023 is as follows:


Twelve Months Ending September 30,	Amount
2024	$	71,500
2025		78,000
2026		78,000
2027		78,000
2028		78,000
Thereafter		123,500
Total Lease Payments		507,000
Less: Imputed Interest		(111,620)
Total Lease Liability	$	395,380

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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 second fiscal quarter, which includes the majority of the holiday shopping season, than in any other fiscal quarter.

RESULTS OF OPERATIONS - Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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
	September 30,
	2023		2022
Sales	100	%	100	%
Cost of Sales	72	%	67	%
Gross Profit on Sales	28	%	33	%
Operating Expenses	27	%	26	%
Income from Operations	1	%	7	%
Other Income (Expense), Net	—	%	—	%
Income before Income Taxes	1	%	7	%
Income Tax Benefit (Provision)	(1)	%	—	%
Net Income (Loss)	0	%	7	%

SALES

Sales decreased $71,403 or 6% for the three months ended September 30, 2023 to $1,110,799 compared to $1,182,202 for the three months ended September 30, 2022. Sales for Chase Candy decreased $47,357 to $385,147 for the three months ended September 30, 2023, compared to $432,504 for the three months ended September 30, 2022. Sales for Seasonal Candy decreased $24,046 to $725,652 for the three months ended September 30, 2023, compared to $749,698 for the three months ended September 30, 2022.

The 11% decrease in sales of Chase Candy of $47,357 for the three months ended September 30, 2023 over the same period ended September 30, 2022, is primarily due to the effect of the following: 1) decreased sales of approximately $30,000 for the Mini Mash L278/L212 segments due to a decrease in orders from existing customers; 2) decreased sales of the L276 Cherry Mash Distributors Pack segment by approximately $25,000 versus the same period a year ago primarily due to decreased orders from existing customers; 3) decreased sales of the L299 Bulk Mini Mash segment by approximately $10,000 versus the same period a year ago primarily due to decreased orders from existing customers; an 4) increase in sales allowances and discounts by approximately $10,000 primarily related to returns from a large customer offset by 5) increased net sales of the L100/L200 Cherry Mash Merchandisers segment by approximately $25,000 to due to an increase in orders from 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 3% decrease in sales of Seasonal Candy of $24,046 for the three months ended September 30, 2023 over the same period ended September 30, 2022, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $45,000 versus the same period a year ago, primarily due to decreased sales to existing customers; and 2) increase in sales allowances and discounts by approximately $20,000 primarily related to returns from a large customer offset by 3) increased sales to existing customers in the regular produce category by approximately $25,000 versus the same period a year ago; and 4) increased sales to existing customers in the clamshell division by approximately $17,000 versus the same period a year ago.

COST OF SALES

Cost of sales increased $10,519 to $797,020 or 72% of sales for the three months ended September 30, 2023, compared to $786,501 or 67% of sales for the three months ended September 30, 2022.

The increase in cost of sales as a percentage of sales is related to increases in raw materials and labor. 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. All employees were given a 5-10% raise at the end of January 2023. The Company was able to implement a price increase in December 2022 for the majority of customers for Chase Candy products to mitigate increasing prices. The increase in pricing did not fully contribute to improving margins for the quarter ended September 30, 2023 because the price increases in late December 2022 still have not been fully implemented due to contractual pricing with one of the Company’s largest customers. Additionally, no pricing increases occurred for the Seasonal Candy division during the current fiscal year.

SELLING EXPENSES

Selling expenses for the three months ended September 30, 2023 increased $1,042 to $100,382, which is 9% of sales, compared to $99,340, or 8% of sales for the three months ended September 30, 2022.

The increase of $1,042 in selling expenses for the three months ended September 30, 2023 is primarily due to an increase in depreciation expense due to the purchase of new vehicles, offset by a decrease in commissions expense. Commissions expense decreased approximately $2,000 to approximately $55,000 for this period from approximately $57,000 for the three months ended September 30, 2022, primarily due to decreased sales.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended September 30, 2023 decreased $7,273 to $199,096 or 18% of sales, compared to $206,369 or 17% of sales for the three months ended September 30, 2022.

The decrease of $7,273 in general and administrative expenses for the three months ended September 30, 2023 is primarily due to decreases in professional fees of approximately $12,000. These amounts were offset by increases in other miscellaneous general and administrative expenses, specifically increases in labor costs of approximately $5,500 for the period ended September 30, 2023.

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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 expense increased by $3,555 for the three months ended September 30, 2023 to ($7,116), compared to ($3,561) for the three months ended September 30, 2022.

The majority of this change can be attributed to an increase in interest expense.

PROVISION FOR INCOME TAXES

The Company recorded an income tax provision of $7,744 for the three months ended September 30, 2023 as the Company removed the previously established full valuation allowance against its net deferred tax assets. The income tax expense is to establish the net deferred tax liability as well as federal and state income tax payable accounts..

The Company did not record an income tax provision for the three months ended September 30, 2022 due to the net operating loss carryforward as of June 30, 2022 that was available to offset taxable income. The remaining net operating loss was also subject to a full valuation allowance.

NET INCOME (LOSS)

The Company reported a net loss for the three months ended September 30, 2023 of $(559), compared to net income of $86,431 for the three months ended September 30, 2022. This decrease of $86,990 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended September 30, 2023 and September 30, 2022, 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 income (loss) applicable to common stockholders for the three months ended September 30, 2023 was $(32,577) which is a decrease of $86,990 as compared to net income applicable to common stockholders for the three months ended September 30, 2022 of $54,413.

LIQUIDITY AND CAPITAL RESOURCES

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


	Three Months Ended
	September 30,
	2023		2022
Net Cash Used in Operating Activities	$	(377,746)	$	(363,369)
Net Cash Provided by Financing Activities	$	386,936	$	349,858

Management has made no material commitments for capital expenditures during the remainder of fiscal year 2024. The $377,746 of cash used by operating activities for the three months ended September 30, 2023 is fully detailed in the condensed consolidated statement of cash flows. The $386,936 of cash provided by financing activities for the three months ended September 30, 2023 is fully detailed in the condensed consolidated statement of cash flows.

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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 (cont.)

In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area and increase sales to its customers. Management also intends to continue tight control on all expenditures. 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. Management intends to make sales price adjustments in the future to correspond with changes in raw material prices. Management believes that the projected cash flow from operations combined with the Company’s ability to generate positive working capital will be sufficient to meet its funding requirements for the foreseeable future.

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.

(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 September 30, 2023 is $8,877,328.

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, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2023 and June 30, 2022, (ii) Condensed Consolidated Statements of Operations for the Three months Ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2023 and 2022, 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)

November 13, 2023		/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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Chase General (CSGN) 10-Q2024 Q1 Quarterly report

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