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 December 31, 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 February 5, 2024,  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 Six MONTHS ENDED December 31, 2023

PART I	FINANCIAL INFORMATION
	ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS AS OF december 31, 2023 AND JUNE 30, 2023 (UNAUDITED)	1
		CONDENSED CONSOLIDATED STATEMENTS OF iNCOME FOR THE THREE MONTHS ENDED december 31, 2023 AND 2022 (UNAUDITED)	3
		CONDENSED CONSOLIDATED STATEMENTS OF iNCOME FOR THE sIX MONTHS ENDED december 31, 2023 AND 2022 (UNAUDITED)	4
		CONDENSED CONSOLIDATED STATEMENTS OF stockholders’ Equity FOR THE Three and six MONTHS ENDED december 31, 2023 AND 2022 (UNAUDITED)	5
		CONDENSED CONSOLIDATED STATEMENTS OF Cash flows FOR THE six MONTHS ENDED december 31, 2023 AND 2022 (UNAUDITED)	6
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
	ITEM 4.	CONTROLS AND PROCEDURES	18
PART II	OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	19
	ITEM 1A.	RISK FACTORS	19
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	19
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	19
	ITEM 4.	MINE SAFETY DISCLOSURES	19
	ITEM 5.	OTHER INFORMATION	19
	ITEM 6.	EXHIBITS	19
	SIGNATURES		20

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 31,		June 30,
	2023		2023
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	250,065	$	11,295
Trade Receivables, Net of Allowance for Doubtful Accounts of $1,896		216,198		253,900
Inventories:
Finished Goods		73,313		393,898
Goods in Process		17,045		9,156
Raw Materials		139,357		131,549
Packaging Materials		206,172		269,028
Prepaid Expenses		19,876		21,884
Total Current Assets		922,026		1,090,710
LONG-TERM ASSETS
PROPERTY AND EQUIPMENT
Land		35,000		35,000
Buildings		77,348		77,348
Machinery and Equipment		866,976		886,341
Trucks and Autos		170,378		170,378
Office Equipment		33,025		33,025
Leasehold Improvements		72,068		72,068
Total		1,254,795		1,274,160
Less: Accumulated Depreciation		(1,078,341)		(1,076,030)
Total Property and Equipment, Net		176,454		198,130
Right of Use Asset		389,940		413,595
Total Long-Term Assets		566,394		611,725
Total Assets	$	1,488,420	$	1,702,435

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)

(UNAUDITED)

	December 31,		June 30,
	2023		2023
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	49,815	$	100,754
Current Maturities of Notes Payable		12,581		222,400
Current Maturities of Lease Liability		43,585		41,724
Accrued Expenses		20,546		31,996
Refund Liability Owed to Customers		36,300		10,000
Deferred Income		1,299		1,299
Total Current Liabilities		164,126		408,173
LONG-TERM LIABILITIES
Notes Payable, Less Current Maturities		25,143		31,491
Lease Liability, Less Current Maturities		339,855		365,371
Deferred Income		323		972
Deferred Income Taxes		18,213		—
Total Long-Term Liabilities		383,534		397,834
Total Liabilities		547,660		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 $2,475,000 and $2,460,000, Respectively)		500,000		500,000
Series B (Liquidation Preference $2,430,000 and $2,415,000, Respectively)		500,000		500,000
Cumulative Preferred Stock, $20 Par Value:
Series A (Liquidation Preference $5,516,728 and $5,487,461, Respectively)		1,170,660		1,170,660
Series B (Liquidation Preference $899,058 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		(5,525,236)		(5,569,568)
Total Stockholders’ Equity		940,760		896,428
Total Liabilities and Stockholders’ Equity	$	1,488,420	$	1,702,435

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 INCOME

(UNAUDITED)

	Three Months Ended
	December 31,
	2023		2022
SALES	$	1,338,492		1,260,019
COST OF SALES		999,191		782,581
Gross Profit on Sales		339,301		477,438
OPERATING EXPENSES
Selling		106,713		109,196
General and Administrative		165,774		140,167
Total Operating Expenses		272,487		249,363
Income from Operations		66,814		228,075
OTHER INCOME (EXPENSE)
Miscellaneous Income		446		408
Interest Expense		(6,311)		(3,066)
Total Other Income (Expense)		(5,865)		(2,658)
Income before Income Taxes		60,949		225,417
INCOME TAX BENEFIT (PROVISION)		(16,058)		—
NET INCOME	$	44,891	$	225,417
EARNINGS PER SHARE
Basic	$	0.01	$	0.20
Diluted	$	0.01	$	0.11

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 INCOME

(UNAUDITED)

	Six Months Ended
	December 31,
	2023		2022
SALES	$	2,449,291		2,442,221
COST OF SALES		1,796,211		1,569,082
Gross Profit on Sales		653,080		873,139
OPERATING EXPENSES
Selling		207,095		208,536
General and Administrative		364,870		346,536
Total Operating Expenses		571,965		555,072
Income from Operations		81,115		318,067
OTHER INCOME (EXPENSE)
Miscellaneous Income		803		774
Interest Expense		(13,784)		(6,993)
Total Other Income (Expense)		(12,981)		(6,219)
Income before Income Taxes		68,134		311,848
INCOME TAX BENEFIT (PROVISION)		(23,802)		—
NET INCOME	$	44,332	$	311,848
EARNINGS PER SHARE
Basic	$	(0.02)	$	0.26
Diluted	$	(0.02)	$	0.16

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

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, September 30, 2022	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,640,304)	$	825,692
Net Income, three months ended December 31, 2022		—		—		—		—		—		—		225,417		225,417
BALANCE, December 31, 2022		500,000		500,000		1,170,660		190,780		969,834		3,134,722		(5,414,887)		1,051,109
	Prior Cumulative				Cumulative
	Preferred Stock				Preferred Stock				Common		Paid-In		Accumulated
	Series A		Series B		Series A		Series B		Stock		Capital		Deficit		Total
BALANCE, September 30, 2023	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,570,127)	$	895,869
Net Income, three months ended December 31, 2023		—		—		—		—		—		—		44,891		44,891
BALANCE, December 31, 2023		500,000		500,000		1,170,660		190,780		969,834		3,134,722		(5,525,236)		940,760
	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, six months ended December 31, 2022		—		—		—		—		—		—		311,848		311,848
BALANCE, December 31, 2022		500,000		500,000		1,170,660		190,780		969,834		3,134,722		(5,414,887)		1,051,109
	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 Income, six months ended December 31, 2023		—		—		—		—		—		—		44,332		44,332
BALANCE, December 31, 2023		500,000		500,000		1,170,660		190,780		969,834		3,134,722		(5,525,236)		940,760

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

(5)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	December 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	44,332	$	311,848
Adjustments to Reconcile Net Income to Net Cash Provided by/(Used In) Operating Activities:
Depreciation and Amortization		21,676		19,173
Allowance for Bad Debts		—		474
Deferred Income Amortization		(649)		(649)
Gain on Sale of Property and Equipment		—		(17,500)
Deferred Income Taxes		18,213		—
Effects of Changes in Operating Assets and Liabilities:
Trade Receivables		37,702		(84,336)
Inventories		367,744		325,024
Prepaid Expenses		2,008		(34,338)
Accounts Payable		(50,939)		(70,903)
Refund Liability Owed to Customers		26,300		11,291
Accrued Expenses		(11,450)		(16,314)
Net Cash Provided by Operating Activities		454,937		443,770
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment		—		(4,666)
Net Cash Used in Investing Activities		—		(4,666)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Line-of-Credit		290,000		330,000
Principal Payments on Line-of-Credit		(500,000)		(450,000)
Proceeds from Note Payable - Stockholder		100,000		—
Principal Payments on Note Payable - Stockholder		(100,000)		—
Principal Payments on Note Payable		(6,167)		—
Net Cash Used in Financing Activities		(216,167)		(120,000)
INCREASE IN CASH AND CASH EQUIVALENTS		238,770		319,104
Cash and Cash Equivalents - Beginning of Period		11,295		13,511
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	250,065	$	332,615

The accompanying notes are an integral part of the unaudited

condensed consolidated financial statements.

(6)

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 and six months ended December 31, 2023 and for the three and six months ended December 31, 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 and six months ended December 31, 2023 and cash flows for the six months ended December 31, 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 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.

(7)

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 December 31,

	2023		2022
SALES
Chase Candy	$	568,451	$	542,579
Seasonal Candy		770,041		717,440
Total	$	1,338,492	$	1,260,019

For the six months ended December 31,

	2023		2022
SALES
Chase Candy	$	952,177	$	974,832
Seasonal Candy		1,497,114		1,467,389
Total	$	2,449,291	$	2,442,221

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 statement.  

Subsequent Events

Other than what is disclosed in Note 3, no other events have occurred subsequent to December 31, 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 six month period ended December 31, 2023.

(8)

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				Six Months Ended
	December 31,				December 31,
	2023		2022		2023		2022
Net Income	$	44,891	$	225,417	$	44,332	$	311,848
Preferred Dividend Requirements:
6% Prior Cumulative Preferred, $5 Par Value		15,000		15,000		30,000		30,000
5% Convertible Cumulative Preferred, $20 Par Value		17,018		17,018		34,036		34,036
Total Dividend Requirements		32,018		32,018		64,036		64,036
Net Income (Loss) attributable to Common Stockholders	$	12,873	$	193,399	$	(19,704)	$	247,812
Weighted Average Shares - Basic		969,834		969,834		969,834		969,834
Effect of Contingently Issuable Shares, if Dilutive		1,033,334		1,033,334		1,033,334		1,033,334
Weighted Average Shares - Diluted		2,003,168		2,003,168		2,003,168		2,003,168
Basic Earnings (Loss) per Share	$	0.01	$	0.20	$	(0.02)	$	0.26
Diluted Earnings (Loss) per Share	$	0.01	$	0.11	$	(0.02)	$	0.16

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, was excluded at December 31, 2023 as its conversion would have an anti-dilutive effect.  Cumulative Preferred Stock dividends in arrears at December 31, 2023 and 2022 totaled $8,909,346 and $8,781,274, respectively. Total dividends in arrears, on a per share basis, consist of the following:

	Six Months Ended
	December 31,
	2023		2022
6% Convertible:
Series A	$	20	$	19
Series B	$	19	$	19
5% Convertible:
Series A	$	74	$	73
Series B	$	74	$	73

(9)

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.)

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.

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 5% convertible preferred stock.

NOTE 3       NOTES PAYABLE AND LINE-OF-CREDIT

The Company’s debt consists of:

		December 31,		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 December 31, 2023). The line of credit is collateralized by substantially all assets of the Company.	$	—	$	210,000
Note Payable - Stockholder	$100,000 unsecured promissory note from stockholder due December 30, 2023, with interest rate at 8.25% per annum, paid in full November 30, 2023		—		—
Ford Motor Credit Company, LLC	$1,125.75 monthly payments, interest of 2.90%; final payment due November 2026, secured by a vehicle		37,724		43,891
	Total		37,724		253,891
	Less Current Portion		12,581		222,400
	Long-Term Portion	$	25,143	$	31,491

Subsequent to the quarter ended December 31, 2023, the line-of-credit agreement above was renewed under similar terms maturing on January 4, 2025.

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

December 31,	Amount
2024	$	12,581
2025		13,023
2026		12,120
Total	$	37,724

(10)

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 $16,058 for the three months ended December 31, 2023 and $23,802 for the six months ended December 31, 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 impacts at December 31, 2023.  The Company has no material tax positions at December 31, 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 December 31, 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

	Six Months Ended
	December 31,
	2023		2022
Supplemental Cash Flows Information
Interest paid	$	14,062	$	6,809
Note Payable obligation incurred for equipment	$	—	$	50,900

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 line-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 this 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 6.25 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.

(11)

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. The Company has made a policy election to combine lease and non-lease components, and a policy election to not recognize right-of-use assets or lease liabilities for leases that are less than twelve months. Cash paid for operating lease liabilities was $39,000 and operating lease expense was $39,000 for the six months ended December 31, 2023, of which, $35,782 is included in cost of sales and $3,218 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 December 31, 2023 are as follows:

Twelve Months Ending December 31,	Amount
2024	$	71,500
2025		78,000
2026		78,000
2027		78,000
2028		78,000
Thereafter		104,000
Total Lease Payments		487,500
Less: Imputed Interest		(104,060)
Total Lease Liability	$	383,440

On September 28, 2023, the Chief Executive Officer of the Company advanced the Company $100,000 under a standard promissory note agreement with interest at a rate of 8.5% per annum, due December 30, 2023. On November 30, 2023, the Company paid the note in full including interest of $1,446.

(12)

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 sales 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 December 31, 2023 Compared to Three Months Ended December 31, 2022, and Six Months Ended December 31, 2023 Compared to Six Months Ended December 31, 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				Six Months Ended
	December 31,				December 31,
	2023		2022		2023		2022
Sales	100	%	100	%	100	%	100	%
Cost of Sales	75	%	62	%	73	%	64	%
Gross Profit on Sales	25	%	38	%	27	%	36	%
Operating Expenses	20	%	20	%	23	%	23	%
Income from Operations	5	%	18	%	4	%	13	%
Other Income (Expense), Net	(1)	%	—	%	(1)	%	—	%
Income before Income Taxes	4	%	18	%	3	%	13	%
Income Tax Benefit (Provision)	(1)	%	—	%	(1)	%	—	%
Net Income (Loss)	3	%	18	%	2	%	13	%

SALES

Sales increased $78,473 or 6% for the three months ended December 31, 2023 to $1,338,492 compared to $1,260,019 for the three months ended December 31, 2022. Sales for Chase Candy increased $25,872 to $568,451 for the three months ended December 31, 2023, compared to $542,579 for the three months ended December 31, 2022. Sales for Seasonal Candy increased $52,601 to $770,041 for the three months ended December 31, 2023, compared to $717,440 for the three months ended December 31, 2022.

The 5% increase in sales of Chase Candy of $25,872 for the three months ended December 31, 2023 over the same period ended December 31, 2022 is primarily due to the price increases that took effect for the majority of customers in December 2022.  The overall quantity of items sold for this division remained relatively comparable between the periods.  

(13)

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 7% increase in sales of Seasonal Candy of $52,601 for the three months ended December 31, 2023 over the same period ended December 31, 2022 is primarily due to the effect of increased quantities sold as no specific price increases have been implemented in this category since July 2022: 1) increased sales in the bulk seasonal division by approximately $23,000 versus the same period a year ago, primarily due to increased sales to existing customers; 2) increased sales to existing customers in the regular produce category by approximately $60,000 versus the same period a year ago; offset by 3) decreased sales to existing customers in clamshell division by approximately $26,000 versus the same period a year ago; 4) increase in sales allowances and discounts by approximately $5,000.

Sales increased $7,070 or less than 1% for the six months ended December 31, 2023 to $2,449,291 compared to $2,442,221 for the six months ended December 31, 2022. Sales for Chase Candy decreased $22,655 to $952,177 for the six months ended December 31, 2023, compared to $974,832 for the six months ended December 31, 2022. Sales for Seasonal Candy increased $29,725 to $1,497,114 for the six months ended December 31, 2023, compared to $1,467,389 for the six months ended December 31, 2022.

The 2% decrease in sales of Chase Candy by $22,655 for the six months ended December 31, 2023 over the same period ended December 31, 2022 is primarily due to the decline in sales in the first quarter resulting from decreases in orders from existing customers offset by the increases realized in the second quarter noted above.

The 2% increase in sales of Seasonal Candy of $29,725 for the six months ended December 31, 2023 over the same period ended December 31, 2022 is primarily due to the decline in sales in the first quarter resulting from decreases in orders from existing customers offset by the increases realized in the second quarter noted above.

COST OF SALES

The cost of sales increased $216,610 to $999,191 or 75% of related sales for the three months ended December 31, 2023, compared to $782,581 or 62% of related sales for the three months ended December 31, 2022.

The cost of sales increased $227,129 to $1,796,211 or 73% of related sales for the six months ended December 31, 2023, compared to $1,569,082 or 64% of related sales for the six months ended December 31, 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.  Additionally, all employees were given a 5-10% raise at the end of January 2023.  While the Company was able to implement a price increase in December 2022 for the majority of customers for Chase Candy products, the cost increases noted above continue to outpace the revenue improvements.

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2023 decreased $2,483 to $106,713, which is 8% of sales, compared to $109,196, or 9% of sales for the three months ended December 31, 2022.

Selling expenses for the six months ended December 31, 2023 decreased $1,441 to $207,095, which is 8% of sales, compared to $208,536, or 9% of sales for the six months ended December 31, 2022.

(14)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I     financial INFORMATION

item 2. management’s discussion and analysis of

financial condition and results of operations

SELLING EXPENSES (cont.)

The decrease in selling expenses for the both the quarter and six months ended December 31, 2023 is primarily due to decreases in shipping costs as freight prices continue to decline after significant increase in the prior periods.  Management continues to make efforts to minimize selling expenses in an attempt to recover costs not passed along with price increases.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2023 increased $25,607 to $165,774 and 12% of sales, compared to $140,167 or 11% of sales for the three months ended December 31, 2022.

The increase of $25,607 in general and administrative expenses for the three months ended December 31, 2023 is primarily due to the prior quarter’s expenses being offset by a gain on sale of property and equipment of $17,500 .  Additionally, in the three month period ended December 31, 2023, dues and subscriptions increased approximately $9,000 primarily due to new subscription fee charges from one of the Company’s largest customers.  

General and administrative expenses for the six months ended December 31, 2023 increased $18,334 to $364,870 and 15% of sales, compared to $346,536 or 14% of sales for the six months ended December 31, 2022.

The increase of $18,334 in general and administrative expenses for the six months ended December 31, 2023 is primarily due to the prior year’s expenses being offset by a gain on sale of property and equipment of $17,500. The Company did experience an increase in dues and subscriptions for the six month period ended December 31, 2023 of approximately $9,000 as noted above, however, this was offset by an overall decrease in miscellaneous general and administrative expenses that occurred in prior quarter primarily related to reduction in professional fees.

OTHER INCOME (EXPENSE)

Other expense increased by $3,207 for the three months ended December 31, 2023 to ($5,865), compared to ($2,658) for the three months ended December 31, 2022.

Other expense increased by $6,762 for the six months ended December 31, 2023 to ($12,981) compared to ($6,219) for the six months ended December 31, 2022.

The majority of this change can be attributed to an increase in interest expense, specifically related to the increased prime lending rate throughout 2023 as compared to the prior periods.

.

PROVISION FOR INCOME TAXES

The Company recorded an income tax provision of $16,058 for the three months ended December 31, 2023 and $23,802 for the six months ended December 31, 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 recorded no income tax provision for the three months and six months ended December 31, 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.

(15)

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I     financial INFORMATION

item 2. management’s discussion and analysis of

financial condition and results of operations

NET INCOME

The Company reported a net income for the three months ended December 31, 2023 of $44,891, compared to a net income of $225,417 for the three months ended December 31, 2022. This decrease of $180,526 is explained above.  The Company reported net income for the six months ended December 31, 2023 of $44,332, compared to a net income of $311,848 for the six months ended December 31, 2022. This decrease of $267,516 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended December 31, 2023 and December 31, 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.

Preferred dividends were $64,036 for the six months ended December 31, 2023 and December 31, 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 applicable to common stockholders for the three months ended December 31, 2023 was $12,873 which is an decrease of $180,526 as compared to the net income applicable to common stockholders for the three months ended December 31, 2022 of $193,399.

Net income (loss) applicable to common stockholders for the six months ended December 31, 2023 was $(19,704) which is a decrease of $267,516 as compared to the net income applicable to common stockholders for the six months ended December 31, 2022 of $247,812.

LIQUIDITY AND CAPITAL RESOURCES

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

	Six Months Ended
	December 31,
	2023		2022
Net Cash Provided by Operating Activities	$	454,937	$	443,770
Net Cash Used in Investing Activities	$	—	$	(4,666)
Net Cash Used in Financing Activities	$	(216,167)	$	(120,000)

Management has made no material commitments for capital expenditures during the remainder of fiscal year 2024. The $454,937 of cash provided by operating activities for the six months ended December 31, 2023 is fully detailed in the condensed consolidated statement of cash flows. The $216,167 of cash used in financing activities for the six months ended December 31, 2023 is fully detailed in the condensed consolidated statement of cash flows.

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 availability on the line of credit and the Company’s ability to generate positive working capital will be sufficient to meet its funding requirements for the foreseeable future.

(16)

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 estimation process for the retail inventory method of accounting, 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.

(17)

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.

(18)

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 December 31, 2023 is $8,909,346.

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 December 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023, (ii) Condensed Consolidated Statements of Income for the Three months Ended Decmeber 31, 2023 and 2022, (iii) Condensed Consolidated Statements of Income for the Six months Ended December 31, 2023 and 2022, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2023 and 2022, and (v) 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).

(19)

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)
February 5, 2024	/s/ Barry M. Yantis
Date	Barry M. Yantis
	Chairman of the Board, Chief Executive Officer and
	Chief Financial Officer, President, and Treasurer

(20)