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Chase General Corp. – ‘10-K’ for 6/30/21

On:  Wednesday, 10/13/21, at 4:11pm ET   ·   For:  6/30/21   ·   Accession #:  1104659-21-125793   ·   File #:  2-05916

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

10/13/21  Chase General Corp.               10-K        6/30/21   57:3.9M                                   Toppan Merrill/FA

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended June 30, 2021

For transition period from                 to

Commission File Number: 2-5916

Chase General Corporation

(Exact name of registrant as specified in its charter)

1307 South 59th, St. Joseph, Missouri 64507

(Address of principal executive offices, Zip Code)

(816) 279-1625

(Issuer’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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 x

As of October 13, 2021, there were 969,834 shares of common stock, $1.00 par value, outstanding.

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

PART I

Chase General Corporation was incorporated November 6, 1944 for the purpose of manufacturing confectionery products. In 1970, Chase General Corporation acquired a 100% interest in its wholly-owned subsidiary, Dye Candy Company. (Chase General Corporation and Dye Candy Company are sometimes referred herein as the Company). This subsidiary is the main operating company for the reporting entity.

Principal Products and Methods of Distribution

The subsidiary, Dye Candy 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. The products of both divisions are sold to the same type of customers in the same geographical areas. In addition, 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 for inclusion in this filing.

The principal products produced are as follows:

Chase Candy Products of Dye Candy Company produces a candy bar under the trade name of “Cherry Mash”. The bar is distributed in the following case sizes:

In addition to the regular size bar, a “mini-mash” is distributed in the following case sizes:

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

Principal Products and Methods of Distribution (Continued)

Seasonal Candy Products of Dye Candy Company produces coconut, peanut, chocolate, and fudge confectioneries and purchases other outsourced products. These products are distributed in bulk or packaged. Principal products include:

The Champion Crème Drops, Frosted Pretzels, and Jelly Candies are not produced by the Company.

All products are shipped to customers by commercial haulers.

Competition and Market Area

The Chase Candy Products division bars are sold primarily to wholesale candy and tobacco jobbing houses, grocery accounts, vendors, and repackers. “Cherry Mash” bars are marketed in the Midwest region of the United States. For the years ended June 30, 2021 and 2020, this division accounted for 63% and 57%, respectively, of the consolidated sales of Dye Candy Company.

The Seasonal Candy Products division is sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For the years ended June 30, 2021 and 2020, this division accounted for 37% and 43%, respectively of the consolidated sales of Dye Candy Company.

The Company has no government contracts, foreign operations or export sales. In addition, all domestic sales are primarily in the Midwest region of the United States.

The Company is a seasonal business whereby the largest volume of sales occur in August through December of each year. The earnings per quarter of the Company varies in direct proportion to the seasonal sales volume.

Due to the seasonal nature of the business, there is a heavier demand on working capital in the fall and winter months of the year when the Company is building its inventories in anticipation of August through December sales. The fluctuation of demand on working capital due to the seasonal nature of the business is common to the confectionery industry. If necessary, the Company has the ability to borrow short-term funds to finance operations prior to receiving cash collections from fall sales. The Company occasionally offers extended payment terms of up to sixty days. Since this practice is infrequent, the effect on working capital is minimal.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

Competition and Market Area (Continued)

Prompt service and efficient service are traits demanded in the confectionery industry, which results in a continual low volume of back-orders. Therefore, at no time during the year does the Company have a significant amount of back-orders.

The confectionery (candy) market for the type of product produced by the divisions of Dye Candy Company is very competitive and quality minded. The confectionery industry in which the divisions operate is highly competitive with many small companies and, within certain specialized areas, a few competitors dominate. In the United States, the dominant competitors in the coconut candy industry are Crown Candy Company, Vermico Candy Company, and the Seasonal Candy Products division of Dye Candy Company with approximately 70% of the market share among them. In the United States, Old Dominion has approximately 80% of the market share of the peanut candy business in which the Seasonal Candy Products division operates. Dye Candy Company sells approximately 95% of its products in the Midwest region with seasonal orders being shipped to the Southern and Eastern regions of the United States. Except for the coconut candy industry, Dye Candy Company is not a dominant competitor in any of the candy industries in which it competes. Dye Candy Company’s market share in the coconut industry does not vary significantly from year to year.

Principal methods of competition the Company uses include quality of product, price, reduced transportation costs due to central location, and service. The Company’s competitive position is positively influenced by labor costs being lower than industry average. Chase General Corporation is firmly established in the confectionery market and through its operating divisions has many years of experience associated with its name.

Research and Development

The Company has not developed any new products for the years ended June 30, 2021 and 2020.

Raw Materials and Principal Suppliers 

Raw materials and packaging materials are produced on a national basis with products coming from locations throughout the United States. Raw materials and packaging materials are generally widely available, depending on common market influences. No suppliers accounted for more than 10% of the Company’s cost of sales for the years ended June 30, 2021 and 2020.

Patents and Trademarks 

The largest single revenue producing product, the “Cherry Mash” bar, is protected by a trademark registered with The United States Patent and Trademark Office. The Company considers this trademark significant to operations. This trademark expires in the year 2023. The Company and its legal representatives do not expect any impediment to renewing this trademark prior to its expiration.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

Employees

As of June 30, 2021, the Company had 19 full time employees. This expands to approximately 30 full time personnel during the busy production months of August through December.

Customers 

For the years ended June 30, 2021 and 2020, one customer accounted for 41% and 45%, respectively, of sales. As of June 30, 2021 and 2020, that same customer accounted for 24% and 14%, respectively, of trade receivables. For the years ended June 30, 2021 and 2020, another customer and its affiliates accounted for 8%, respectively, of sales. As of June 30, 2021 and 2020, that same customer and its affiliates accounted for 28% and 23%, respectively, of trade receivables. No other customer accounted for more than 10% of the Company’s sales for the years ended June 30, 2021 and 2020. No other customers accounted for more than 10% of the Company’s trade receivables for the years ended June 30, 2021 and 2020.

Environmental Protection and the Effect on Probable Government Regulations on the Business  

To the best of management’s knowledge, the Company is presently in compliance with all environmental laws and regulations and does not anticipate any future expenditures in this regard. The Company has evaluated the requirements of the Food Safety Modernization Act (FSMA). The FSMA aims to ensure the U.S. food supply is safe by shifting the focus of federal regulators from responding to contamination to preventing it. The FSMA has given the Food and Drug Administration (FDA) new authorities to regulate the way foods are grown, harvested, and processed. As of the fiscal year ended June 30, 2021 and through the filing of this form, management believes the Company is compliant with all FSMA requirements. Another inspection for compliance will be conducted by a third-party within 12 months of year-end. Management does not anticipate any future significant expenditures in the next twelve months in this regard.

Need for Government Approval of Principal Products or Services 

The Company is required to meet the Food and Drug Administration guidelines for proper labeling of its products and for contents of its products. Management does not anticipate any future significant expenditures in the next twelve months in this regard.

Reports to Security Holders 

The Registrant is not required to send the annual audit report, annual 10-K report and quarterly 10-Q reports to security holders since the stock is not actively traded. These reports are available at the Registrant’s registered office or they are available on-line on the SEC’s EDGAR website.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

Not applicable to a smaller reporting company.

The Company has no unresolved SEC staff comments at June 30, 2021.

We conduct our operations from two buildings as follows:

Chase Warehouse – This building is located in St. Joseph, Missouri and is owned by Dye Candy Company, a wholly-owned subsidiary of the registrant. The facility is currently devoted entirely to the storage of supplies, and the warehousing and shipping of candy products. This warehouse is over seventy years old, is in fair condition and adequate to meet present requirements. The warehouse has approximately 15,000 square feet and is not encumbered.

Chase General Office and Dye Candy Company Operating Plant – This building is located in St. Joseph, Missouri and contains the general offices (of approximately 2,000 square feet) for Chase General Corporation, Dye Candy Company and its divisions. The production plant of Dye Candy Company occupies the remainder of the building or 18,000 square feet. The building, specifically designed for the Company, is leased from an entity that is partially owned by the son of the Chief Executive Officer of the Company. The annual rental expense of this facility was $78,000 for each year ended June 30, 2021 and 2020.

The net book value of our premises, land and office, and production equipment totaled $132,387 and $156,494 at June 30, 2021 and 2020, respectively.

We believe both facilities are adequately covered by insurance.

None.

Not applicable.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

PART II

Market information 

There is no established public trading market for the common stock (par value $1 per share) of the Company.

Security holders 

As of October 13, 2021, the latest practicable date, the approximate number of record holders of common stock was 1,869, including individual participants in security listings.

Dividends 

No dividends have been paid during the past two fiscal years and there are no dividend restrictions. Preferred stock dividends in arrears are accumulated.

There is no set policy on the payment of dividends due to the financial condition of the Company and other factors. It is not anticipated that cash dividends will be paid in the foreseeable future.

Securities authorized for issuance under equity compensation plans 

The Company does not have any equity compensation plans.

Not applicable to a smaller reporting company.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

Forward-Looking Statements 

This report contains statements that plan for or anticipate the future. Forward-looking statements may include statements about the future of our products and the industry, statements about our future business plans and strategies, and other statements that are not historical in nature. In this report, forward-looking statements are generally identified by the words “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” and the like. Readers should carefully review these cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends, including the impact of the COVID-19 pandemic. These forward-looking statements are based on the information available to, and the expectations and assumptions deemed reasonable by, the Company at the time the statements are made. These expectations, assumptions, and uncertainties include: the Company’s expectation of heavier demand on working capital in the fall and winter months in anticipation of August through December sales; our belief that the Company has stabilized its customer base; will continue its efforts to expand the existing market area and increase sales to customers; and maintain tight control of all expenditures.

Overview 

During fiscal year ended June 30, 2021, the Company’s sales were $2,960,357, as compared to sales of $2,576,311 for fiscal year ended June 30, 2020. The 14.9% increase in volume, 1.5% decrease in cost of sales and 10.5% increase in operating expenses resulted in a change in profitability during the year, as reflected in the income from operations of $186,160 for fiscal year 2021 compared to the loss from operations of $144,491 for fiscal year 2020. Working capital increased $279,057 to $568,676 for the fiscal year 2021 from $289,619 for the fiscal year 2020 due primarily to an increase in inventory and accounts receivable.

The following information should be read together with the consolidated financial statements and notes thereto included elsewhere herein.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2021

Critical Accounting Policies and Estimates

General 

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

There have been no other events that have occurred subsequent to June 30, 2021, through the date of filing this form, that would require disclosure in the Form 10-K or would be required to be recognized in the consolidated financial statements as of or for the year ended June 30, 2021.

Revenue Recognition 

The Company recognizes revenues as product is shipped to customers. Sales are comprised of the total sales billed during the period, including shipping and handling charges to the customer, less the estimated returns, customer allowances, and customer discounts.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Inventories 

Inventories are carried at the “lower of cost or net realizable value,” with cost being determined on the “first-in, first-out” basis of accounting. The cost of goods in process include an estimate for manufacturing overhead. Finished goods inventory are valued using the lower of cost or market value, determined by the retail inventory method. Under the retail inventory method, the valuation of finished goods inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories.

New Accounting Guidance 

See Note 1, RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS, to the consolidated financial statements for a discussion of new accounting standards.

Results of Operations 

The following table sets forth for the years indicated, the percentage of sales of certain items in the Company’s consolidated statements of operations for the years ended June 30, 2021 and 2020, respectively:

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Fiscal Year 2021 Compared to Fiscal Year 2020

Sales 

During the year ended June 30, 2021, sales, net of returns and allowances, increased $384,046 or 14.9% as compared to the year ended June 30, 2020. Sales for Chase Candy products increased $388,613 or 26.3% to $1,868,899 for the year ended June 30, 2021 compared to $1,480,286 for the year ended June 30, 2020. Sales for Seasonal Candy products decreased $4,567 or .4% to $1,091,458 for the year ended June 30, 2021 as compared to $1,096,025 for the year ended June 30, 2020.

Sales for Chase Candy consisted of the following divisions: L276 Cherry Mash Distributor Pack division, Cherry Mash Merchandisers division, L260 Changemaker Jar division, L279/L299 Bulk Mini Mash division, and L278/L212 Mini Mash division. The 14.9% increase in sales of Chase Candy of $388,613 for the year ended June 30, 2021 over the same period ended June 30, 2020, is primarily due to the following: 1) increased sales of Cherry Mash Merchandisers division by approximately $49,000 versus the same period a year ago, primarily due to an increase in orders from existing customers, 2) increased sales of the L278/L212 Mini Mash division by approximately $71,000 versus the same period a year ago, primarily due to an increase in orders from existing customers, 3) increased sales of the L276 Cherry Mash Distributor Pack division by approximately $257,000 versus the same period a year ago, primarily due to an increase in orders from existing customers, 4) increased sales of the Cherry Mash internet sales via the Company’s website by approximately $26,000 versus the same period a year ago, primarily due to an increase in orders from existing customers; offset by 5) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $12,000 versus the same period a year ago, primarily due to a decrease in orders from existing customers and 6) an increase in promotions expenses allocated to the Chase Candy division of approximately $6,000 primarily due to selling more items with higher promotion fees associated with them.

Sales for Seasonal Candy consisted of the following divisions: bulk seasonal division, clamshell seasonal division, and the generic seasonal division. The .4% decrease in sales of Seasonal Candy of $4,567 for the year ended June 30, 2021 over the same period ended June 30, 2020, is primarily due to the net effect of the following: 1) decreased sales in the Chase clamshell seasonal division by approximately $17,000 versus the same period a year ago, primarily due to decreased orders from existing customers 2) decreased sales in the bulk seasonal division by approximately $28,000 versus the same period a year ago, primarily due to decreased orders from existing customers, offset by 3) increased sales in the generic seasonal division by approximately $30,000 due to increased orders from existing customers and 4) decrease in sales allowances and discounts taken by customers of approximately $10,000.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Fiscal Year 2021 Compared to Fiscal Year 2020 (Continued)

Cost of Sales 

Cost of sales for the year ended June 30, 2021, as compared to the year ended June 30, 2020, decreased by 1.5%. The cost of sales decreased $28,414 to $1,911,697 while decreasing to 64.6% of sales for the year ended June 30, 2021, compared to $1,940,111 or 75.3% of sales for the year ended June 30, 2020.

The 1.5% decrease in cost of sales of $28,414 is primarily due to adverse effect the COVID-19 pandemic had on the cost of sales for the fourth quarter of fiscal year ended June 30, 2020. Cost of sales for the fourth quarter ended June 30, 2020 increased 35% or $84,787 due to the costs associated with repurposing of finished goods inventory to adequately fill customer orders and realignment of staff during a period of decreased production. This cost was not applicable to the year ended June 30, 2021.

Labor costs, including wages, vacation pay and payroll taxes of $672,879 for the year ended June 30, 2021, increased 7.8% or $48,827 as compared to $624,052 for the year ended June 30, 2020 primarily due to increased production wages due to increased hours, bonuses, and pay rates compared to the same period ended June 30, 2020.

Freight expense, including shipping and handling costs on goods shipped of $115,587 for the year ended June 30, 2021, decreased 18.7% or $26,633 as compared to $142,220 for the year ended June 30, 2020 due primarily to changing carriers during the fiscal year.

Gross Profit on Sales 

The gross profit increased 64.8% or $412,460 to $1,048,660 increasing to 35.4% of related sales for the year ended June 30, 2021, as compared to $636,200 or 24.7% of related sales for the year ended June 30, 2020, as a net result of the 1.5% decrease in cost of sales described above, the 14.9% increase in sales and a price increase that was effective in early 2021.

Finished goods inventory as of June 30, 2021 of $287,245 increased $201,613 or 235.44% from the June 30, 2020 finished goods inventory of $85,632. Raw materials inventory as of June 30, 2021 of $97,324 increased $31,769 or 48.5% from the June 30, 2020 raw materials inventory of $65,555. Packaging materials inventory as of June 30, 2021 of $224,318 increased $68,280 or 43.8% from June 30, 2020 packaging materials inventory of $156,038. Goods in process inventory as of June 30, 2021 of $11,254 increased $4,993 or 79.8% from the June 30, 2020 goods in process inventory of $6,261. Inventory levels vary based primarily on sales and purchases.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Fiscal Year 2021 Compared to Fiscal Year 2020 (Continued)

Selling Expenses 

Selling expenses for the year ended June 30, 2021 increased $20,831 to $320,775, which is 10.8% of sales, compared to $299,944 or 11.6% of sales for the year June 30, 2020. This increase is primarily due to higher commissions, and shipping costs. Commission expense increased $17,560 to $119,288 for the year ended June 30, 2021, as compared to $101,278 for the year ended June 30, 2020 primarily due to an increase in sales of items where the Company pays commissions. Shipping costs associated with selling expenses increased $14,771 to $47,425 for the year ended June 30, 2021, as compared to $32,654 for the year ended June 30, 2020 primarily due to an increase in orders placed. The above increases were offset by a decrease in depreciation expense of $12,554 for the year ended June 30, 2021.

General and Administrative Expenses 

General and administrative expenses for the year ended June 30, 2021 increased $60,978 to $541,725, which is 18.3% of sales, compared to $480,747 or 18.7% of sales for the year ended June 30, 2020. The increase is primarily due to higher professional fees and insurance expense. Professional fees increased $44,739 to $200,741 for the year ended June 30, 2021, as compared to $156,002 for the year ended June 30, 2020 primarily due to increased audit and consulting fees. Insurance expense increased $15,181 to $146,161 for the year ended June 30, 2021, as compared to $130,980 for the year ended June 30, 2020 primarily due to the increase in insurance premiums.

Income (Loss) from Operations 

Income from operations for the year ended June 30, 2021 was 6.3% of sales, as compared to a loss from operations which was (5.6)% of sales for the year ended June 30, 2020, for the reasons previously described.

Other Income (Expense) 

Other income reflects a net of income of $177,573 for the year ended June 30, 2021, as compared to a net of expense of $(1,558) for the year ended June 30, 2020. This increase of $179,131 in other income was primarily due to the gain on extinguishment of debt related to the Paycheck Protection Program Promissory Note.

Income (Loss) before Income Taxes 

Income before income taxes was $363,733 for the year ended June 30, 2021, as compared to a loss before income taxes of $146,049 for the year ended June 30, 2020. The reasons for the increase of $509,782 have been previously discussed.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Fiscal Year 2021 Compared to Fiscal Year 2020 (Continued)

Income Tax Benefit (Provision)

The Company recorded no income tax benefit for the years ended June 30, 2021 and 2020. Additionally, the Company has placed a valuation allowance on the net deferred tax asset of $25,400 for the current year after it was determined that the Company would not be likely to use the remaining balance in the near future.

Net Income (Loss)

Net income for the year ended June 30, 2021 was $363,733, compared to a net loss for the year ended June 30, 2020 of $(146,049). This increase of $509,782 is the result of those items previously discussed.

Liquidity and Sources of Capital

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

Operating Activities

The negative cash flow of $134,716 generated from operations is a result of increases in inventory, increases in trade receivables and the gain on extinguishment of the PPP loan of $171,500. Total inventory as of June 30, 2021 of $620,141 increased $306,655 or 97.8% from the June 30, 2020 total inventory of $313,486. Trade receivables as of June 30, 2021 of $192,945 increased $48,706 or 33.7% from the June 30, 2020 trade receivables of $144,239. These reductions in cash flow were offset by the net income amount of $363,733 for the year ended June 30, 2021. The increase in inventory and the gain on extinguishment of debt had the most impact on the negative cash flow from operations.

Investing Activities 

The negative cash flow of $15,880 from investing is a result of equipment purchases made during the year ended June 30, 2021.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Fiscal Year 2021 Compared to Fiscal Year 2020 (Continued)

Financing Activities 

The Company borrowed $395,000 and $227,000, respectively, on its line-of-credit during fiscal 2021 and the fall of 2019 (fiscal 2020) busy seasons. Payments of $275,000 and $312,000, respectively, were paid for years ended June 30, 2021 and 2020. The Company entered into a $350,000 line-of-credit agreement expiring on January 4, 2022, with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.

Notes payable principal payments were $15,679 and $12,132 for years ended June 30, 2021 and 2020, respectively.

The Company received a loan in the amount of $171,500 during the year ended June 30, 2020 to fund payroll, rent, utilities and interest on mortgages and existing debt through the federal Paycheck Protection Program (PPP). The PPP note has a 1.00% per annum interest rate and is subject to terms and conditions applicable to loans administered by the SBA under the CARES act, as amended by the PPP Flexibility Act. Monthly principal and interest payments, less the amount of any potential forgiveness (as discussed below) will commence on November 10, 2020. This loan was fully forgiven during December 2020. A gain on extinguishment of debt has been recognized as other income.

Overall cash and cash equivalents decreased $46,275 to $7,115 at June 30, 2021 from $53,390 at June 30, 2020.

At June 30, 2021, the Company’s accumulated deficit was $5,705,366, compared to an accumulated deficit of $6,069,099 as of June 30, 2020. Working capital as of June 30, 2021 increased $279,057 to $568,676 from $289,619 as of June 30, 2020.

The Company’s lease on its office and plant facility is effective through March 31, 2025, with an option to extend for an additional term of five years, and currently requires payments of $6,500 per month. At the end of each five year period, the base rent may be increased an amount not greater than 30%, at the sole discretion of lessor. The facility is leased from an entity that is partially owned by the son of the Chief Executive Officer of the Company.

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. Primarily due to the fluctuations in these raw material prices, gross margins have decreased due to unchanged sales prices during the period. Management intends to make sales price adjustments in the future to correspond with changes in raw material prices.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021

Not applicable to a smaller reporting company.

The Consolidated Financial Statements meeting the requirements of Regulation S-B are contained on pages 17 through 37 of this Form 10-K.

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
TABLE OF CONTENTS
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Chase General Corporation and Subsidiary

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Chase General Corporation and Subsidiary (“Company”) as of June 30, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Mayer Hoffman McCann P.C.

We have served as the Company's auditor since 2008

Kansas City, Missouri

October 13, 2021

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2021 AND 2020

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

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (CONTINUED)

JUNE 30, 2021 AND 2020

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

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

JUNE 30, 2021 AND 2020

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

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED JUNE 30, 2021 AND 2020

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

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

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

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Earnings Per Common Share

Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share shall be computed by including contingently issuable shares with the weighted average shares outstanding during the period. When inclusion of the contingently issuable shares would have an antidilutive effect upon earnings per share, diluted earnings per share will be calculated in the same manner as basic earnings per share.

The following table details out the contingently issuable shares for the years ended June 30, 2021 and 2020. For 2020, the contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.

Advertising Expense

Advertising is expensed when incurred. Advertising expense was $18,011 and $19,019 for the years ended June 30, 2021 and 2020, respectively.

Going Concern

The Company follows ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure for the years ended June 30, 2021 and 2020. Management determined that, when considered in the aggregate, the current conditions and events, including the COVID-19 pandemic impact, do not raise substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date the consolidated financial statements are available for issuance.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Revenue Recognition

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

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The amount of consideration the Company expects to receive and revenue the Company recognizes includes estimates of variable consideration, including costs for trade promotional programs, customer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, and expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. The Company reviews and updates these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized for the year ended June 30, 2021 and 2020 resulting from updated estimates of revenue for prior year product sales were not significant. The Company has elected a practical expedient to recognize incremental costs incurred to obtain contracts, which primarily represent sales commissions where the amortization period would be less than one year, as a selling expense when incurred in the financial statements

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:

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Recently Adopted Pronouncements

The Company adopted the guidance of ASU No. 2016-02, Leases, (ASC 842) as of July 1, 2019 using the modified retrospective transition approach with the cumulative effect recognized at the date of initial application. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all, and disclose key leasing information. The Company elected a package of practical expedients permitted under the transition guidance, which among other things, allows us to carryforward the historical lease classification, and exclude from balance sheet reporting those leases with initial terms of 12 months or less. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Adoption of the new standard on July 1, 2019 resulted in the recording of operating lease ROU assets and lease liabilities in the amount of $376,105. The standard did not materially affect the Company’s consolidated net income or cash flows. See Note 8—Commitments, Contingencies, and Related Party Transactions for the required disclosures of the nature, amount, timing, and uncertainty of cash flows arising from leases.

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.

During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five-year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of January 3, 2010. The Company met the criteria of occupying a 20,000 square foot building and creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs during the five-year term. Notice was received February 6, 2009 from the Buchanan County Commission, that the Company had fulfilled its minimum loan requirements so that the loan was forgiven in full and has no further obligations. Since the Company was no longer legally required to return the monies, the liability was reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. Deferred revenue is recognized on a straight line basis over the lease term of 20 years. During the years ended June 30, 2021 and 2020, deferred revenue of $1,299 was amortized into income.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

The Company’s long-term debt at June 30, 2021 and 2020 consists of:

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Capital stock authorized, issued, and outstanding as of June 30, 2021 is as follows:

Cumulative Preferred Stock dividends in arrears at June 30, 2021 and 2020 totaled $8,589,166 and $8,461,094, respectively. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2021 and 2020:

The 6% convertible prior cumulative preferred stock may, upon 30 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. Cumulative preferred stock 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 $21.00 a share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20.00 a share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Management believes the income tax positions taken for open years are appropriately stated and supported for all open years. The Company’s federal tax returns for the years ended June 30, 2020, 2019, and 2018 are subject to examination by the Internal Revenue Service taxing authority.

The sources of deferred income tax assets and liability at June 30, 2021 and 2020 are as follows:

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

The income tax provision differs from the amount of income tax determined by applying the statutory federal income tax rate to pretax income (loss) for the years ended June 30, 2021 and 2020 due to the following:

The Company has available at June 30, 2021, $159,947 of unused operating loss that may be carried forward and applied against future taxable income. Of the net operating loss carryforward, $15,902 expires on June 30, 2038, the remaining balance does not expire.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

The loss per share for the years ended June 30, 2021 and 2020, respectively, was computed on the weighted average of outstanding common shares during the year as follows:

Contingently issuable shares were not included in the 2020 diluted earnings per common share as they would have an antidilutive effect upon earnings per share.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

The Company leases its office and manufacturing facility, located at 1307 South 59th, 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 5.5 years and the present value of the lease payments is calculated using the lessor’s implicit rate of 6.43%. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease agreement does not contain any residual value guarantees. Additionally, any other short-term leases are immaterial. The Company elected the practical expedient to not separate lease and nonlease 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 $78,000 for the year ended June 30, 2021, of which, $71,565 is included in cost of sales and $6,435 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 June 30, 2021 are as follows:

As of June 30, 2021, the Company had raw materials purchase commitments with one vendor totaling approximately $9,000.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

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 June 30, 2021, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.

For the years ended June 30, 2021 and 2020, two customers accounted for 49% and 53%, respectively, of the sales. As of June 30, 2021 and 2020, two customers accounted for 52% and 36%, respectively, of trade receivables. The effects of the COVID-19 pandemic are further discussed below in Note 11. After considering the impact of the COVID-19 pandemic, the Company does not anticipate significant changes to the concentration of credit risk in the next 12 months.

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

To date, there has been minimal disruption to the supply chain network, including the supply of ingredients, packaging or other sourced materials, though it is possible that more disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. The Company has repackaged inventory to continue to fill orders as needed and repurposed employees to better meet the current needs. Cost measures have been put in place to limit any nonessential needs.

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

The potential impact to the Company’s consolidated financial statements could occur as early as the first 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.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

The Company monitors significant events occurring after June 30, 2021 and prior to the issuance of the financial statements to determine the impact, if any, of the events on the financial statements to be issued. All subsequent events of which the Company is aware were evaluated through the filing date of this Form 10-K.

Not applicable

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer, who is also the chief financial and accounting officer, has evaluated the effectiveness of the Company’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.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Management has assessed the Company’s internal control over financial reporting in relation to criteria described in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment using those criteria, management concluded that, as of June 30, 2021, the Company’s internal control over financial reporting was not effective.

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.

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

Changes in Internal Controls

There were no significant changes in the Company’s internal controls over financial reporting or in other factors that in management’s estimates are reasonably likely to materially affect the Company’s internal controls over financial reporting subsequent to the date of the evaluation.

None

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020

PART III

There are no significant employees other than above.

Barry M. Yantis and Brian A. Yantis are brothers.

Business Experience

Brian A. Yantis, Secretary has been an officer of the Company since May 1992. Until retiring in 2011, he had been associated with the insurance business for 37 years and was a Vice-President of Aon Risk Services in Chicago, Illinois for 22 years.

Not applicable

Registrant is not required to have an audit committee since the stock is not actively traded. The board of directors are not considered audit committee financial experts, but do effectively operate as the audit committee.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020 

The Company has adopted a Code of Business Conduct and Ethics that applies to all executive officers, directors, and employees of the Company. The Code of Business Conduct and Ethics will be provided to any person without charge upon request.

Executive officers are compensated for their services as set forth in the Summary Compensation Table. These salaries are approved yearly by the board of directors.

Not applicable

Not applicable

Not applicable

Directors are not compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings.

CHASE GENERAL CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K
FOR THE YEARS ENDED JUNE 30, 2021 AND 2020