Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - CHASE GENERAL CORP | tm2024736d1_ex32-1.htm |
| EX-31.1 - EXHIBIT 31.1 - CHASE GENERAL CORP | tm2024736d1_ex31-1.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Year Ended June 30, 2020
| ¨ | Transaction Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For 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
(Issuer’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered |
| None | Not Applicable | Not Applicable |
Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No 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.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Nonaccelerated filer x | Smaller reporting company x |
| Emerging Growth Company ¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ¨ No 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 September 23, 2020, 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, 2020
(1)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| ITEM 1 | BUSINESS |
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:
| (1) | 60 count pack |
| (2) | 12 boxes of 24 bars per box |
| (3) | 200 count shipper box |
| (4) | 100 count shipper box |
| (5) | 100 # 2 box Counter Display |
In addition to the regular size bar, a “mini-mash” is distributed in the following case sizes:
| (1) | 24 - 12 oz. bags |
| (2) | 6 jars - 60 bars per jar |
| (3) | 23 # wrapped bars |
| (4) | 22 # unwrapped bars |
| (5) | 12 - 12 oz. bags |
| (6) | 3 - 4 # jars |
| (7) | 24 - 12 oz. clamshell containers |
| (8) | 9 - 8 oz. clamshell containers |
(2)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| ITEM 1 | BUSINESS (CONTINUED) |
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:
| (1) | Coconut Bon-Bons | (6) | Peanut Brittle |
| (2) | Coconut Stacks | (7) | Peanut Clusters |
| (3) | Home Style Poe Fudge | (8) | Champion Créme Drops |
| (4) | Peco Flake | (9) | Jelly Candies |
| (5) | Peanut Squares | (10) | Frosted Pretzels |
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, 2020 and 2019, this division accounted for 57% and 58%, 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, 2020 and 2019, this division accounted for 43% and 46%, 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.
(3)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| ITEM 1 | BUSINESS (CONTINUED) |
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, 2020 and 2019.
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, 2020 and 2019.
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.
(4)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| ITEM 1 | BUSINESS (CONTINUED) |
Employees
As of June 30, 2020, the Company had 18 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, 2020 and 2019, one customer accounted for 45% and 42%, respectively, of sales. As of June 30, 2020 and 2019, that same customer accounted for 14% and 18%, respectively, of trade receivables. For the years ended June 30, 2020 and 2019, another customer and its affiliates accounted for 8% and 10%, respectively, of sales. As of June 30, 2020 and 2019, that same customer and its affiliates accounted for 23% and 21%, respectively, of trade receivables. No other customer accounted for more than 10% of the Company’s sales for the years ended June 30, 2020 and 2019. One other customer accounted for more than 10% of the Company’s trade receivables for the year ended June 30, 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, 2020 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.
(5)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 1A | RISK FACTORS |
Not applicable to a smaller reporting company.
| ITEM 1B | UNRESOLVED STAFF COMMENTS |
The Company has no unresolved SEC staff comments at June 30, 2020.
| Item 2 | PROPERTIES |
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, 2020 and 2019.
The net book value of our premises, land and office, and production equipment totaled $156,494 and $211,100 at June 30, 2020 and 2019, respectively.
We believe both facilities are adequately covered by insurance.
| Item 3 | LEGAL PROCEEDINGS |
None.
| Item 4 | MINE SAFETY DISCLOSURES |
Not applicable.
(6)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 5 | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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 September 23, 2020, the latest practicable date, the approximate number of record holders of common stock was 1,869, including individual participants in security listings.
Dividends
| (1) | Dividend history and restrictions |
No dividends have been paid during the past two fiscal years and there are no dividend restrictions. Preferred stock dividends in arrears are accumulated.
| (2) | Dividend policy |
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.
| Item 6 | SELECTED FINANCIAL DATA |
Not applicable to a smaller reporting company.
(7)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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, 2020, the Company’s sales were $2,576,311, as compared to sales of $2,520,633 for fiscal year ended June 30, 2019. This 2.2% increase in volume, 3.6% increase in cost of sales and 14.7% increase in operating expenses resulted in a change in profitability during the year, as reflected in the loss from operations of $144,491 for fiscal year 2020 compared to the loss from operations of $33,184 for fiscal year 2019. Working capital decreased $68,803 to $289,619 for the fiscal year 2020 from $358,422 for the fiscal year 2019 due primarily to a decrease in inventory and an increase in the current portion of lease liability offset by an increase in cash, a decrease in accounts payable, a decrease in the current portion of notes payable, a decrease in accrued expenses, an increase in trade receivables, and a decrease in refund liability owed to customers.
The following information should be read together with the consolidated financial statements and notes thereto included elsewhere herein.
(8)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
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.
General (Continued)
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, 2020, 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, 2020.
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.
Trade Receivables
Trade receivables are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Trade receivables are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of trade receivables are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the trade receivables. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or to require an excessive collection cost, are written off to the allowance for doubtful accounts.
(9)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
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.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amounts of such assets to future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.
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, 2020 and 2019, respectively:
| 2020 | 2019 | |||||||
| Sales | 100.00 | % | 100.00 | % | ||||
| Cost of Sales | 75.31 | 74.32 | ||||||
| Gross Profit on Sales | 24.69 | 25.68 | ||||||
| Selling Expense | 11.64 | 11.28 | ||||||
| General and Administrative Expense | 18.66 | 16.31 | ||||||
| Gain on Sale of Equipment | - | (0.59 | ) | |||||
| Loss from Operations | (5.61 | ) | (1.32 | ) | ||||
| Other Expense, Net | (0.06 | ) | (0.07 | ) | ||||
| Loss before Income Taxes | (5.67 | ) | (1.39 | ) | ||||
| Income Taxes Benefit | - | - | ||||||
| Net Loss | (5.67 | ) | (1.39 | ) | ||||
| Preferred Dividends | (4.97 | ) | (5.08 | ) | ||||
| Loss Applicable to Common Stockholders | (10.64 | )% | (6.47 | )% | ||||
(10)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Fiscal Year 2020 Compared to Fiscal Year 2019
Sales
During the year ended June 30, 2020, sales, net of returns and allowances, increased $55,678 or 2.2% as compared to the year ended June 30, 2019. Sales for Chase Candy products increased $72,099 or 5.1% to $1,480,286 for the year ended June 30, 2020 compared to $1,408,187 for 2019. Sales for Seasonal Candy products decreased $16,421 or 1.5% to $1,096,025 for the year ended June 30, 2020 as compared to $1,112,446 for 2019.
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 5.1% increase in sales of Chase Candy of $72,099 for the year ended June 30, 2020 over the same period ended June 30, 2019, is primarily due to the following: 1) increased sales of Cherry Mash Merchandisers division by approximately $48,000 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 $15,000 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 $13,000 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 $5,500 versus the same period a year ago, primarily due to an increase in orders from existing customers, 5) increased sales of the L279/L299 Bulk Mini Mash division by approximately $3,500 versus the same period a year ago, primarily due to an increase in orders from existing customers 6) various other fluctuations netting to an increase of approximately $500; offset by 7) an increase in promotions expenses allocated to the Chase Candy division of approximately $9,000 primarily due selling more items with higher promotion fees associated with them; and 8) an increase in advertising expense allocated to the Chase Candy division of approximately $4,500 primarily due the increase in costs on regularly advertised markets.
Sales for Seasonal Candy consisted of the following divisions: bulk seasonal division, clamshell seasonal division, and the generic seasonal division. The 2.2% decrease in sales of Seasonal Candy of $16,421 for the year ended June 30, 2020 over the same period ended June 30, 2019, is primarily due to the net effect of the following: 1) decreased sales in the generic seasonal division by approximately $14,500 due to decreased orders from existing customers, 2) decreased sales in the bulk seasonal division by approximately $14,500 versus the same period a year ago, primarily due to decreased orders from existing customers, and 3) various other fluctuations netting to a decrease of approximately $4,500; offset by 4) increased sales in the Chase clamshell seasonal division by approximately $17,000 versus the same period a year ago, primarily due to increased orders from existing customers.
| (11) |
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Fiscal Year 2020 Compared to Fiscal Year 2019 (Continued)
Cost of Sales
Cost of sales for the year ended June 30, 2020, as compared to the year ended June 30, 2019, increased by 3.6%. The cost of sales increased $66,862 to $1,940,111 while increasing to 75.3% of sales for the year ended June 30, 2020, compared to $1,873,249 or 74.3% of sales for the year ended June 30, 2019.
The 3.6% increase in cost of sales of $66,862 is primarily due to the net impact of a 2% increase in sales of $55,678, a 3.9% increase in the price of sugar offset by a 5.1% decrease in the price of peanuts. In addition, the COVID-19 pandemic had an adverse effect on the cost of sales for the fourth quarter of fiscal year ended June 30, 2020. While sales did not fluctuate significantly during the fourth quarter compared to the quarter ended June 30, 2019, the related costs of $324,066 for the quarter ended June 30, 2020 increased 35% or $84,787 as compared to $239,279 for the quarter ended June 30, 2019 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.
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 has plans to make sales price adjustments to correspond with changes in raw material prices.
Labor costs, including wages, vacation pay and payroll taxes of $429,288 for the year ended June 30, 2020, decreased 2.8% or $12,610 as compared to $441,898 for the period ended 2019 primarily due to decreased production wages due to decreased hours, bonuses, and pay rates compared to the same period ended June 30, 2019.
Freight expense, including shipping and handling costs on goods shipped of $142,220 for the year ended June 30, 2020, decreased 3.67% or $5,415 as compared to $147,635 for the period ended 2019 due primarily to changing carriers during the fiscal year.
Gross Profit on Sales
The gross profit decreased 1.7% or $11,184 to $636,200 decreasing to 24.7% of related sales for the year ended June 30, 2020, as compared to $647,834 or 25.7% of related sales for the year ended June 30, 2019, as a net result of the 3.6% increase in cost of sales described above and the 2.2% increase in sales.
Finished goods inventory as of June 30, 2020 of $85,632 decreased $114,453 or 57.2% from the June 30, 2019 finished goods inventory of $200,085. Raw materials inventory as of June 30, 2020 of $65,555 increased $20,099 or 44.2% from the June 30, 2019 raw materials inventory of $45,456. Packaging materials inventory as of June 30, 2020 of $156,038 increased $4,243 or 2.8% from June 30, 2019 packaging materials inventory of $151,795. Goods in process inventory as of June 30, 2020 of $6,261 decreased $6,738 or 51.8% from the June 30, 2019 goods in process inventory of $12,999. Inventory levels vary based primarily on sales and purchases.
| (12) |
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Fiscal Year 2020 Compared to Fiscal Year 2019 (Continued)
Selling Expenses
Selling expenses for the year ended June 30, 2020 increased $15,534 to $299,944, which is 11.6% of sales, compared to $284,410 or 11.3% of sales for the year June 30, 2019. This increase is primarily due to higher sales salaries, commissions, and customer shows. Sales salaries increased $12,163 to $110,745 for the year ended June 30, 2020, as compared to $98,582 for the year ended June 30, 2019, primarily due to annual raises for one of the salespersons. Commission expense increased $2,239 to $101,728 for the year ended June 30, 2020, as compared to $99,489 for the year ended June 30, 2019 primarily due to an increase in sales of items where the Company pays commissions. Trade show expense increased $2,104 to $8,653 for the year ended June 30, 2020, as compared to $6,549 for the year ended June 30, 2019, primarily due increased trade shows attended by the Company’s vendors.
General and Administrative Expenses
General and administrative expenses for the year ended June 30, 2020 increased $69,748 to $480,747, which is 18.7% of sales, compared to $410,999 or 16.3% of sales for the year ended June 30, 2019. The increase is primarily due to higher professional fees, indirect costs, office salaries, insurance expense, and bad debt expense. Professional fees increased $42,557 to $156,002 for the year ended June 30, 2020, as compared to $113,445 for the year ended June 30, 2019 primarily due to the Company’s audit firm increasing their fees and an increase in attorney fees. During the current year, the Company began allocating indirect costs to general and administrative expenses that were previously allocated to cost of sales. This allocation is for the administrative portion of the office and totaled $13,500 for the year ended June 30, 2020. Office salaries increased $7,573 to $101,272 for the year ended June 30, 2020, as compared to $93,699 for the year ended June 30, 2019 primarily due to annual raises for employees. Insurance expense increased $4,116 to $130,980 for the year ended June 30, 2020, as compared to $126,864 for the year ended June 30, 2019 primarily due to more employees enrolled in the plan. Bad debt expense increased $3,134 to $2,594 for the year ended June 30, 2020, as compared to $(540) for the year ended June 30, 2019 primarily due to a write off of a receivable in the current year.
| (13) |
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Fiscal Year 2020 Compared to Fiscal Year 2019 (Continued)
Loss from Operations
Loss from operations for the year ended June 30, 2020 was (5.6)% of sales, as compared to a loss from operations of (1.3)% of sales for the year ended June 30, 2019 for the reasons previously described.
Other Expense
Other expense reflects a net expense of $1,558 for the year ended June 30, 2020, as compared to net expense of $1,878 for the year ended June 30, 2019. This decrease of $320 in other expense was primarily due to a decrease in the interest expense.
Loss before Income Taxes
Loss before income taxes was $146,049 for the year ended June 30, 2020, as compared to a loss before income taxes of $35,062 for the year ended June 30, 2019. The reasons for the increase of $110,987 have been previously discussed.
Benefit for Income Taxes
The Company recorded no income tax benefit for the years ended June 30, 2020 and 2019. Additionally, the Company has placed a valuation allowance on the net operating loss carryforward of $361,181 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 Loss
Net loss for the year ended June 30, 2020 was $146,049, compared to a net loss for the year ended June 30, 2019 of $35,062. This increase of $110,987 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.
| 2020 | 2019 | |||||||
| Net Cash Used in Operating Activities | $ | (39,778 | ) | $ | (49,084 | ) | ||
| Net Cash Used by Investing Activities | - | (1,310 | ) | |||||
| Net Cash Provided by Financing Activities | 74,368 | 67,065 | ||||||
| (14) |
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Fiscal Year 2020 Compared to Fiscal Year 2019 (Continued)
Operating Activities
The negative cash flow of $39,778 generated from operations is a result of a fluctuation in sales, decreases in inventory and the loss generated from operations. During the year ended June 30, 2020, sales, net of returns and allowances, increased $55,678, or 2.2% as compared to the year ended June 30, 2019. Total inventory as of June 30, 2020 of $313,486 decreased $96,849 or 23.6% from the June 30, 2019 total inventory of $410,335. Trade receivables as of June 30, 2020 of $144,239 increased $6,370 or 4.6% from the June 30, 2019 trade receivables of $137,869. The increase in the net loss caused by the increased operating expenses had the most impact on the negative cash flow from operations, however, this was offset by the decrease in inventory.
Investing Activities
The negative cash flow of $1,310 from investing is a result of equipment purchases made during the year ended June 30, 2019.
Financing Activities
The Company borrowed $227,000 and $425,000, respectively, on its line-of-credit during the fall of 2019 (fiscal 2020) and 2018 (fiscal 2019) busy seasons. Payments of $312,000 and $340,000, respectively, were paid for years ended June 30, 2020 and 2019. The Company entered into a $350,000 line-of-credit agreement expiring on January 4, 2021, 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 $12,132 and $17,935 for years ended June 30, 2020 and 2019, respectively.
The Company received a loan in the amount of $171,500 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. These amounts may be forgiven subject to compliance and approval based on the timing and use of these funds in accordance with the program.
Overall cash and cash equivalents increased $34,590 to $53,390 at June 30, 2020 from $18,800 at June 30, 2019.
At June 30, 2020, the Company’s accumulated deficit was $6,069,099, compared to an accumulated deficit of $5,923,050 as of June 30, 2019. Working capital as of June 30, 2020 decreased $68,803 to $289,619 from $358,422 as of June 30, 2019.
| (15) |
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
Fiscal Year 2020 Compared to Fiscal Year 2019 (Continued)
Liquidity and Sources of Capital (Continued)
Financing Activities (Continued)
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.
| Item 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to a smaller reporting company.
| Item 8 | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The Consolidated Financial Statements meeting the requirements of Regulation S-B are contained on pages 17 through 37 of this Form 10-K.
| (16) |
Chase General Corporation AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
TABLE OF CONTENTS
FOR THE YEARS ENDED JUNE 30, 2020 AND 2019
| (17) |
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, 2020 and 2019, 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 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, 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.
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.
/s/ Mayer Hoffman McCann P.C.
We have served as the Company's auditor since 2008.
Kansas City, Missouri
September 24, 2020
| (18) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
JUNE 30, 2020 AND 2019
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | 53,390 | $ | 18,800 | ||||
| Trade Receivables, Net of Allowance for Doubtful Accounts of $13,171 and $12,849, Respectively | 144,239 | 137,869 | ||||||
| Inventories: | ||||||||
| Finished Goods | 85,632 | 200,085 | ||||||
| Goods in Process | 6,261 | 12,999 | ||||||
| Raw Materials | 65,555 | 45,456 | ||||||
| Packaging Materials | 156,038 | 151,795 | ||||||
| Prepaid Expenses | 7,653 | 7,653 | ||||||
| Total Current Assets | 518,768 | 574,657 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Land | 35,000 | 35,000 | ||||||
| Buildings | 77,348 | 77,348 | ||||||
| Machinery and Equipment | 851,791 | 851,791 | ||||||
| Trucks and Autos | 158,632 | 158,632 | ||||||
| Office Equipment | 33,025 | 33,025 | ||||||
| Leasehold Improvements | 72,068 | 72,068 | ||||||
| Total | 1,227,864 | 1,227,864 | ||||||
| Less Accumulated Depreciation | 1,071,370 | 1,016,764 | ||||||
| Total Property and Equipment, Net | 156,494 | 211,100 | ||||||
| Other Long-Term Assets: | ||||||||
| Right of Use Assets | 318,537 | - | ||||||
| Total Long-Term Assets | 475,031 | 211,100 | ||||||
| Total Assets | $ | 993,799 | $ | 785,757 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| (19) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 2020 AND 2019
| 2020 | 2019 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts Payable | $ | 47,905 | $ | 78,549 | ||||
| Current Maturities of Notes Payable | 88,318 | 97,133 | ||||||
| Current Maturities of Lease Liability | 59,244 | - | ||||||
| Accrued Expenses | 22,207 | 28,851 | ||||||
| Refund Liability Owed to Customers | 10,176 | 10,403 | ||||||
| Deferred Income | 1,299 | 1,299 | ||||||
| Total Current Liabilities | 229,149 | 216,235 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes Payable, Less Current Maturities | 103,591 | 20,408 | ||||||
| Lease Liability, Less Current Maturities | 259,293 | - | ||||||
| Deferred Income | 4,869 | 6,168 | ||||||
| Total Long-Term Liabilities | 367,753 | 26,576 | ||||||
| Total Liabilities | 596,902 | 242,811 | ||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 8) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Capital Stock Issued and Outstanding: | ||||||||
| Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
| Series A (Liquidation Preference $2,370,000 and $2,340,000, Respectively) | 500,000 | 500,000 | ||||||
| Series B (Liquidation Preference $2,325,000 and $2,295,000, Respectively) | 500,000 | 500,000 | ||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| Series A (Liquidation Preference $5,311,862 and $5,253,329, Respectively) | 1,170,660 | 1,170,660 | ||||||
| Series B (Liquidation Preference $865,672 and $856,133, 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 | (6,069,099 | ) | (5,923,050 | ) | ||||
| Total Stockholders' Equity | 396,897 | 542,946 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 993,799 | $ | 785,757 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| (20) |
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended june 30, 2020 AND 2019
| 2020 | 2019 | |||||||
| SALES | $ | 2,576,311 | $ | 2,520,633 | ||||
| COST OF SALES | 1,940,111 | 1,873,249 | ||||||
| Gross Profit on Sales | 636,200 | 647,384 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling Expenses | 299,944 | 284,410 | ||||||
| General and Administrative Expenses | 480,747 | 410,999 | ||||||
| Gain on Sale of Equipment | - | (14,841 | ) | |||||
| Total Operating Expenses | 780,691 | 680,568 | ||||||
| Loss from Operations | (144,491 | ) | (33,184 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income | 4,377 | 4,832 | ||||||
| Interest Expense | (5,935 | ) | (6,710 | ) | ||||
| Total Other Income (Expense) | (1,558 | ) | (1,878 | ) | ||||
| Loss before Income Taxes | (146,049 | ) | (35,062 | ) | ||||
| INCOME TAXES BENEFIT | - | - | ||||||
| NET LOSS | $ | (146,049 | ) | $ | (35,062 | ) | ||
| NET LOSS PER SHARE OF COMMON STOCK | ||||||||
| - BASIC | $ | (0.28 | ) | $ | (0.17 | ) | ||
| - DILUTED | $ | (0.28 | ) | $ | (0.17 | ) | ||
The accompanying notes are an integral part of the consolidated financial statements.
(21)
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended june 30, 2020 AND 2019
| 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, 2018 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (5,887,988 | ) | $ | 578,008 | |||||||||||||||
| Net Loss | - | - | - | - | - | - | (35,062 | ) | (35,062 | ) | ||||||||||||||||||||||
| BALANCE, JUNE 30, 2019 | 500,000 | 500,000 | 1,170,660 | 190,780 | 969,834 | 3,134,722 | (5,923,050 | ) | 542,946 | |||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | (146,049 | ) | (146,049 | ) | ||||||||||||||||||||||
| BALANCE, JUNE 30, 2020 | $ | 500,000 | $ | 500,000 | $ | 1,170,660 | $ | 190,780 | $ | 969,834 | $ | 3,134,722 | $ | (6,069,099 | ) | $ | 396,897 | |||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
(22)
CHASE GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2020 and 2019
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Collections from Customers | $ | 2,569,941 | $ | 2,518,095 | ||||
| Cost of Sales, Selling, General and Administrative Expenses Paid | (2,603,784 | ) | (2,560,469 | ) | ||||
| Interest Paid | (5,935 | ) | (6,710 | ) | ||||
| Net Cash Used by Operating Activities | (39,778 | ) | (49,084 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of Property and Equipment | - | (1,310 | ) | |||||
| Net Cash Used by Investing Activities | - | (1,310 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Line-of-Credit | 227,000 | 425,000 | ||||||
| Proceeds from Notes Payable | 171,500 | - | ||||||
| Principal Payments on Line-of-Credit | (312,000 | ) | (340,000 | ) | ||||
| Principal Payments on Notes Payable | (12,132 | ) | (17,935 | ) | ||||
| Net Cash Provided by Financing Activities | 74,368 | 67,065 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 34,590 | 16,671 | ||||||
| Cash and Cash Equivalents, Beginning of Year | 18,800 | 2,129 | ||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 53,390 | $ | 18,800 | ||||
| RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (146,049 | ) | $ | (35,062 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Provided by | ||||||||
| Operating Activities: | ||||||||
| Depreciation and Amortization | 54,606 | 54,696 | ||||||
| Allowance for Bad Debts | (540 | ) | (540 | ) | ||||
| Deferred Income Amortization | (1,299 | ) | (1,298 | ) | ||||
| (Gain)/Loss on Sale of Equipment | - | (14,841 | ) | |||||
| Effects of Changes in Operating Assets and Liabilities: | ||||||||
| Trade Receivables | (5,830 | ) | (1,998 | ) | ||||
| Inventories | 96,849 | 35,307 | ||||||
| Prepaid Expenses | - | 4,572 | ||||||
| Accounts Payable | (30,644 | ) | (98,322 | ) | ||||
| Refund Liability Owed to Customers | (227 | ) | 10,403 | |||||
| Accrued Expenses | (6,644 | ) | (2,001 | ) | ||||
| NET CASH USED BY OPERATING ACTIVITIES | $ | (39,778 | ) | $ | (49,084 | ) | ||
The accompanying notes are an integral part of the consolidated financial statements.
(23)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES |
Nature of Business
Chase General Corporation (the Company) was incorporated on November 6, 1944 in the state of Missouri for the purpose of manufacturing confectionery products. The Company grants credit terms to substantially all customers, consisting of repackers, grocery accounts, and national syndicate accounts, who are primarily located in the Midwest region of the United States.
Significant accounting policies are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Dye Candy Company. All intercompany transactions and balances have been eliminated in consolidation.
Segment Reporting of the Business
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 in these consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.
(24)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Shipping and Handling Costs
Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for the years ended June 30, 2020 and 2019 was $142,220 and $147,635, respectively.
Trade Receivables
Trade receivables are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Trade receivables are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of trade receivables are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the trade receivables. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due to the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible, or that require an excessive collection cost, are written off to the allowance for doubtful accounts.
Inventories
Finished good, raw material and packaging material 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.
Property and Equipment
The Company’s property and equipment is recorded at cost and is being depreciated on straight-line and accelerated methods over the following estimated useful lives:
| Buildings | 39 years | |
| Machinery and equipment | 5 – 7 years | |
| Trucks and autos | 5 years | |
| Office equipment | 5 – 7 years | |
| Leasehold improvements | Lesser of estimated | |
| useful life or the | ||
| lease term |
(25)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.
Notes Payable
The Small Business Administration Paycheck Protection Program Promissory Note further discussed in Note 3 is being accounted for under Accounting Standards Codification (ASC) 470, Debt. Under ASC 470, the initial recognition of the debt is a financial liability that accrues interest. Under ASC 470, derecognition of the liability will occur when the Company has been “legally released” or pays off the loan at which time forgiveness will be recorded as a gain on extinguishment.
Income Taxes
Deferred income taxes are provided using the liability method for temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred income tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred income tax assets are only recognized if it is more likely than not that a tax position will be realized or sustained upon examination by the relevant taxing authority. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred income tax assets will not be realized. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of relevant information. Deferred income tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the dates of enactment. Based on the facts, the Company has determined it necessary to reduce their deferred income tax asset with a valuation allowance due it being more likely than not that the Company will be able to realize all of the deferred income tax asset.
The Company’s policy is to evaluate uncertain tax positions under the guidance as prescribed by Accounting Standards Codification (ASC) 740, Income Taxes. As of June 30, 2020 and 2019, the Company has not identified any uncertain tax positions requiring recognition in the consolidated financial statements. The Company had no accruals for interest or penalties as of June 30, 2020 and 2019.
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.
(26)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Earnings Per Common Share (Continued)
The following table details out the contingently issuable shares for the years ended June 30, 2020 and 2019. For 2020 and 2019, the contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
| 2020 | 2019 | |||||||
| Shares Issuable Upon Conversion of Series A | ||||||||
| Prior Cumulative Preferred Stock | 400,000 | 400,000 | ||||||
| Shares Issuable Upon Conversion of Series B | ||||||||
| Prior Cumulative Preferred Stock | 375,000 | 375,000 | ||||||
| Shares Issuable Upon Conversion of Series A | ||||||||
| Cumulative Preferred Stock | 222,133 | 222,133 | ||||||
| Shares Issuable Upon Conversion of Series B | ||||||||
| Cumulative Preferred Stock | 36,201 | 36,201 | ||||||
| Total Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | ||||||
Advertising Expense
Advertising is expensed when incurred. Advertising expense was $19,019 and $15,603 for the years ended June 30, 2020 and 2019, 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, 2020 and 2019. 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.
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.
(27)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Revenue Recognition (Continued)
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 years ended June 30, 2020 and 2019 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:
| For the year ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Sales - Chase Candy | $ | 1,480,286 | $ | 1,408,187 | ||||
| Sales - Seasonal Candy | 1,096,025 | 1,112,446 | ||||||
| Sales | $ | 2,576,311 | $ | 2,520,633 | ||||
(28)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 1 | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Recently Adopted Pronouncements (Continued)
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 comparative information in the prior year has not been adjusted and continues to be reported under ASC 840, Leases, which was the accounting standard in effect for that period. 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.
| NOTE 2 | FORGIVABLE LOAN AND DEFERRED INCOME |
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, 2020 and 2019, deferred revenue of $1,299 was amortized into income.
(29)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 3 | NOTES PAYABLE |
The Company’s long-term debt at June 30, 2020 and 2019 consists of:
| Payee | Terms | 2020 | 2019 | |||||||
| Nodaway Valley Bank | $350,000 line-of-credit agreement expiring on January 4, 2021, 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. | $ | - | $ | 85,000 | |||||
| Ford Credit | $705 monthly payments, interest of 5.8%; final payment due October 2021, secured by a vehicle. | 10,824 | 18,407 | |||||||
| Toyota Credit | $444 monthly payments, interest of 6.49%; final payment due May 2022, secured by a vehicle. | 9,585 | 14,134 | |||||||
| Nodaway Valley Bank | Small Business Administration Paycheck Protection Program (PPP) Promissory Note, interest of 1%, beginning November 10, 2020 monthly payments of $9,652 including interest are due; final payment due April 10, 2022, under the terms of the PPP program, this loan has the potential to be partially or fully forgiven after certain conditions and requirements are satisfied. | 171,500 | - | |||||||
| Total | 191,909 | 117,541 | ||||||||
| Less current portion | 88,318 | 97,133 | ||||||||
| Long-term portion | $ | 103,591 | $ | 20,408 | ||||||
Future minimum payments for the years ended June 30 are:
| Year Ended June 30, | Amount | |||
| 2021 | $ | 88,318 | ||
| 2022 | 103,591 | |||
| Total | $ | 191,909 | ||
(30)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 4 | CAPITAL STOCK |
Capital stock authorized, issued, and outstanding as of June 30, 2020 is as follows:
| Shares | ||||||||
| Issued and | ||||||||
| Authorized | Outstanding | |||||||
| Prior Cumulative Preferred Stock, $5 Par Value: | ||||||||
| 6% Convertible | 240,000 | |||||||
| Series A | 100,000 | |||||||
| Series B | 100,000 | |||||||
| Cumulative Preferred Stock, $20 Par Value: | ||||||||
| 5% Convertible | 150,000 | |||||||
| Series A | 58,533 | |||||||
| Series B | 9,539 | |||||||
| Common Stock, $1 Par Value: | ||||||||
| Reserved for Conversion of | ||||||||
| Preferred Stock - 1,030,166 shares | 2,000,000 | 969,834 | ||||||
Cumulative Preferred Stock dividends in arrears at June 30, 2020 and 2019 totaled $8,461,094 and $8,333,022, respectively. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2020 and 2019:
| 2020 | 2019 | |||||||
| 6% Convertible | ||||||||
| Series A | $ | 18.45 | $ | 18.15 | ||||
| Series B | $ | 18.00 | $ | 17.70 | ||||
| 5% Convertible | ||||||||
| Series A | $ | 70.75 | $ | 69.75 | ||||
| Series B | $ | 70.75 | $ | 69.75 | ||||
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.
(31)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 5 | INCOME TAXes |
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, 2019, 2018, and 2017 are subject to examination by the Internal Revenue Service taxing authority.
The sources of deferred income tax assets and liability at June 30, 2020 and 2019 are as follows:
| 2020 | 2019 | |||||||
| Deferred Income Tax Assets: | ||||||||
| Net Operating Loss Carryover | $ | 93,681 | $ | 66,741 | ||||
| Valuation Allowance on Net Operating Loss | (77,232 | ) | (39,682 | ) | ||||
| Trade Receivables | 3,416 | 3,333 | ||||||
| Deferred Income | 1,600 | 1,937 | ||||||
| Contribution Carryover | 1,748 | 1,297 | ||||||
| Total Deferred Income Tax Assets | 23,213 | 33,626 | ||||||
| Deferred Income Tax Liability: | ||||||||
| Property and Equipment | (23,213 | ) | (33,626 | ) | ||||
| NET DEFERRED INCOME TAX ASSET | $ | - | $ | - | ||||
The net deferred income tax asset is presented in the accompanying June 30, 2020 and 2019 consolidated balance sheets as follows:
| 2020 | 2019 | |||||||
| Deferred Income Tax Asset | $ | - | $ | - | ||||
The benefit for income taxes for the years ended June 30, 2020 and 2019 consists of the following:
| 2020 | 2019 | |||||||
| Current Income Tax | $ | - | $ | - | ||||
| Deferred Income Tax Credit | - | - | ||||||
| Total | $ | - | $ | - | ||||
(32)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 5 | INCOME TAXes (CONTINUED) |
The income tax provision differs from the amount of income tax determined by applying the statutory federal income tax rate to pretax loss for the years ended June 30, 2020 and 2019 due to the following:
| 2020 | 2019 | |||||||
| Computed at Federal Statutory Rates | $ | (30,670 | ) | $ | (7,363 | ) | ||
| Increase (Decrease) in Income Taxes Resulting from: | ||||||||
| Non-Deductible Expenses | 9 | 138 | ||||||
| Changes in Judgment on Realizability of Deferred | ||||||||
| Tax Assets | 30,661 | 7,225 | ||||||
| Total | $ | - | $ | - | ||||
The Company has available at June 30, 2020, $361,181 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.
(33)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 6 | LOSS PER SHARE |
The loss per share for the years ended June 30, 2020 and 2019, respectively, was computed on the weighted average of outstanding common shares during the year as follows:
| 2020 | 2019 | |||||||
| Net Loss | $ | (146,049 | ) | $ | (35,062 | ) | ||
| Preferred Dividend Requirements: | ||||||||
| 6% Prior Cumulative Preferred, $5 Par Value | 60,000 | 60,000 | ||||||
| 5% Convertible Cumulative Preferred, $20 Par Value | 68,072 | 68,072 | ||||||
| Total Dividend Requirements | 128,072 | 128,072 | ||||||
| Net Loss - Common Stockholders | $ | (274,121 | ) | $ | (163,134 | ) | ||
| 2020 | 2019 | |||||||
| Weighted Average of Shares - Basic | 969,834 | 969,834 | ||||||
| Dilutive Effect of Contingently Issuable Shares | 1,033,334 | 1,033,334 | ||||||
| Weighted Average Shares – Diluted | $ | 2,003,168 | $ | 2,003,168 | ||||
| Basic Loss per Share | $ | (0.28 | ) | $ | (0.17 | ) | ||
| Diluted Loss per Share | $ | (0.28 | ) | $ | (0.17 | ) | ||
Contingently issuable shares were not included in the 2020 and 2019 diluted earnings per common share as they would have an antidilutive effect upon earnings per share.
| NOTE 7 | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
| 2020 | 2019 | |||||||
| Cash Paid for: | ||||||||
| Interest | $ | 5,935 | $ | 6,710 | ||||
| Non-Cash Transactions: | ||||||||
| Financing of New Vehicles | - | 14,465 | ||||||
(34)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 8 | COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS |
The Company adopted ASC 842 on July 1, 2019 using the modified retrospective transition method; and therefore, the comparative information has not been adjusted for the year ended June 30, 2019.
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, 2020, 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, 2020 are as follows:
| Year Ending June 30, | Amount | |||
| 2021 | $ | 78,000 | ||
| 2022 | 78,000 | |||
| 2023 | 78,000 | |||
| 2024 | 78,000 | |||
| 2025 | 58,500 | |||
| Total Lease Payments | $ | 370,500 | ||
| Less: Imputed Interest | 51,963 | |||
| Total Lease Payments | $ | 318,537 | ||
As of June 30, 2020, the Company had raw materials purchase commitments with seven vendors totaling approximately $145,000.
(35)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 9 | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS |
The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these consolidated financial instruments. As of June 30, 2020, the amount of the Company’s long-term debt approximates fair value based on the present value of estimated future cash flows using a discount rate commensurate with a borrowing rate available to the Company.
| NOTE 10 | CONCENTRATION OF CREDIT RISK |
For the years ended June 30, 2020 and 2019, two customers accounted for 53% of the sales. As of June 30, 2020 and 2019, two customers accounted for 36% and three customers accounted for 52%, 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.
| NOTE 11 | SUBSEQUENT EVENTS |
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, 2021 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. Through the date of this report, the Company estimates a net loss for the fiscal year June 30, 2021 of approximately $150,000.
(36)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| NOTE 12 | SUBSEQUENT EVENTS (CONTINUED) |
The Company monitors significant events occurring after June 30, 2020 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.
| Item 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable
| Item 9A | CONTROLS AND PROCEDURES |
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 effective 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, 2020, the Company’s internal control over financial reporting was effective.
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.
(37)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 9A | CONTROLS AND PROCEDURES (CONTINUED) |
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.
| Item 9B | OTHER INFORMATION |
None
(38)
Chase General Corporation and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 10 | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
| (a) | Directors |
| Name | Age | Periods of Service as Director | Terms | |||
| Barry M. Yantis | 75 | 1980 to Present | One Year | |||
| Brian A. Yantis | 72 | July 16, 1986 to Present | One Year |
| Years of | ||||||
| Service as | ||||||
| Name | Age | an Officer | Term | |||
| Barry M. Yantis | 75 | 41 | Until Successor Elected | |||
| Brian A. Yantis | 72 | 28 | Until Successor Elected |
(b) Certain Significant Employees
There are no significant employees other than above.
(c) Family Relationships
Barry M. Yantis and Brian A. Yantis are brothers.
Business Experience
| (1) | Barry M. Yantis, President and Treasurer has been an officer of the Company for 41 years, 13 years as Vice-President and 28 years as President. He has been on the board of directors for 41 years and has been associated with the candy business for 45 years. |
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.
| (2) | The directors and executive officers listed above are also the directors and executive officers of Dye Candy Company. |
(d) Involvement in Certain Legal Proceedings
Not applicable
(e) Audit Committee Financial Expert
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.
(39)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 10 | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
(f) Code of Ethics
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.
| Item 11 | EXECUTIVE COMPENSATION |
(a) General
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.
(b) Summary Compensation Table
| Long-Term Compensation | ||||||||||||||||||||||||||||||
| Annual Compensation | Awards | Payouts | ||||||||||||||||||||||||||||
| Name and | Other | Restricted | ||||||||||||||||||||||||||||
| Principal | Fiscal | Annual | Stock | Option | LTIP | All Other | ||||||||||||||||||||||||
| Position | Year End | Salary | Bonus | Compensation | Award (s) | SARs (#) | Payouts | Compensation | ||||||||||||||||||||||
| Barry M. Yantis | 1) 06-30-20 | 116,507 | - | 2,340 | - | - | - | - | ||||||||||||||||||||||
| Barry M. Yantis | 1) 06-30-19 | 127,300 | - | 2,900 | - | - | - | - | ||||||||||||||||||||||
| Barry M. Yantis | 1) 06-30-18 | 134,300 | - | 3,300 | - | - | - | - | ||||||||||||||||||||||
1) CEO, President and Treasurer
2) No other compensation than that which is listed in compensation table.
3) No other officers have compensation over $100,000 for their services besides those listed in this compensation table.
(c) Option/SAR grants table
Not applicable
(d) Aggregated option/SAR exercises and fiscal year-end option/SAR value table
Not applicable
(e) Long-term incentive plan awards table
Not applicable
(f) Compensation of Directors
Directors are not compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings.
| (g) | Employment contracts and termination of employment and change in control arrangements |
No employment contracts exist
with any executive officers. In addition, there are no contracts currently in place regarding termination of employment or change
in control arrangements.
(40)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 11 | EXECUTIVE COMPENSATION (CONTINUED) |
(h) Report on repricing of option/SARs
Not applicable
| (i) | Additional information with respect to compensation committee interlocks and insider participation in compensation decisions |
The registrant has no formal compensation committee. The board of directors, Brian A. Yantis and Barry M. Yantis (all current officers of the Company) annually approve the compensation of Barry M. Yantis, CEO, President and Treasurer.
(j) Board compensation committee report on executive compensation
The board bases the annual salary of the CEO on the Company's prior year performance. The criteria is based upon, but is not limited to, market area expansion, gross profit improvement, control of operating expenses, generation of positive cash flow, and hours devoted to the business during the previous fiscal year.
(41)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND STOCKHOLDER MATTERS |
| Amounts | ||||||||||
| and | ||||||||||
| Nature of | ||||||||||
| Beneficial | % of | |||||||||
| Title of Class | Name and Address | Ownership | Class | |||||||
| (a) Security Ownership of Certain | ||||||||||
| Beneficial Owners | ||||||||||
| Common; Par Value $1 per Share | Barry
Yantis, CEO & Director 5605 Osage Drive St. Joseph, MO 64503 | 194,385 | (1) | 16.90 | %(2) | |||||
| Brian
Yantis, Officer & Director 1210 E. Clarendon Arlington Heights, IL 60004 | 97,192 | (1) | 8.40 | %(2) | ||||||
| (b) Security Ownership of Management | ||||||||||
| Common; Par Value $1 per Share | Two Directors and CEO as a Group | 110,856 | 11.40 | % | ||||||
| Prior Cumulative Preferred, $5 Par Value: Series A, 6% Convertible | Two Directors and CEO as a Group | 21,533 | 21.50 | % | ||||||
| Prior Cumulative Preferred, $5 Par Value: Series B, 6% Convertible | Two Directors and CEO as a Group | 21,533 | 21.50 | % | ||||||
| Cumulative Preferred, $20 Par Value: Series A, $5 Convertible | Two Directors and CEO as a Group | 3,017 | 5.20 | % | ||||||
| Cumulative Preferred, $20 Par Value: Series B, $5 Convertible | Two Directors and CEO as a Group | 630 | 6.60 | % | ||||||
(1) Includes 120,477 and 60,244 shares, respectively, which could be received within 30 days upon conversion of preferred stock.
(2) Reflects the percentage assuming the preferred shares above were converted into common stock.
(c) No Known Change of Control is Anticipated
(42)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
(a) Transactions with management and others
The registrant’s subsidiary, Dye Candy Company entered into an operating lease agreement during the 2005 fiscal year to provide office and manufacturing facilities with a limited liability company that is partially owned by the son of the Chief Executive Officer of the Company. The annual rent is $78,000.
(b) Certain business relationships
Not applicable
(c) Indebtedness of management
Not applicable
(d) Transactions with promoters
Not applicable
| Item 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The following table shows the aggregate fees billed to the Company for professional services for the years ended June 30, 2020 and 2019:
| 2020 | 2019 | |||||||
| Audit Fees: | ||||||||
| Mayer Hoffman McCann P.C. (MHM) | $ | 83,656 | $ | 68,327 | ||||
| Audit Related Fees | - | - | ||||||
| Tax Fees | - | - | ||||||
| All Other Fees | - | - | ||||||
Substantially all MHM’s personnel, who work under the control of MHM shareholders, are employees of wholly-owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure.
(43)
CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 15 | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this report.
| 1. | Consolidated Financial Statements: | Page |
| Index to Consolidated Financial Statements | 17 | |
| Report of the Independent Registered Public Accounting Firm | 18 | |
| Consolidated Balance Sheets | 19 - 20 | |
| Consolidated Statements of Operations | 21 | |
| Consolidated Statements of Stockholders’ Equity | 22 | |
| Consolidated Statements of Cash Flows | 23 | |
| Notes to Consolidated Financial Statements | 24 - 45 |
2. Consolidated Financial Statement Schedules:
None
3. Exhibits:
The exhibits listed below are filed with or incorporated by reference in this report.
The following have been previously filed and are incorporated by reference to prior years' Forms 10-K filed by the Registrant:
| 3.1 | Articles of Incorporation of Chase General Corporation |
| 3.2 | Bylaws |
The following are Exhibits attached or explanations included in "Notes to Consolidated Financial Statements" in Part II of this report:
| 4. | Instruments defining the rights of security holders including indentures - Refer to Note 4. |
| 11. | Computation of loss per share - Refer to Note 6. |
| 21. | Subsidiaries of registrant - Refer to Note 1 of Notes to Consolidated Financial Statements. |
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CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
| Item 15 | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (CONTINUED) |
| 101 | The following financial statements for the year ended June 30, 2020, formatted in XBRL: (i) Consolidated Balance Sheets as of June 30, 2020 and 2019, (ii) Consolidated Statements of Operations for the years ended June 30, 2020 and 2019, (iii) Consolidated Statement of Stockholders’ Equity for the years ended June 30, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
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CHASE GENERAL CORPORATION and Subsidiary
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2020
Pursuant to the requirements of Section 13 or 15(d) 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 | ||
| (Registrant) | ||
| Date: September 24, 2020 | By: | /s/ Barry M. Yantis |
| Barry M. Yantis | ||
| Chairman of the Board, Chief Executive Officer, | ||
| President and Treasurer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
| Signatures | Title | Date | ||
| /s/ Barry M. Yantis | September 24, 2020 | |||
| Barry M. Yantis | Chairman of the Board, Chief Executive Officer and Chief Financial Officer, President, Treasurer and Director | |||
| /s/ Brian A. Yantis | September 24, 2020 | |||
| Brian A. Yantis | Secretary and Director |
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