Company Quick10K Filing
Quick10K
Chase General
10-K 2019-06-30 Annual: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-02-01 Other Events
8-K 2018-03-19 Officers
WPZ Williams Partners 38,808
BYND Beyond Meat 9,949
GCC Wisdomtree Continuous Commodity Index Master Fund 128
OVTZ Oculus 3
HPTO Hopto 3
WCVC West Coast Ventures Group 1
CXKJ CX Network 1
SVTE Service Team 0
CLWD Cloudcommerce 0
MSCG Managed Futures Premier Graham 0
CSGN 2019-06-30
Part I
Item 1Business
Item 1Arisk Factors
Item 1Bunresolved Staff Comments
Item 2Properties
Item 3Legal Proceedings
Item 4Mine Safety Disclosures
Part II
Item 5Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6Selected Financial Data
Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7Aquantitative and Qualitative Disclosures About Market Risk
Item 8Consolidated Financial Statements and Supplementary Data
Note 1Nature of Business and Significant Accounting Policies
Note 2Forgivable Loan and Deferred Income
Note 3 Notes Payable
Note 4Capital Stock
Note 5 Income Taxes
Note 6Loss per Share
Note 7Supplemental Disclosures of Cash Flow Information
Note 8Commitments, Contingencies and Related Party Transactions
Note 9 Disclosures About Fair Value of Financial Instruments
Note 10 Concentration of Credit Risk
Note 11Subsequent Events
Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9Acontrols and Procedures
Item 9Bother Information
Part III
Item 10Directors, Executive Officers, and Corporate Governance
Item 11Executive Compensation
Item 12Security Ownership of Certain Beneficial Owners and Management and Stockholder Matters
Item 13Certain Relationships and Related Transactions, and Director Independence
Item 14Principal Accounting Fees and Services
Part IV
Item 15Exhibits and Consolidated Financial Statement Schedules
EX-31.1 tv529774_ex31-1.htm
EX-32.1 tv529774_ex32-1.htm

Chase General Earnings 2019-06-30

CSGN 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 tv529774_10k.htm FORM 10-K

 

 

 

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, 2019

 

¨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 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 such files). Yes x No ¨

 

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

 

Large accelerated filer ¨   Accelerated filer ¨
     
Nonaccelerated filer 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 29, 2019, 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, 2019

 

PART I  
       
  ITEM 1. BUSINESS 2
       
  ITEM 1A. RISK FACTORS 6
       
  ITEM 1B. UNRESOLVED STAFF COMMENTS 6
       
  ITEM 2. PROPERTIES 6
       
  ITEM 3. LEGAL PROCEDDINGS 6
       
  ITEM 4. MINE SAFETY DISCLOSURES 6
       
PART II  
       
  ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 7
       
  ITEM 6. SELECTED FINANCIAL DATA 7
       
  ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
       
  ITEM 7A. QUANTITATIVE QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
       
  ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
       
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 39
       
  ITEM 9A. CONTROLS AND PROCEDURES 39
       
  ITEM 9B. OTHER INFORMATION 39
       
PART III  
       
  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 40
       
  ITEM 11. EXECUTIVE COMPENSATION 41
       
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND STOCKHOLDER MATTERS 43
       
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 44
       
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 44
       
PART IV    
       
  ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES 45
       
SIGNATURES 47

 

(1)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

PART I

 

ITEM 1BUSINESS

 

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)3 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, 2019

 

ITEM 1BUSINESS (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 or repackaged 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, 2019 and 2018, this division accounted for 58% and 54%, 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, 2019 and 2018, this division accounted for 46% 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, 2019

 

ITEM 1BUSINESS (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, 2019 and 2018.

 

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, 2019 and 2018.

 

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, 2019

 

ITEM 1BUSINESS (CONTINUED)

 

Employees

As of June 30, 2019, the Company had 17 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, 2019 and 2018, one customer accounted for 42% of sales. As of June 30, 2019 and 2018, that same customer accounted for 18% and 26%, respectively, of trade receivables. For the years ended June 30, 2019 and 2018, another customer and its affiliates accounted for 10% and 12%, respectively, of sales. As of June 30, 2019 and 2018, that same customer and its affiliates accounted for 21% and 17%, respectively, of trade receivables. No other customer accounted for more than 10% of the Company’s sales for the years ended June 30, 2019 and 2018. One other customer accounted for more than 10% of the Company’s trade receivables for the year ended June 30, 2019.

 

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, 2019 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, 2019

 

Item 1ARISK FACTORS

 

Not applicable to a smaller reporting company.

 

ITEM 1BUNRESOLVED STAFF COMMENTS

 

The Company has no unresolved SEC staff comments at June 30, 2019. 

 

Item 2PROPERTIES

 

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, 2019 and 2018.

 

The net book value of our premises, land and office, and production equipment totaled $211,100 and $235,180 at June 30, 2019 and 2018, respectively.

 

We believe both facilities are adequately covered by insurance.

 

Item 3LEGAL PROCEEDINGS

 

None.

 

Item 4MINE SAFETY DISCLOSURES

 

Not applicable.

 

(6)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

PART II

 

Item 5MARKET 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 29, 2019, 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 6SELECTED 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, 2019

 

Item 7MANAGEMENT'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. 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 2019, the Company’s sales were $2,520,633, as compared to sales of $2,680,236 for fiscal year ended June 30, 2018. This 6.0% decrease in volume and an 10.2% decrease in cost of sales and a 21.1% increase in operating expenses resulted in a change in profitability during the year, as reflected in the loss from operations of $33,184 for fiscal year 2019 compared to the loss from operations of $267,973 for fiscal year 2018. Working capital decreased $16,659 to $358,422 for the current year from $375,081 for the fiscal year 2018 due primarily to an increase in the current portion of notes payable, a decrease in inventory, increase in refund liability owed to customers, and a decrease in prepaid expenses offset by a decrease in accounts payable, increase in cash, increase in trade receivables, and a decrease in accrued expenses.

 

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

 

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.

 

(8)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Critical Accounting Policies and Estimates (Continued)

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, 2019, 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, 2019.

 

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.

 

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.

 

(9)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Critical Accounting Policies and Estimates (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 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, 2019 and 2018, respectively:

 

   2019   2018 
Sales   100.00%   100.00%
Cost of Sales   74.32    77.81 
Gross Profit on Sales   25.68    22.19 
Selling Expense   11.28    14.53 
General and Administrative Expense   16.31    17.54 
(Gain)/Loss on Sale of Equipment   (0.59)   0.12 
Loss from Operations   (1.32)   (10.00)
Other Expense, Net   (0.07)   (0.12)
Loss before Income Taxes   (1.39)   (10.12)
Income Taxes Benefit   -    (0.97)
Net Loss   (1.39)   (9.15)
Preferred Dividends   (5.08)   (4.78)
           
Loss Applicable to Common Stockholders   (6.47)%   (13.93)%

 

(10)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Fiscal Year 2019 Compared to Fiscal Year 2018

Sales

During the year ended June 30, 2019, sales, net of returns and allowances, decreased $159,603 or 6.0% as compared to the year ended June 30, 2018. Sales for Chase Candy products decreased $48,852 or 3.2% to $1,456,781 for the year ended June 30, 2019 compared to $1,505,633 for 2018. Sales for Seasonal Candy products increased $66,496 or 5.4% to $1,162,700 for the year ended June 30, 2019 as compared to $1,229,196 for 2018. The Company’s returns and allowances decreased $21,011 or 31.2% to $46,240 for the year ended June 30, 2019, compared to $67,251 for the year ended June 30, 2018. The Company’s other sales increased $1,712 or 13.5% to $14,370 for the year ended June 30, 2019, compared to $12,658 for the year ended June 30, 2018. Due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASC 606), adjustments disclosed in Note 1 totaling $66,978 for the year ended June 30, 2019 were recorded as a reduction to revenue.

 

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 3.2% decrease in sales of Chase Candy of $48,852 for the year ended June 30, 2019 over the same period ended June 30, 2018, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $63,000 versus the same period a year ago, primarily due to a decrease in orders from existing customers, 2) decreased sales of the Cherry Mash internet sales via the Company’s website by approximately $5,000 versus the same period a year ago, primarily due to a decrease in orders from existing customers, 3) various other fluctuations netting to a decrease of approximately $3,500, 4) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $500 versus the same period a year ago, primarily due to a decrease in orders from existing customers, offset by 5) increased sales of Cherry Mash Merchandisers division by approximately $15,500 versus the same period a year ago, primarily due to an increase in orders from existing customers, and 6) increased sales of the L278/L212 Mini Mash division by approximately $7,500 versus the same period a year ago, primarily due to an increase in orders from existing customers.

 

Sales for Seasonal Candy consisted of the following divisions: bulk seasonal division, clamshell seasonal division, and the generic seasonal division. The 5.4% decrease in sales of Seasonal Candy of $66,496 for the year ended June 30, 2019 over the same period ended June 30, 2018, is primarily due to the net effect of the following: 1) decreased sales in the generic seasonal division by approximately $28,000 due to decreased orders from existing customers; 2) decreased sales in the bulk seasonal division by approximately $27,000 versus the same period a year ago, primarily due to decreased orders from existing customers and; 3) decreased sales in the Chase clamshell seasonal division by approximately $10,500 versus the same period a year ago, primarily due to decreased orders from existing customers.

 

(11)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Fiscal Year 2019 Compared to Fiscal Year 2018 (Continued)

Cost of Sales 

Cost of sales for the year ended June 30, 2019, as compared to the year ended June 30, 2018, decreased by 10.2%. The cost of sales decreased $212,156 to $1,873,249 while decreasing to 74.3% of sales for the year ended June 30, 2019, compared to $2,085,405 or 77.8% of sales for the year ended June 30, 2018.

 

The 10.2% decrease in cost of sales of $212,156 is primarily due to the net impact of a 6.0% decrease in sales of $159,603, a 5.7% decrease in the price of peanuts offset by a 4.9% increase in the price of corn. 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 made sales price adjustments to correspond with changes in raw material prices.

 

Labor costs, including wages, vacation pay and payroll taxes of $441,898 for the year ended June 30, 2019, decreased 2.4% or $10,814 as compared to $452,712 for the period ended 2018 primarily due to decreased production wages due to decreased hours, bonuses, and pay rates compared to the same period ended June 30, 2018.

 

Freight expense, including shipping and handling costs on goods shipped of $147,635 for the year ended June 30, 2019, decreased 5.01% or $7,786 as compared to $155,421 for the period ended 2018 due primarily to a decrease in sales.

 

Gross Profit on Sales

The gross profit increased 8.8% or $52,553 to $647,384 increasing to 25.7% of related sales for the year ended June 30, 2019, as compared to $594,831 or 22.2% of related sales for the year ended June 30, 2018, as a net result of the 10.2% decrease in cost of sales described above and the 6.0% decrease in sales.

 

Finished goods inventory as of June 30, 2019 of $200,085 decreased $8,169 or 3.9% from the June 30, 2018 finished goods inventory of $208,254. Raw materials inventory as of June 30, 2019 of $45,456 decreased $28,811 or 38.8% from the June 30, 2018 raw materials inventory of $74,267. Packaging materials inventory as of June 30, 2019 of $151,795 decreased $389 or 0.3% from June 30, 2018 packaging materials inventory of $152,184. Goods in process inventory as of June 30, 2019 of $12,999 increased $2,062 or 18.9% from the June 30, 2018 goods in process inventory of $10,937. 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, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Fiscal Year 2019 Compared to Fiscal Year 2018 (Continued)

Selling Expenses

Selling expenses for the year ended June 30, 2019 decreased $104,963 to $284,410, which is 11.3% of sales, compared to $389,373 or 14.5% of sales for the year June 30, 2018. This decrease is primarily due to the adoption of ASC 606, lower vehicle depreciation, lower, sales salaries, lower auto expense, and lower shipping expense. With the adoption of ASC 606, the Company no longer includes advertising and bill backs with selling expenses. The expenses included in selling expenses totaled $74,935 for the year ended June 30, 2018. As disclosed in Note 1, adjustments of $66,978 were made to selling expenses for the year ended June 30, 2019. Depreciation expense decreased $9,023 to $31,085 for the year ended June 30, 2019, as compared to $40,108 for the year ended June 30, 2018 primarily due to selling a vehicle in the prior year. Sales salaries decreased $7,481 to $98,582 for the year ended June 30, 2019, as compared to $106,063 for the year ended June 30, 2018, primarily due to the retirement of one of the salespersons. Auto expense decreased $7,308 to $7,941 for the year ended June 30, 2019, as compared to $15,249 for the year ended June 30, 2018, primarily due to selling a vehicle in the prior year. Shipping expenses decreased $5,191 to $31,501 for the year ended June 30, 2019, as compared to $36,692 for the year ended June 30, 2018, primarily due to a decrease in the shipment of online orders.

 

General and Administrative Expenses

General and administrative expenses for the year ended June 30, 2019 decreased $59,093 to $410,999, which is 16.3% of sales, compared to $470,092 or 17.5% of sales for the year ended June 30, 2018. The decrease is primarily due to lower website expense, lower miscellaneous general expense, and lower bad debt expense offset by higher office salaries. Website expense decreased $38,898 to $14,971 for the year ended June 30, 2019, as compared to $53,869 for the year ended June 30, 2018 primarily due to redesigning the website for the 100th anniversary of the Cherry Mash in the prior year. Miscellaneous general expense decreased $15,025 to $7,509 for the year ended June 30, 2019, as compared to $22,534 for the year ended June 30, 2018 primarily due to the payment of a non-recurring workplace penalty in the prior year. Bad debt expense decreased $8,672 to $(540) for the year ended June 30, 2019, as compared to $8,132 for the year ended June 30, 2018 primarily due to a write off of additional receivables in the prior year. Office salaries increased $3,611 to $93,699 for the year ended June 30, 2019, as compared to $90,088 for the year ended June 30, 2018 primarily due to annual raises for employees.

 

(13)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Fiscal Year 2019 Compared to Fiscal Year 2018 (Continued)

Loss from Operations 

Loss from operations for the year ended June 30, 2019 was (1.3)% of sales, as compared to a loss from operations of (10.0)% of sales for the year ended June 30, 2018 for the reasons previously described.

 

Other Expense 

Other expense reflects a net expense of $1,878 for the year ended June 30, 2019, as compared to net expense of $3,290 for the year ended June 30, 2018. This decrease of $1,412 in other expense was primarily due to increases of $2,781 and $1,369 in miscellaneous income and interest expense, respectively. The increase in miscellaneous income is primarily due to a refund received by the company during the year ended June 30, 2018.

 

Loss before Income Taxes

Loss before income taxes was $35,062 for the year ended June 30, 2019, as compared to a loss before income taxes of $271,263 for the year ended June 30, 2018. The reasons for the decrease of $236,201 have been previously discussed.

 

Benefit for Income Taxes

The Company recorded income tax benefit for the year ended June 30, 2019 of $0 as compared to an income tax benefit of $(26,022) for the year ended June 30, 2018. The income tax benefit for the year ended June 30, 2019 decreased as a result of, among other things, the Company placing a valuation allowance on the net operating loss carryforward of $313,056 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, 2019 was $35,062, compared to a net loss for the year ended June 30, 2018 of $(245,241). This decrease of $210,179 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.

 

   2019   2018 
Net Cash Provided (Used) by Operating Activities  $(49,084)  $13,918 
Net Cash Used by Investing Activities  $(1,310)  $(38,585)
Net Cash Provided by (Used in) Financing Activities  $67,065   $(19,386)

 

(14)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Fiscal Year 2019 Compared to Fiscal Year 2018 (Continued)

 

Operating Activities

The negative cash flow of $49,084 generated from operations is a result of a fluctuation in sales, decreases in accounts payable and the loss generated from operations. During the year ended June 30, 2019, sales, net of returns and allowances, decreased $159,603, or 6.0% as compared to the year ended June 30, 2018. Total inventory as of June 30, 2019 of $410,335 decreased $35,307 or 7.9% from the June 30, 2018 total inventory of $445,642. Trade receivables as of June 30, 2019 of $137,869 increased $2,538 or 1.9% from the June 30, 2018 trade receivables of $135,331. The timing of payments on accounts payable had the most significant impact on cash flow generated from operations.

 

Investing Activities

The negative cash flow of $1,310 from investing is a result of equipment purchases. Machinery and equipment cash purchases of $1,310 and $72,585 were made during the years ended June 30, 2019 and 2018, respectively. Proceeds from the sale of machinery and equipment were $34,000 during the year ended June 30, 2018.

 

Financing Activities

The Company borrowed $425,000 and $330,000, respectively, on its line-of-credit during the fall of 2018 (fiscal 2019) and 2017 (fiscal 2018) busy seasons. Payments of $340,000 and $330,000, respectively, were paid for years ended June 30, 2019 and 2018. The Company entered into a $350,000 line-of-credit agreement expiring on January 4, 2020, 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 $17,935 and $19,386 for years ended June 30, 2019 and 2018, respectively.

 

Overall cash and cash equivalents increased $16,671 to $18,800 at June 30, 2019 from $2,129 at June 30, 2018.

 

At June 30, 2019, the Company’s accumulated deficit was $5,957,059, compared to an accumulated deficit of $5,887,988 as of June 30, 2018. Working capital as of June 30, 2019 increased $35,241 to $410,322 from $375,081 as of June 30, 2018.

 

(15)

Chase General Corporation and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

 

Fiscal Year 2019 Compared to Fiscal Year 2018 (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 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to a smaller reporting company.

 

Item 8CONSOLIDATED 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, 2019 AND 2018

 

Report of Independent Registered Public Accounting Firm   18 
      
Consolidated Financial Statements     
      
Consolidated Balance Sheets   19 
      
Consolidated Statements of operations   21 
      
Consolidated Statements of Stockholders’ Equity   22 
      
Consolidated Statements of Cash Flows   23 
      
Notes to Consolidated Financial Statements   24 

 

(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, 2019 and 2018, and the related consolidated statements of operations, stockholders’ equity, and cash flows for 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, 2019 and 2018, 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 changed its method of accounting for revenue from contracts with customers as a result of the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers effective July 1, 2018, under the modified retrospective method.

 

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 30, 2019

 

(18)

 

Chase General Corporation and Subsidiary

consolidated balance sheets

june 30, 2019 and 2018

 

   2019   2018 
ASSETS          
           
CURRENT ASSETS          
Cash and Cash Equivalents  $18,800   $2,129 
Trade Receivables, Net of Allowance for Doubtful Accounts of $12,849 and $13,389, Respectively   137,869    135,331 
Inventories:          
Finished Goods   200,085    208,254 
Goods in Process   12,999    10,937 
Raw Materials   45,456    74,267 
Packaging Materials   151,795    152,184 
Prepaid Expenses   7,653    12,225 
Total Current Assets   549,013    595,327 
           
           
           
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    163,039 
Office Equipment   33,025    33,025 
Leasehold Improvements   72,068    72,068 
Total   1,227,864    1,232,271 
Less Accumulated Depreciation   1,016,764    997,091 
           
Total Property and Equipment, Net   211,100    235,180 
           
           
Total Assets  $760,113   $830,507 

 

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

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (CONTINUED)

June 30, 2019 AND 2018

 

   2019   2018 
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
Accounts Payable  $78,549   $176,871 
Current Maturities of Notes Payable   97,133    11,224 
Accrued Expenses   28,851    30,852 
Refund Liability Owed to Customers   10,403    - 
Deferred Income   1,299    1,299 
Total Current Liabilities   216,235    220,246 
           
LONG-TERM LIABILITIES          
Notes Payable, Less Current Maturities   20,408    24,787 
Deferred Income   6,168    7,466 
Total Long-Term Liabilities   26,576    32,253 
           
Total Liabilities   242,811    252,499 
           
COMMITMENTS AND CONTINGENCIES (NOTE 8)          
           
STOCKHOLDERS' EQUITY          
Capital Stock Issued and Outstanding:          
Prior Cumulative Preferred Stock, $5 Par Value:          
Series A (Liquidation Preference $2,340,000 and $2,310,000, Respectively)   500,000    500,000 
Series B (Liquidation Preference $2,295,000 and $2,265,000, Respectively)   500,000    500,000 
Cumulative Preferred Stock, $20 Par Value:          
Series A (Liquidation Preference $5,253,329 and $5,194,796, Respectively)   1,170,660    1,170,660 
Series B (Liquidation Preference $856,133 and $846,594, Respectively)   190,780    190,780 
Common Stock, $1 Par Value   969,834    969,834 
Paid-In Capital in Excess of Par   3,134,722    3,134,722 
Accumulated Deficit   (5,923,050)   (5,887,988)
Total Stockholders' Equity   517,302    578,008 
           
Total Liabilities and Stockholders' Equity  $760,113   $830,507 

 

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, 2019 AND 2018

 

   2019   2018 
SALES  $2,520,633   $2,680,236 
           
COST OF SALES   1,873,249    2,085,405 
Gross Profit on Sales   647,384    594,831 
           
OPERATING EXPENSES          
Selling Expenses   284,410    389,373 
General and Administrative Expenses   410,999    470,092 
(Gain)/Loss on Sale of Equipment   (14,841)   3,339 
Total Operating Expenses   680,568    862,804 
           
Loss from Operations   (33,184)   (267,973)
           
OTHER INCOME (EXPENSE)          
Miscellaneous Income   4,832    2,051 
Interest Expense   (6,710)   (5,341)
Total Other Expense   (1,878)   (3,290)
           
Loss before Income Taxes   (35,062)   (271,263)
           
INCOME TAXES BENEFIT   -    (26,022)
           
NET LOSS  $(35,062)  $(245,241)
           
NET LOSS PER SHARE OF COMMON STOCK          
- BASIC  $(0.17)  $(0.38)
- DILUTED  $(0.17)  $(0.38)

 

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

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended june 30, 2019 AND 2018

 

   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, 2017  $500,000   $500,000   $1,170,660   $190,780   $969,834   $3,134,722   $(5,642,747)  $823,249 
                                         
Net Loss   -    -    -    -    -    -    (245,241)   (245,241)
                                         
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 

 

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

 

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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended june 30, 2019 and 2018

 

   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Collections from Customers  $2,518,095   $2,672,112 
Cost of Sales, Selling, General and Administrative Expenses Paid   (2,560,469)   (2,652,853)
Interest Paid   (6,710)   (5,341)
Net Cash Provided (Used) by Operating Activities   (49,084)   13,918 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Proceeds from Sale of Property and Equipment   -    34,000 
Purchases of Property and Equipment   (1,310)   (72,585)
Net Cash Used by Investing Activities   (1,310)   (38,585)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from Line-of-Credit   425,000    330,000 
Principal Payments on Line-of-Credit   (340,000)   (330,000)
Principal Payments on Notes Payable   (17,935)   (19,386)
Net Cash Provided (Used) by Financing Activities   67,065    (19,386)
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   16,671    (44,053)
           
Cash and Cash Equivalents, Beginning of Year   2,129    46,182 
           
CASH AND CASH EQUIVALENTS, END OF YEAR  $18,800   $2,129 
           
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED  BY OPERATING ACTIVITIES          
Net Loss  $(35,062)  $(245,241)
Adjustments to Reconcile Net Loss to Net Cash Provided by          
Operating Activities:          
Depreciation and Amortization   54,696    65,204 
Allowance for Bad Debts   (540)   (2,916)
Deferred Income Amortization   (1,298)   (1,299)
Deferred Income Taxes   -    27,163 
(Gain)/Loss on Sale of Equipment   (14,841)   3,339 
Effects of Changes in Operating Assets and Liabilities:          
Trade Receivables   (1,998)   (5,208)
Inventories   35,307    34,396 
Prepaid Expenses   4,572    12,464 
Income Taxes Receivable   -    11,160 
Accounts Payable   (98,322)   113,243 
Refund Liability Owed to Customers   10,403    - 
Accrued Expenses   (2,001)   1,613 
           
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES  $(49,084)  $13,918 

 

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

 

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Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1NATURE 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1nature 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, 2019 and 2018 was $147,635 and $155,421, 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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1NATURE 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.

 

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, 2019 and 2018, 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, 2019 and 2018.

 

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1NATURE 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, 2019 and 2018. For 2019 and 2018, the contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share.

 

   2019   2018 
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 $15,603 and $14,779 for the years ended June 30, 2019 and 2018, 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 year ended June 30, 2019. Management determined that, when considered in the aggregate, the current conditions and events 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1NATURE 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 in the third quarter of the year ending June 30, 2019 resulting from updated estimates of revenue for prior year product sales were not significant.

 

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,  2019   2018 
Sales - Chase Candy  $1,408,187   $1,481,267 
Sales - Seasonal Candy   1,112,446    1,198,969 
Sales  $2,520,633   $2,680,236 

  

(28)

 

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Adopted Pronouncements 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On July 1, 2018, we adopted the requirements of ASC 606 and all the related amendments to contracts that have not been completed as of the initial adoption date using the modified retrospective method. Upon completing our implementation assessment of ASC 606, we concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

The Company identified certain amounts included in accounts payable that are separately recorded as a current liability upon adoption of ASC 606. There was no impact to working capital as a result of these reclassifications. The cumulative effects of the changes made to our consolidated July 1, 2018 balance sheet for the adoption of the new revenue standard were as follows:

 

   Balance at   Adjustment   Balance at 
   June 30, 2018   Upon Adoption   July 1, 2018 
Balance Sheet               
Accounts Payable  $135,311   $(12,900)  $122,411 
Refund Liability Owed to Customers   -    12,900    12,900 

 

(29)

 

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2019 and 2018

 

NOTE 1NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Adopted Pronouncements (Continued) 

There is no change in the timing of revenue recognition upon adoption of ASC 606. The Company has identified certain amounts paid to customers which are currently recorded as selling expense. Under ASC 606, these amounts will be recorded as a reduction to revenue as the Company does not receive a distinct good or service in exchange for the payment. The total impact of adoption on our consolidated statement of operation and balance sheet was as follows:

 

   As of and for the year ended June 30, 2019 
   Current       Previous 
   Standard   Change   Standard 
Balance Sheet               
Accounts Payable  $78,549   $10,403   $88,952 
Refund Liability Owed to Customers   10,403    (10,403)   - 
                
Statement of Operations               
Sales  $2,520,633   $66,978   $2,587,611 
Selling Expenses   284,410    66,978    351,388 

 

Recently Issued Pronouncements 

In February 2016, the FASB issued ASU No. 2016-02, Leases, (“ASC 842”) which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. 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 leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company on July 1, 2019, with early adoption permitted. The Company plans to adopt the guidance on July 1, 2019, using a modified retrospective transition approach with the cumulative effect recognized at the date of initial application, whereby comparative prior period financial information and disclosures will not be adjusted to reflect the new standard. In January 2018, the FASB issued ASU No. 2018-01, Leases, which permits an entity to elect an optional transition practical expedient to not evaluate under ASU 842 land easements that exist or expired before the entity’s adoption of ASC 842 and that were not previously accounted for as leases.

 

(30)

 

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

  

NOTE 1NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recently Issued Pronouncements (Continued) 

The Company expects that this standard will have a material effect on its consolidated financial statements. While the Company is continuing to assess the effect of adoption, the Company currently believes the most significant changes relate to the recognition of new ROU assets and lease liabilities on its balance sheet for a building currently subject to operating leases and providing new disclosures about the Company’s leasing activities. On July 1, 2019, the Company expects to recognize additional operating liabilities of approximately $376,000, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments for the Company’s existing operating leases. The Company has not finalized the effects of these expected changes from the new standard and expects that this estimated range of impact will narrow as the Company continues its assessment of the adoption of ASC 842. The Company does not expect a significant change in its leasing activity between now and adoption.

 

There have been no other 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 2FORGIVABLE 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, 2019 and 2018, deferred revenue of $1,298 and $1,299, respectively, was amortized into income.

 

(31)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

 

NOTE 3 NOTES PAYABLE

 

The Company’s long-term debt at June 30, 2019 and 2018 consists of:

 

Payee  Terms  2019   2018 
Nodaway Valley Bank  $350,000 line-of-credit agreement expiring on January 4, 2020, 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.   18,407    25,560 
              
Toyota Credit  $364 monthly payments, interest of 3.5%; final payment due December 2020, secured by a vehicle.   -    10,451 
              
Toyota Credit  $444 monthly payments, interest of 6.49%; final payment due May 2022, secured by a vehicle.   14,134    - 
              
   Total   117,541    36,011 
   Less current portion   97,133    11,224 
   Long-term portion  $20,408   $24,787 

 

Future minimum payments for the years ended June 30 are:

 

Year Ended June 30,  Amount 
2020  $97,133 
2021   12,893 
2022   7,515 
Total  $117,541 

 

(32)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

NOTE 4CAPITAL STOCK

 

Capital stock authorized, issued, and outstanding as of June 30, 2019 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, 2019 and 2018 totaled $8,333,022 and $8,204,950, respectively. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2019 and 2018:

 

   2019   2018 
6% Convertible          
Series A  $18.15   $17.85 
Series B  $17.70   $17.40 
5% Convertible          
Series A  $69.75   $68.75 
Series B  $69.75   $68.75 

 

The 6% convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 a share plus unpaid accrued dividends to date of redemption. In the event of voluntary liquidation, holders of this stock are entitled to receive $5.25 per share plus accrued dividends. Cumulative preferred stock may be exchanged for common stock at the option of the shareholders in the ratio of 4 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.

 

(33)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

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, 2018, 2017, and 2016 are subject to examination by the IRS taxing authority.

 

The sources of deferred income tax assets and liability at June 30, 2019 and 2018 are as follows:

 

   2019   2018 
Deferred Income Tax Assets:          
Net Operating Loss Carryover  $66,741   $66,580 
Valuation Allowance on Net Operating Loss   (39,682)   (29,460)
Trade Receivables   3,333    3,473 
Deferred Income   1,937    2,273 
Contribution Carryover   1,297    830 
Inventories   -    540 
Total Deferred Income Tax Assets   39,637    44,236 
           
Deferred Income Tax Liability:          
Property and Equipment   (33,626)   (44,236)
NET DEFERRED INCOME TAX ASSET  $-   $- 

 

The net deferred income tax asset is presented in the accompanying June 30, 2019 and 2018 consolidated balance sheets as follows:

 

   2019   2018 
Deferred Income Tax Asset  $-   $- 

 

(34)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

NOTE 5INCOME TAXES (CONTINUED)

 

The benefit for income taxes for the years ended June 30, 2019 and 2018 consists of the following:

 

   2019   2018 
Current Income Tax  $-   $- 
Change in Deferred Taxes Due to Enacted Changes in Tax Law   -    (19,369)
Deferred Income Tax Credit   -    (6,653)
Total  $-   $(26,022)

 

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, 2019 and 2018 due to the following:

 

   2019   2018 
Computed at Federal Statutory Rates  $(7,363)  $(55,176)
Increase (Decrease) in Income Taxes Resulting from:          
Non-Deductible Expenses   138    3,288 
Change in Deferred Taxes Due to Enacted Changes in Tax Law   -    (19,369)
Adjustment of Deferred Tax Balances   -    15,857 
Changes in Judgment on Realizability of Deferred Tax Assets   7,225    24,207 
State Income Taxes   -    5,171 
Total  $-   $(26,022)

 

On December 22, 2017, the President signed into law The Tax Cuts and Jobs Act (the Act), which enacts significant changes to U.S. income tax and related laws. Among other things, the Act reduces the top U.S. corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, and makes changes to certain other business-related exclusions, deductions, and credits. Because a change in tax law is accounted for in the period of enactment, the effect of the Act was recorded in the Company’s fiscal second quarter ending December 31, 2017 which caused a net provision adjustment to deferred income taxes of $19,369 for the year ended June 30, 2018.

 

The Company has available at June 30, 2019, $256,075 of unused operating loss that may be carried forward and applied against future taxable income. Of the net operating loss carryforward, $16,460 expires on June 30, 2038, the remaining balance does not expire.

 

(35)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

 

NOTE 6LOSS PER SHARE

 

The loss per share for the years ended June 30, 2019 and 2018, respectively, was computed on the weighted average of outstanding common shares during the year as follows:

 

   2019   2018 
Net Loss  $(35,062)  $(245,241)
           
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  $(163,134)  $(373,313)

 

   2019   2018 
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  $(0.19)  $(0.38)
           
Diluted Loss per Share  $(0.19)  $(0.38)

 

Contingently issuable shares were not included in the 2019 and 2018 diluted earnings per common share as they would have an antidilutive effect upon earnings per share.      

 

NOTE 7SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

   2019   2018 
Cash Paid for:          
Interest  $6,710   $5,341 
Non-Cash Transactions:          
Financing of New Vehicles  $14,465   $- 

 

(36)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

NOTE 8COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

 

Dye Candy Company leases its office and manufacturing facility, located at 1307 South 59th, St. Joseph, Missouri, 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, and currently requires payments of $6,500 per month. At the end of the first five years, the base rent may be increased an amount not greater than 30%, at the sole discretion of lessor and for each additional term of five years. Rental expense was $78,000 for each year ended June 30, 2019 and 2018. The amounts are included in cost of sales.

 

Future minimum lease payments under this lease are as follows:

 

Year Ending June 30,  Amount 
2020  $78,000 
2021   78,000 
2022   78,000 
2023   78,000 
2024   78,000 
Thereafter   58,500 
   $448,500 
      

 

As of June 30, 2019, the Company had raw materials purchase commitments with five vendors totaling approximately $216,900.

 

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, 2019, 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, 2019 and 2018, two customers accounted for 53% and 54%, respectively, of the sales. As of June 30, 2019 and 2018, three customers accounted for 52% and four customers accounted for 63%, respectively, of trade receivables.

 

(37)

Chase General Corporation AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JUNE 30, 2019 AND 2018

 

NOTE 11SUBSEQUENT EVENTS

 

The Company monitors significant events occurring after June 30, 2019 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.

 

(38)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable

 

Item 9ACONTROLS 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, 2019, 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.

 

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 9BOTHER INFORMATION

 

None

 

(39)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

PART III

 

Item 10DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

(a)Directors

 

Name  Age  Periods of Service as Director  Terms
Barry M. Yantis  74  1980 to Present  One Year
Brian A. Yantis  71  July 16, 1986 to Present  One Year

 

      Years of   
      Service as   
Name  Age  an Officer  Term
Barry M. Yantis  74  40  Until Successor Elected
Brian A. Yantis  71  27  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 40 years, 13 years as Vice-President and 27 years as President. He has been on the board of directors for 40 years and has been associated with the candy business for 44 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.

 

(40)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 10DIRECTORS, 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 11EXECUTIVE 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) 06-30-19   127,300    -    2,900    -    -    -    - 
Barry M. Yantis  1) 06-30-18   134,300    -    3,300    -    -    -    - 
Barry M. Yantis  1) 06-30-17   138,600    -    4,500    -    -    -    - 

  

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.

 

(41)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 11EXECUTIVE 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.

 

(42)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 12SECURITY 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   194,385(1)   16.90%(2)
      5605 Osage Drive          
      St. Joseph, MO 64503          
                 
      Brian Yantis, Officer & Director   97,192(1)   8.40%(2)
      1210 E. Clarendon          
      Arlington Heights, IL 60004          
                 
(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

 

(43)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

Item 13CERTAIN 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 14PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table shows the aggregate fees billed to the Company for professional services for the years ended June 30, 2019 and 2018:

 

   2019   2018 
Audit Fees:          
Mayer Hoffman McCann P.C. (MHM)  $68,327   $62,338 
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.

 

(44)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

PART IV

 

Item 15EXHIBITS 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 16
     
  Report of the Independent Registered Public Accounting Firm 17
     
  Consolidated Balance Sheets 18 - 19
     
  Consolidated Statements of Operations 20
     
  Consolidated Statements of Stockholders’ Equity 21
     
  Consolidated Statements of Cash Flows 22
     
  Notes to Consolidated Financial Statements 23 - 34

 

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.
     
  31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
  32.1 Certification of Chairman of the Board, Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(45)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

  

Item 15EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (CONTINUED)

 

101The following financial statements for the year ended June 30, 2019, formatted in XBRL: (i) Consolidated Balance Sheets as of June 30, 2019 and 2018, (ii) Consolidated Statements of Operations for the years ended June 30, 2019 and 2018, (iii) Consolidated Statement of Stockholders’ Equity for the years ended June 30, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the years ended June 30, 2019 and 2018, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

  

(46)

CHASE GENERAL CORPORATION and Subsidiary

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JUNE 30, 2019

 

SIGNATURES

 

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 30, 2019 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 30, 2019
Barry M. Yantis   Chairman of the Board, Chief Executive Officer and Chief Financial Officer, President, Treasurer and Director    
         
/s/ Brian A. Yantis       September 30, 2019
Brian A. Yantis   Secretary and Director    

 

(47)