RESULTS OF OPERATIONS

OVERVIEW

Chase General Corporation (Chase) is a holding company for its wholly-owned subsidiary, Dye Candy Company. This subsidiary is the main operating company that is engaged in the manufacture of confectionery products which are sold primarily to wholesale houses, grocery accounts, vendors, and repackers. The subsidiary (Company) operates two divisions, Chase Candy division and Seasonal Candy division, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two divisions is not maintained by Management.

The Company’s business, like that of many other confectionary product manufacturers, is seasonal. Historically, the Company has realized more of its revenue and earnings in the fiscal second quarter, which includes the majority of the holiday shopping season, than in any other fiscal quarter.

RESULTS OF OPERATIONS - Three Months Ended December 31, 20192020 Compared to Three Months Ended December 31, 2018,2019, and Six Months Ended December 31, 20192020 Compared to Six Months Ended December 31, 20182019

The following management comments regarding Chase’s results of operations and outlook should be read in conjunction with the condensed consolidated financial statements included pursuant to Item 1 of the quarterly report.

The following table sets forth certain items as a percentage of sales and revenues for the periods presented:

Chase General Corporation and Subsidiary

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I.pART i.     FINANCIAL INFORMATION

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

RESULTS OF OPERATIONS

SALES

Sales increased $100,830decreased $83,577 or 9%7% for the three months ended December 31, 20192020 to $1,231,459$1,147,882 compared to $1,130,629$1,231,459 for the three months ended December 31, 2018.2019. Sales for Chase Candy increased $25,563$51,624 to $551,386 for the three months ended December 31, 2020, compared to $499,762 for the three months ended December 31, 2019, compared2019. Sales for Seasonal Candy decreased $135,201 to $474,199$596,496 for the three months ended December 31, 2018. Sales for Seasonal Candy increased $75,2672020, compared to $731,697 for the three months ended December 31, 2019, compared to $656,4302019.

The 10% increase in sales of Chase Candy of $51,624 for the three months ended December 31, 2018.

The 5% increase in sales of Chase Candy of $25,563 for the three months ended December 31, 20192020 over the same period ended December 31, 2018,2019, is primarily due to the net effect of the following: 1) increased sales of the L100/L200/SK2100L276 Cherry Mash Merchandisers divisionDistributors Pack segment by approximately $29,000$35,600 versus the same period a year ago primarily due to increased orders from existing customers; 2)  increased net sales of tue L279/L299the L100/L200/SK2100 Cherry Mash Merchandisers segment by approximately $19,000; 3) increased website sales by approximately $16,500; offset by 4) decreased sales of approximately $19,500 for the Bulk Mini Mash L279/L299 segments to existing customers.

The 18% decrease in sales of Seasonal Candy of $135,201 for the three months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the effect of the following: 1) decreased sales in the bulk seasonal division by approximately $6,500$60,000 versus the same period a year ago, primarily due to decreased sales to existing customers and 2) decreased sales to existing customers in the clamshell division by approximately $75,000 versus the same period a year ago.

Sales increased $67,589 or 3% for the six months ended December 31, 2020 to $2,013,129 compared to $1,945,540 for the six months ended December 31, 2019. Sales for Chase Candy increased $73,646 to $931,591 for the six months ended December 31, 2020, compared to $857,945 for the six months ended December 31, 2019. Sales for Seasonal Candy decreased $6,057 to $1,081,538 for the six months ended December 31, 2020, compared to $1,087,595 for the six months ended December 31, 2019.

The 9% increase in sales of Chase Candy of $73,646 for the six months ended December 31, 2020 over the same period ended December 31, 2019, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributors Pack segment by approximately $77,500 versus the same period a year ago primarily due to increased orders from existing customers; 2) increased website sales of approximately $17,000; 3) increased net sales of the L212/L278L278/L212 Mini Mash divisionsegment by approximately $4,000$7,000 versus the same period a year ago primarily due to increased orders from existing customers; offset by 3) decreased sales of approximately $14,000 for the Bulk Mini Mash L279/L299 segments to existing customers; and 4) decreased sales of the L276approximately $14,000 for the L100/L200/SK2100 Cherry Mash Distributors Pack division by approximately $12,000 versus the same period a year ago dueMerchandisers Segment to decreased orders from existing customers and 5) other various decreases netting to $2,000.customers.

The 11% increase1% decrease in sales of Seasonal Candy of $75,267$6,057 for the threesix months ended December 31, 20192020 over the same period ended December 31, 2018,2019, is primarily due to the net effect of the following: 1) an increase orders in the general seasonal division netting approximately $60,000 versus the same period a year ago, primarily due to existing customers increasing orders; 2) increased orderssales in the bulk seasonal division netting approximately $9,000, due to increased sales from existing customers; and 3) other various increases netting to $6,000.

Sales increased $73,391 or 4% for the six months ended December 31, 2019 to $1,945,540 compared to $1,872,149 for the six months ended December 31, 2018. Sales for Chase Candy increased $89,459 to $857,945 for the six months ended December 31, 2019, compared to $768,486 for the six months ended December 31, 2018. Sales for Seasonal Candy decreased $16,068 to $1,087,595 for the six months ended December 31, 2019, compared to $1,103,663 for the six months ended December 31, 2018.

The 12% increase in sales of Chase Candy of $89,459 for the six months ended December 31, 2019 over the same period ended December 31, 2018, is primarily due to the following: 1) increased sales of the L100/L200/SK2100 Cherry Mash Merchandisers division by approximately $63,000$31,000 versus the same period a year ago, primarily due to increased orders from existing customers; 2) increased sales of the L212/L278 Mini Mash division by approximately $32,000 versus the same period a year ago due to increased orders from existing customers; 3) increased sales of the L279/L299 Bulk Mini Mash division by approximately $3,500 versus the same period a year ago primarily due to increased orders from existing customers; offset by 4) decreased sales of the L276 Cherry Mash Distributors Pack division by approximately $7,000 versus the same period a year ago due to decreased orders from existing customers and 5) other various decreases netting to $2,000.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

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

RESULTS OF OPERATIONS

SALES (CONTINUED)

The 1% decrease in sales of Seasonal Candy of $16,068 for the six months ended December 31, 2019 over the same period ended December 31, 2018, is primarily due to the net effect of the following: 1) decreased sales in the bulk seasonal division netting approximately $24,000 versus the same period a year ago, primarily due to existing customers decreasing orders;along with a price increase of 5% effective first quarter ended September 30, 2020; offset by 2) decreased sales in the clamshell seasonal division netting approximately $14,000 versus the same period a year ago, primarily due to existing customers decreasing orders; offset by 3) increased sales in the general seasonal division netting approximately $18,000 versus the same period a year ago, primarily due to decreased sales to existing customers decreasing orders;customers; and 4) various other increases netting3) decreased sales in the generic segment of approximately $19,000 primarily due to $4,000.decreased sales to existing customers.

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

COST OF SALES

The cost of sales increased $58,384decreased $127,894 to $678,776 or 59% of related revenues for the three months ended December 31, 2020, compared to $806,670 or 66% of related revenues for the three months ended December 31, 2019, compared to $752,454 or 67% of related revenues for the three months ended December 31, 2018. 2019.

The 8% increase16% decrease in cost of sales of $58,384$127,894 is primarily due to the net effectimpact of 1) a 9% increase7% decrease in sales of $100,830;$83,577, 2) a 3.6% increase37% decrease in freight out of $18,805 during the price of corn syrup;period, 3) a 1.5% increase in the price of sugar; offset by 4) a 5.1% decrease in consumption of raw materials combined with lower sales during the price of peanuts; and 5) an 2.4% decrease in the price of chocolate.period.

The cost of sales increased $20,693decreased $113,688 to $1,181,612 or 59% of related revenues for the six months ended December 31, 2020, compared to $1,295,300 or 67% of related revenues for the six months ended December 31, 2019, compared to $1,278,775 or 68% of related revenues for the six months ended December 31, 2018. 2019.

The 2% increase9% decrease in cost of sales of $20,693$113,688 is primarily due to the net effectimpact of 1) a 4%3% increase in sales of $73,391;$67,589, a portion of which is related to price increases noted above that did not have a direct impact on cost of sales, 2) a 2.9% increase29% decrease in freight out of $25,921 during the price of corn syrup;period, 3) a 1.8% increase in the price of sugar; offset by 4) a 5.2% decrease in the priceconsumption of peanuts; and 5) an 1.5% decrease in the price of chocolate.

Due to volatility in the regions where these raw materials are grown, management anticipatescombined with lower sales during the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

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

RESULTS OF OPERATIONSperiod.

SELLING EXPENSES

Selling expenses for the three months ended December 31, 20192020 increased $4,709$6,969 to $100,223,$107,192, which is 8%9% of sales, compared to $95,514,$100,223, or 8% of sales for the three months ended December 31, 2018. 2019.

The increase of $4,709$6,969 in selling expenses for the three months ended December 31, 20192020 is primarily due to higher sales salaries and higher commissions offset by lower shipping charges. Sales salariescosts with decreases in depreciation expense. Shipping costs increased $4,561$9,761 to $ 27,686approximately $25,500 for this period from $23,125approximately $15,600 for the three months ended December 31, 2018 primarily due to increased base compensation for the Company’s sales person. Commission expense increased $2,443 to $43,528 for this period from $41,085 for the three months ended December 31, 20182019, primarily due to an increase in sales. Shipping expensesorders placed. Depreciation expense decreased $2,822 to $15,685approximately $3,100 for this period from $18,507 for the three months ended December 31, 2018 primarily due to a decrease in shipment of online ordered items.period.

Selling expenses for the six months ended December 31, 20192020 increased $9,761$8,722 to $178,178,$186,900, which is 9% of sales, compared to $168,417$178,178, or 9% of sales for the six months ended December 31, 2018. 2019.

The increase of $9,761$8,722 in selling expenses for the six months ended December 31, 20192020 is primarily due to the higher sales salaries and higher commissions offset by lower vehicle expense. Sales salariesand shipping costs with decreases in depreciation expense and customer shows. Commissions increased $9,122$6,899 to $55,372approximately $83,800 for this period from $46,250approximately $76,900 for the six months ended December 31, 2018 primarily due2019, and shipping costs increased $10,675 to increased base compensation for the Company’s sales person. Commissions increased $1,214 to $76,913approximately $28,000 for this period from $75,699approximately $17,000 for the six months ended December 31, 20182019, all of which was primarily due to an increase in sales. VehicleDepreciation expense decreased $806 to $3,342approximately $6,200 for this period. Customer show expense decreased $3,081 for this period from $4,148$3,381 for the six months ended December 31, 20182019, primarily due to newer vehicles currently in service.effects of COVID 19 and not going on site for customer shows.

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 20192020 increased $14,506$22,126 to $111,835$133,961 and 9%12% of sales, compared to $97,329$111,835 or 9% of sales for the three months ended December 31, 2018. 2019.

The increase of $14,506$22,126 in general and administrative expenses for the three months ended December 31, 20192020 is primarily due to higher professional fees indirect costs and postage expense.insurance expense plus minimal increases in office related expenses. Professional fees increased $8,871approximately $17,300 to $29,723$47,109 for this period from $20,852 for the three months ending December 31, 2018 primarily due to the Company’s audit firm increasing their fees and attorney fees increased. During the current year, the Company began allocating indirect costs to general and administrative expenses that were previously allocated to cost of sales. This allocation is for the administrative portion of the office and totaled $3,444$29,723 for the three months ended December 31, 2019. Postage2019 primarily due to increased audit and consulting fees. Insurance expense increased $1,789approximately $3,450 to $2,154$34,950 for thisthe period from $365$31,500 for the three months endingended December 31, 2018 primarily2019 due to the purchaseincrease in insurance premiums. An increase in office related expenses of additional postage supplies.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

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

RESULTS OF OPERATIONS

GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)approximately $1,500 for this period also contributed to the increased noted above.

General and administrative expenses for the six months ended December 31, 20192020 increased $20,411$57,779 to $256,224 or 13%$314,003 and 16% of sales, compared to $235,813$256,244 or 13% of sales for the six months ended December 31, 2018. 2019.

The increase of $20,411$57,779 in general and administrative expenses for the six months ended December 31, 20192020 is primarily due to higher professional fees and indirect costs.insurance expense offset by minimal decreases in office related expenses. Professional fees increased $14,185approximately $48,750 to $98,742$147,493 for this period from $84,557$98,742 for the six months ended December 31, 2019 primarily due to increased audit and consulting fees. Insurance expense increased approximately $9,400 to $70,086 for the period from $60,695 for the six months ended December 31, 2019 due to the increase in insurance premiums. A decrease in office related expenses of approximately $400 for this period offset the increases discussed above.

OTHER INCOME (EXPENSE)

Other income (expense) increased by $173,765 for the three months endingended December 31, 2018 primarily due2020 to the Company’s audit firm increasing their fees and attorney fees increased. During the current year, the Company began allocating indirect costs$170,683, compared to general and administrative expenses that were previously allocated to cost of sales. This allocation is$(3,082) for the administrative portion ofthree months ended December 31, 2019.

Other income (expense) increased by $175,776 for the office and totaled $7,125six months ended December 31, 2020 to $173,885, compared to $(1,891) for the six months ended December 31, 2019.

OTHER INCOME (EXPENSE)

Other income (expense) decreased by $3,486The majority of this change can be attributed to the gain on extinguishment of debt of $171,500 related to the forgiveness of debt from the PPP loan program. Another portion of the change can be attributed to a decrease in interest expense for the three months ended December 31, 2019 to $(3,082), compared to $406 for the three months ended December 31, 2018 primarily due to $2,859 of miscellaneous income received from supplier during the three months ended December 31, 2018.

Other income (expense) increased by $225 for the six months ended December 31, 2019 to $(1,891), compared to $(2,116) for the six months ended December 31, 2018.period.

PROVISION (BENEFIT) FOR INCOME TAXES

The Company recorded no income tax expenseprovision for the three months ended December 31, 2019 of $0 as compared to income tax expense of $3,400 for the three months ended December 31, 2018. The Company recorded income tax expense for theand six months ended December 31, 20192020 due to the net operating loss carryforward as of $0 as comparedJune 30, 2020 that is available to offset taxable income tax expense of $3,400 forin the six months ended December 31, 2018.current period with a corresponding valuation allowance placed on the remaining net operating loss carryforward.

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

NET INCOME

The Company reported a net income for the three months ended December 31, 20192020 of $209,649,$398,636, compared to a net income of $182,338$209,469 for the three months ended December 31, 2018.2019. This increase of $27,311$188,987 is explained above. The Company reported a net income for the six months ended December 31, 20192020 of $213,947,$504,499, compared to a net income of $183,628$213,947 for the six months ended December 31, 2018.2019. This increase of $30,319$290,552 is explained above.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

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

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended December 31, 20192020 and 2018,December 31, 2019, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

Preferred dividends were $64,036 for the six months ended December 31, 20192020 and 2018,December 31, 2019, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders for the three months ended December 31, 20192020 was $177,631$366,618 which is an increase of $27,311$188,987 as compared to the net income applicable to common stockholders for the three months ended December 31, 20182019 of $150,320.$177,631.

Net income applicable to common stockholders for the six months ended December 31, 20192020 was $149,911$440,463 which is an increase of $30,319$290,552 as compared to the net lossincome applicable to common stockholders for the six months ended December 31, 20182019 of $119,592.$149,911.

LIQUIDITY AND CAPITAL RESOURCES

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

Management has made no material commitments for capital expenditures during the remainder of fiscal 2020.2021. The $359,382$238,798 of cash provided byused in operating activities for the six months ended December 31, 2020 is fully detailed in the condensed consolidated statement of cash flows on page five. The $90,975$6,349 of cash used inby financing activities isfor the six months ended December 31, 2020 are primarily due to principal payments on the line of credit and equipment and vehicle loans. At December 31, 2019,

The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to the Company, had $350,000 remaining onCOVID-19 may impact various parts of its fiscal year ending June 30, 2021 operations and financial results, including the line-of-credit, which couldproduction and sales of goods.

Chase General Corporation and Subsidiary

pART i.     FINANCIAL INFORMATION

Management believes the Company is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be utilized to help fund any working capital requirements.reasonably estimated as these events are still developing.

Management believes that the projected cash flow from operations, including the impact of the COVID-19 pandemic, combined with its existing cash balances,availability on the line-of-credit, will be sufficient to meet its funding requirements for the foreseeable future.

Management believes that inflation will have only a minimal effect on future operations since such effects will be offset by sales price increases, which are not expected to have a significant effect upon demand.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

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

CRITICAL ACCOUNTING POLICIES

Forward-Looking Information

This report, as well as our other reports filed with the Securities and Exchange Commission (SEC), contains forward-looking statements made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict”“predict,” and similar expressions are intended to identify forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, and management’s plans and objectives. Accordingly, these forward-looking statements are based on assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks, and uncertainties that could cause actual results to be different from what appear here. These risk factors include: the ability to adequately pass through customers unanticipated future increases in raw material costs, decreased demand for products, expected orders that do not occur, loss of key customers, the impact of competition and price erosion as well as supply and manufacturing constraints, and other risks and uncertainties. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this report will prove accurate, and our actual results may differ materially from these forward-looking statements. We assume no obligation to update any forward-looking statements made herein.

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

PART I. FINANCIAL INFORMATION

Not applicable to a smaller reporting company.

(a) Evaluation of Disclosure Controls and Procedures

Chase’s management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and management has concluded that Chase’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.

(b) Changes in Internal Control over Financial Reporting

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

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

PART II. OTHER INFORMATION

None.

Not applicable to a smaller reporting company.

None

Not applicable.

NoneNone.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.