UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 20082009

For the transition period from              to             

Commission File Number 2-5916

CHASE GENERAL CORPORATIONChase General Corporation

(Exact name of small business issuer as specified in its charter)

1307 South 59th, St. Joseph, Missouri 64507

(Address of principal executive offices, Zip Code)

(816) 279-1625

(Issuer’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

CheckIndicate by check mark whether the issuerregistrant (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 pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

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 January 31, 2009,2010, there were 969,834 shares of common stock, $1$1.00 par value, issued and outstanding.

Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

INDEXQuarterly Report on Form 10-Q

For the Six Months Ended December 31, 2009

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

The accompanying notes are an integral part of the

condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of the

condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of the

condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of the

condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of the

condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - 1—GENERAL

The condensed consolidated balance sheet of Chase General Corporation (“Chase” or(hereinafter referred to as “Chase”, “we”, “us”“our”, or “our”and “us”) at June 30, 20082009 has been derivedtaken from audited consolidated financial statements at that date.date and condensed. The condensed consolidated financial statements as of and for the three months and six months ended December 31, 20082009 and for the three months and six months ended December 31, 20072008 are unaudited and reflect all normal and recurring accruals and adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results and cash flows for the interim periods presented in this quarterly report. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-KSB10-K for the year ended June 30, 2008.2009. The results of operations for the three months and six months ended December 31, 20082009 and cash flows for the six months ended December 31, 20082009 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2009.2010. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the previous periods’ presentation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the periods have been included.

Pursuant to SFAS No. 168,“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, the FASB Accounting Standards Codification (“ASC”) (FASB ASC 105) became the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The Company adopted this standard during the first quarter of 2009. Reference to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate section of the ASC.

In June 2009, the FASB issued new guidance on the consolidation of variable interest entities (“VIE”) in response to concerns about the application of certain key provisions of pre-existing guidance, including those regarding the transparency of the involvement with a VIE. Specifically, this new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. In addition, this new guidance requires additional disclosures about the involvement with a VIE and any significant changes in risk exposure due to that involvement. This new guidance is effective for fiscal years beginning after November 15, 2009. We plan to adopt the new guidance in fiscal year 2011 and do not expect a material impact on our consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - 1—GENERAL(CONTINUED)

Management has performed an evaluation of events that have occurred subsequent to December 31, 2009, and as of February 11, 2010 (the date of filing of this Form 10-Q). There have been no other subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the six month period ended December 31, 2009.

NOTE 2—NET INCOME PER SHARE

The income per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share is calculated by including contingently issuable shares with the weighted average shares outstanding. No computation was made on common stock equivalents outstanding for 2007 EPS because loss per share would be anti-dilutive.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - 2—NET INCOME PER SHARE (CONTINUED)

Cumulative Preferred Stock dividends in arrears at December 31, 2009 and 2008, totaled $7,116,338 and 2007, totaled $6,988,266, and $6,860,194, respectively. Total dividends in arrears, on a per share basis, consist of the following at September 30:December 31:

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. It 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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - 3—FORGIVABLE LOAN AND DEFERRED INCOME

During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank has 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 has met the criteria of occupying a 20,000 square foot building and the criteria of 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 for three years thereafter and will be required to do so untilduring the five year term has expired. Onceterm. Notice was received February 6, 2009 from the Buchanan County Commission, that the Company ishad fulfilled its minimum loan requirements so that the loan was forgiven in full with no further obligations. Since the Company was no longer legally entitledrequired to return the monies, the liability will bewas reclassified as deferred revenue and amortized into income over the life onof the lease term of the new facility. At December 31, 2008 and June 30, 2008,2009, a total of $20,000 and $15,000, respectively, had$25,000 has been reclassified to deferred revenue. Deferred revenue is recognized on a straight-line basis over the lease term of 20 years. During the six months ended December 31, 20082009 and 2007,2008, deferred revenue of $649 and $650, respectively, was amortized into income for each period.

NOTE 4 - NOTE PAYABLE - 4—NOTES PAYABLE—VEHICLES

The Company has threefour vehicle loans payable as follows:

Future minimum payments are:

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 - 4—NOTES PAYABLE - PAYABLE—VEHICLES (CONTINUED)

Future minimum payments are:

NOTE 5—NOTE PAYABLE—BANK

Effective July 1, 2008,June 30, 2009, the Company had a $250,000 line-of-credit agreement which expired on January 1, 2009. This3, 2010. The line-of-credit agreement was renewed on that date to extend until January 3, 20102011 with a variable interest rate at prime. The line-of-credit wasis collateralized by certain equipment. At December 31, 20082009 and June 30, 2008, the2009, there was no outstanding balance on the line-of-creditline-of-credit.

Management secured financing for $160,050 January 4, 2010, at which time, $63,780 was $-0-advanced on the loan. The loan, collateralized by equipment, carries an interest rate of 6.25% and $50,000, respectively.matures June 1, 2010.

NOTE 6 - NOTES PAYABLE - STOCKHOLDER

The Company borrowed $140,000, from a stockholder/officer during the fiscal year ending June 30, 2008, which was repaid by December 31, 2008. These unsecured loans had no maturity date and carried a 4.5% annual interest rate effective September 1, 2008.

NOTE 7 - 6—INCOME TAXES

The Company adoptedrecognition of income tax expense related to uncertain tax positions is determined under the provisions of Financial Accounting Standard Board Interpretation No. 48 (“FIN 48”)Accounting for Uncertainty in Income TaxesFASB ASC – An Interpretation of FASB No. 109 effective July 1, 2007, which clarified the accounting for uncertainty in tax positions.740-10. The Company had no unrecognized tax benefits as of the date of adoption, the income tax positions taken for open years are appropriately stated and supported for all open years, and the adoption of FIN 48 did not have a material effect on the Company’s consolidated financial statements.years.

As of June 30, 2008 and 2007,2009, the Company hadhas a net operating loss carryforward of approximately $170,706$4,512 and $203,000, respectively. However,unused contributions carryforward of $874 of which the Company’s profit for the six months ended December 31, 2008 and 2007, the Company’s profit2009 absorbed the available net operating loss carryforward so that no allowance has been recorded for this period. The deferred income taxes for the six months ended December 31, 2008 decreased $24,720 to $(3,806) compared to $20,914 at June 30, 2008.these amounts.

The net deferred tax assets (liability) are presented in the accompanying balance sheet as follows:

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8 - 7—SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

OVERVIEW

Chase General Corporation (Chase)(“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.

RESULTS OF OPERATIONS - OPERATIONS—Three Months Ended December 31, 20082009 Compared with Three Months Ended December 31, 20072008 and Six Months Ended December 31, 20082009 Compared with Six Months Ended December 31, 20072008

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 net sales and revenues for the periods presented:

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

NET SALES

Net sales decreased $8,667$189,263 or 1%13% for the three months ended December 31, 20082009 to $1,470,385$1,281,122 compared to $1,479,052$1,470,385 for the three months ended December 31, 2007.2008. Gross sales for Chase Candy decreased $81,073$21,663 to $477,444$455,781 for the three months ended December 31, 20082009 compared to $396,371$477,444 for 2007.2008. Gross sales for Seasonal Candy decreased $86,052$175,451 to $1,008,205$832,754 for the three months ended December 31, 20082009 compared to $1,094,257$1,008,205 for 2007.2008.

Net sales increased $276,362decreased $116,829 or 15%5% for the six months ended December 31, 20082009 to $2,158,842$2,042,013 compared to $1,882,480$2,158,842 for the six months ended December 31, 2007.2008. Gross sales for Chase Candy increased $194,619decreased $26,891 to $924,717$897,826 for the six months ended December 31, 20082009 compared to $730,098$924,717 for 2007.2008. Gross sales for Seasonal Candy increased $87,434decreased $100,689 to $1,260,809$1,160,120 for the six months ended December 31, 20082009 compared to $1,173,375$1,260,809 for 2007.2008.

The 15% increase5% decrease in net sales of $276,362$116,829 for the six month period ended December 31, 2008,2009, over the same period ended December 31, 20072008, is primarily due to price increase inreduced orders from several customers and discontinuation of the Chase Candy line put into place in April and November of 2008 along with Cherry Mash Bar and Mini Mash sales increasing 61% over last year. In addition, Chase Candy line includes increases for new customer orders of $60,500.Limited Addition Tin. Additionally, during 2008, the Company increased pricing and was unable to do so in 2009. Certain Seasonal Candy customers placed orders earlier this year of approximately $85,000,$82,000, which are reflected in the prior quarter sales rather than in the current quarter. Seasonal sales from new business orders for the six months amounted towere reduced approximately $44,000$90,000 from loss of the $87,434 increase in neta customer as well as $27,000 sales along with an average 6.2% price increase.not repeated from last year by one customer.

COST OF SALES

The cost of sales decreased $12,316$139,246 to $860,984 decreasing to 67% of related revenues for the three months ended December 31, 2009, compared to $1,000,230 decreasing toor 68% of related revenues for the three months ended December 31, 2008, compared to $1,012,546 or 69% of related revenues for the three months ended December 31, 2007.2008. The cost of sales increased $117,445decreased $79,854 to $1,428,501 decreasing to$1,348,647 or 66% of related revenues for the six months ended December 31, 2008,2009, compared to $1,311,056$1,428,501 or 70%66% of related revenues for the six months ended December 31, 2007.

The decrease in cost of sales is a 1% decrease which is proportionate to the 1% decrease in net sales for the three months ended December 31, 2008 as reflected above. Direct costs of goods for materials manufactured and production labor force for the three months ended December 31, 2008 decreased $20,767 to $497,203 as compared to $517,970 for the three months ended December 31, 2007, which includes packaging materials decreasing $23,346 as a result of purchasing a new label machine to print labels in house.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

COST OF SALES (CONTINUED)

2008.

Direct costs of goods for materials manufactured and production labor force for the six months ended December 31, 2008, increased $59,5282009, decreased $78,804 to $1,004,382$925,578 as compared to $944,854$1,004,382 for the six months ended December 31, 2007,2008, which is a result of no raw material price increases for sugar - 4 cents per pound; peanuts 8 cents per pound andincreases. In addition, new transportation vendors were used, which resulted in a 4% raisedecrease of 13% in freight costs from $124,127 for the production labor force.six months ended December 31, 2008, to $108,329 for the six months ended December 31, 2009.

CHASE GENERAL CORPORATION AND SUBSIDIARY

COST OF SALES (CONTINUED)

The Company decreased finished goods inventory for the threesix months ended December 31, 20082009 to $22,742$65,858 or 69%45% from the June 30, 20082009 finished goods inventory of $72,651$119,116 due to the end of the Company’s busy season. Raw material inventory of $81,609$74,902 and packaging materials inventory of $184,300$175,665 is 17%3% higher than the June 30, 20082009 inventories of $56,346$69,960 raw material and $170,276$172,764 packaging materials as a result of purchasing inventory to take advantage of favorable pricing, but not all of this inventory was used during the second quarter ending December 31, 2008.2009.

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2008 increased $13,6552009 decreased $21,552 to $157,008,$135,456, which is 10%11% of sales, compared to $143,353$157,008 or 10% of sales for the three months ended December 31, 2007.2008. Selling expenses for the six months ended December 31, 2008 increased $30,4802009 decreased $23,186 to $230,555,$207,369, which is 11%10% of sales, compared to $200,075$230,555 or 10%11% of sales for the six months ended December 31, 2007.2008.

The increasedecrease of $13,655$21,552 in selling expenses for the three months ended December 31, 20082009 is due to higherlower commissions and premium promotions being paid and sample costs for the period. Commissions and premium promotions, and sample costs increased 11%decreased 20% to $114,522$91,108 for this period from $103,393$114,522 for the three months ended December 31, 2007.2008.

The increasedecrease of $30,480$23,186 in selling expenses for the six months ended December 31, 20082009 is also due to higherlower commissions and premium promotions being paid as a result of increaseddecreased sales along with sample costs for this period. Commissions and premium promotions, and sample costs increased 23%decreased 18% to $150,597$123,594 for this period from $122,622$150,597 for the six months ended December 31, 2007.2008.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 20082009 increased $6,984$4,998 to $74,237,$79,235, and increased to 5%6% of sales, compared to $67,253$74,237 or 4%5% of sales for the three months ended December 31, 2007.2008. General and administrative expenses for the six months ended December 31, 20082009 increased $14,449$14,001 to $179,959,$193,960, and decreasedincreased to 8%10% of sales, compared to $165,510$179,959 or 9%8% of sales for the six months ended December 31, 2007.2008. The increased costs are primarily because of a $11,035$14,109 increase in costs updating Chase’s website.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

employee health and directors insurance.

OTHER INCOME (EXPENSE)

Other income and (expense) decreased by $1,140$775 for the three months ended December 31, 20082009 to $(1,952)$(1,177), compared to $(3,092)$(1,952) for the three months ended December 31, 2007.2008. Other income and expense increaseddecreased by $543$2,631 for the six months ended December 31, 2009 to $(1,986), compared to $(4,617) for the six months ended December 31, 2008 to $(4,617), compared to $(4,074) for the six months ended December 31, 2007. This was primarily due to an increasea decrease in interest expense.expenses.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PROVISION FOR INCOME TAXES

The Company recorded a tax provision for the three months ended December 31, 20082009 of $67,661$87,411 as compared to $28,762$67,661 for the three months ended December 31, 2007.2008. The Company recorded a tax provisionexpense for the six months ended December 31, 20082009 of $76,793$108,622 as compared to $25,030the tax expense of $76,793 for the six months ended December 31, 2007.2008. The effectivenet tax rate of 16%expense recorded for the three and six months ended December 31, 2008 increased from 12%2009 is primarily due to recognizing taxes related to current profitable operations. The net tax expense recorded for the six months ended December 31, 2007. The Company had incurred losses for the past two years, which is not available to carry back to obtain previously paid income taxes. This loss can be fully utilized against taxable income for the six months ended December 31, 2008 which results in an effective tax rate of 16%. The net change in deferred taxes for the three months and six months ended December 31, 2008 was $(15,588) and $(24,720), respectively. There was no valuation allowance at December 31, 2008 or 2007, since the losses are fully utilized.primarily due to recognizing deferred taxes related to a carryover of operating losses.

NET INCOME

The Company reported a net income for the quarter ended December 31, 20082009 of $174,549,$116,859, compared to a net income of $224,046$174,549 for the quarter ended December 31, 2007.2008. This decrease of $49,497$57,690 is explained above.

The Company reported a net income for the six months ended December 31, 20082009 of $243,669,$181,429, compared to a net income of $176,735$243,669 for the six months ended December 31, 2007.2008. This increasedecrease of $66,934$62,240 is explained above.

PREFERRED DIVIDENDS

These amounts reflect additional preferred stock dividends in arrears for the three and six months ended December 31, 20082009 and 2007,2008, respectively, 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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders for the three months ended December 31, 20082009 was $142,531,$84,841, which is a decrease of $49,497$57,690 as compared to the three months ended December 31, 20072008 of $192,028.$142,531.

Net income applicable to common stockholders for the six months ended December 31, 20082009 was $179,633$117,393 which is an increasea decrease of $66,934$62,240 as compared to the six months ended December 31, 20072008 of $112,699.$179,633. These items are explained above.

CHASE GENERAL CORPORATION AND SUBSIDIARY

LIQUIDITY AND CAPITAL RESOURCES

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

The $12,987$2,574 of cash used in investing activities was the result of capital expenditures. Management has an $18,000approximately $226,000 commitment for capital expenditures during the remainder of fiscal 2009. Management has secured financing for $160,050 effective January 4, 2010. The $198,222balance of the commitment will be paid with cash funds held by the Company.

The $14,619 of cash used in financing activities isincludes receipt of $145,000 proceeds$210,000 from theits line-of-credit, which has been paid in full as of December 31, 2009 and its payments on the vehicle loans, line-of-credit and stockholder loan.loans. Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future. Chase does have $250,000 remaining on its bank line-of-credit, which could be utilized to help fund any working capital requirements.

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

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CRITICAL ACCOUNTING POLICIES

Use of Estimates

The preparation of the condensed 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 certain reported amounts and disclosures. Significant estimates used in preparing these condensed consolidated financial statements include those assumed in computing the carrying value of equipment and allowance for doubtful accounts receivable.trade receivables. Accordingly, actual results could differ from those estimates. Any changes in estimates are recorded in the period in which they become known.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CRITICAL ACCOUNTING POLICIES (CONTINUED)

Credit Risk

Financial instruments that potentially subject Chase to concentrations of credit risk consist principally of cash and accounts receivable. Chase grants unsecured credit to substantially all of its customers. Management does not believe that it is exposed to any extraordinary credit risk as a result of this policy. Chase deposits all monies at the Nodaway Valley Bank. These accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation. Chase has not experienced any losses in such accounts. Management does not believe Chase is exposed to any significant credit risk with respect to its cash and cash equivalents.

Revenue Recognition

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

Allowance for Doubtful Accounts

The carrying amount of accounts receivable 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 collectibilitycollectability of specific customer accounts and the aging of the accounts receivable. 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 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 market value” with cost being determined on the “first-in, first-out” basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CRITICAL ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Property and equipment is recorded at cost. The Company’s property and equipment are being depreciated on straight-line and accelerated methods over the following estimated useful lives:

Cash Flows

For purposes of the statements of cash flows, Chase considers all short-term investments purchased with original maturity dates of three months or less to be cash equivalents.

New Accounting Pronouncements

Effective July 1, 2008, ChasePursuant to SFAS No. 168,“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”, the FASB Accounting Standards Codification (“ASC”) (FASB ASC 105) became the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The Company adopted Statementthis standard during the first quarter of financial Accounting Standard No. 157 (“SFAS 157”),Fair Value Measurements, SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements.2009. The adoption of SFAS 157ASC 105 did not have any effect on Chase’s results of operations, financial condition and cash flows. The adoption impacted references to specific accounting standards in the footnotes to our consolidated financial statements which have been changed to refer to the appropriate section of the ASC.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CRITICAL ACCOUNTING POLICIES (CONTINUED)

Effective July 1, 2008, Chase adopted FASB Statement of Financial Accounting Standard No. 159, (“SFAS 159”),The Fair Value Option for Financial Assets and Financial Liabilities(FASB ASC 825) – Including an amendment of FASBStatement of Financial Accounting Statement No. 115.115,Accounting for Certain Investments in Debt and Equity SecuritiesSFAS 159(FASB ASC 320).ASC 825 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings cause by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159ASC 825 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities,ASC 320 applies to all entities with available-for-sale and trading securities. The adoption of SFAS 159ASC 825 did not have any effect on Chase’s results of operations, financial condition and cash flows.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

CRITICAL ACCOUNTING POLICIES (CONTINUED)

New Accounting Pronouncements (Continued)

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS 141R”)(FASB ASC 805) and SFAS No. 160,Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements(“SFAS 160”)FASB ASC 810). These statements significantly change the accounting for and reporting of business combinations and noncontrolling (minority) interests in consolidated financial statements. These statements will require noncontrolling interests to be reclassified to equity, consolidated net income to be adjusted to include net income attributed to the noncontrolling interest, and consolidated comprehensive income to be adjusted to include the comprehensive income attributed to the noncontrolling interest. SFAS 141RASC 805 and SFAS 160ASC 810 are required to be adopted simultaneously. SFAS 141ASC 805 is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. SFAS 160ASC 810 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted except for the presentation and disclosure requirements which will be applied retrospectively for all periods. Early adoption is prohibited. The Company is currently evaluating the impactadoption of adopting SFAS 141RASC 805 and SFAS 160ASC 810 did not have any effect on its consolidatedChase’s results of operations, financial statements.condition and cash flows.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CRITICAL ACCOUNTING POLICIES (CONTINUED)

Forward-Looking Information

This report as well as our other reports filed with the Securities and Exchange Commission (“SEC”) contains forward-looking statements made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “forecast,” “may,” “will,” “should,” “continue,” “predict” and similar expressions are intended to identify forward-looking statements. This report contains forward-looking statements regarding, among other topics, our expected financial position, results of operations, cash flows, strategy, and management’s plans and objectives. Accordingly, these forward-looking statements are based on assumptions about a number of important factors. While we believe that our assumptions about such factors are reasonable, such factors involve risks and uncertainties that could cause actual results to be different from what appear here. These risk factors include: the 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.

Not applicable to a smaller reporting company.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 4T. - CONTROLS AND PROCEDURES

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 mended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, this officer 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.

Change in Internal Controls

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 6. EXHIBITS

NoneITEM 6.EXHIBITS

a.      Exhibits.

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.

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