UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30,December 31, 2009

For the transition period from              to             

Commission File Number 2-5916

Chase 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)

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

Indicate by check mark whether the registrant (1) has submitted electronically 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 OctoberJanuary 31, 2009,2010, there were 969,834 shares of common stock, $1.00 par value, outstanding.

Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

Quarterly Report on Form 10-Q

For the ThreeSix Months Ended September 30,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, 2009 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months and six months ended September 30,December 31, 2009 and for the three months and six months ended September 30,December 31, 2008 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-K for the year ended June 30, 2009. The results of operations for the three and six months ended December 31, 2009 and cash flows for the threesix months ended September 30,December 31, 2009 are not necessarily indicative of the results for the entire fiscal year ending June 30, 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 1—GENERAL(CONTINUED)

Management has performed an evaluation of events that have occurred subsequent to September 30,December 31, 2009, and as of NovemberFebruary 11, 20092010 (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 threesix month period ended September 30,December 31, 2009.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - 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.

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 September 30,December 31, 2009 and 2008, totaled $7,084,320$7,116,338 and $6,956,248,$6,988,266, 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 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 with 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. At June 30, 2009, a total of $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 threesix months ended September 30,December 31, 2009 and 2008, deferred revenue of $324$649 and $325,$650, respectively, was amortized into income for each period.

NOTE 4 - 4—NOTES PAYABLE - PAYABLE—VEHICLES

The Company has four vehicle loans payable as follows:

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Future minimum payments are:

NOTE 5 - 5—NOTE PAYABLE - PAYABLE—BANK

Effective June 30, 2009, the Company had a $250,000 line-of-credit agreement which will expireexpired on January 3, 2010. The line-of-credit agreement was renewed on that date to extend until January 3, 2011 with a variable interest rate (5.0% and 3.25% at September 30, 2009 and June 30, 2009, respectively) at primeprime. The line-of-credit is collateralized by certain equipment. At September 30,December 31, 2009 and June 30, 2009, thethere 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 $210,000advanced on the loan. The loan, collateralized by equipment, carries an interest rate of 6.25% and $-0-, respectively.matures June 1, 2010.

NOTE 6 - 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 (FASBFASB ASC 740-10)Accounting for Uncertainty in Income Taxes – 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, 2009, the Company has a net operating loss carryforward of approximately $4,512 and unused contributions carryforward of $874 of which the Company’s profit for the threesix months ended September 30,December 31, 2009 absorbed these amounts.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 - 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 September 30,December 31, 2009 Compared with Three Months Ended September 30,December 31, 2008 and Six Months Ended December 31, 2009 Compared with Six Months Ended December 31, 2008

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 increased $72,434decreased $189,263 or 11%13% for the three months ended September 30,December 31, 2009 from $688,457 to $760,891.$1,281,122 compared to $1,470,385 for the three months ended December 31, 2008. Gross sales for Chase Candy division decreased $5,228 from $447,273$21,663 to $442,045.$455,781 for the three months ended December 31, 2009 compared to $477,444 for 2008. Gross sales for Seasonal Candy division increased $80,762 from $252,604decreased $175,451 to $333,366.$832,754 for the three months ended December 31, 2009 compared to $1,008,205 for 2008.

Net sales decreased $116,829 or 5% for the six months ended December 31, 2009 to $2,042,013 compared to $2,158,842 for the six months ended December 31, 2008. Gross sales for Chase Candy decreased $26,891 to $897,826 for the six months ended December 31, 2009 compared to $924,717 for 2008. Gross sales for Seasonal Candy decreased $100,689 to $1,160,120 for the six months ended December 31, 2009 compared to $1,260,809 for 2008.

The 5% decrease in grossnet sales of $116,829 for the six month period ended December 31, 2009, over the same period ended December 31, 2008, is primarily due to reduced orders from several customers and discontinuation of the Mini Mash 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 $82,000, which are reflected in the prior quarter sales rather than in the current quarter. Seasonal sales for the three month period ended September 30, 2009 for the Chase Candy division, is due to two customers reducing orderssix months were reduced approximately $90,000 from loss of a customer as well as $27,000 sales not repeated from last year by approximately $5,000. The increase in gross sales for the Seasonal Candy division is due to timing of shipping bulk orders of $82,000 that were shipped in the second quarter last year.one customer.

COST OF SALES

CostThe cost of sales increased $59,392 from $428,271 or 62%decreased $139,246 to $860,984 decreasing to 67% of related revenues for the three months ended September 30, 2008,December 31, 2009, compared to $487,663$1,000,230 or 64%68% of related revenues for the three months ended September 30, 2009.

December 31, 2008. The increase in cost of sales decreased $79,854 to $1,348,647 or 66% of $59,392 is a 14% increase. Increases included: direct cost in packaging materialsrelated revenues for the six months ended December 31, 2009, compared to $1,428,501 or 66% of $5,270 from $126,453 to $131,723 as well as direct labor of $9,375 from $97,783 to $107,158. Temporary labor was able to be utilized earlier inrelated revenues for the season and also contributed to this change. In addition, a new supervisor was hired to replace a long time supervisor who will be retiring insix months ended December 2009. As a result, indirect labor31, 2008.

Direct costs of $72,303goods for materials manufactured and production labor force for the threesix months ended September 30,December 31, 2009, increased 22% or $13,257 from $59,046decreased $78,804 to $925,578 as compared to $1,004,382 for the threesix months ended September 30, 2008. Change in goods-in-process and finished goods inventory decreased $71,660 or 26% from $(277,240) for the three months ended September 30,December 31, 2008, to $(205,580) for the three months ended September 30, 2009 aswhich is a result of building up finished goods for product to be deliveredno raw material price increases. In addition, new transportation vendors were used, which resulted in October 2009.

SELLING EXPENSE

Selling expensea decrease of 13% in freight costs from $124,127 for the threesix months ended September 30, 2009 decreased $1,634 from $73,547, (11% of sales),December 31, 2008, to $71,913 or 9% of sales$108,329 for the threesix months ended September 30, 2008. The decrease in selling expenses is due to lower promotion expenses for the period.

GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense for the three months ended September 30, 2009 increased $9,003 from $105,722 or 14% of sales, to $114,725 or 15% of sales for the three months ended September 30, 2009, primarily for a $6,808 increase in employee health insurance.December 31, 2009.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

COST OF SALES (CONTINUED)

The Company decreased finished goods inventory for the six months ended December 31, 2009 to $65,858 or 45% from the June 30, 2009 finished goods inventory of $119,116 due to the end of the Company’s busy season. Raw material inventory of $74,902 and packaging materials inventory of $175,665 is 3% higher than the June 30, 2009 inventories of $69,960 raw material and $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, 2009.

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2009 decreased $21,552 to $135,456, which is 11% of sales, compared to $157,008 or 10% of sales for the three months ended December 31, 2008. Selling expenses for the six months ended December 31, 2009 decreased $23,186 to $207,369, which is 10% of sales, compared to $230,555 or 11% of sales for the six months ended December 31, 2008.

The decrease of $21,552 in selling expenses for the three months ended December 31, 2009 is due to lower commissions and premium promotions being paid and sample costs for the period. Commissions and premium promotions, and sample costs decreased 20% to $91,108 for this period from $114,522 for the three months ended December 31, 2008.

The decrease of $23,186 in selling expenses for the six months ended December 31, 2009 is also due to lower commissions and premium promotions being paid as a result of decreased sales along with sample costs for this period. Commissions and premium promotions, and sample costs decreased 18% to $123,594 for this period from $150,597 for the six months ended December 31, 2008.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2009 increased $4,998 to $79,235, and increased to 6% of sales, compared to $74,237 or 5% of sales for the three months ended December 31, 2008. General and administrative expenses for the six months ended December 31, 2009 increased $14,001 to $193,960, and increased to 10% of sales, compared to $179,959 or 8% of sales for the six months ended December 31, 2008. The increased costs are primarily because of a $14,109 increase in employee health and directors insurance.

OTHER INCOME (EXPENSE)

Other income and (expense) decreased by $1,856$775 for the three months ended September 30,December 31, 2009 from $(2,665)to $(1,177), compared to $(809)$(1,952) for the three months ended September 30,December 31, 2008. Other income and expense decreased by $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 due to a decrease in interest expense.expenses.

CHASE GENERAL CORPORATION AND SUBSIDIARY

PROVISION FOR INCOME TAXES

The Company recorded a tax expenseprovision for the three months ended September 30,December 31, 2009 of $21,211$87,411 as compared to $67,661 for the three months ended December 31, 2008. The Company recorded tax expense for the six months ended December 31, 2009 of $108,622 as compared to the tax expense of $9,132$76,793 for the threesix months ended September 30,December 31, 2008. The net tax expense recorded for the three and six months ended September 30,December 31, 2009 is primarily due to recognizing taxes related to current profitable operations. The net tax expense recorded for the three and six months ended September 30,December 31, 2008 was primarily due to recognizing deferred taxes related to a carryover of operating losses.

NET INCOME

The Company reported a net income for the three monthsquarter ended September 30,December 31, 2009 of $64,570,$116,859, compared to $69,120a net income of $174,549 for the three monthsquarter ended September 30,December 31, 2008. This decrease of $4,550$57,690 is explained above.

The Company reported a net income for the six months ended December 31, 2009 of $181,429, compared to a net income of $243,669 for the six months ended December 31, 2008. This decrease of $62,240 is explained above.

PREFERRED DIVIDENDS

PreferredThese amounts reflect additional preferred stock dividends were $32,018in arrears for the three and six months ended September 30,December 31, 2009 and 2008.2008, 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.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders was $32,552 for the three months ended September 30,December 31, 2009 was $84,841, which is a decrease of $57,690 as compared to $37,102 for the three months ended September 30,December 31, 2008 of $142,531.

Net income applicable to common stockholders for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Assix months ended December 31, 2009 was $117,393 which is a decrease of September 30, 2009, Chase had $70,277 in cash and cash equivalents$62,240 as compared to $28,771 asthe six months ended December 31, 2008 of June 30, 2009 and $22,103 as of September 30, 2008. Management had to draw $210,000 from its line-of-credit, since this is the start of busy season for Chase as reflected in increased receivables of $203,203, inventories of $194,388, and accounts payable of $119,387.$179,633. These items are explained above.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

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

The $2,574 of cash used in investing activities was the result of capital expenditures. Management has no material commitmentsapproximately $226,000 commitment for capital expenditures during the remainder of fiscal 2009. Management has secured financing for $160,050 effective January 4, 2010. The $202,680balance of the commitment will be paid with cash funds held by the Company.

The $14,619 of cash provided byused in financing activities is theincludes receipt of $210,000 proceeds from theits line-of-credit, netwhich has been paid in full as of principalDecember 31, 2009 and its payments on the vehicle 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 $40,000$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.

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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

CRITICAL ACCOUNTING POLICIES (CONTINUED)

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

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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

CRITICAL ACCOUNTING POLICIES (CONTINUED)

New Accounting Pronouncements

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. The adoption of ASC 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,The Fair Value Option for Financial Assets and Financial Liabilities(FASB ASC 825) – Including an amendment of FASBStatement of Financial Accounting Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities(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. ASC 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 ASC 320 applies to all entities with available-for-sale and trading securities. The adoption of ASC 825 did not have any effect on Chase’s results of operations, financial condition and cash flows.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (FASB ASC 805) and SFAS No. 160,Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements(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. ASC 805 and ASC 810 are required to be adopted simultaneously. ASC 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. ASC 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 adoption of ASC 805 and ASC 810 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)

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.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

ITEM 4T. - CONTROLS AND PROCEDURES

(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 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.

(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 in management’s estimates are reasonably likely to materially affect Chase’s internal control over financial reporting subsequent to the date of the evaluation.

PART II. OTHER INFORMATION

Not applicable to a smaller reporting company.

None

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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