CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 20152016 has been takencondensed from audited consolidated financial statements at that date and condensed.date. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2015September 30, 2016 and for the three and six months ended December 31, 2014September 30, 2015 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, 2015.2016. The results of operations for the three and six months ended December 31, 2015September 30, 2016 and cash flows for the sixthree months ended December 31, 2015September 30, 2016 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2016.2017. 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.

No events have occurred subsequent to December 31, 2015,September 30, 2016, through the date of filing this form, 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 sixthree month period ended December 31, 2015.September 30, 2016.

The earnings (loss) per share were computed on the weighted average of outstanding common shares during the period.

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The income per share was computed on the weighted average of outstanding common shares during the period. Diluted earnings per share isare calculated by including contingently issuable shares with the weighted average shares outstanding.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share. Cumulative Preferred Stock dividends in arrears at December 31,September 30, 2016 and 2015 totaled $7,980,824 and 2014 totaled $7,884,770 and $7,756,698,$7,852,752, respectively. Total dividends in arrears, on a per share basis, consist of the following:

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 SUBSIDIARYChase General Corporation and Subsidiary

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company’s long-term debt consists of:

Future minimum payments for the twelve months ending September 30 are:

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Future minimum payments for the twelve months ending December 31 are:

The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at December 31, 2015.September 30, 2016. The Company has no material tax positions at December 31, 2015September 30, 2016 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company had no accruals for interest or penalties at December 31, 2015. The Company’s federal income tax returns for the fiscal years ended 2013, 2014, 2015 and 20152016 are subject to examination by the Internal Revenue ServiceIRS taxing authority.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2014-09, Revenueamended guidance to clarify the principles for recognizing revenue from Contractscontracts with Customers.customers. The updatedguidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The guidance will initially be applied retrospectively using one of two methods. The standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued an update to defer the effective date of this update by one year. The updated standard becomesbe effective for interim andthe entity for annual reporting periods beginning after December 15, 2017, but allows the Company to adopt the standard one year earlier if it so chooses.including interim reporting periods within that reporting period. Early adoption is permitted beginning for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company has not yet selected a transition method and is currently evaluating the effect thatimpact of the updated standard will haveamended revenue recognition guidance on its Consolidated Financial Statements and related disclosures.consolidated financial statements.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," ("ASU 2015-11"). An entity using an inventory method other than last-in, first out ("LIFO") or the retail inventory method should measure inventory at the lower of cost and net realizable value. The new guidance clarifies that net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ThisThe update is effective as of January 1, 2017, with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statementsstatements.

Chase General Corporation and Subsidiary

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In February 2016, the FASB issued amended guidance for the treatment of leases. The guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability for all operating and finance leases with lease terms greater than one year. The guidance also requires both qualitative and quantitative disclosures regarding the nature of the entity’s leasing activities. The guidance will initially be applied using a modified retrospective approach. The amendments in the guidance are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of the amended lease guidance on the its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)". ASU 2014-15 provides guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

In November 2015, the FASB issued ASC Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes” as part of its simplification initiatives. This update requires deferred tax liabilities and assets to be classified as non-current on the consolidated condensed balance sheet for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. An entity can elect to adopt prospectively or retrospectively to all periods presented. We do not expect the adoption of ASU 2015-17 to have a material effect on our financial position, results of operations or cash flows.

There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company’sCompany's consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

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

AND 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.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 September 30, 2016 Compared with Three Months Ended September 30, 2015

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 OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

NET SALES

Net sales decreased $200,915 or 19% for the three months ended September 30, 2016 to $862,188 compared to $1,063,103 for the three months ended September 30, 2015. Gross sales for Seasonal Candy decreased $132,966 to $447,062 for the three months ended September 30, 2016, compared to $580,028 for 2015. Gross sales for Chase Candy decreased $70,100 to $421,885 for the three months ended September 30, 2016, compared to $491,985 for 2015. Sales returns and allowances for the Company decreased $2,838 to $6,798 for the three months ended September 30, 2016, compared to $9,636 for 2015. The Company’s other sales decreased $687 to $39 for the three months ended September 30, 2016, compared to $726 for 2015.

The 23% decrease in gross sales of Seasonal Candy of $132,966 for the three months ended September 30, 2016 over the same period ended September 30, 2015, is primarily due to the net effect of the following: 1) decreased orders from three customers in the generic seasonal division netting approximately $148,000 versus the same period a year ago primarily due to two lost customers and one customer decreasing orders; offset by 2) increased volume from various customers in the clamshell seasonal division netting approximately $2,000 versus the same period a year ago primarily due to two customers increasing orders; 3) increased orders in the bulk seasonal division netting approximately $14,000 due to increased sales to two existing customers.

The 14% decrease in gross sales of Chase Candy of $70,100 for the three months ended September 30, 2016 over the same period ended September 30, 2015, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $14,000 versus the same period a year ago primarily due to decreased orders from two existing customers; 2) decreased sales of L278/L212 Mini Mash division by approximately $40,000 versus the same period a year ago primarily due to decreased orders from four existing customers; and 3) decreased sales of L100, L200, SK436, and SK2100 Cherry Mash Merchandisers division by approximately $17,000 versus the same period a year ago due to decreased orders from five existing customers.

COST OF SALES

The cost of sales decreased $171,492 to $671,891, or 78% of related sales for the three months ended September 30, 2016 compared to $843,383, or 79% of related sales for the three months ended September 30, 2015.

The 20% decrease in cost of sales of $171,492 is primarily due to the 19% decrease in net sales of $200,915, a 4% decrease in the raw material cost of sugar, and a 3% decrease in the raw material cost of chocolate offset by a 20% increase in the raw material cost of corn syrup and a 1% increase in the raw material cost of peanuts. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

Chase General Corporation and Subsidiary

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

AND RESULTS OF OPERATIONS

SELLING EXPENSES

Selling expenses for the three months ended September 30, 2016 decreased $23,510 to $99,266, which is 12% of sales, compared to $122,776 or 12% of sales for the three months ended September 30, 2015.

The decrease of $23,510 in selling expenses for the three months ended September 30, 2016 is primarily due to lower commissions expense for the period, lower promotions expense, and lower truck and automobile depreciation expense. Commission expense decreased $8,270 to $33,315 for this period from $41,585 for the three months ended September 30, 2015 primarily due to the decrease in net sales. Promotions expense decreased $7,982 to $17,075 for this period from $25,057 for the three months ended September 30, 2015 primarily due to a decrease in net sales that have a bill-back allowance. Truck and automobile depreciation expense decreased $2,425 to $10,656 for this period from $13,081 for the three months ended September 30, 2015 primarily due to less of that asset class placed in service in the 2016 period.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended September 30, 2016 increased $20,695 to $135,746 and increased to 16% of sales, compared to $115,051 or 11% of sales for the three months ended September 30, 2015. The increased costs are primarily because of an increase in professional fees, miscellaneous general expense, and insurance expense. Professional fees expense increased $9,089 to $63,760 for this period from $54,671 for the three months ended September 30, 2016 primarily due to an increase in fees. Miscellaneous general expense increased $5,180 to $8,063 for this period from $2,883 for the three months ended September 30, 2016 primarily due to a non-recurring $6,000 expense occurring in the period. Insurance expense increased $5,090 to $27,447 for this period from $22,357 for the three months ended September 30, 2016 primarily due to a more employees accepting health insurance coverage.

OTHER INCOME (EXPENSE)

Other income (expense) decreased by $547 for the three months ended September 30, 2016 to $(440) compared to $107 for the three months ended September 30, 2015 primarily due to a increase in interest expense of $544.

INCOME TAX BENEFIT

The Company recorded a tax benefit for the three months ended September 30, 2016 of $17,228 as compared to tax benefit of $1,880 for the three months ended September 30, 2015. The income tax benefit recorded for the three months ended September 30, 2016 is primarily due to the net loss before income taxes.

NET LOSS

The Company reported a net loss for the three months ended September 30, 2016 of $27,927, compared to net loss of $3,746 for the three months ended September 30, 2015. This decrease of $24,181 is explained above.

Chase General Corporation and Subsidiary

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 September 30, 2016 and 2015, 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 (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

Net loss applicable to common stockholders for the three months ended September 30, 2016 was $59,945 which is a decrease of $24,181 as compared to the net loss for the three months ended September 30, 2015 of $35,764.

LIQUIDITY AND CAPITAL RESOURCES

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

Management has made no material commitments for capital expenditures during the remainder of fiscal 2017. The $17,247 of cash used in investing activities is the purchase of equipment used during the manufacturing process. The $284,445 of cash used in operating activities is fully detailed in the condensed consolidated statement of cash flows on page four. The $288,350 of cash provided by financing activities is primarily due to the receipt of $275,000 drawn from a line-of-credit, net of principal payments on equipment and vehicle loans. At September 30, 2016, the Company had $75,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements. Management expects that projected cash flows will enable the Company to pay the full balance on the line-of-credit prior to December 31, 2016.

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.

Management believes that inflation will have only a minimal effect on future operations since such effects will generally 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 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)(“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.

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

RESULTS OF OPERATIONS - Three Months Ended December 31, 2015 Compared to Three Months Ended December 31, 2014, and Six Months Ended December 31, 2015 Compared to Six Months Ended December 31, 2014

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

NET SALES

Net sales decreased $12,596 or 1% for the three months ended December 31, 2015 to $1,278,677 compared to $1,291,273 for the three months ended December 31, 2014. Gross sales for Chase Candy decreased $113,845 to $432,883 for the three months ended December 31, 2015, compared to $546,728 for the three months ended December 31, 2014. Gross sales for Seasonal Candy increased $107,633 to $865,036 for the three months ended December 31, 2015, compared to $757,403 for the three months ended December 31, 2014. Gross sales for other sales for the Company decreased $3,458 to $7,310 for the three months ended December 31, 2015, compared to $3,852 for the three months ended December 31, 2014. Sales returns and allowances for the Company increased $2,926 to $23,094 for the three months ended December 31, 2015, compared to $20,168 for the three months ended December 31, 2014.

The 21% decrease in gross sales of Chase Candy of $113,845 for the three months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $63,000 versus the same period a year ago primarily due to two customers decreasing orders; 2) decreased sales of the L278/L212 Mini Mash division by approximately $30,000 versus the same period a year ago primarily due to one customer decreasing orders; 3) decreased sales of the Cherry Mash Merchandiser division by approximately $15,000 versus the same period a year ago primarily due to five customers decreasing orders; 4) various other fluctuations netting to a decrease of approximately $4,000; 5) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $1,000 versus the same period a year ago primarily due to two customers decreasing orders; and 6) decreased sales of the L260 Changemaker Jar division by approximately $100 versus the same period a year ago primarily due to two customers decreasing orders.

The 14% increase in gross sales of Seasonal Candy of $107,633 for the three months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $168,000 due to sales to two new customers offset by the loss of one customer; 2) increased sales in the bulk seasonal division by approximately $22,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the clamshell seasonal division by approximately $82,000 versus the same period a year ago primarily due to decreased sales to four customers.

Net sales increased $58,599 or 3% for the six months ended December 31, 2015 to $2,341,780 compared to $2,283,181 for the six months ended December 31, 2014. Gross sales for Chase Candy decreased $113,940 to $924,868 for the six months ended December 31, 2015, compared to $1,038,808 for the six months ended December 31, 2014. Gross sales for Seasonal Candy increased $180,037 to $1,445,064 for the six months ended December 31, 2015, compared to $1,265,027 for the six months ended December 31, 2014. Gross sales for other sales for the Company decreased $3,646 to $4,578 for the six months ended December 31, 2015, compared to $8,224 for the six months ended December 31, 2014. Sales returns and allowances for the Company increased $3,582 to $32,730 for the six months ended December 31, 2015, compared to $28,878 for the six months ended December 31, 2014.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NET SALES (CONTINUED)

The 11% decrease in gross sales of Chase Candy of $113,940 for the six months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $88,000 versus the same period a year ago primarily due to two customers decreasing orders; 2) decreased sales of the L278/L212 Mini Mash division by approximately $10,000 versus the same period a year ago primarily due to two customers decreasing orders; 3) various other fluctuations netting to a decrease of approximately $6,000; 4) decreased sales of the L279/L299 Bulk Mini Mash division by approximately $4,000 versus the same period a year ago primarily due to two customers decreasing orders; 5) decreased sales of the Cherry Mash Merchandiser division by approximately $4,000 versus the same period a year ago primarily due to one customer decreasing orders; and 6) decreased sales of the L260 Changemaker Jar division by approximately $1,000 versus the same period a year ago primarily due to one customer decreasing orders.

The 14% increase in gross sales of Seasonal Candy of $180,037 for the six months ended December 31, 2015 over the same period ended December 31, 2014, is primarily due to the net effect of the following: 1) increased sales in the generic seasonal product division by approximately $213,000 due to increased orders from one customer offset by decreased orders of another customer; 2) increased sales in the bulk seasonal division by approximately $34,000 versus the same period a year ago primarily due to increased orders from one customer; offset by 3) decreased sales in the clamshell seasonal division by approximately $67,000 versus the same period a year ago primarily due to decreased orders from four customers.

COST OF SALES

The cost of sales increased $74,830 to $920,887 or 72% of related revenues for the three months ended December 31, 2015, compared to $846,057 or 66% of related revenues for the three months ended December 31, 2014. The 9% increase in cost of sales of $74,830 is primarily due to a 10% increase in the price of sugar and a 7% increase in the price of corn syrup.

The cost of sales increased $203,143 to $1,764,270 or 75% of related revenues for the six months ended December 31, 2015, compared to $1,561,127 or 68% of related revenues for the six months ended December 31, 2014. The 13% increase in cost of sales of $203,143 is primarily due to a 10% increase in the price of sugar, a 7% increase in the price of corn syrup, and a 3% increase in net sales of $58,599. Due to volatility in the regions where these raw materials are grown, management anticipates the prices of these raw materials to continue to fluctuate primarily based on supply and demand.

CHASE GENERAL CORPORATION AND SUBSIDIARY

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2015 increased $7,194 to $156,957, which is 12% of sales, compared to $149,763, or 12% of sales for the three months ended December 31, 2014. The increase of $7,194 in selling expenses for the three months ended December 31, 2015 is primarily due to higher premium promotions expense and higher commissions expense offset by lower automobile expense. Premium promotions, which are paid to customers for various marketing reasons, increased $3,481 to $40,314 for this period from $36,833 for the three months ended December 31, 2014. Commissions expense, which are based on sales, increased $6,798 to $48,817 for this period from $42,019 for the three months ended December 31, 2014. Automobile expense decreased $3,832 to $3,038 for this period from $6,870 for the three months ended December 31, 2014.

Selling expenses for the six months ended December 31, 2015 increased $15,329 to $279,733, which is 12% of sales, compared to $264,404 or 12% of sales for the six months ended December 31, 2014. The increase of $15,329 in selling expenses for the six months ended December 31, 2015 is primarily due to higher commissions expense, and depreciation expense for the period. Commissions expense increased $9,276 to $90,402 for this period from $81,126 for the six months ended December 31, 2014 primarily due to a change in the mix of sales. Depreciation expense increased $6,433 to $27,979 for this period from $21,546 primarily due to the purchases of property and equipment of $84,303 during the six months ended December 31, 2015.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2015 increased $4,783 to $95,236 and 7% of sales, compared to $90,453 or 7% of sales for the three months ended December 31, 2014. The increase of $4,783 in general and administrative expenses for the three months ended December 31, 2015 is primarily due to higher professional fees offset by lower insurance expense. Professional fees increased $14,625 to $31,666 for this period from $17,041 for the three months ending December 31, 2014 due to timing of regular invoices. Insurance expense decreased $11,180 to $24,225 for this period from $35,405 for the three months ending December 31, 2014 due to employees changing their enrollment in insurance plans.

General and administrative expenses for the six months ended December 31, 2015 decreased $1,547 to $210,287 or 9% of sales, compared to $211,834 or 9% of sales for the six months ended December 31, 2014. The decrease of $1,547 in general and administrative expenses for the six months ended December 31, 2015 is primarily due to higher professional fees offset by lower insurance expense. Professional fees increased $19,107 to $86,337 for this period from $67,230 for the six months ending December 31, 2014 due to timing of regular invoices. Insurance expense decreased $21,716 to $46,582 for this period from $68,298 for the six months ending December 31, 2014 due to employees changing their enrollment in insurance plans.

CHASE GENERAL CORPORATION AND SUBSIDIARY

OTHER INCOME (EXPENSE)

Other income (expense) decreased by $1,673 for the three months ended December 31, 2015 to $(2,320), compared to $(647) for the three months ended December 31, 2014 primarily due to an increase of $1,673 in interest expense.

Other income (expense) decreased by $12,703 for the six months ended December 31, 2015 to $(2,215), compared to $10,488 for the six months ended December 31, 2014 primarily due to a decrease of $1,058 in interest expense, and a decrease of $11,645 in miscellaneous income. The decrease in miscellaneous income is primarily due to these unusual items that occurred during the six months ended December 31, 2014: 1) a freight claim of approximately $4,000 and 2) a refund of approximately $7,000 from a customer related to an underpayment written off in a previous period.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense for the three months ended December 31, 2015 of $39,581 as compared to income tax expense of $77,726 for the three months ended December 31, 2014. The Company recorded income tax expense for the six months ended December 31, 2015 of $37,701 as compared to income tax expense of $94,976 for the six months ended December 31, 2014. The net income tax expense recorded for the three and six months ended December 31, 2015 is primarily due to recognizing income taxes related to current profitable operations.

NET INCOME

The Company reported net income for the three months ended December 31, 2015 of $72,686, compared to net income of $142,539 for the three months ended December 31, 2014. This decrease of $69,853 is explained above. The Company reported net income for the six months ended December 31, 2015 of $68,938, compared to net income of $177,240 for the six months ended December 31, 2014. This decrease of $108,302 is explained above.

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended December 31, 2015 and 2014, 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, 2015 and 2014, 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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders for the three months ended December 31, 2015 was $40,668 which is a decrease of $69,853 as compared to the net income for the three months ended December 31, 2014 of $110,521.

Net income applicable to common stockholders for the six months ended December 31, 2015 was $4,902 which is a decrease of $108,302 as compared to the net income for the six months ended December 31, 2014 of $113,204.

LIQUIDITY AND CAPITAL RESOURCES

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

Management has no material commitments for capital expenditures during the remainder of fiscal 2016. The $315,198 of cash provided by operating activities is fully detailed in the condensed consolidated statement of cash flows on page five. The $21,622 of cash used in investing activities is the purchase of equipment used during the manufacturing process and an automobile. The $6,666 of cash used in financing activities is the principal payments on equipment and vehicle loans. At December 31, 2015, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.

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.

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

Not applicable to a smaller reporting company.

(a) Evaluation of Disclosure Controls and Procedures

Chase’s Management,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)“Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Managementmanagement 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.

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

PARTPart II. OTHER INFORMATION

None.

Not applicable to a smaller reporting company.

None

Not applicable.

None

CHASE GENERAL CORPORATION AND SUBSIDIARYChase General Corporation and Subsidiary

PARTPart II. OTHER INFORMATION (CONTINUED)

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.