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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended December 31, 2008



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

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)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|MISSOURI                                                       |  | 36-2667734                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

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)





Check whether the issuer (1) filed all
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act during the past 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 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.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities
Exchange Act of 1934)    Yes   ̈    No  x

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









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Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

INDEX



|                              |  |                                                                                                                   |  |   
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                                                  
|                              |  |                                                                                                                  
|Item 1.                       |  | Financial Statements                                                                                              |  |   
|                              |  |                                                                                                                  
|                              |  | Condensed Consolidated Balance Sheets as of December 31, 2008 (unaudited) and June 30, 2008                       |  | 3 
|                              |  |                                                                                                                  
|                              |  | Condensed Consolidated Statements of Operations for the three Months ended December 31, 2008 and 2007 (unaudited) |  | 5 
|                              |  |                                                                                                                  
|                              |  | Condensed Consolidated Statements of Operations for the six Months ended December 31, 2008 and 2007
(unaudited)   |  | 6 
|                              |  |                                                                                                                  
|                              |  | Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2008 and 2007
(unaudited)   |  | 7 
|                              |  |                                                                                                                  
|                              |  | Condensed Notes to Consolidated Financial Statements (unaudited)                                                  |  | 8 
|                              |  |                                                                                                                  
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 13
|                              |  |                                                                                                                  
|Item 4T.                      |  | Controls and Procedures                                                                                           |  | 21
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                  
|                              |  |                                                                                                                  
|Item 1.                       |  | Legal proceedings                                                                                                 |  | 22
|                              |  |                                                                                                                  
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                   |  | 22
|                              |  |                                                                                                                  
|Item 6.                       |  | Exhibits                                                                                                          |  | 22
|                              | 
|SIGNATURES                    |  | 23                                                                                                               



2



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS



|                                   |  |                  |           |              |   |        
|---------------------------------- |  | ---------------- | --------- | ------------ | - | -------
|                                   |  | December 31,2008 |           | June 30,2008
|                                   |  | (Unaudited)      |           | (Audited)   
|CURRENT ASSETS                     |  |                  |           |              |   |        
|                                   |  |                 
|Cash and cash equivalents          |  | $                | 249,125   |              | $ | 24,828 
|Trade receivables, net             |  |                  | 150,919   |              |   | 211,932
|Inventories:                       |  |                  |           |              |   |        
|Finished goods                     |  |                  | 22,742    |              |   | 72,651 
|Goods in process                   |  |                  | 7,040     |              |   | 3,857  
|Raw materials                      |  |                  | 81,609    |              |   | 56,346 
|Packaging materials                |  |                  | 184,300   |              |   | 170,276
|Prepaid expenses                   |  |                  | 3,321     |              |   | 6,146  
|Deferred income taxes              |  |                  | 2,205     |              |   | 8,890  
|                                   |  |                  |           |              |   |        
|                                   |  |                 
|Total current assets               |  |                  | 701,261   |              |   | 554,926
|                                   |  |                 
|PROPERTY AND EQUIPMENTNET         |  |                  | 299,925   |              |   | 274,024
|                                   |  |                 
|OTHER ASSETS                       |  |                  |           |              |   |        
|Deferred income taxes - noncurrent |  |                  |          |              |   | 12,024 
|                                   |  |                  |           |              |   |        
|                                   |  |                 
|TOTAL ASSETS                       |  | $                | 1,001,186 |              | $ | 840,974
|                                   |  |                  |           |              |   |        

The accompanying notes are an integral part of the

condensed consolidated financial statements.



3



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS
EQUITY



|                                                                         |  |                  |            |   |              |   |            |  
|------------------------------------------------------------------------ |  | ---------------- | ---------- | - | ------------ | - | ---------- | -
|                                                                         |  | December 31,2008 |            |   | June 30,2008 |  
|                                                                         |  | (Unaudited)      |            |   | (Audited)    |  
|CURRENT LIABILITIES                                                      |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Accounts payable                                                         |  | $                | 107,334    |   |              | $ | 84,879     |  
|Current maturities of notes payable                                      |  |                  | 23,314     |   |              |   | 62,007     |  
|Current maturities of forgivable loanbank                               |  |                  | 5,000      |   |              |   | 5,000      |  
|Notes payablestockholder                                                |  |                  |           |   |              |   | 140,000    |  
|Accrued expenses                                                         |  |                  | 10,756     |   |              |   | 17,582     |  
|Deferred income                                                          |  |                  | 1,299      |   |              |   | 1,299      |  
|Accrued income taxes payable                                             |  |                  | 52,073     |   |              |   |           |  
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Total current liabilities                                                |  |                  | 199,776    |   |              |   | 310,767    |  
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|LONG-TERM LIABILITIES                                                    |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Deferred income                                                          |  |                  | 14,805     |   |              |   | 10,454     |  
|Forgivable loanbank, less current maturities                            |  |                  |           |   |              |   | 5,000      |  
|Notes payable, less current maturities                                   |  |                  | 43,184     |   |              |   | 21,012     |  
|Deferred income taxes                                                    |  |                  | 6,011      |   |              |   |           |  
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Total long-term liabilities                                              |  |                  | 64,000     |   |              |   | 36,466     |  
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Total liabilities                                                        |  |                  | 263,776    |   |              |   | 347,233    |  
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|STOCKHOLDERS EQUITY                                                     |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Capital stock issued and outstanding:                                    |  |                  |            |   |              |   |            |  
|Prior cumulative preferred stock, $5 par value:                          |  |                  |            |   |              |   |            |  
|Series A (liquidation preference $2,025,000 and $2,010,000 respectively) |  |                  | 500,000    |   |              |   | 500,000    |  
|Series B (liquidation preference $1,980,000 and $1,965,000 respectively) |  |                  | 500,000    |   |              |   | 500,000    |  
|Cumulative preferred stock, $20 par value                                |  |                  |            |   |              |   |            |  
|Series A (liquidation preference $4,638,735 and $4,609,469 respectively) |  |                  | 1,170,660  |   |              |   | 1,170,660  |  
|Series B (liquidation preference $755,971 and $751,201 respectively)     |  |                  | 190,780    |   |              |   | 190,780    |  
|Common stock, $1 par value                                               |  |                  | 969,834    |   |              |   | 969,834    |  
|Paid-in capital in excess of par                                         |  |                  | 3,134,722  |   |              |   | 3,134,722  |  
|Accumulated deficit                                                      |  |                  | (5,728,586 | ) |              |   | (5,972,255 | )
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|Total stockholders equity                                               |  |                  | 737,410    |   |              |   | 493,741    |  
|                                                                         |  |                  |            |   |              |   |            |  
|                                                                         |  |                 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                               |  | $                | 1,001,186  |   |              | $ | 840,974    |  
|                                                                         |  |                  |            |   |              |   |            |  

The accompanying notes are an integral part of the

condensed consolidated financial statements.



4



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                    |  |                               |           |   |      |   |           |  
|--------------------------------------------------- |  | ----------------------------- | --------- | - | ---- | - | --------- | -
|                                                    |  | Three Months EndedDecember 31 |          
|                                                    |  | 2008                          |           |   | 2007 |  
|NET SALES                                           |  | $                             | 1,470,385 |   |      | $ | 1,479,052 |  
|                                                    |  |                              
|COST OF SALES                                       |  |                               | 1,000,230 |   |      |   | 1,012,546 |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|Gross profit on sales                               |  |                               | 470,155   |   |      |   | 466,506   |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|OPERATING EXPENSES                                  |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|Selling                                             |  |                               | 157,008   |   |      |   | 143,353   |  
|General and administrative                          |  |                               | 74,237    |   |      |   | 67,253    |  
|(Gain) on sale of equipment                         |  |                               | (5,252    | ) |      |   |          |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|Total operating expenses                            |  |                               | 225,993   |   |      |   | 210,606   |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|Income from operations                              |  |                               | 244,162   |   |      |   | 255,900   |  
|                                                    |  |                              
|OTHER INCOME (EXPENSE)                              |  |                               | (1,952    | ) |      |   | (3,092    | )
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|Net income before income taxes                      |  |                               | 242,210   |   |      |   | 252,808   |  
|                                                    |  |                              
|PROVISION FOR INCOME TAXES                          |  |                               | 67,661    |   |      |   | 28,762    |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|NET INCOME                                          |  |                               | 174,549   |   |      |   | 224,046   |  
|                                                    |  |                              
|Preferred dividends                                 |  |                               | (32,018   | ) |      |   | (32,018   | )
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|Net income applicable to common stockholders        |  | $                             | 142,531   |   |      | $ | 192,028   |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|NET INCOME PER SHARE OF COMMON STOCK               |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|BASIC                                               |  | $                             | .15       |   |      | $ | .20       |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|DILUTED                                             |  | $                             | .07       |   |      | $ | .10       |  
|                                                    |  |                               |           |   |      |   |           |  
|                                                    |  |                              
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING |  |                               | 969,834   |   |      |   | 969,834   |  
|                                                    |  |                               |           |   |      |   |           |  

The accompanying notes are an integral part of the

condensed consolidated financial statements.



5



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                    |  |                             |           |   |      |   |           |  
|--------------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | --------- | -
|                                                    |  | Six Months EndedDecember 31 |          
|                                                    |  | 2008                        |           |   | 2007 |  
|NET SALES                                           |  | $                           | 2,158,842 |   |      | $ | 1,882,480 |  
|                                                    |  |                            
|COST OF SALES                                       |  |                             | 1,428,501 |   |      |   | 1,311,056 |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|Gross profit on sales                               |  |                             | 730,341   |   |      |   | 571,424   |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|OPERATING EXPENSES                                  |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|Selling                                             |  |                             | 230,555   |   |      |   | 200,075   |  
|General and administrative                          |  |                             | 179,959   |   |      |   | 165,510   |  
|(Gain) on sale of equipment                         |  |                             | (5,252    | ) |      |   |          |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|Total operating expenses                            |  |                             | 405,262   |   |      |   | 365,585   |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|Income from operations                              |  |                             | 325,079   |   |      |   | 205,839   |  
|                                                    |  |                            
|OTHER INCOME (EXPENSE)                              |  |                             | (4,617    | ) |      |   | (4,074    | )
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|Net income before income taxes                      |  |                             | 320,462   |   |      |   | 201,765   |  
|                                                    |  |                            
|PROVISION FOR INCOME TAXES                          |  |                             | 76,793    |   |      |   | 25,030    |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|NET INCOME                                          |  |                             | 243,669   |   |      |   | 176,735   |  
|                                                    |  |                            
|Preferred dividends                                 |  |                             | (64,036   | ) |      |   | (64,036   | )
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|Net income applicable to common stockholders        |  | $                           | 179,633   |   |      | $ | 112,699   |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|NET INCOME PER SHARE OF COMMON STOCK               |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|BASIC                                               |  | $                           | .19       |   |      | $ | .12       |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|DILUTED                                             |  | $                           | .09       |   |      | $ | .06       |  
|                                                    |  |                             |           |   |      |   |           |  
|                                                    |  |                            
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING |  |                             | 969,834   |   |      |   | 969,834   |  
|                                                    |  |                             |           |   |      |   |           |  

The accompanying notes are an integral part of the

condensed consolidated financial statements.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                         |  |                             |          |   |      |   |          |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                         |  | Six Months EndedDecember 31 |         
|                                                                                         |  | 2008                        |          |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |  |                             |          |   |      |   |          |  
|Net income                                                                               |  | $                           | 243,669  |   |      | $ | 176,735  |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                             |          |   |      |   |          |  
|Depreciation and amortization                                                            |  |                             | 34,040   |   |      |   | 29,330   |  
|Provision for bad debts                                                                  |  |                             | 600      |   |      |   | 600      |  
|Deferred income amortization                                                             |  |                             | (650     | ) |      |   | (650     | )
|Deferred income taxes                                                                    |  |                             | 24,720   |   |      |   | 22,901   |  
|(Gain) on sale of equipment                                                              |  |                             | (5,252   | ) |      |   |         |  
|Effects of changes in operating assets and liabilities:                                  |  |                             |          |   |      |   |          |  
|Trade receivables                                                                        |  |                             | 60,413   |   |      |   | (11,092  | )
|Inventories                                                                              |  |                             | 7,439    |   |      |   | (89,307  | )
|Prepaid expenses                                                                         |  |                             | 2,825    |   |      |   | 3,395    |  
|Accounts payable                                                                         |  |                             | 22,455   |   |      |   | (48,914  | )
|Accrued expenses                                                                         |  |                             | (6,826   | ) |      |   | (20,039  | )
|Income taxes payable                                                                     |  |                             | 52,073   |   |      |   | 2,129    |  
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|Net cash provided by operating activities                                                |  |                             | 435,506  |   |      |   | 65,088   |  
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|CASH FLOWS FROM INVESTING ACTIVITIES                                                     |  |                             |          |   |      |   |          |  
|Proceeds from sale of equipment                                                          |  |                             | 13,000   |   |      |   |         |  
|Purchases of property and equipment                                                      |  |                             | (25,987  | ) |      |   | (503     | )
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|Net cash (used in) investing activities                                                  |  |                             | (12,987  | ) |      |   | (503     | )
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES                                                     |  |                             |          |   |      |   |          |  
|Proceeds from line-of-credit                                                             |  |                             | 145,000  |   |      |   | 250,000  |  
|Principal payments on line-of-credit                                                     |  |                             | (195,000 | ) |      |   | (250,000 | )
|Proceeds from notes payablestockholder                                                  |  |                             |         |   |      |   | 20,000   |  
|Principal payments on notes payablestockholder                                          |  |                             | (140,000 | ) |      |   | (65,000  | )
|Principal payments on vehicles notes payable                                             |  |                             | (8,222   | ) |      |   |         |  
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|Net cash (used in) financing activities                                                  |  |                             | (198,222 | ) |      |   | (45,000  | )
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                |  |                             | 224,297  |   |      |   | 19,585   |  
|                                                                                         |  |                            
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           |  |                             | 24,828   |   |      |   | 22,232   |  
|                                                                                         |  |                             |          |   |      |   |          |  
|                                                                                         |  |                            
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |  | $                           | 249,125  |   |      | $ | 41,817   |  
|                                                                                         |  |                             |          |   |      |   |          |  

The accompanying notes are an integral part of the

condensed consolidated financial statements.



7



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - GENERAL

The condensed consolidated balance sheet of Chase General Corporation (Chase or we, us, or our) at June 30, 2008 has been derived from audited consolidated
financial statements at that date. The condensed consolidated financial statements as of and for the three months and six months ended December 31, 2008 and for the three months and six months ended December 31, 2007 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-KSB for the year ended June 30, 2008. The results of operations for the three months and six months ended December 31, 2008 and cash flows for the six months ended December 31,
2008 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2009. 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.

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.



|                                                   |  |                               |         |                             |   |         |  |      |         |  |   |        
|-------------------------------------------------- |  | ----------------------------- | ------- | --------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                                   |  | Three Months EndedDecember 31 |         | Six Months EndedDecember 31
|                                                   |  | 2008                          |         | 2007                        |   | 2008    |  | 2007
|Net income                                         |  | $                             | 174,549 |                             | $ | 224,046 |  | $    | 243,669 |  | $ | 176,735
|                                                   |  |                               |         |                             |   |         |  |      |         |  |   |        
|                                                   |  |                               |         |                            
|Preferred dividend requirements:                   |  |                               |         |                             |   |         |  |      |         |  |   |        
|6% Prior Cumulative Preferred, $5 par value        |  |                               | 15,000  |                             |   | 15,000  |  |      | 30,000  |  |   | 30,000 
|5% Convertible Cumulative Preferred, $20 par value |  |                               | 17,018  |                             |   | 17,018  |  |      | 34,036  |  |   | 34,036 
|                                                   |  |                               |         |                             |   |         |  |      |         |  |   |        
|                                                   |  |                               |         |                            
|Total dividend requirements                        |  |                               | 32,018  |                             |   | 32,018  |  |      | 64,036  |  |   | 64,036 
|                                                   |  |                               |         |                             |   |         |  |      |         |  |   |        
|                                                   |  |                               |         |                            
|Net income common stockholders                     |  | $                             | 142,531 |                             | $ | 192,028 |  | $    | 179,633 |  | $ | 112,699
|                                                   |  |                               |         |                             |   |         |  |      |         |  |   |        



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 2 - NET INCOME PER SHARE (CONTINUED)



|                                                |  |                               |           |                             |   |           |  |      |           |  |   |          
|----------------------------------------------- |  | ----------------------------- | --------- | --------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                |  | Three Months EndedDecember 31 |           | Six Months EndedDecember 31
|                                                |  | 2008                          |           | 2007                        |   | 2008      |  | 2007
|Weighted average sharesbasic                   |  |                               | 969,834   |                             |   | 969,834   |  |      | 969,834   |  |   | 969,834  
|                                                |  |                               |           |                            
|Dilutive effect of contingently issuable shares |  |                               | 1,033,334 |                             |   | 1,033,334 |  |      | 1,033,334 |  |   | 1,033,334
|                                                |  |                               |           |                             |   |           |  |      |           |  |   |          
|                                                |  |                               |           |                            
|Weighted Average SharesDiluted                 |  |                               | 2,003,168 |                             |   | 2,003,168 |  |      | 2,003,168 |  |   | 2,003,168
|                                                |  |                               |           |                             |   |           |  |      |           |  |   |          
|                                                |  |                               |           |                            
|Basic earnings per share                        |  | $                             | .15       |                             | $ | .20       |  | $    | .19       |  | $ | .12      
|                                                |  |                               |           |                             |   |           |  |      |           |  |   |          
|                                                |  |                               |           |                            
|Diluted earnings per share                      |  | $                             | .07       |                             | $ | .10       |  | $    | .09       |  | $ | .06      
|                                                |  |                               |           |                             |   |           |  |      |           |  |   |          

Cumulative Preferred Stock dividends in arrears at December 31, 2008 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:



|               |  |                             |    |      |   |   
|-------------- |  | --------------------------- | -- | ---- | - | --
|               |  | Six Months EndedDecember 31
|               |  | 2008                        |    | 2007
|6% Convertible |  |                             |    |      |   |   
|Series A       |  | $                           | 15 |      | $ | 15
|Series B       |  |                             | 15 |      |   | 14
|               |  |                            
|5% Convertible |  |                             |    |      |   |   
|Series A       |  |                             | 59 |      |   | 58
|Series B       |  |                             | 59 |      |   | 58

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.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 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 until the five year term has expired.
Once the Company is no longer legally entitled to return the monies, the liability will be reclassified as deferred revenue and amortized into income over the life on the lease term of the new facility. At December 31, 2008 and June 30,
2008, a total of $20,000 and $15,000, respectively, had 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, 2008 and 2007,
deferred revenue of $650 was amortized into income for each period.

NOTE 4 - NOTE PAYABLE - VEHICLES

The Company has three vehicle loans payable as follows:



| | 1) | $1,001 monthly payments, including interest of -0-%; final payment due March 2011, secured by a vehicle.
| | -- | --------------------------------------------------------------------------------------------------------



| | 2) | $573 monthly payments, including interest of 6.99%; final payment due July 2012, secured by a vehicle.
| | -- | ------------------------------------------------------------------------------------------------------



| | 3) | $508 monthly payments, including interest of 1.9%; final payments due January 2012, secured by a vehicle.
| | -- | ---------------------------------------------------------------------------------------------------------

Future minimum payments are:



|      |  |   |       
|----- |  | - | ------
|2009  |  | $ | 23,314
|2010  |  |   | 23,863
|2011  |  |   | 15,386
|2012  |  |   | 3,935 
|      |  |   |       
|      | 
|Total |  | $ | 66,498
|      |  |   |       



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 5 - NOTES PAYABLE - BANK

Effective July 1, 2008, the Company had a $250,000 line-of-credit agreement which expired on January 1, 2009. This line-of-credit agreement was renewed on that date to extend until January 3, 2010 with
a variable interest rate at prime. The line-of-credit was collateralized by certain equipment. At December 31, 2008 and June 30, 2008, the outstanding balance on the line-of-credit was $-0- and $50,000, respectively.

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 - INCOME TAXES

The Company adopted the provisions of
Financial Accounting Standard Board Interpretation No. 48 (FIN 48) 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. 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.

As of June 30, 2008 and 2007, the Company had a net operating loss
carryforward of approximately $170,706 and $203,000, respectively. However, for the six months ended December 31, 2008 and 2007, the Companys profit 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.

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



|                                    |  |                  |        |   |              |   |       
|----------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------
|                                    |  | December 31,2008 |        |   | June 30,2008
|Current deferred tax asset          |  | $                | 2,205  |   |              | $ | 8,890 
|Noncurrent deferred tax asset       |  |                  |       |   |              |   | 12,024
|Long-term deferred tax liability    |  |                  | (6,011 | ) |              |   |      
|                                    |  |                  |        |   |              |   |       
|                                    |  |                 
|Net deferred tax assets (liability) |  | $                | (3,806 | ) |              | $ | 20,914
|                                    |  |                  |        |   |              |   |       



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 8 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION



|                                              |  |                               |        |      |   |      
|--------------------------------------------- |  | ----------------------------- | ------ | ---- | - | -----
|                                              |  | Three Months EndedDecember 31
|                                              |  | 2008                          |        | 2007
|Cash paid for:                                |  |                               |        |      |   |      
|Interest                                      |  | $                             | 5,347  |      | $ | 5,312
|                                              |  |                              
|Non-cash transaction:                         |  |                               |        |      |   |      
|Financing of new vehicles                     |  |                               | 41,702 |      |   |     
|Reclass of forgivable loan to deferred income |  |                               | 5,000  |      |   | 5,000



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

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.

RESULTS OF OPERATIONS - Three Months Ended December 31, 2008 Compared with Three Months Ended December 31, 2007 and
Six Months Ended December 31, 2008 Compared with Six Months Ended December 31, 2007

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:



|                               |  |                               |   |  |                             |   |  |      |   |  |      |  
|------------------------------ |  | ----------------------------- | - |  | --------------------------- | - |  | ---- | - |  | ---- | -
|                               |  | Three Months EndedDecember 31 |   |  | Six Months EndedDecember 31 |  
|                               |  | 2008                          |   |  | 2007                        |   |  | 2008 |   |  | 2007 |  
|Net sales                      |  | 100                           | % |  | 100                         | % |  | 100  | % |  | 100  | %
|                               |  |                               |   | 
|Cost of sales                  |  | 68                            |   |  | 69                          |   |  | 66   |   |  | 70   |  
|                               |  |                               |   |  |                             |   |  |      |   |  |      |  
|                               |  |                               |   | 
|Gross profit                   |  | 32                            |   |  | 31                          |   |  | 34   |   |  | 30   |  
|                               |  |                               |   | 
|Operating expenses             |  | 15                            |   |  | 14                          |   |  | 19   |   |  | 19   |  
|                               |  |                               |   |  |                             |   |  |      |   |  |      |  
|Income from operations         |  | 17                            |   |  | 17                          |   |  | 15   |   |  | 11   |  
|Net income before income taxes |  | 17                            |   |  | 17                          |   |  | 15   |   |  | 11   |  
|Provision for income taxes     |  | 5                             |   |  | 2                           |   |  | 3    |   |  | 1    |  
|                               |  |                               |   |  |                             |   |  |      |   |  |      |  
|                               |  |                               |   | 
|Net income                     |  | 12                            | % |  | 15                          | % |  | 12   | % |  | 10   | %
|                               |  |                               |   |  |                             |   |  |      |   |  |      |  



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CHASE GENERAL CORPORATION AND SUBSIDIARY



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



NET SALES

Net sales decreased $8,667 or 1% for the three months ended December 31, 2008 to $1,470,385 compared to $1,479,052 for the three months ended December 31, 2007. Gross sales for Chase Candy decreased $81,073
to $477,444 for the three months ended December 31, 2008 compared to $396,371 for 2007. Gross sales for Seasonal Candy decreased $86,052 to $1,008,205 for the three months ended December 31, 2008 compared to $1,094,257 for 2007.

Net sales increased $276,362 or 15% for the six months ended December 31, 2008 to $2,158,842 compared to $1,882,480 for the six months ended
December 31, 2007. Gross sales for Chase Candy increased $194,619 to $924,717 for the six months ended December 31, 2008 compared to $730,098 for 2007. Gross sales for Seasonal Candy increased $87,434 to $1,260,809 for the six months ended
December 31, 2008 compared to $1,173,375 for 2007.

The 15% increase in net sales of $276,362 for the six month period ended December 31, 2008,
over the same period ended December 31, 2007 is due to price increase in 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. Certain Seasonal Candy customers placed orders earlier this year of approximately $85,000, 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 to approximately $44,000 of the $87,434 increase in net sales, along with an average 6.2% price increase.

COST OF SALES

The cost of sales decreased $12,316 to $1,000,230 decreasing to 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. The cost of sales increased $117,445 to $1,428,501 decreasing to 66% of related revenues for the six months ended
December 31, 2008, compared to $1,311,056 or 70% 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.



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CHASE GENERAL CORPORATION AND SUBSIDIARY



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



COST OF SALES (CONTINUED)



Direct costs of goods for materials manufactured and production labor force for the six
months ended December 31, 2008, increased $59,528 to $1,004,382 as compared to $944,854 for the six months ended December 31, 2007, which is a result of raw material price increases for sugar - 4 cents per pound; peanuts 8 cents per pound
and a 4% raise for the production labor force.

The Company decreased finished goods inventory for the three months ended December 31, 2008 to $22,742
or 69% from the June 30, 2008 finished goods inventory of $72,651 due to the end of the Companys busy season. Raw material inventory of $81,609 and packaging materials inventory of $184,300 is 17% higher than the June 30, 2008
inventories of $56,346 raw material and $170,276 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.

SELLING EXPENSES

Selling expenses for the three
months ended December 31, 2008 increased $13,655 to $157,008, which is 10% of sales, compared to $143,353 or 10% of sales for the three months ended December 31, 2007. Selling expenses for the six months ended December 31, 2008
increased $30,480 to $230,555, which is 11% of sales, compared to $200,075 or 10% of sales for the six months ended December 31, 2007.

The increase
of $13,655 in selling expenses for the three months ended December 31, 2008 is due to higher commissions and premium promotions being paid and sample costs for the period. Commissions and premium promotions, and sample costs increased 11% to
$114,522 for this period from $103,393 for the three months ended December 31, 2007.

The increase of $30,480 in selling expenses for the six months
ended December 31, 2008 is also due to higher commissions and premium promotions being paid as a result of increased sales along with sample costs for this period. Commissions and premium promotions, and sample costs increased 23% to $150,597
for this period from $122,622 for the six months ended December 31, 2007.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2008 increased $6,984 to $74,237, and increased to 5% of sales, compared to $67,253 or 4%
of sales for the three months ended December 31, 2007. General and administrative expenses for the six months ended December 31, 2008 increased $14,449 to $179,959, and decreased to 8% of sales, compared to $165,510 or 9% of sales for the
six months ended December 31, 2007. The increased costs are primarily because of a $11,035 increase in costs updating Chases website.



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CHASE GENERAL CORPORATION AND SUBSIDIARY



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



OTHER INCOME (EXPENSE)

Other income and (expense) decreased by $1,140 for the three months ended December 31, 2008 to $(1,952), compared to $(3,092) for the three months ended December 31, 2007. Other income and expense increased
by $543 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 increase in interest expense.

PROVISION FOR INCOME TAXES

The Company recorded a tax provision for
the three months ended December 31, 2008 of $67,661 as compared to $28,762 for the three months ended December 31, 2007. The Company recorded a tax provision for the six months ended December 31, 2008 of $76,793 as compared to $25,030
for the six months ended December 31, 2007. The effective tax rate of 16% for the six months ended December 31, 2008 increased from 12% 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.

NET INCOME

The Company reported a net income for the quarter ended
December 31, 2008 of $174,549, compared to a net income of $224,046 for the quarter ended December 31, 2007. This decrease of $49,497 is explained above.

The Company reported a net income for the six months ended December 31, 2008 of $243,669, compared to a net income of $176,735 for the six months ended December 31, 2007. This increase of $66,934 is explained above.

PREFERRED DIVIDENDS

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



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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, 2008 was $142,531, which is a decrease of $49,497 as compared to the three
months ended December 31, 2007 of $192,028.

Net income applicable to common stockholders for the six months ended December 31, 2008 was $179,633
which is an increase of $66,934 as compared to the six months ended December 31, 2007 of $112,699. These items are explained above.

LIQUIDITY AND
CAPITAL RESOURCES

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



|                                          |  |      |          |   |      |   |         |  
|----------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                          |  | 2008 |          |   | 2007 |  
|Net cash provided by operating activities |  | $    | 435,506  |   |      | $ | 65,088  |  
|Net cash used in investing activities     |  | $    | (12,987  | ) |      | $ | (503    | )
|Net cash used in financing activities     |  | $    | (198,222 | ) |      | $ | (45,000 | )

The $12,987 of cash used in investing activities was the result of capital expenditures. Management has an $18,000
commitment for capital expenditures during the remainder of fiscal 2009. The $198,222 of cash used in financing activities is receipt of $145,000 proceeds from the line-of-credit and payments on the vehicle loans, line-of-credit and stockholder
loan. 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.



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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. Accordingly, actual results could differ from those estimates. Any
changes in estimates are recorded in the period in which they become known.

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 collectibility 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.



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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:



|                        |  |                                                 
|----------------------- |  | ------------------------------------------------
|Buildings               |  | 39 years                                        
|Machinery and equipment |  | 5  7 years                                     
|Trucks and autos        |  | 5 years                                         
|Office equipment        |  | 5  7 years                                     
|Leasehold improvements  |  | Lesser of estimateduseful life or the lease
term

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, Chase adopted Statement 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. The adoption of SFAS 157 did not have any effect on Chases results of operations, financial condition and cash flows.

Effective July 1, 2008, Chase adopted Statement of Financial Accounting Standard No. 159 (SFAS 159), The Fair Value Option for
Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115.SFAS 159 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 159 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, applies to all entities with available-for-sale and trading securities. The adoption of SFAS 159 did
not have any effect on Chases results of operations, financial condition and cash flows.



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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) and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements(SFAS 160). 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 141R and SFAS 160 are required to be adopted simultaneously. SFAS 141 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 160 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 impact of
adopting SFAS 141R and SFAS 160 on its consolidated financial statements.

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.



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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 controls over financial
reporting or in other factors that in managements estimates are reasonably likely to materially affect Chases internal controls over financial reporting subsequent to the date of the evaluation.



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##### Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS



| | a. | None
| | -- | ----

ITEM 3. DEFAULTS UPON SENIOR
SECURITIES



| | a. | None
| | -- | ----



| | b. | The total cumulative preferred stock dividends contingency at December 31, 2008 is $6,988,266.
| | -- | ----------------------------------------------------------------------------------------------

ITEM 6. EXHIBITS



| | a. | Exhibits.
| | -- | ---------



|             |  |                                                                                                                       
|------------ |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit 31.1 |  | Officer Certification                                                                                                 
|             | 
|Exhibit 32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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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.



|                                                     
|-----------------------------------------------------
|Chase General Corporation and Subsidiary (Registrant)
|                                                     
|/s/ Barry M. Yantis                                  
|Barry M. Yantis                                      
|President, Chief Executive Officer,                  
|Treasurer and Chairman of the Board                  
|Date: February 12, 2009                              



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