UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB



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

For the quarterly period ended March 31, 2006



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

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)

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 shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes ̈No  x

As of April 30, 2006, there were 969,834 shares of common stock, $1 par value, issued and outstanding.

Transitional Small Business Disclosure Format    Yes ̈No  x



---

CHASE GENERAL CORPORATION

Index

Form 10-QSB for the Quarter Ended March 31, 2006



|                                                                                                                              |  |   
|----------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I - FINANCIAL INFORMATION                                                                                                |  |   
|                                                                                                                              | 
|Item 1. Condensed Consolidated Financial Statements                                                                           |  |   
|                                                                                                                              | 
|Condensed Consolidated Balance Sheets at March 31, 2006 (Unaudited)and June 30, 2005                                          |  | 3 
|                                                                                                                              | 
|Condensed Consolidated Statements of Operations -For the Three Months Ended March 31, 2006 and 2005 (Unaudited)               |  | 5 
|                                                                                                                              | 
|Condensed Consolidated Statements of Operations -For the Nine Months Ended March 31, 2006 and 2005 (Unaudited)                |  | 6 
|                                                                                                                              | 
|Condensed Consolidated Statements of Cash Flows -For the Nine Months Ended March 31, 2006 and 2005 (Unaudited)                |  | 7 
|                                                                                                                              | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                              |  | 8 
|                                                                                                                              | 
|Item 2. Managements Discussion and Analysis or Plan of Operation                                                             |  | 11
|                                                                                                                              | 
|Item 3. Controls and Procedures                                                                                               |  | 15
|                                                                                                                              | 
|PART II - OTHER INFORMATION                                                                                                   |  |   
|                                                                                                                              | 
|Item 1. Legal proceedings                                                                                                     |  | 16
|                                                                                                                              | 
|Item 2. Unregistered Shares of Equity Securities and Use of Proceeds - None                                                   |  |   
|                                                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                                                       |  | 16
|                                                                                                                              | 
|Item 4. Submission of Matters to a Vote of Security Holders - None                                                            |  |   
|                                                                                                                              | 
|Item 5. Other Information - None                                                                                              |  |   
|                                                                                                                              | 
|Item 6. Exhibits                                                                                                              |  | 16
|                                                                                                                              | 
|Signatures                                                                                                                    |  | 17
|                                                                                                                              | 
|Exhibit 31 - Certification of Chief Executive Officer and Treasurer Pursuant to
Section 302 of the Sarbanes Oxley Act of 2002 |  | 18
|                                                                                                                              | 
|Exhibit 32 - Certification 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002       |  | 20



2



---

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS



|                                    |  |                |         |               |   |        
|----------------------------------- |  | -------------- | ------- | ------------- | - | -------
|                                    |  | March 31, 2006 |         | June 30, 2005
|                                    |  | (Unaudited)    |         |              
|CURRENT ASSETS                      |  |                |         |               |   |        
|                                    |  |               
|Cash and cash equivalents           |  | $              | 100,115 |               | $ | 60,805 
|Trade receivables, net              |  |                | 120,418 |               |   | 185,521
|Advance to stockholder (Note 6)     |  |                | 20,317  |               |   |       
|Income tax refund claims receivable |  |                | 2,909   |               |   | 18,425 
|Inventories:                        |  |                |         |               |   |        
|Finished goods                      |  |                | 31,670  |               |   | 110,403
|Goods in process                    |  |                | 4,976   |               |   | 4,440  
|Raw materials                       |  |                | 36,391  |               |   | 38,188 
|Packaging materials                 |  |                | 113,913 |               |   | 90,845 
|Prepaid expenses                    |  |                | 8,375   |               |   | 3,197  
|Deferred income taxes               |  |                | 5,234   |               |   | 4,230  
|                                    |  |                |         |               |   |        
|Total current assets                |  |                | 444,318 |               |   | 516,054
|                                    |  |               
|PROPERTY AND EQUIPMENT - NET        |  |                | 359,652 |               |   | 384,096
|                                    |  |                |         |               |   |        
|TOTAL ASSETS                        |  | $              | 803,970 |               | $ | 900,150
|                                    |  |                |         |               |   |        

The accompanying notes are an integral part of these

condensed consolidated financial statements.



3



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS
EQUITY



|                                                                         |  |               |            |   |               |   |            |  
|------------------------------------------------------------------------ |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                                         |  | March 31,2006 |            |   | June 30, 2005 |  
|                                                                         |  | (Unaudited)   |            |   |               |  
|CURRENT LIABILITIES                                                      |  |               |            |   |               |   |            |  
|                                                                         |  |              
|Current maturities of forgivable loan - bank                             |  | $             | 5,000      |   |               | $ | 5,000      |  
|Accounts payable                                                         |  |               | 21,292     |   |               |   | 104,380    |  
|Accrued expenses                                                         |  |               | 10,049     |   |               |   | 23,029     |  
|Deferred income                                                          |  |               | 1,299      |   |               |   |           |  
|                                                                         |  |               |            |   |               |   |            |  
|Total current liabilities                                                |  |               | 37,640     |   |               |   | 132,409    |  
|                                                                         |  |               |            |   |               |   |            |  
|LONG-TERM LIABILITIES                                                    |  |               |            |   |               |   |            |  
|                                                                         |  |              
|Deferred income                                                          |  |               | 3,376      |   |               |   |           |  
|Deferred income taxes                                                    |  |               | 32,541     |   |               |   | 29,812     |  
|Forgivable loan - bank, less current maturities                          |  |               | 15,000     |   |               |   | 20,000     |  
|                                                                         |  |               |            |   |               |   |            |  
|Total long-term liabilities                                              |  |               | 50,917     |   |               |   | 49,812     |  
|                                                                         |  |               |            |   |               |   |            |  
|Total liabilities                                                        |  |               | 88,557     |   |               |   | 182,221    |  
|                                                                         |  |               |            |   |               |   |            |  
|STOCKHOLDERS EQUITY                                                     |  |               |            |   |               |   |            |  
|                                                                         |  |              
|Capital stock issued and outstanding:                                    |  |               |            |   |               |   |            |  
|Prior cumulative preferred stock, $5 par value:                          |  |               |            |   |               |   |            |  
|Series A (liquidation preference $1,942,500 and $1,920,000 respectively) |  |               | 500,000    |   |               |   | 500,000    |  
|Series B (liquidation preference $1,897,500 and $1,875,000 respectively) |  |               | 500,000    |   |               |   | 500,000    |  
|Cumulative preferred stock, $20 par value                                |  |               |            |   |               |   |            |  
|Series A (liquidation preference $4,477,772 and $4,433,873 respectively) |  |               | 1,170,660  |   |               |   | 1,170,660  |  
|Series B (liquidation preference $729,736 and $722,581 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                                                      |  |               | (5,750,583 | ) |               |   | (5,748,067 | )
|                                                                         |  |               |            |   |               |   |            |  
|Total stockholders equity                                               |  |               | 715,413    |   |               |   | 717,929    |  
|                                                                         |  |               |            |   |               |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                               |  | $             | 803,970    |   |               | $ | 900,150    |  
|                                                                         |  |               |            |   |               |   |            |  

The accompanying notes are an integral part of these

condensed consolidated financial statements.



4



---

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                           |  |                            |          |   |      |   |         |  
|------------------------------------------ |  | -------------------------- | -------- | - | ---- | - | ------- | -
|                                           |  | Three Months EndedMarch 31 |         
|                                           |  | 2006                       |          |   | 2005 |  
|NET SALES                                  |  | $                          | 319,365  |   |      | $ | 396,156 |  
|                                           |  |                           
|COST OF SALES                              |  |                            | 322,403  |   |      |   | 359,845 |  
|                                           |  |                            |          |   |      |   |         |  
|Gross profit (loss) on sales               |  |                            | (3,038   | ) |      |   | 36,311  |  
|                                           |  |                            |          |   |      |   |         |  
|OPERATING EXPENSES                         |  |                            |          |   |      |   |         |  
|Selling expense                            |  |                            | 49,512   |   |      |   | 51,429  |  
|General and administrative expenses        |  |                            | 66,011   |   |      |   | 52,017  |  
|                                           |  |                            |          |   |      |   |         |  
|Total operating expenses                   |  |                            | 115,523  |   |      |   | 103,446 |  
|                                           |  |                            |          |   |      |   |         |  
|Loss from operations                       |  |                            | (118,561 | ) |      |   | (67,135 | )
|                                           |  |                           
|OTHER INCOME (EXPENSE)                     |  |                            | 1,016    |   |      |   | 340     |  
|                                           |  |                            |          |   |      |   |         |  
|Net loss before income taxes               |  |                            | (117,545 | ) |      |   | (66,795 | )
|                                           |  |                           
|PROVISION FOR INCOME TAXES (BENEFITS)      |  |                            | (28,451  | ) |      |   | (25,431 | )
|                                           |  |                            |          |   |      |   |         |  
|NET LOSS                                   |  |                            | (89,094  | ) |      |   | (41,364 | )
|                                           |  |                           
|Preferred dividends                        |  |                            | (32,018  | ) |      |   | (32,018 | )
|                                           |  |                            |          |   |      |   |         |  
|Net loss applicable to common stockholders |  | $                          | (121,112 | ) |      | $ | (73,382 | )
|                                           |  |                            |          |   |      |   |         |  
|NET LOSS PER SHARE OF COMMON STOCK - BASIC |  | $                          | (0.12    | ) |      | $ | (0.08   | )
|                                           |  |                            |          |   |      |   |         |  

The accompanying notes are an integral part of these

condensed consolidated financial statements.



5



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                           |  |                           |           |   |      |   |           |  
|------------------------------------------ |  | ------------------------- | --------- | - | ---- | - | --------- | -
|                                           |  | Nine Months EndedMarch 31 |          
|                                           |  | 2006                      |           |   | 2005 |  
|NET SALES                                  |  | $                         | 2,001,494 |   |      | $ | 2,114,478 |  
|                                           |  |                          
|COST OF SALES                              |  |                           | 1,571,578 |   |      |   | 1,579,399 |  
|                                           |  |                           |           |   |      |   |           |  
|Gross profit on sales                      |  |                           | 429,916   |   |      |   | 535,079   |  
|                                           |  |                           |           |   |      |   |           |  
|OPERATING EXPENSES                         |  |                           |           |   |      |   |           |  
|Selling expense                            |  |                           | 217,424   |   |      |   | 221,198   |  
|General and administrative expenses        |  |                           | 214,068   |   |      |   | 188,614   |  
|                                           |  |                           |           |   |      |   |           |  
|Total operating expenses                   |  |                           | 431,492   |   |      |   | 409,812   |  
|                                           |  |                           |           |   |      |   |           |  
|Income (loss) from operations              |  |                           | (1,576    | ) |      |   | 125,267   |  
|                                           |  |                          
|OTHER INCOME (EXPENSE)                     |  |                           | (2,124    | ) |      |   | (1,267    | )
|                                           |  |                           |           |   |      |   |           |  
|Net income (loss) before income taxes      |  |                           | (3,700    | ) |      |   | 124,000   |  
|PROVISION FOR INCOME TAXES (BENEFITS)      |  |                           | (1,184    | ) |      |   | 28,114    |  
|                                           |  |                           |           |   |      |   |           |  
|NET INCOME (LOSS)                          |  |                           | (2,516    | ) |      |   | 95,886    |  
|                                           |  |                          
|Preferred dividends                        |  |                           | (96,054   | ) |      |   | (96,054   | )
|                                           |  |                           |           |   |      |   |           |  
|Net loss applicable to common stockholders |  | $                         | (98,570   | ) |      | $ | (168      | )
|                                           |  |                           |           |   |      |   |           |  
|NET LOSS PER SHARE OF COMMON STOCK - BASIC |  | $                         | (.10      | ) |      | $ |          |  
|                                           |  |                           |           |   |      |   |           |  

The accompanying notes are an integral part of these

condensed consolidated financial statements.



6



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                         |  |                           |         |   |      |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                         |  | Nine Months EndedMarch 31 |        
|                                                                                         |  | 2006                      |         |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |  |                           |         |   |      |   |          |  
|Net income (loss)                                                                        |  | $                         | (2,516  | ) |      | $ | 95,886   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                           |         |   |      |   |          |  
|Depreciation and amortization                                                            |  |                           | 46,001  |   |      |   | 37,216   |  
|Provision for bad debts                                                                  |  |                           | 1,584   |   |      |   | 3,195    |  
|(Gain) on sale of equipment                                                              |  |                           |        |   |      |   | (5,849   | )
|Deferred income amortization                                                             |  |                           | (325    | ) |      |   |         |  
|Deferred income taxes                                                                    |  |                           | 1,725   |   |      |   | 7,261    |  
|Effects of changes in operating assets and liabilities:                                  |  |                           |         |   |      |   |          |  
|Trade receivables                                                                        |  |                           | 63,519  |   |      |   | (7,003   | )
|Income tax refund claims receivable                                                      |  |                           | 15,516  |   |      |   |         |  
|Inventories                                                                              |  |                           | 56,926  |   |      |   | 92,200   |  
|Prepaid expenses                                                                         |  |                           | (5,178  | ) |      |   | (3,217   | )
|Accounts payable                                                                         |  |                           | (83,088 | ) |      |   | (46,262  | )
|Accrued expenses                                                                         |  |                           | (12,980 | ) |      |   | 1,523    |  
|Income taxes payable                                                                     |  |                           |        |   |      |   | (23,919  | )
|                                                                                         |  |                           |         |   |      |   |          |  
|Net cash provided by operating activities                                                |  |                           | 81,184  |   |      |   | 151,031  |  
|                                                                                         |  |                           |         |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                     |  |                           |         |   |      |   |          |  
|(Increase) in advance to stockholder                                                     |  |                           | (20,317 | ) |      |   |         |  
|Purchases of equipment                                                                   |  |                           | (21,557 | ) |      |   | (207,227 | )
|Proceeds from sale of equipment                                                          |  |                           |        |   |      |   | 15,000   |  
|                                                                                         |  |                           |         |   |      |   |          |  
|Net cash (used in) investing activities                                                  |  |                           | (41,874 | ) |      |   | (192,227 | )
|                                                                                         |  |                           |         |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                     |  |                           |         |   |      |   |          |  
|Principal payments on notes payable, Series B                                            |  |                           |        |   |      |   | (7,032   | )
|Proceeds from forgivable loan                                                            |  |                           |        |   |      |   | 25,000   |  
|                                                                                         |  |                           |         |   |      |   |          |  
|Net cash provided by financing activities                                                |  |                           |        |   |      |   | 17,968   |  
|                                                                                         |  |                           |         |   |      |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |  |                           | 39,310  |   |      |   | (23,228  | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           |  |                           | 60,805  |   |      |   | 177,919  |  
|                                                                                         |  |                           |         |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |  | $                         | 100,115 |   |      | $ | 154,691  |  
|                                                                                         |  |                           |         |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                       |  |                           |         |   |      |   |          |  
|Cash payments for:                                                                       |  |                           |         |   |      |   |          |  
|Income taxes, net of (refunds)                                                           |  | $                         | (18,425 | ) |      | $ | 44,772   |  
|                                                                                         |  |                           |         |   |      |   |          |  
|Interest                                                                                 |  | $                         | 3,216   |   |      | $ | 2,140    |  
|                                                                                         |  |                           |         |   |      |   |          |  
|Non-cash transaction:                                                                    |  |                           |         |   |      |   |          |  
|Reclass of forgivable loan to deferred income                                            |  | $                         | 5,000   |   |      | $ |         |  
|                                                                                         |  |                           |         |   |      |   |          |  

The accompanying notes are an integral part of these

condensed consolidated financial statements.



7



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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, 2005 has
been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three months and nine months ended March 31, 2006 and for the three months and nine months
ended March 31, 2005 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, 2005. The results of operations for the three months and nine months ended March 31, 2006 and cash flows for the
nine months ended March 31, 2006 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2006. Where appropriate, items within the condensed consolidated financial statements have been reclassified from the
previous periods presentation.

NOTE 2 - NET LOSS PER SHARE

The basic loss per share was computed on the weighted average of outstanding common shares as follows:



|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------------- |  | -------------------------- | -------- | - | ------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                   |  | Three Months EndedMarch 31 |          |   | Nine Months EndedMarch 31 |  
|                                                   |  | 2006                       |          |   | 2005                      |   |         | 2006 |  |   | 2005    |  
|Net income (loss)                                  |  | $                          | (89,094  | ) |                           | $ | (41,364 | )    |  | $ | (2,516  | ) |  | $ | 95,886  |  
|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Preferred dividend requirements:                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|6% Prior Cumulative Preferred, $5 par value        |  |                            | 15,000   |   |                           |   | 15,000  |      |  |   | 45,000  |   |  |   | 45,000  |  
|5% Convertible Cumulative Preferred, $20 par value |  |                            | 17,018   |   |                           |   | 17,018  |      |  |   | 51,054  |   |  |   | 51,054  |  
|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Total dividend requirements                        |  |                            | 32,018   |   |                           |   | 32,018  |      |  |   | 96,054  |   |  |   | 96,054  |  
|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net loss common stockholders                       |  | $                          | (121,112 | ) |                           | $ | (73,382 | )    |  | $ | (98,570 | ) |  | $ | (168    | )
|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Weighted average of outstanding common shares      |  |                            | 969,834  |   |                           |   | 969,834 |      |  |   | 969,834 |   |  |   | 969,834 |  
|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net loss per share - basic                         |  | $                          | (.12     | ) |                           | $ | (.08    | )    |  | $ | (.10    | ) |  | $ |        |  
|                                                   |  |                            |          |   |                           |   |         |      |  |   |         |   |  |   |         |  

No computation was made on common stock equivalents outstanding because loss per share would be anti-dilutive.



8



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTE 2 - NET INCOME PER SHARE(CONTINUED)

Cumulative Preferred Stock dividends in arrears at March 31, 2006 and 2005, totaled $6,636,068, respectively. Total dividends in arrears, on a per share basis, consist of the following at March 31:



|               |  |                           |    |      |   |   
|-------------- |  | ------------------------- | -- | ---- | - | --
|               |  | Nine Months EndedMarch 31
|               |  | 2006                      |    | 2005
|6% Convertible |  |                           |    |      |   |   
|Series A       |  | $                         | 14 |      | $ | 14
|Series B       |  |                           | 14 |      |   | 13
|               |  |                          
|5% Convertible |  |                           |    |      |   |   
|Series A       |  |                           | 57 |      |   | 56
|Series B       |  |                           | 57 |      |   | 56

Six percent 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.

NOTE 3 - NOTE PAYABLE - BANK

Effective June 3, 2005, the Company has a line-of-credit agreement with an original maturity date of
June 3, 2006. The line-of-credit is collateralized by certain equipment and bears interest at an annual rate of 6%. At March 31, 2006, the outstanding balance on the line-of-credit was $-0-.

NOTE 4 - FORGIVABLE LOAN

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 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 operations in the new facility. In addition, the Company must maintain 19 existing jobs each year thereafter until the five year term has expired. Once the Company is no longer legally entitled to
return the monies, the liability is reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility the forgivable loan related to. At March 31, 2006, $5,000 has been reclassified to deferred
revenue and $325 has been amortized into income.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 - LEGAL PROCEEDINGS

On December 16,
2005, a lawsuit was filed by 3600 S. Leonard Road, LLC., (the Plaintiff) against the Company in the Circuit Court of Buchanan County, Missouri. The Plaintiff alleges that the Company failed to honor certain sections of a lease agreement entered into
between the Plaintiff, as owner and landlord of the premises subject to the lease agreement, and the Company, as tenant to the premises. The Plaintiff is seeking damages in an amount in excess of $200,000. The Company has filed a response with the
Circuit Court denying all material allegations made by the Plaintiff. A status review hearing was held March 15, 2006 in the Circuit Court where upon the Judges ruled for the parties to meet to agree to a scheduling order. The Company believes
the claim is without merit and intends to contest it vigorously, however the outcome of this lawsuit cannot be predicted at this time.

NOTE 6 - ADVANCE
TO STOCKHOLDER

The Company recorded an advance to a stockholder for $20,317 as of March 31, 2006. The advance is non-interest bearing with no
stated maturity date. The advance is included in current assets; management intends to collect the advance in full no later than June 30, 2006.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

This Managements Discussion and Analysis of
Financial Condition and Results of Operations section and other parts of this Report contain forward-looking statements that involve risks and uncertainties. The Companys actual results and the timing of certain events may differ significantly
from the results and timing discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed or referred to in this report and in Item 6 of the Annual
Report on Form 10-KSB for the year ended June 30, 2005.

The following discussion is intended to provide a better understanding of the significant
changes in trends relating to Chases financial condition and results of operations. Managements Discussion and Analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto.

OVERVIEW

Chase General 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 Company and Poe Candy Company, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two division is not maintained by
Management.

RESULTS OF OPERATIONS

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



|                                      |  |                            |    |  |                           |    |  |      |   |  |      |  
|------------------------------------- |  | -------------------------- | -- |  | ------------------------- | -- |  | ---- | - |  | ---- | -
|                                      |  | Three Months EndedMarch 31 |    |  | Nine Months EndedMarch 31 |   
|                                      |  | 2006                       |    |  | 2005                      |    |  | 2006 |   |  | 2005 |  
|Net sales                             |  | 100                        | %  |  | 100                       | %  |  | 100  | % |  | 100  | %
|Cost of sales                         |  | 101                        |    |  | 91                        |    |  | 78   |   |  | 75   |  
|                                      |  |                            |    |  |                           |    |  |      |   |  |      |  
|Gross profit (loss)                   |  | (1                         | )  |  | 9                         |    |  | 22   |   |  | 25   |  
|                                      |  |                            |    | 
|Operating expenses                    |  | 36                         |    |  | 26                        |    |  | 22   |   |  | 19   |  
|                                      |  |                            |    |  |                           |    |  |      |   |  |      |  
|Income (loss) from operations         |  | (37                        | )  |  | (17                       | )  |  |     |   |  | 6    |  
|Net income (loss) before income taxes |  | (37                        | )  |  | (17                       | )  |  |     |   |  | 6    |  
|Provision (credit) for income taxes   |  | (9                         | )  |  | (6                        | )  |  |     |   |  | 1    |  
|                                      |  |                            |    |  |                           |    |  |      |   |  |      |  
|Net income (loss)                     |  | (28                        | )% |  | (11                       | )% |  |     | % |  | 5    | %
|                                      |  |                            |    |  |                           |    |  |      |   |  |      |  



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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

NET SALES

Net sales decreased $76,791 or 19% for the three months ended March 31, 2006 to $319,365 compared to
$396,156 for the three months ended March 31, 2005. Gross sales for Chase Candy Company decreased $71,370 to $330,035 for the three months ended March 31, 2006 compared to $401,405 for 2005. Gross sales for Poe Candy Company increased
$1,547 to $4,115 for the three months ended March 31, 2006 compared to $2,568 for 2005.

Net sales decreased $112,984 or 5% for the nine months ended
March 31, 2006 to $2,001,494 compared to $2,114,478 for the nine months ended March 31, 2005. Gross sales for Chase Candy Company decreased $120,475 to $1,157,774 for the nine months ended March 31, 2006 compared to $1,278,249 for
2005. Gross sales for Poe Candy Company increased $16,505 to $885,424 for the nine months ended March 31, 2006 compared to $868,919 for 2005.

The 19%
decrease in net sales of $76,791 for the three month period ended March 31, 2006, over the same period ended March 31, 2005, is primarily due to Chase orders received in the current quarter from a customer changing a standard order from a
24 count packaging bag to a 12 count packaging bag, which resulted in less volume. In addition, the Companys returns and allowances increased $4,741 or 36% for the three month period ended March 31, 2006, compared to $13,306 for the three
months ended March 31, 2005. Year to date net sales had a slight decrease of 5% without any loss of significant customers.

COST OF SALES

The cost of sales decreased $37,442 to $322,403 increasing to 101% of related revenues for the three months ended March 31, 2006, compared to
$359,845 or 91% of related revenues for the three months ended March 31, 2005. The cost of sales decreased $7,821 to $1,571,578 increasing to 78% of related revenues for the nine months ended March 31, 2006, compared to $1,579,399 or 75%
of related revenues for the nine months ended March 31, 2005.

The higher percentage for cost of sales is anticipated due to the increased costs of
labor rates of 3-4%, shipping costs of 12%, occupancy costs 14%, and production supplies of 8% to date. The multiple increases in rates for fuel and petroleum products have caused the increases for shipping and production supply cost.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

SELLING EXPENSES

Selling expenses for the three months ended March 31, 2006 decreased $1,917 to $49,512, which
is 16% of sales, compared to $51,429 or 13% of sales for the three months ended March 31, 2005. Selling expenses for the nine months ended March 31, 2006 decreased $3,774 to $217,424, which is 11% of sales, compared to $221,198 or 10% of
sales for the nine months ended March 31, 2005. No significant change in selling expenses was expected due to the fact that there have been no significant changes in the nature of operations and managements efforts to control these costs.

GENERAL AND ADMINISTRATIVE EXPENSES

General and
administrative expenses for the three months ended March 31, 2006 increased $13,994 to $66,011, and increased to 21% of sales, compared to $52,017 or 13% of sales for the three months ended March 31, 2005. General and administrative
expenses for the nine months ended March 31, 2006 increased $25,454 to $214,068, and increased to 11% of sales, compared to $188,614 or 9% of sales for the nine months ended March 31, 2005. The increase in costs is due to increased
professional fees, personal property taxes and health insurance costs.

OTHER INCOME (EXPENSE)

Other income and expense increased by $676 for the three months ended March 31, 2006 to $1,016, compared to $340 for the three months ended March 31, 2005.
Other income and expense increased by $(857) for the nine months ended March 31, 2006 to $(2,124), compared to $(1,267) for the nine months ended March 31, 2005. This was primarily due to an increase in interest expense of $1,609 due to
paying off a short-term operating note during the nine month period.

PROVISION FOR INCOME TAXES (BENEFITS)

The Company recorded a tax (benefit) for the three months ended March 31, 2006 of $(28,451) as compared to $(25,431) for the three months ended March 31, 2005.
The Company recorded a tax (benefit) for the nine months ended March 31, 2006 of $(1,184) as compared to a tax provision of $28,114 for the nine months ended March 31, 2005. The benefit recorded for the nine months ended March 31,
2006 is primarily due to recognizing refundable taxes due to the operating loss.

NET INCOME

The Company reported a net loss for the quarter ended March 31, 2006 of $(89,094), compared to a net loss of $(41,364) for the quarter ended March 31,
2005. This increase in net loss of $47,730 is explained above.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

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

NET INCOME(CONTINUED)

The Company reported a net loss for the nine months ended March 31, 2006 of
$(2,516), compared to a net income of $95,886 for the nine months ended March 31, 2005. This decrease of $98,402 is explained above.

PREFERRED
DIVIDENDS

These amounts reflect additional preferred stock dividends in arrears for the three and nine months ended March 31, 2006 and 2005,
respectively, on the Companys Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

NET
LOSS APPLICABLE TO COMMON STOCKHOLDERS

Net loss applicable to common stockholders for the three months ended March 31, 2006 was $(121,112) which
is an increase of $47,730 as compared to the three months ended March 31, 2005 of $(73,382).

Net loss applicable to common stockholders for the nine
months ended March 31, 2006 was $(98,570) which is an increase of $98,402 as compared to the nine months ended March 31, 2005 of $(168). These items are explained above.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended March 31, 2006, the Company obtained bank
financing totaling $250,000, which was used to fund operations. This loan was paid in full during the second quarter ended December 31, 2005.

Cash
and cash equivalents increased $39,310 to $100,115 at March 31, 2006 from $60,805 at June 30, 2005.

The Company believes it will have sufficient
resources to finance its current operations for at least the next twelve months through working capital. To date, there are no material commitments by the Company for capital expenditures. At March 31, 2006, the Companys accumulated
deficit was $5,750,583, compared to accumulated deficit of $5,748,067 as of June 30, 2005. Working capital as of March 31, 2006 increased 6% to $406,678 from $383,645 as of June 30, 2005.

In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area
and increase sales to its existing customers. Management also intends to continue tight control on all expenditures.

There has been no material impact
from inflation and changing prices on net sales or on income from continuing operations for the last three months.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 3. - CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the principal executive officer and principal financial officer, of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the Exchange Act). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no
change in the Companys internal control over financial reporting during the Companys most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.



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PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

On December 16, 2005, a lawsuit was filed by 3600 S. Leonard Road,
LLC., (the Plaintiff) against the Company in the Circuit Court of Buchanan County, Missouri. The Plaintiff alleges that the Company failed to honor certain sections of a lease agreement entered into between the Plaintiff, as owner and landlord of
the premises subject to the lease agreement, and the Company, as tenant to the premises. The Plaintiff is seeking damages in an amount in excess of $200,000. The Company has filed a response with the Circuit Court denying all material allegations
made by the Plaintiff. A status review hearing was held March 15, 2006 in the Circuit Court where upon the Judges ruled for the parties to meet to agree to a scheduling order. The Company believes the claim is without merit and intend to
contest it vigorously, however the outcome of this lawsuit cannot be predicted at this time.

The Company is not subject to any other material pending or
threatened litigation.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES



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



| | b. | The total cumulative preferred stock dividends contingency at March 31, 2006 is $6,636,068.
| | -- | -------------------------------------------------------------------------------------------

ITEM 6.     EXHIBITS

Exhibits.



|   |  |                                                                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|31 |  | Certification of Chief Executive Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                              
|32 |  | Certification of Chief Executive Officer and Treasurer 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

Registrant



|                    |  |     |  |                                                                        
|------------------- |  | --- |  | -----------------------------------------------------------------------
|Dated: May 10, 2006 |  | By: |  | /s/ Barry M. Yantis                                                    
|                    |  |     |  | Barry M. Yantis                                                        
|                    |  |     |  | President, Chief Executive Officer, Treasurer and
Chairman of the Board



17