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, 2013

o 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)

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

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

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 o	Accelerated filer o

Non-accelerated filer o (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 o No x

As of February 6, 2014, there were 969,834 shares of common stock, $1.00 par value, outstanding.

CHASE GENERAL CORPORATION AND SUBSIDIARY

Quarterly Report on Form 10-Q

For the Three Months Ended December 31, 2013

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements	3

		Condensed Consolidated Balance Sheets as of December 31, 2013 (Unaudited) and June 30, 2013	3

		Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2013 and 2012 (Unaudited)	5

		Condensed Consolidated Statements of Income for the Six Months Ended December 31, 2013 and 2012 (Unaudited)	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2013 and 2012 (Unaudited)	7

		Notes to Condensed Consolidated Financial Statements (Unaudited)	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

	Item 4.	Controls and Procedures	20

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings	21

	Item 1A.	Risk Factors	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

	Item 3.	Defaults Upon Senior Securities	21

	Item 4.	Mine Safety Disclosures	21

	Item 5.	Other Information	21

	Item 6.	Exhibits	22

	Signatures		23

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	December 31,		June 30,
	2013		2013
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	438,648	$	28,564
Trade receivables, net of allowance for doubtful accounts of $16,796 and $16,196, respectively		242,793		166,585
Inventories:
Finished goods		40,741		258,392
Goods in process		9,891		10,942
Raw materials		96,354		81,515
Packaging materials		94,097		158,283
Prepaid expenses		26,424		5,414
Deferred income taxes		6,518		6,863

Total current assets		955,466		716,558

PROPERTY AND EQUIPMENT
Land		35,000		35,000
Buildings		77,348		77,348
Machinery and equipment		732,999		717,985
Trucks and autos		188,594		188,594
Office equipment		31,094		30,826
Leasehold improvements		72,068		72,068
Total		1,137,103		1,121,821
Less accumulated depreciation		797,533		759,996

Total property and equipment, net		339,570		361,825

TOTAL ASSETS	$	1,295,036	$	1,078,383

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	December 31,			June 30,
	2013			2013
	(Unaudited)

CURRENT LIABILITIES
Accounts payable	$	109,666		$	66,598
Current maturities of notes payable		48,634			54,172
Accrued expenses		15,863			27,466
Income taxes payable		87,846			3,711
Deferred income		1,299			1,299

Total current liabilities		263,308			153,246

LONG-TERM LIABILITIES
Deferred income		13,311			13,960
Notes payable, less current maturities		10,922			39,787
Deferred income taxes		83,109			93,973

Total long-term liabilities		107,342			147,720

Total liabilities		370,650			300,966

COMMITMENTS AND CONTENGENCIES

STOCKHOLDERS’ EQUITY
Capital stock issued and outstanding:
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $2,175,000 and $2,160,000, respectively)		500,000			500,000
Series B (liquidation preference $2,130,000 and $2,115,000, respectively)		500,000			500,000
Cumulative preferred stock, $20 par value:
Series A (liquidation preference $4,931,398 and $4,902,131, respectively)		1,170,660			1,170,660
Series B (liquidation preference $803,668 and $798,899, 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		(5,541,610	)		(5,688,579	)

Total stockholders’ equity		924,386			777,417

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,295,036		$	1,078,383

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended
	December 31
	2013			2012

NET SALES	$	1,402,545		$	1,475,203

COST OF SALES		938,247			986,482

Gross profit on sales		464,298			488,721

OPERATING EXPENSES
Selling		161,115			164,742
General and administrative		95,111			91,803
Loss on sale of equipment		93			246

Total operating expenses		256,319			256,791

Income from operations		207,979			231,930

OTHER INCOME (EXPENSE)
Miscellaneous income		1,972			397
Interest expense		(555	)		(1,296	)

Total other income (expense), net		1,417			(899	)

Net income before income taxes		209,396			231,031

PROVISION FOR INCOME TAXES		73,564			90,454

NET INCOME	$	135,832		$	140,577

NET INCOME PER SHARE OF COMMON STOCK
- BASIC	$	0.11		$	0.11
- DILUTED	$	0.05		$	0.05

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Six Months Ended
	December 31
	2013			2012

NET SALES	$	2,313,805		$	2,272,795

COST OF SALES		1,596,601			1,570,127

Gross profit on sales		717,204			702,668

OPERATING EXPENSES
Selling		258,037			257,116
General and administrative		233,501			217,105
Loss (gain) on sale of equipment		93			(22,254	)

Total operating expenses		491,631			451,967

Income from operations		225,573			250,701

OTHER INCOME (EXPENSE)
Miscellaneous income		2,336			762
Interest expense		(3,141	)		(5,030	)

Total other income (expense), net		(805	)		(4,268	)

Net income before income taxes		224,768			246,433

PROVISION FOR INCOME TAXES		77,799			95,305

NET INCOME	$	146,969		$	151,128

NET INCOME PER SHARE OF COMMON STOCK
- BASIC	$	0.09		$	0.09
- DILUTED	$	0.04		$	0.04

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended
	December 31
	2013			2012

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	146,969		$	151,128
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		43,294			45,560
Allowance for bad debts		600			600
Deferred income amortization		(649	)		(649	)
Deferred income taxes		(10,519	)		55,034
Loss (gain) on sale of equipment		93			(22,254	)
Effects of changes in operating assets and liabilities:
Trade receivables		(76,808	)		(113,798	)
Inventories		268,049			191,078
Prepaid expenses		(21,010	)		(15,475	)
Accounts payable		43,068			54,064
Accrued expenses		(11,603	)		(10,146	)
Income taxes payable		84,135			40,271

Net cash provided by operating activities		465,619			375,413

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		-			22,500
Purchases of property and equipment		(21,132	)		(2,225	)

Net cash (used in) provided by investing activities		(21,132	)		20,275

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line-of-credit		290,000			310,050
Principal payments on line-of-credit		(290,000	)		(350,050	)
Principal payments on notes payable		(34,403	)		(30,488	)

Net cash used in financing activities		(34,403	)		(70,488	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		410,084			325,200

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		28,564			17,949

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	438,648		$	343,149

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - GENERAL

The condensed consolidated balance sheet of Chase General Corporation (hereinafter referred to as “Chase”, “we”, “our”, and “us”) at June 30, 2013 has been taken from audited consolidated financial statements at that date and condensed. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2013 and for the three and six months ended December 31, 2012 are unaudited and reflect all normal and recurring accruals and adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results and cash flows for the interim periods presented in this quarterly report. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended June 30, 2013. The results of operations for the three and six months ended December 31, 2013 and cash flows for the six months ended December 31, 2013 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2014. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present financial position, results of operations and cash flows for the periods have been included.

No events have occurred subsequent to December 31, 2013, through the date of filing this form, that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of or for the six month period ended December 31, 2013.

CHASE GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - EARNINGS 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.

	Three Months Ended				Six Months Ended
	December 31				December 31
	2013		2012		2013		2012

Net income	$	135,832	$	140,577	$	146,969	$	151,128

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	$	103,814	$	108,559	$	82,933	$	87,092

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	$	0.11	$	0.11	$	0.09	$	0.09

Diluted earnings per share	$	0.05	$	0.05	$	0.04	$	0.04

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 - LOSS PER SHARE (CONTINUED)

Cumulative Preferred Stock dividends in arrears at December 31, 2013 and 2012 totaled $7,628,626 and $7,500,554, respectively. Total dividends in arrears, on a per share basis, consist of the following:

	Six Months Ended
	December 31
	2013		2012

6% Convertible
Series A	$	17	$	16
Series B	$	16	$	16

5% Convertible
Series A	$	64	$	63
Series B	$	64	$	63

The 6% convertible prior cumulative preferred stock may, upon thirty days prior notice, be redeemed by the Corporation at $5.25 a share plus unpaid accrued dividends to date of redemption. In the event of voluntary liquidation, holders of this stock are entitled to receive $5.25 per share plus accrued dividends. It may be exchanged for common stock at the option of the shareholders in the ratio of 4 common shares for one share of Series A and 3.75 common shares for one share of Series B.

The Company has the privilege of redemption of 5% convertible cumulative preferred stock at $21.00 a share plus unpaid accrued dividends. In the event of voluntary or involuntary liquidation, holders of this stock are entitled to receive $20.00 a share plus unpaid accrued dividends. It may be exchanged for common stock at the option of the shareholders, in the ratio of 3.795 common shares for one of preferred.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - NOTES PAYABLE

The Company’s long-term debt consists of:

		December 31,		June 30,
Payee	Terms	2013		2013

Nodaway Valley Bank	$350,000 line-of-credit agreement expiring on January 3, 2014, with a variable interest rate at prime but not less than 5%. The line-of-credit agreement replaced two existing line-of-credit agreements that expired on January 3, 2013. The line-of-credit is collateralized by substantially all assets of the Company.	$	-	$	-

Ford Credit	$679 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle.		10,338		22,413

Ford Credit	$517 monthly payments, interest of 0%; final payment due March 2016, secured by a vehicle.		13,950		17,050

Nodaway Valley Bank	$3,192, including interest of 5.75%; final payment due June 2015, secured by equipment.		30,703		48,698

Toyota Financial Services	$305 monthly payments including interest of 2.9% due March 2015, secured by a vehicle.		4,565		5,798

	Total		59,556		93,959
	Less current portion		48,634		54,172
	Long-term portion	$	10,922	$	39,787

Upon expiration of the line-of-credit agreement on January 3, 2014, the Company entered into a $350,000 line-of-credit agreement that expires on January 3, 2015 with a variable interest rate at prime but not less than 5%. The line-of-credit is collateralized by substantially all assets of the Company. Management anticipates renewal of the line-of-credit agreement at similar terms upon expiration.

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - NOTES PAYABLE (CONTINUED)

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

2014	$	48,634
2015		9,372
2016		1,550

Total	$	59,556

NOTE 4 - INCOME TAXES

The Company follows the provisions for uncertain tax positions as addressed in Financial Accounting Standards Board Accounting Standards Codification 740-10. The Company recognized no liability for unrecognized tax benefits at December 31, 2013. The Company has no material tax positions at December 31, 2013 for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The Company’s federal income tax returns for the fiscal years ended 2011, 2012 and 2013 are subject to examination by the IRS taxing authority.

NOTE 5 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Six Months Ended
	December 31
	2013		2012

Cash paid for:
Interest	$	3,141	$	5,030
Income taxes		4,105		-

NOTE 6 - CONTINGENCIES

The Company has received correspondence from the legal counsel for the Public Building Commission of Chicago (PBC) in August 2012, alleging that the Company previously owned and operated a manufacturing facility in Chicago and that the Company is a liable party for environmental response costs incurred by the PBC in the amount of $822,642. It is the opinion of management, after reviewing the letter with counsel, that further information is required to determine the validity of the claim, the likelihood of an unfavorable outcome to the Company, and an amount of potential loss to the Company, if any at all. Management believes significant questions need to be resolved and answered before completing its assessment of the validity of the claim. In the event that a loss were to be incurred by the Company in connection with this claim, the loss would be material.

CHASE GENERAL CORPORATION AND SUBSIDIARY

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

OVERVIEW

Chase General Corporation (Chase) is a holding company for its wholly-owned subsidiary, Dye Candy Company. This subsidiary is the main operating company that is engaged in the manufacture of confectionery products which are sold primarily to wholesale houses, grocery accounts, vendors, and repackers. The subsidiary (Company) operates two divisions, Chase Candy division and Seasonal Candy division, which share a common labor force and utilize the same basic equipment and raw materials. Therefore, segment reporting for the two divisions is not maintained by Management.

The Company’s business, like that of many other confectionary product manufacturers, is seasonal. Historically, the Company has realized more of its revenue and earnings in the fiscal second quarter, which includes the majority of the holiday shopping season, than in any other fiscal quarter.

RESULTS OF OPERATIONS - Three Months Ended December 31, 2013 Compared to Three Months Ended December 31, 2012, and Six Months Ended December 31, 2013 Compared to Six Months Ended December 31, 2012

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 Ended						Six Months Ended
	December 31						December 31
	2013			2012			2013			2012

Net sales		100	%		100	%		100	%		100	%
Cost of sales		67			67			69			69
Gross profit on sales		33			33			31			31
Operating expenses		18			17			21			20
Income from operations		15			16			10			11
Other income (expense), net		1			-			-			-
Income before income taxes		16			16			10			11
Provision for income taxes		5			6			3			4
Net income		11	%		10	%		7	%		7	%

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

NET SALES

Net sales decreased $72,658 or 5% for the three months ended December 31, 2013 to $1,402,545 compared to $1,475,203 for the three months ended December 31, 2012. Gross sales for Chase Candy decreased $3,800 to $557,297 for the three months ended December 31, 2013, compared to $561,097 for 2012. Gross sales for Seasonal Candy decreased $76,060 to $847,480 for the three months ended December 31, 2013, compared to $923,540 for 2012.

The 1% decrease in gross sales of Chase Candy of $3,800 for the three months ended December 31, 2013 over the same period ended December 31, 2012, is primarily due to the net effect of the following: 1) decreased sales of the L276 Cherry Mash Distributor Pack division by approximately $1,000 versus the second quarter a year ago; 2) decreased sales of the L278 Bag of Bite Size Mini Mash division by approximately $17,000 versus the second quarter a year ago due to three customers decreasing orders; 3) increased sales of the L279/L299 Bulk Mini Mash by approximately $11,000 versus the second quarter a year ago; and 4) various other fluctuations netting an increase of approximately $3,000.

The 8% decrease in gross sales of Seasonal Candy of $76,060 for the three months ended December 31, 2013 over the same period ended December 31, 2012, is primarily due to the net effect of the following: 1) decreased orders from various customers in the Seasonal Candy category netting approximately $10,000 versus second quarter a year ago due to timing of orders and a sales price decrease of approximately 5%; 2) decreased orders from various customers in the clamshell seasonal product category totaling approximately $86,000 versus second quarter a year ago due to decreased orders and a sales price decrease of approximately 5%; and 3) increased orders in the generic seasonal product category by approximately $20,000 due to increased sales to one customer.

Net sales increased $41,010 or 2% for the six months ended December 31, 2013 to $2,313,805 compared to $2,272,795 for the six months ended December 31, 2012. Gross sales for Chase Candy increased $96,876 to $1,065,394 for the six months ended December 31, 2013, compared to $968,518 for 2012. Gross sales for Seasonal Candy decreased $63,760 to $1,263,207 for the six months ended December 31, 2013, compared to $1,326,967 for 2012.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

NET SALES (CONTINUED)

The 10% increase in gross sales of Chase Candy of $96,876 for the six months ended December 31, 2013 over the same period ended December 31, 2012, is primarily due to the net effect of the following: 1) increased sales of the L276 Cherry Mash Distributor Pack division by approximately $73,000 versus the same period a year ago due to three customers increasing orders; 2) increased sales of the L212 Mini Mash division by approximately $4,000 versus the same period a year ago due to one customers increasing orders; 3) increased sales of the L279/L299 Bulk Mini Mash division by approximately $18,000 versus the same period a year ago; and 4) various other fluctuations netting an increase of approximately $2,000.

The 5% decrease in gross sales of Seasonal Candy of $63,760 for the six months ended December 31, 2013 over the same period ended December 31, 2012, is primarily due to the net effect of the following: 1) decreased orders from various customers in the Seasonal Candy category netting approximately $20,000 versus the same period a year ago due to timing of orders and a sales price decrease of approximately 5%; 2) decreased orders from various customers in the clamshell seasonal product category totaling approximately $85,000 versus the same period a year ago due to decreased orders and a sales price decrease of approximately 5%; and 3) increased orders in the generic seasonal product category by approximately $41,000 due to increased sales to one customer.

COST OF SALES

The cost of sales decreased $48,235 to $938,247 or 67% of related revenues for the three months ended December 31, 2013, compared to $986,482 or 67% of related revenues for the three months ended December 31, 2012.

The 5% decrease in cost of sales of $48,235 is primarily due to the 5% decrease in net sales of $72,658.

The cost of sales increased $26,474 to $1,596,601 or 69% of related revenues for the six months ended December 31, 2013, compared to $1,570,127 or 69% of related revenues for the six months ended December 31, 2012.

The 2% increase in cost of sales of $26,474 is primarily due to the 2% increase in net sales of $41,010.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

COST OF SALES (CONTINUED)

The Company decreased total inventory $268,049 or 53% to $241,083 at December 31, 2013 from $509,132 held in inventory at June 30, 2013 due to the Company’s busy season coming to an end. The Company decreased finished goods inventory 84% during the six months ended December 31, 2013 to $40,741 from the June 30, 2013 finished goods inventory levels of $258,392. The Company decreased goods in process inventory 10% during the six months ended December 31, 2013 to $9,891 from the June 30, 2013 goods in process inventory levels of $10,942. The Company increased raw materials inventory 18% during the six months ended December 31, 2013 to $96,354 from the June 30, 2013 raw materials inventory levels of $81,515. The Company decreased packaging materials inventory 41% during the six months ended December 31, 2013 to $94,097 from the June 30, 2013 packaging materials inventory levels of $158,283.

SELLING EXPENSES

Selling expenses for the three months ended December 31, 2013 decreased $3,627 to $161,115, which is 11% of sales, compared to $164,742 or 11% of sales for the three months ended December 31, 2012.

The decrease of $3,627 in selling expenses for the three months ended December 31, 2013 is primarily due to lower commissions, lower premium promotions being paid, lower sample costs, and decreased advertising expense for the period. Commissions, promotions, sample costs, and advertising decreased $2,672 to $112,422 for this period from $115,094 for the three months ended December 31, 2012.

Selling expenses for the six months ended December 31, 2013 increased $921 to $258,037, which is 11% of sales, compared to $257,116 or 11% of sales for the six months ended December 31, 2012.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended December 31, 2013 increased $3,308 to $95,111 and increased to 7% of sales, compared to $91,803 or 6% of sales for the three months ended December 31, 2012. The increased costs are primarily because of a $3,179 increase in insurance expense and a $2,109 increase in general taxes and licenses offset by a $3,871 decrease in professional fees.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)

General and administrative expenses for the six months ended December 31, 2013 increased $16,396 to $233,501 or 10% of sales, compared to $217,105 or 10% of sales for the six months ended December 31, 2012. The increased costs are primarily because of a $5,493 increase in professional fees and an $8,372 increase in insurance expense.

OTHER INCOME (EXPENSE)

Other income and (expense) increased by $2,316 for the three months ended December 31, 2013 to $1,417, compared to $(899) for the three months ended December 31, 2012 primarily due to a decrease of $741 in interest expense and an increase of $1,575 in miscellaneous income.

Other income and (expense) increased by $3,463 for the six months ended December 31, 2013 to $(805), compared to $(4,268) for the six months ended December 31, 2012 primarily due to a decrease of $1,889 in interest expense and an increase of $1,574 in miscellaneous income.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense for the three months ended December 31, 2013 of $73,564 as compared to income tax expense of $90,454 for the three months ended December 31, 2012. The Company recorded income tax expense for the six months ended December 31, 2013 of $77,799 as compared to income tax expense of $95,305 for the six months ended December 31, 2012. The net income tax expense recorded for the three and six months ended December 31, 2013 is primarily due to recognizing income taxes related to current profitable operations.

NET INCOME

The Company reported net income for the three months ended December 31, 2013 of $135,832, compared to net income of $140,577 for the three months ended December 31, 2012. This decrease of $4,745 is explained above. The Company reported net income for the six months ended December 31, 2013 of $146,969, compared to net income of $151,128 for the six months ended December 31, 2012. This decrease of $4,159 is explained above.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

PREFERRED DIVIDENDS

Preferred dividends were $32,018 for the three months ended December 31, 2013 and 2012, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

Preferred dividends were $64,036 for the six months ended December 31, 2013 and 2012, which reflects additional preferred stock dividends in arrears on the Company’s Series A and Series B $5 par value preferred stock and its Series A and Series B $20 par value preferred stock.

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

Net income applicable to common stockholders for the three months ended December 31, 2013 was $103,814 which is a decrease of $4,745 as compared to the net income for the three months ended December 31, 2012 of $108,559.

Net income applicable to common stockholders for the six months ended December 31, 2013 was $82,933 which is a decrease of $4,159 as compared to the net income for the six months ended December 31, 2012 of $87,092.

LIQUIDITY AND CAPITAL RESOURCES

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

	Six Months Ended
	December 31
	2013			2012

Net cash provided by operating activities	$	465,619		$	375,413
Net cash (used in) provided by investing activities	$	(21,132	)	$	20,275
Net cash used in financing activities	$	(34,403	)	$	(70,488	)

Management has no material commitments for capital expenditures during the next 12 months. The $34,403 of cash used in financing activities is due to principal payments on equipment and vehicle loans. At December 31, 2013, the Company had $350,000 remaining on the line-of-credit, which could be utilized to help fund any working capital requirements.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

Management believes that the projected cash flow from operations, combined with its existing cash balances, will be sufficient to meet its funding requirements for the foreseeable future.

Management believes that inflation will have only a minimal effect on future operations since such effects will be offset by sales price increases, which are not expected to have a significant effect upon demand.

CRITICAL ACCOUNTING POLICIES

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.

CHASE GENERAL CORPORATION AND SUBSIDIARY

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Chase’s Management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of Chase’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Management has concluded that Chase’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in periodic filings under the Exchange Act is accumulated and communicated to management, including those officers, and to members of the Board of Directors, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Not applicable to a smaller reporting company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

The total cumulative preferred stock dividends contingency at December 31, 2013 is $7,628,626.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

PART II. OTHER INFORMATION (CONTINUED)

ITEM 6. EXHIBITS

Exhibits.

Exhibit 31.1

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

Exhibit 32.1

Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101

The following financial statements for the quarter ended December 31, 2013, formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 2013 and June 30, 2013, (ii) Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2013 and 2012, (iii) Condensed Consolidated Statements of Income for the Six Months Ended December 31, 2013 and 2012, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

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)

February 7, 2014		/s/ Barry M. Yantis
Date		Barry M. Yantis
		Chairman of the Board, Chief Executive Officer and
		Chief Financial Officer, President and Treasurer