UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

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

For the Fiscal Year Ended June 30, 2008

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

For transition period from              to             

Commission File Number 2-5916

CHASE GENERAL CORPORATION

(Name of small business issuer in its charter)

Missouri	36-2667734
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1307 South 59th, St. Joseph, Missouri 64507

(Address of principal executive offices) (Zip Code)

(816) 279-1625

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  ¨

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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  ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b of the Exchange Act).    Yes  ¨    No  x

Issuer’s revenues for its most recent fiscal year: $2,688,772

The aggregate market value of the shares of common stock held by non-affiliates of the issuer is not actively traded. Therefore, market value of the stock is unknown as of 60 days prior to the date of this filing.

The number of shares of outstanding common stock of the issuer as of August 31, 2008 was 969,834.

Transitional Small Business Disclosure Format:    Yes  ¨    No  x

CHASE GENERAL CORPORATION

FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

PART I	3
Item 1. Description of Business	6
Item 2. Description of Property	7
Item 3. Legal Proceedings	7
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters	8
Item 6. Management’s Discussion and Analysis or Plan of Operation	8
Item 7. Consolidated Financial Statements and Supplementary Data	16
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
Item 8A. Controls and Procedures	37
Item 8A(T). Controls and Procedures	37
Item 8B. Other Information	38
PART III
Item 9. Directors, Executive Officers, and Control Persons	39
Item 10. Executive Compensation	40
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
Item 12. Certain Relationships and Related Transactions, and Director Independence	43
Item 13. Exhibits	43
Item 14. Principal Accountant Fees and Services	44
SIGNATURES	45

2

PART I

Item 1 DESCRIPTION OF BUSINESS

Chase General Corporation was incorporated November 6, 1944 for the purpose of manufacturing confectionery products. In 1970 Chase General Corporation acquired a 100% interest in its wholly-owned subsidiary, Dye Candy Company. (Chase General Corporation and Dye Candy Company are sometimes referred herein as “the Company”). This subsidiary is the main operating company for the reporting entity.

PRINCIPAL PRODUCTS AND SERVICES AND METHODS OF DISTRIBUTION

The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Division products are sold to the same type of customers in the same geographical areas. In addition, both divisions 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 and, accordingly, is not available for inclusion in this filing.

The principal products produced are as follows:

Chase Candy Division of Dye Candy Company produces a candy bar under the trade name of “Cherry Mash”. The bar is distributed in six case sizes:

(1) 60 count pack

(2) 12 boxes of 24 bars per box

(3) 200 count shipper box

(4) 100 count shipper box

(5) 100 # 2 box Counter Display

(6) 4 box - 36 count Counter Display

In addition to the regular size bar, a “mini-mash” is distributed in seven case sizes:

(1) 24 - 12 oz. bags

(2) 6 jars - 60 bars per jar

(3) 23 # wrapped bars

(4) 22 # unwrapped bars

(5) 12 - 12 oz. bags

(6) 6 - 4 # jars

(7) 18 - 24 oz. tins

3

DESCRIPTION OF BUSINESS (CONTINUED)

Seasonal Candy Division of Dye Candy Company produces coconut, peanut, chocolate, and fudge confectioneries. These products are distributed in bulk or packaged. Principal products include:

(1)    Coconut Bon-Bons	(6)    Peanut Brittle
(2)    Coconut Stacks	(7)    Peanut Clusters
(3)    Home Style Poe Fudge	(8)    Champion Crème Drops
(4)    Peco Flake	(9)    Jelly Candies
(5)    Peanut Squares

The Creme Drops and Jelly Candies are not produced by the Company, but repackaged for wholesale distribution.

All products are trucked to the customers by commercial haulers.

COMPETITION AND MARKETS

The Chase Candy Division bars are sold primarily to wholesale candy and tobacco jobbing houses, grocery accounts, vendors and repackers. “Cherry Mash” bars are marketed in the Midwest region of the United States. For the years ended June 30, 2008 and 2007, this division accounted for 55% and 60%, respectively, of the consolidated revenue of Dye Candy Company.

The Seasonal Candy Division is sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For the years ended June 30, 2008 and 2007, the division accounted for 45% and 40%, respectively, of the consolidated revenue of Dye Candy Company.

The Company has no government contracts, foreign operations or export sales. In addition, all domestic sales are primarily in the Midwest region of the United States.

The Company is a seasonal business whereby the largest volume of sales occur in the spring and fall of each year. The net income per quarter of the Company varies in direct proportion to the seasonal sales volume.

Due to the seasonal nature of the business, there is a heavier demand on working capital in the summer and winter months of the year when the Company is building its inventories in anticipation of fall and spring sales. The fluctuation of demand on working capital due to the seasonal nature of the business is common to the confectionery industry. If necessary, the Company has the ability to borrow short-term funds in early fall to finance operations prior to receiving cash collections from fall sales. The Company occasionally offers extended payment terms of up to sixty days. Since this practice is infrequent, the effect on working capital is minimal.

(Continued)

4

COMPETITION AND MARKETS (CONTINUED)

Prompt, efficient service are traits demanded in the confectionery industry, which results in a continual low volume of back-orders. Therefore, at no time during the year does the Company have a significant amount of back-orders.

The confectionery market for the type of product produced by the divisions of Dye Candy Company is very competitive and quality minded. The confectionery (candy) industry in which the divisions operate is highly competitive with many small companies and, within certain specialized areas, a few competitors dominate. In the United States, the dominant competitors in the coconut candy industry are Crown Candy Company, Vermico Candy Company, and the Seasonal Candy Division of Dye Candy Company with approximately 70% of the market share among them. In the United States, Sophie Mae and Old Dominion have approximately 80% of the market share of the peanut candy business in which the Seasonal Candy Division operates. Dye Candy Company sells approximately 95% of its products in the Midwest region with seasonal orders being shipped to the Southern and Eastern regions of the United States. Except for the coconut candy industry, Dye Candy Company is not a dominant competitor in any of the candy industries in which it competes. Dye Candy Company’s market share in the coconut industry does not vary significantly from year to year.

Principal methods of competition the Company uses include quality of product, price, reduced transportation costs due to central location, and service. The Company’s competitive position is positively influenced by labor costs being lower than industry average. Chase General Corporation is firmly established in the confectionery market and through its operating divisions has many years’ experience associated with its name.

RESEARCH AND DEVELOPMENT

During the 2006 fiscal year, the Company developed vanilla and chocolate mini mash products which were marketed during the busy season starting September 1, 2006. The vanilla mini mash product was discontinued during current fiscal year due to poor sales. Currently, the Company anticipates no new products for distribution.

RAW MATERIALS AND PRINCIPAL SUPPLIERS

Raw materials and packaging materials are produced on a national basis with products coming from most of the states of the United States. Raw materials and packaging materials are generally widely available, depending of course, on common market influences.

PATENTS AND TRADEMARKS

The largest single revenue producing product, the “Cherry Mash” bar, is protected by a trademark registered with the United States Government Patents Office. Management considers this trademark very important to the Company. This trademark expires in the year 2013. Management and its legal representatives do not expect any impediment to renewing this trademark prior to its expiration.

5

EMPLOYEES

As of June 30, 2008, the Company had 18 full time employees. There were 14 in manufacturing, 2 in sales and marketing and 2 in finance and administration. This expands to approximately 32 full time personnel during the two busy production seasons in spring and fall.

CUSTOMERS

For the years ending June 30, 2008 and 2007, Associated Wholesale Grocers accounted for 26% and 24% of gross sales, respectively. For the years ending June 30, 2008 and 2007, Wal-Mart and its affiliates accounted for 14.5% and 19% of gross sales, respectively. No other customer accounted for more than 10% of the Company’s revenues in fiscal years 2008 and 2007.

ENVIRONMENTAL PROTECTION AND THE EFFECT ON PROBABLE GOVERNMENT REGULATIONS ON THE BUSINESS

To the best of management’s knowledge, the Company is presently in compliance with all environmental laws and regulations and does not anticipate any future expenditures in this regard.

NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

The Company is required to meet the FDA guidelines for proper labeling of its products and for contents of its products.

REPORTS TO SECURITY HOLDERS

The Registrant is not required to send the annual audit report, annual 10-KSB report and quarterly 10-QSB reports to security holders since the stock is not actively traded. These reports are available at the Registrant’s registered office or they are available on-line on the SEC’s EDGAR website.

Item 2 DESCRIPTION OF PROPERTY

The registrant operates from two buildings as follows:

Chase Warehouse - This building located in St. Joseph, Missouri is owned by Dye Candy Company, a wholly-owned subsidiary of the registrant. The facility is currently devoted entirely to the storage of supplies, and the warehousing and shipping of candy products. This warehouse is over seventy years old and is in fair condition and adequate to meet present requirements. The warehouse has approximately 15,000 square feet and is not encumbered.

6

Item 2 DESCRIPTION OF PROPERTY (CONTINUED)

Chase General Office and Dye Candy Company Operating Plant - The building located at 1307 South 59^th, St. Joseph, Missouri contains the general offices for Chase General Corporation, Dye Candy Company and its divisions (of approximately 2,000 square feet). The production plant of Dye Candy Company occupies the remainder of the building or 18,000 square feet. The building, specifically designed for the Company, is leased from an entity owned by a director of the Company and his spouse. The building is adequate to meet the Company’s requirements.

The Company believes both facilities are adequately covered by insurance.

Item 3 LEGAL PROCEEDINGS

None

Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year ended June 30, 2008.

7

PART II

Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market information

There is no established public trading market for the common stock (par value $1 per share) of the Company.

Security holders

As of September 15, 2008, the latest practicable date, the approximate number of record holders of common stock was 1,869, including individual participants in security listings.

Dividends

(1) Dividend history and restrictions

No dividends have been paid during the past two fiscal years and there are no dividend restrictions. Preferred stock dividends in arrears are accumulated.

(2) Dividend policy

There is no set policy on the payment of dividends due to the financial condition of the Company and other factors. It is not anticipated that cash dividends will be paid in the foreseeable future.

Securities authorized for issuance under equity compensation plans

The Company does not have any equity compensation plans.

Item 6 MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

This form 10-KSB contains statements that plan for or anticipate the future. Forward-looking statements may include statements about the future of our products and the industry, statements about our future business plans and strategies, and other statements that are not historical in nature. In this form 10-KSB, forward-looking statements are generally identified by the words “anticipate,” “plan,” “believe,” “expect,” “estimate,” and the like. Readers should carefully review these cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. These forward-looking statements are based on the information available to, and the expectations and assumptions deemed reasonable by the Company at the time the statements are made. These expectations, assumptions and uncertainties include: the Company’s expectation of heavier demand on working capital in the summer and winter months in anticipation of fall and spring sales; management’s belief that the Company has stabilized its customer base; the Company’s expectation to continue its efforts to expand the existing market area and increase sales to its customers; and management’s intent to maintain tight control of all expenditures.

8

RESULTS OF OPERATIONS

The following table sets forth for the years indicated, the percentage of net sales of certain items in the Company’s consolidated statements of operations.

	2008		2007
Net sales	100.00	%	100.00	%
Cost of sales	76.15		80.00
Gross profit	23.85		20.00
Selling expense	12.10		11.99
General and administrative expense	10.95		15.42
Income (loss) from operations	.80		(7.41	)
Other income (expense), net	(.15	)	(.06	)
Income (loss) before income taxes	.65		(7.47	)
Benefits from (provisions for) income taxes	.19		.80
Net income (loss)	.84		(6.67	)
Preferred dividends	(4.76	)	(5.52	)
Loss applicable to common stockholders	(3.92	)%	(12.19	)%

NET SALES

During the year ended June 30, 2008, sales, net of returns and allowances, increased 15.87% as compared to the year ended June 30, 2007. Gross sales for Chase Candy products increased $112,417 or 7.93% to $1,530,457 for the year ended June 30, 2008 compared to $1,418,040 for 2007. Gross sales for seasonal candy increased $271,034 or 28.63% for the year ended June 30, 2008 to $1,217,732 compared to $946,698 for 2007.

The 15.87% increase in net sales of $368,229 for the year ended June 30, 2008, over the same period ended June 30, 2007 included a customer who purchased $151,658 more this year that accounted for 26% of total Chase Candy product sales, where as, in the prior year this same customer accounted for 24% of the Chase Candy product sales. This year the customer increased its orders of the 12 count packaging. In addition, Seasonal Candy increase of 28.63% included $158,000 of purchases from two new customers for the produce pack.

The Company’s returns and allowances increased $15,018 or 25% for the year ended June 30, 2008, compared to the year ended June 30, 2007. There was no loss of significant customers.

COST OF SALES

Cost of sales for the year ended June 30, 2008, as compared to the year ended June 30, 2007, increased by 10.29%. The cost of sales increased $191,085 to $2,047,463 while decreasing to 76.15% of related revenues for the year ended June 30, 2008, compared to $1,856,378 or 80% of related revenues for the year ended June 30, 2007.

9

COST OF SALES (CONTINUED)

The dollar increase in cost of sales for the year ended June 30, 2008 was the result of a 74% or $10,344 for freight-in costs of $24,242 as compared to $13,898 for year ended June 30, 2007 and 14% or $46,305 in labor costs including wages, vacation pay and payroll taxes of $373,336 for year ending June 30, 2008 as compared to $327,031 for year ending 2007. The increase in labor costs was primarily related to a 4% raise for the production labor force along with bonuses given in the current fiscal year which were not awarded in 2007.

In addition, raw material costs of $1,014,766 increased 17% or $150,169 for year ended June 30, 2008 as compared to $864,597 for year ending 2007. This increase is a direct result of material price increases for sugar - 4 cents per pound and peanuts 8 cents per pound.

GROSS PROFIT

The gross margin increased 38% or $177,144 to $641,309 increasing to 23.85% of related revenues for the year ended June 30, 2008, as compared to $464,165 or 20% of related revenues for the year ended June 30, 2007, as a result of the overall increase in net sales above the net increase in cost of sales.

Finished goods inventory as of June 30, 2008 of $72,651 increased $4,572 or 6.72% of the June 30, 2007 finished goods inventory of $68,079. The increase reflects the Company having a slight build up of inventory to meet delivery deadlines. Raw material inventory of $56,346 and packaging materials inventory of $170,276 is 58.77% higher than the June 30, 2007 inventories of $23,396 and $119,341, respectively, as a result of purchasing inventory at competive prices for the forthcoming busy season that starts September 1, 2008.

SELLING EXPENSES

Selling expenses for the year ended June 30, 2008 increased $47,227 to $325,391, which is 12.10% of sales, compared to $278,164 or 11.99% of sales for the year June 30, 2007. This increase of $47,227 is primary due to higher commissions being paid as a result of increased sales along with sample costs for this period. Commissions and sample costs increased 41.46% to $131,884 for year ended June 30, 2008 as compared to $93,230 for year ending 2007.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the year ended June 30, 2008 decreased $63,615 to $294,371, and decreased to 10.95% of sales, compared to $357,986 or 15.42% of sales for the year ended June 30, 2007. The decrease in costs is due to decreased professional fees of $80,076 in connection with legal proceedings settled in the prior fiscal year.

INCOME (LOSS) FROM OPERATIONS

Income (loss) from operations for the year ended June 30, 2008 was .80% of net sales as compared to (7.41)% of net sales for the year ended June 30, 2007 for the reasons described above.

10

OTHER INCOME (EXPENSE), NET

Other income and (expense) increased by $2,677 for the year ended June 30, 2008 as compared to the year ended June 30, 2007. This was primarily due to an increase in interest expense of $2,638.

INCOME (LOSS) BEFORE INCOME TAXES

Income (loss) before income taxes was $17,438 for the year ended June 30, 2008 as compared to $(173,417) for the year ended June 30, 2007.

The reasons for the decrease are discussed above.

INCOME TAXES BENEFIT

The Company recorded a tax (benefit) for the year ended June 30, 2008 of $(5,164) as compared to a tax (benefit) of $(18,652) for the year ended June 30, 2007. The (benefit) recorded for the 2008 and 2007 year is primarily due to recognizing deferred taxes related to the carryover of operating losses. The Company had incurred losses for the previous two years, which was not available to carryback and obtain previously paid income taxes. This loss carryforward can be partially utilized against taxable income for the year ended June 30, 2008. Based on available objective evidence, management estimates it is more likely than not, that the net deferred tax asset for the remaining loss carryforward will be fully realizable in the next two fiscal years, so no valuation allowance has been reported.

NET INCOME (LOSS)

Net income for the year ended June 30, 2008 was $22,602 which is an increase of $177,367 as compared to the loss for year ended June 30, 2007 of $(154,765). The reasons for the increase are discussed above.

PREFERRED DIVIDENDS

Preferred dividends were $128,072 for the years ended June 30, 2008 and 2007.

NET (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

Net (loss) applicable to common stockholders was $(105,470) for the year ended June 30, 2008 compared to $(282,837) for the year ended June 30, 2007 for the reasons discussed above.

LIQUIDITY AND SOURCES OF CAPITAL

Negative cash flows from operating activities were generated for fiscal year ended 2008 in the amount of $(131,229), compared to negative cash flows from operating activities generated for fiscal year ended June 30, 2007 in the amount of $(58,326).

11

LIQUIDITY AND SOURCES OF CAPITAL (CONTINUED)

The Company continually monitors raw material pricing, and when a price increase or decrease is anticipated, adjustments to inventory levels are made accordingly. Raw materials inventory increased $32,950 from June 30, 2007 to June 30, 2008. The current year increase can be attributed to the efforts of the Company watching markets for these commodities, and making purchases at more favorable prices prior to the start of busy season.

Packaging materials are purchased in large volumes and carried for several years due to the high cost from suppliers to cut dies and print materials. Therefore, when supplier pricing remains consistent over the years and is not predicted to increase, the Company utilizes its present inventory supply without making additional purchases necessary to lock in pricing. Packaging materials inventory increased $50,935 at June 30, 2008 from June 30, 2007. The increase is due to the timing of several orders of Millprint which were received prior to year end. A six to eight week lead time is needed to obtain materials in time to use in production. Normally, the shipment is received after year end and before the start of busy season September 1.

Finished goods inventory increased $4,572 from June 30, 2007 to June 30, 2008. This increase was due to slightly higher customer orders at the end of fiscal year June 30, 2008 than at end of fiscal year June 30, 2007. Goods in process remained comparable to prior years.

The Company continues to write off equipment that is no longer useful to the operations of the Company. Purchases of $44,194 and $-0- were made during the year ended June 30, 2008 and 2007, respectively. Depending on results of operations and cash flows, the Company is hoping to replace their antiquated brittle cookers and a mini mash wrapper machine in the next several years with no set target date. The anticipated cost of the equipment is approximately $76,000. Net cash provided by (used in) investing activities was $(8,173) and $9,000 for the years ended June 30, 2008 and 2007, respectively.

The Company did borrow $300,000 and $230,000, respectively, on a line-of-credit during the fall of 2007 and 2006 busy season which has a remaining balance due of $50,000 as of the year ended June 30, 2008. The 2006 busy season loan was paid in full November 2006. The Company borrowed $190,000 and $75,000, respectively, from a shareholder during fiscal year 2008 and 2007 of which $95,000 and $30,000, respectively, was paid in full for years ended 2008 and 2007. Net cash provided by financing activities was $141,998 and $45,000 for the years ended June 30, 2008 and 2007, respectively.

The Company financed a purchase of a vehicle for $36,021 for year ended June 30, 2008.

Overall cash and cash equivalents increased $2,596 to $24,828 at June 30, 2008 from $22,232 at June 30, 2007.

To date, there are no material commitments by the Company for capital expenditures. At June 30, 2008, the Company’s accumulated deficit was $5,972,255, compared to accumulated deficit of $5,994,857 as of June 30, 2007. Working capital as of June 30, 2008 increased 31.62% to $244,159 from $185,508 as of June 30, 2007.

12

LIQUIDITY AND SOURCES OF CAPITAL (CONTINUED)

The Company’s lease on its office and plant facility is effective through March 31, 2025 with an option to extend for an additional time of five years, and requires payments of $6,500 per month. The facility is owned by a director and his spouse.

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 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 and revenues or on income from continuing operations for the last three fiscal years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

REVENUE RECOGNITION

The Company recognizes revenues as product is shipped to the customers. Net sales are comprised of the total sales billed during the period less the estimated returns, customer allowances, and customer discounts.

RECEIVABLES

Accounts receivable are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Accounts receivable are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of accounts receivable are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.

13

RECEIVABLES (CONTINUED)

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.

INVENTORIES

Inventories are carried at the “lower of cost or market value,” with cost being determined on the “first-in, first-out” basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amounts of such assets to future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure. The Company adopted FIN 48 as of July 1, 2007. The adoption of FIN 48 had no impact on the Company’s financial statements, which resulted in no change on retained earnings as of July 1, 2007 and for the year ended June 30, 2008. As of June 30, 2008, no provisions for accrued interest and penalties related to uncertain tax positions have been recorded.

14

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. This statement clarifies that market participant assumptions include assumptions about risk. A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability, even if the adjustment is difficult to determine. This statement also clarifies that market participant assumptions should also include assumptions about the effect of a restriction on the sale or use of an asset. This statement clarifies that fair value measurement for a liability should reflect nonperformance risk (the risk that the obligation will not be fulfilled). This statement expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value and for recurring fair value measurements using significant unobservable inputs and the effect of the measurements on earnings (or changes in net assets) for the period. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is evaluating the impact that SFAS No. 157 may have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159. The Fair Value Option of Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that use different measurements for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption allowed if SFAS No. 157 is also adopted. The Company is currently evaluating the impact of adopting SFAS No. 159 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141R”) and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements (“SFAS 160”). These statements significantly change the accounting for and reporting of business combinations an noncontrolling (minority) interests in consolidated financial statements. These statements will require noncontrolling interests to be reclassified to equity, consolidated net income to be adjusted to include net income attributed to the noncontrolling interest, and consolidated comprehensive income to be adjusted to include the comprehensive income attributed to the noncontrolling interest. SFAS 141R and SFAS 160 are required to be adopted simultaneously. SFAS 141 is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. SFAS 160 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted except for the presentation and disclosure requirements which will be applied retrospectively for all periods. Early adoption is prohibited. The Company is currently evaluating the impact of adopting SFAS 141R and SFAS 160 on its consolidated financial statements.

15

Item 7 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements meeting the requirements of Regulation S-B are contained on pages 17 through 35 of this Form 10-KSB.

16

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED FINANCIAL REPORT

Table of Contents

	PAGE
Reports of Independent Registered Public Accounting Firms	18
Financial Statements
Consolidated Balance Sheet	20
Consolidated Statements of Operations	22
Consolidated Statements of Stockholders’ Equity	23
Consolidated Statements of Cash Flows	24
Notes to Consolidated Financial Statements	26

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

CHASE GENERAL CORPORATION AND SUBSIDIARY

We have audited the accompanying consolidated balance sheet of Chase General Corporation and Subsidiary as of June 30, 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended June 30, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects. the financial position of Chase General Corporation and Subsidiary as of June 30, 2008, and the results of their operations and their cash flows for the year ended June 30, 2008, in conformity with U.S. generally accepted accounting principles.

/s/ Mayer Hoffman McCann P.C

MAYER HOFFMAN MCCANN P.C.

Leawood, Kansas

September 24, 2008

18

McGladrey & Pullen, LLP

4801 Main St., Ste. 400, Kansas City, MO 64112-2543

0 816.753.0030 F 816.753.3299

www.mcgladrey.com

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Chase General Corporation and Subsidiary

St. Joseph Missouri

We have audited the accompanying consolidated statements of operations, stockholders’ equity, and cash flows of Chase General Corporation and Subsidiary for the year ended June 30, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations, stockholders’ equity and cash flows of Chase General Corporation and Subsidiary for the year ended June 30, 2007, in conformity with U.S. generally accepted accounting principles.

Kansas City, Missouri

September 7, 2007

McGladrey & Pullen, LLP is a member firm of RSM International -

an affiliation of separate and independent legal entities.

19

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2008

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	24,828
Receivables
Less allowance for doubtful accounts of $13,741 (Note 12)		211,932
Inventories:
Finished goods		72,651
Goods in process		3,857
Raw materials		56,346
Packaging materials		170,276
Prepaid expenses		6,146
Deferred income taxes (Note 7)		8,890
Total current assets		554,926
PROPERTY AND EQUIPMENT
Land		35,000
Buildings		85,738
Machinery and equipment		733,845
Trucks and autos		130,387
Office equipment		35,954
Leasehold improvements		68,021
Total		1,088,945
Less accumulated depreciation		(814,921	)
Total property and equipment		274,024
OTHER ASSETS
Deferred income taxes - noncurrent (Note 7)		12,024
TOTAL ASSETS	$	840,974

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

20

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2008

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	84,879
Current maturities of forgivable loan - bank (Note 2)		5,000
Current maturities of notes payable (Note 3 & 4)		62,007
Notes payable - stockholder (Note 5)		140,000
Accrued expenses		17,582
Deferred income (Note 2)		1,299
Total current liabilities		310,767
LONG-TERM LIABILITIES
Deferred income (Note 2)		10,454
Forgivable loan - bank, less current maturities (Note 2)		5,000
Notes payable - less current maturities (Note 3)		21,012
Total long-term liabilities		36,466
Total liabilities		347,233
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS’ EQUITY
Capital stock issued and outstanding: (Note 6)
Prior cumulative preferred stock, $5 par value:
Series A (liquidation preference $2,010,000)		500,000
Series B (liquidation preference $1,965,000)		500,000
Cumulative preferred stock, $20 par value:
Series A (liquidation preference $4,609,469)		1,170,660
Series B (liquidation preference $751,201)		190,780
Common stock, $1 par value		969,834
Paid-in capital in excess of par		3,134,722
Accumulated deficit		(5,972,255	)
Total stockholders’ equity		493,741
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	840,974

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

21

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended June 30, 2008 and 2007

	2008			2007
NET SALES (NOTE 12)	$	2,688,772		$	2,320,543
COST OF SALES		2,047,463			1,856,378
Gross Profit		641,309			464,165
OPERATING EXPENSES
Selling expenses		325,391			278,164
General and administrative expenses		294,371			357,986
Total operating expenses		619,762			636,150
Income (loss) from operations		21,547			(171,985	)
OTHER INCOME (EXPENSE), NET
Miscellaneous income		2,331			2,370
Interest (expense) (Note 3, 4 & 5)		(6,440	)		(3,802	)
Total other income (expense), net		(4,109	)		(1,432	)
Income (loss) before income taxes		17,438			(173,417	)
INCOME TAXES BENEFIT (NOTE 7)		(5,164	)		(18,652	)
NET INCOME (LOSS)		22,602			(154,765	)
Preferred dividends		(128,072	)		(128,072	)
Net loss applicable to common stockholders	$	(105,470	)	$	(282,837	)
NET LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED (NOTE 8)	$	(.11	)	$	(.29	)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING		969,834			969,834

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

22

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended June 30, 2008 and 2007

	Prior Cumulative Preferred Stock				Cumulative Preferred Stock				Common Stock		Paid-in Capital		Accumulated Deficit			Total
	Series A		Series B		Series A		Series B
BALANCE, JUNE 30, 2006	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,840,092	)	$	625,904
Net loss		—		—		—		—		—		—		(154,765	)		(154,765	)
BALANCE, JUNE 30, 2007		500,000		500,000		1,170,660		190,780		969,834		3,134,722		(5,994,857	)		471,139
Net income		—		—		—		—		—		—		22,602			22,602
BALANCE, JUNE 30, 2008	$	500,000	$	500,000	$	1,170,660	$	190,780	$	969,834	$	3,134,722	$	(5,972,255	)	$	493,741

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

23

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2007 and 2006

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Collections from customers	$	2,657,268		$	2,248,893
Other income		1,032			1,071
Cost of sales, selling, general and administrative expenses paid		(2,783,852	)		(2,333,985	)
Interest paid		(5,677	)		(3,502	)
Income taxes refund received		—			29,197
Net cash (used in) operating activities		(131,229	)		(58,326	)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in advance to officer		—			9,000
Purchases of property and equipment		(8,173	)		—
Net cash provided by (used in) investing activities		(8,173	)		9,000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line-of-credit		300,000			230,000
Principal payments on line-of-credit		(250,000	)		(230,000	)
Proceeds from stockholder notes payable		190,000			75,000
Principal payments on stockholder notes payable		(95,000	)		(30,000	)
Principal payments on vehicle note payable		(3,002	)		—
Net cash provided by financing activities		141,998			45,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,596			(4,326	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		22,232			26,558
CASH AND CASH EQUIVALENTS, END OF YEAR	$	24,828		$	22,232

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

24

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2007 and 2006

	2008			2007
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income (loss)	$	22,602		$	(154,765	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		60,765			58,706
Provision for bad debts		1,917			522
Deferred income amortization		(1,299	)		(1,299	)
Deferred income taxes		(5,164	)		(18,652	)
Effects of changes in operating assets and liabilities:
Trade receivables		(31,504	)		(71,650	)
Income taxes refund claims receivable		—			29,197
Inventories		(90,035	)		(19,072	)
Prepaid expenses		354			5,946
Accounts payable		(83,683	)		107,047
Accrued expenses		(5,182	)		5,694
NET CASH (USED IN) OPERATING ACTIVITIES	$	(131,229	)	$	(58,326	)

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

25

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Chase General Corporation (the Company) was incorporated on November 6, 1944 in the State of Missouri for the purpose of manufacturing confectionery products. The Company grants credit terms to substantially all customers, consisting of repackers, grocery accounts, and national syndicate accounts, who are primarily located in the Midwest region of the United States.

Significant accounting policies are as follows:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Dye Candy Company. All intercompany transactions and balances have been eliminated in consolidation.

SEGMENT REPORTING OF THE BUSINESS

The subsidiary, Dye Candy Company, operates two divisions, Chase Candy Products and Seasonal Candy Products. Chase Candy Products involve production and sale of a candy bar marketed under the trade name “Cherry Mash”. The Seasonal Candy Products involve production and sale of coconut, peanut, chocolate, and fudge confectioneries. Division products are sold to the same type of customers in the same geographical areas. In addition, both divisions 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 and, accordingly, has not been disclosed in these consolidated financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.

REVENUE RECOGNITION

The Company recognizes revenues as product is shipped to the customers. Net sales are comprised of the total sales billed during the period including shipping and handling charges to customers, less the estimated returns, customer allowances and customer discounts.

26

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SHIPPING AND HANDLING COSTS

Shipping and handling costs for freight expense on goods shipped is included in cost of sales. Freight expense on goods shipped for the years ended June 30, 2008 and 2007 was $170,136 and $155,935, respectively.

RECEIVABLES

Accounts receivable are uncollateralized customer obligations which generally require payment within thirty days from the invoice date. Accounts receivable are stated at the invoice amount as no interest is charged to the customer for any past due amounts. Payments of accounts receivable are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the earliest unpaid invoices.

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than the historical experience, management’s estimates of the recoverability of amounts due the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.

INVENTORIES

Inventories are carried at the “lower of cost or market value” with cost being determined on the “first-in, first-out” basis of accounting. Finished goods and goods in process include a provision for manufacturing overhead.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. The Company’s property and equipment are being depreciated on straight-line and accelerated methods over the following estimated useful lives:

Buildings	39 years
Machinery and equipment	5 - 7 years
Trucks and autos	5 years
Office Equipment	5 - 7 years
Leasehold improvements	Lesser of estimated
	useful life or the
	lease term

27

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets.

INCOME TAXES

Deferred income taxes are provided using the liability method for temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases. Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the dates of enactment.

EARNINGS PER SHARE

Basic Earnings Per Common Share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted Earnings Per Common Share shall be computed by including contingently issuable shares with the weighted average shares outstanding during the period. When inclusion of the contingently issuable shares would have an antidilutive effect upon earnings per share, no diluted earnings per share shall be presented.

The following contingently issuable shares were not included in diluted earnings per common share as they would have an antidilutive effect upon earnings per share:

	2008	2007
Shares issuable upon conversion of Series A
Prior Cumulative Preferred Stock	400,000	400,000
Shares issuable upon conversion of Series B
Prior Cumulative Preferred Stock	375,000	375,000
Shares issuable upon conversion of Series A
Cumulative Preferred Stock	222,133	222,133
Shares issuable upon conversion of Series B
Cumulative Preferred Stock	36,200	36,200

28

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING EXPENSE

Advertising is expensed when incurred. Advertising expense was $2,834 and $2,887 for the years ended June 30, 2008 and 2007, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure. The Company adopted FIN 48 as of July 1, 2007. The adoption of FIN 48 had no impact on the Company’s financial statements, which resulted in no change on retained earnings as of July 1, 2007 and for the year ended June 30, 2008. As of June 30, 2008, no provisions for accrued interest and penalties related to uncertain tax positions have been recorded.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. This statement clarifies that market participant assumptions include assumptions about risk. A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability, even if the adjustment is difficult to determine. This statement also clarifies that market participant assumptions should also include assumptions about the effect of a restriction on the sale or use of an asset. This statement clarifies that fair value measurement for a liability should reflect nonperformance risk (the risk that the obligation will not be fulfilled). This statement expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value and for recurring fair value measurements using significant unobservable inputs and the effect of the measurements on earnings (or changes in net assets) for the period. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is evaluating the impact that SFAS No. 157 may have on its consolidated financial statements.

29

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In February 2007, the FASB issued SFAS No. 159. The Fair Value Option of Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that use different measurements for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption allowed if SFAS No. 157 is also adopted. The Company is currently evaluating the impact of adopting SFAS No. 159 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141R”) and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements (“SFAS 160”). These statements significantly change the accounting for and reporting of business combinations an noncontrolling (minority) interests in consolidated financial statements. These statements will require noncontrolling interests to be reclassified to equity, consolidated net income to be adjusted to include net income attributed to the noncontrolling interest, and consolidated comprehensive income to be adjusted to include the comprehensive income attributed to the noncontrolling interest. SFAS 141R and SFAS 160 are required to be adopted simultaneously. SFAS 141 is to be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 14, 2008. SFAS 160 is to be applied prospectively as of the beginning of the fiscal year in which it is initially adopted except for the presentation and disclosure requirements which will be applied retrospectively for all periods. Early adoption is prohibited. The Company is currently evaluating the impact of adopting SFAS 141R and SFAS 160 on its consolidated financial statements.

NOTE 2 - FORGIVABLE LOAN AND DEFERRED INCOME

During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank has established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of December 31, 2009. The Company has met the criteria of occupying a 20,000 square foot building and the criteria of creating a minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs for three years thereafter and will be required to do so until the five year term has expired. Once the Company is no longer legally entitled to return the monies, the liability will be reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. At June 30, 2008 and 2007, $15,000 and $10,000, respectively, has been reclassified to deferred revenue. Deferred revenue is recognized on a straight line basis over the lease term of 20 years. During the fiscal years ended June 30, 2008 and 2007, deferred revenue of $1,299 was amortized into income for each fiscal year.

30

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - NOTE PAYABLE - VEHICLE

The Company has a note that requires monthly payments of $1,001 for 36 months at -0-% interest rate, secured by a vehicle.

Future minimum payments are:

2009	$	12,007
2010		12,007
2011		9,005
Total	$	33,019

NOTE 4 - NOTE PAYABLE - BANK

Effective July 20, 2007, the Company had a $250,000 line-of-credit agreement which expired on January 1, 2008. This line-of-credit agreement was renewed on that date to extend until January 1, 2009 with a variable interest rate at prime. The line-of-credit was collateralized by certain equipment. At June 30, 2008, the outstanding balance on the line-of-credit was $50,000.

NOTE 5 - NOTE PAYABLE - STOCKHOLDER

The Company borrowed $190,000 and $75,000, respectively, from a stockholder/officer during the fiscal year ending June 30, 2008 and 2007. These unsecured loans have no maturity date and carry a 5% annual interest rate. The outstanding balance at June 30, 2008 was $140,000. Interest expense on stockholder/officer notes was $2,448 and $500 for the years ending June 30, 2008 and 2007, respectively.

31

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - CAPITAL STOCK

Capital stock authorized, issued and outstanding as of June 30, 2008 is as follows:

	Shares
	Authorized	Issued and Outstanding
Prior Cumulative Preferred Stock, $5 par value:
6% Convertible	240,000
Series A		100,000
Series B		100,000
Cumulative Preferred Stock, $20 par value:
5% Convertible	150,000
Series A		58,533
Series B		9,539

	Shares
	Authorized	Issued and Outstanding
Common Stock, $1 par value:
Reserved for conversion of
Preferred Stock - 1,030,166 shares	2,000,000	969,834

Cumulative Preferred Stock dividends in arrears at June 30, 2008 totaled $6,924,230. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2008:

6% Convertible
Series A	$	14.85
Series B		14.40
5% Convertible
Series A		58.75
Series B		58.75

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.

32

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - CAPITAL STOCK (CONTINUED)

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 7 - INCOME TAX MATTERS

The sources of deferred tax assets and liability at June 30, 2008, and the tax effect of each are as follows:

Deferred tax assets:
Inventories	$	55
Trade receivables		2,082
Contribution carryover		694
Net operating loss (carryforward)		24,236
Deferred income		1,780
Valuation allowance		—
Total deferred tax assets		28,847
Deferred tax liability:
Property and equipment		(7,933	)
NET DEFERRED TAX ASSETS	$	20,914

The net deferred tax assets are presented in the accompanying June 30, 2008 balance sheet as follows:

Current deferred tax asset	$	8,890
Noncurrent deferred tax asset		12,024
NET DEFERRED TAX ASSETS	$	20,914

33

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - INCOME TAX MATTERS (CONTINUED)

The provision for income taxes for the years ended June 30, 2008 and 2007 consists of the following:

	2008			2007
Current tax benefit	$	—		$	—
Deferred tax expense		(5,164	)		(18,652	)
	$	(5,164	)	$	(18,652	)

The income tax provision differs from the amount of income tax determined by applying the statutory federal income tax rate to pretax income for the years ended June 30, 2008 and 2007 due to the following:

	2008			2007
Computed “expected” tax (benefit)	$	6,103		$	(60,696	)
Increase (decrease) in income taxes (benefits) resulting from:
State income taxes, net of federal benefit		899			(8,906	)
Nondeductible expenses		138			384
Effect of utilizing lower rates for deferred taxes		19,696			16,353
Change in valuation allowance		(32,000	)		32,000
Other		—			2,213
	$	(5,164	)	$	(18,652	)

The Company has unused contributions of $1,020 to carryforward that will expire for tax year:

2012 $     1,020

The Company has net operating loss to carryforward that will expire for tax year ended:

2021	$	8,540
2022		162,166
Total	$	170,706

34

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LOSS PER SHARE

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

	2008			2007
Net income (loss)	$	22,602		$	(154,765	)
Preferred dividend requirements:
6% Prior Cumulative Preferred, $5 par value		60,000			60,000
5% Convertible Cumulative Preferred, $20 par value		68,072			68,072
Total dividend requirements		128,072			128,072
Net loss - common stockholders	$	(105,470	)	$	(282,837	)
Weighted average of outstanding common shares		969,834			969,834
Loss per share		(.11	)		(.29	)

No computation was made on common stock equivalents outstanding at year-end because earnings per share would be anti-dilutive.

NOTE 9 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	2008		2007
Cash paid for:
Interest	$	5,677	$	—
Income taxes		—		—
Non-cash transaction:
Reclass of forgivable loan to deferred income		5,000		5,000
Financing of new vehicle		36,021		—

NOTE 10 - COMMITMENTS

Dye Candy Company leases its office and manufacturing facility from a Company that is owned by a director and his spouse located at 1307 South 59^th, St. Joseph, Missouri. The period of the lease is from February 1, 2005 through March 31, 2025 with an option to extend for an additional term of five years, and currently requires payments of $6,500 per month. At the end of the first five years, the base rent shall be increased an amount not greater than 30%, at the sole discretion of lessor and for each additional term of five years. Rental expense was $78,000 for each year ended June 30, 2008 and 2007. The amounts are included in cost of sales.

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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - COMMITMENTS (CONTINUED)

Future minimum lease payments under this lease are as follows:

Year ending June 30:

2009	$	78,000
2010		78,000
2011		78,000
2012		78,000
2013		78,000
Thereafter		916,500
	$	1,306,500

As of June 30, 2008, the Company had raw materials purchase commitments with one vendor totaling $62,198.

NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist principally of cash and cash equivalents, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these consolidated financial instruments.

NOTE 12 - CONCENTRATION OF CREDIT RISK

For the years ending June 30, 2008 and 2007, two customers accounted for 41% and 43%, respectively, of the gross sales. For the year ending June 30, 2008 and 2007, four customers accounted for 68% of accounts receivable and at June 30, 2007, two customers accounted for 53% of accounts receivable.

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Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company dismissed its principal independent accountant, McGladrey & Pullen, LLP effective March 7, 2008.

Their accountant’s report on the financial statements, for the past two fiscal years ending June 30, 2007 and 2006, did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty in audit scope or accounting principles.

Form 8-K was filed with the Securities and Exchange Commission to notify of this change in certifying accountant, along with a letter from the former accountant indicating their agreement to statements reported on such form.

The Company engaged Mayer Hoffman McCann P.C. as the principal accountant to audit the issuer’s financial statements for fiscal year ended June 30, 2008.

Item 8A CONTROLS AND PROCEDURES

Not applicable

Item 8A(T) CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer who is also the chief financial and accounting officer has evaluated the effectiveness of the Company’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, such officer has concluded that the Company’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.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Management has assessed the Company’s internal control over financial reporting in relation to criteria described in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment using those criteria, management concluded that, as of June 30, 2008, the Company’s internal control over financial reporting was effective.

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Item 8A(T) CONTROLS AND PROCEDURES (CONTINUED)

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Changes in Internal Controls

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

Item 8B OTHER INFORMATION

Not applicable

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PART III

Item 9 DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS

(a) Directors

Name	Age	Periods of Service as Director	Terms
Barry M. Yantis	63	1980 to present	One year
Brett A. Yantis	40	January 21, 1999 to present	One year
Brian A. Yantis	60	July 16, 1986 to present	One year

Executive Officers

Name	Age	Position	Years of Service as an Officer	Term
Barry M. Yantis	63	President, CEO and Treasurer	29	Until successor elected
Brett A. Yantis	40	Vice President	6	Until successor elected
Brian A. Yantis	60	Secretary	16	Until successor elected

(b) Certain Significant Employees

There are no significant employees other than above.

(c) Family Relationships

Barry M. Yantis and Brian A. Yantis are brothers. Brett A. Yantis is the son of Barry M. Yantis.

Business Experience

(1) Barry M. Yantis, president and treasurer has been an officer of the Company for twenty-nine years, twelve years as vice-president and seventeen years as president. He has been on the board of directors for twenty-nine years and has been associated with the candy business for thirty-four years.

Brett A. Yantis was elected to the position of director during the year ending June 30, 1999. Brett was elected Vice President in January 2003. Brett has been associated with the Company for fifteen years.

Brian A. Yantis, secretary has been an officer of the Company since May 1992. He has been associated with the insurance business for thirty-three years and has been a vice-president of Aon Risk Services in Chicago, Illinois during the past nineteen years.

(2) The directors and executive officers listed above are also the directors and executive officers of Dye Candy Company.

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(d) Involvement in Certain Legal Proceedings

On December 16, 2005, a lawsuit was filed by 3600 S. Leonard road, LLC., (the Plantiff) against the Company in the circuit Court of Buchanan County, Missouri. The Plantiff alleges that the Company failed to honor certain sections of a lease agreement, for its former facility, entered into between the Plantiff, as owner and landlord of the premises subject to the lease agreement and the Company, a tenant to the premises. The Company filed a response with the Circuit Court denying all material allegations made by the Plantiff, whom as seeking damages in an amount in excess of $200,000. A trial was held in January 2007, at which time, the Judge ruled in favor of the Company. The Plantiff was awarded no damages.

(e) Audit Committee Financial Expert

Registrant is not required to have an audit committee since the stock is not actively traded. The Board of Directors are not considered audit committee financial experts, but do effectively operate as the audit committee.

(f) Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics that applies to all executive officers, directors and employees of the Company. The Code of Business Conduct and Ethics is attached as exhibit 14 to this Annual Report on Form 10-KSB.

Item 10 EXECUTIVE COMPENSATION

(a) General

Executive officers are compensated for their services as set forth in the Summary Compensation Table. These salaries are approved yearly by the Board of Directors.

(b)

Summary Compensation Table

								Long Term Compensation
		Annual Compensation						Awards		Payouts
Name and Principal Position	Fiscal Year End	Salary		Bonus		Other Annual Compensation		Restricted Stock Award (s)	Option/ SARs (#)	LTIP Payouts	All other Compensation
Barry M. Yantis	1) 06-30-08	$	121,900	$	—	$	1,340	—	—	—	—
Barry M. Yantis	1) 06-30-07	$	121,900	$	—	$	2,175	—	—	—	—
Barry M. Yantis	1) 06-30-06	$	121,900	$	—	$	2,675	—	—	—	—

1) CEO, President and Treasurer

2) No other compensation than that which is listed in compensation table.

3) No other officers have compensation over $100,000 for their services besides those listed in this compensation table.

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Item 10 EXECUTIVE COMPENSATION (CONTINUED)

(c) Option/SAR grants table

Not applicable

(d) Aggregated option/SAR exercises and fiscal year-end option/SAR value table

Not applicable

(e) Long-term incentive plan awards table

Not applicable

(f) Compensation of Directors

Directors are not compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings. During the fiscal year 2008 and 2007, $-0- and $180, respectively, of travel expenses were reimbursed to board member Brian A. Yantis.

(g) Employment contracts and termination of employment and change in control arrangements

No employment contracts exist with any executive officers. In addition, there are no contracts currently in place regarding termination of employment or change in control arrangements.

(h) Report on repricing of option/SARs

Not applicable

(i) Additional information with respect to compensation committee interlocks and insider participation in compensation decisions

The registrant has no formal compensation committee. The Board of Directors, Brian A. Yantis, Barry M. Yantis, and Brett A. Yantis (all current officers of the Company) annually approve the compensation of Barry M. Yantis, CEO, President and Treasurer.

(j) Board compensation committee report on executive compensation

The board bases the annual salary of the CEO on the Company’s prior year performance. The criteria is based upon, but is not limited to, market area expansion, gross profit improvement, control of operating expenses, generation of positive cash flow, and hours devoted to the business during the previous fiscal year.

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Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

	Title of Class	Name and Address	Amounts and Nature of Beneficial Ownership		% of Class
(a)	Security ownership of certain beneficial owners
	Common; par value $1 per share	Barry Yantis, CEO & Director 5605 Osage Drive St. Joseph, Mo. 64503	194,385	(1)	16.9	% (2)
		Brian Yantis, Officer & Director 1210 E. Clarendon Arlington Heights, IL. 60004	97,192	(1)	8.4	% (2)
(b)	Security ownership of management
	Common; par value $1 per share	Two directors and CEO as a group	110,856		11.4	%
	Prior Cumulative Preferred, $5 par value: Series A, 6% convertible	Two directors and CEO as a group	21,533		21.5	%
	Prior Cumulative Preferred $5 par value: Series B, 6% convertible	Two directors and CEO as a group	21,533		21.5	%
	Cumulative Preferred, $20 par value: Series A, $5 convertible	Two directors and CEO as a group	3,017		5.2	%
	Cumulative Preferred, $20 par value: Series B, $5 convertible	Two directors and CEO as a group	630		6.6	%

(1) Includes 120,477 and 60,244 shares, respectively, which could be received within 30 days upon conversion of preferred stock.

(2) Reflects the percentage assuming the preferred shares above were converted into common stock.

(c) No known change of control is anticipated.

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Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others

The registrant’s subsidiary, Dye Candy Company entered into an operating lease agreement during the 2005 fiscal year to provide office and manufacturing facilities with a limited liability company that is owned 100% by Vice-President and Director, Brett A. Yantis and his spouse. The annual rent is $78,000.

(b) Certain business relationships

Not applicable

(c) Indebtedness of management

The Company owes a shareholder and officer $140,000 and $45,000, respectively at June 30, 2008 and 2007.

(d) Transactions with promoters

Not applicable

Item 13 EXHIBITS

The exhibits listed below are filed with or incorporated by reference in this report.

The following have been previously filed and are incorporated by reference to prior years’ Forms 10-K filed by the Registrant:

(3) Articles of Incorporation and By-Laws

The following are Exhibits attached or explanations included in “Notes to Financial Statements” in Part II of this report:

(4) Instruments defining the rights of security holders including indentures - Refer to Note 6.

(11) Computation of per share earnings - Refer to Note 8.

(14) Code of Ethics - attached

(21) Subsidiaries of registrant - Refer to Note 1.

(31) Certification Rule 13a - 14(a)/15d - 14(a) certification - attached

(32) Section 1350 Certification – attached

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Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table shows the aggregate fees billed to the Company for professional services for the years ended June 30, 2008 and 2007:

	2008		2007
Audit fees:
McGladrey & Pullen, LLP	$	—	$	54,625
Mayer Hoffman McCann P.C.		42,900		—
Audit related fees:		—		—
McGladrey & Pullen, LLP		13,944		—
Mayer Hoffman McCann P.C.		1,340		—
Tax fees		—		—
All other fees		—		—

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHASE GENERAL CORPORATION
	(Registrant)
Date: September 24, 2008	By:	/s/ Barry M. Yantis
		Barry M. Yantis
		Chairman of the Board, Chief Executive Officer,
		President and Treasurer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.

/s/ Barry M. Yantis

Barry M. Yantis

President, Treasurer (Principal Executive

Officer and Chief Financial and

Accounting Officer) and Director

September 24, 2008

Date

/s/ Brett Yantis

Brett Yantis

Vice-President and Director

September 24, 2008

Date

/s/ Brian A. Yantis

Brian A. Yantis

Secretary and Director

September 24, 2008

Date

45