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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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



For the Fiscal Year Ended June 30, 2005



| ̈ | 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



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CHASE GENERAL CORPORATION

(Name of small issuer in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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, including area code)



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

None



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

None



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Check mark whether the registrant: (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 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



The issuers
revenues for its most recent fiscal year were $2,591,492.



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



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, 2005 was 969,834.



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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 Company and Poe Candy Company. Operations in Chase Candy Company involve production and sale of a candy bar marketed under the trade name Cherry Mash. Operations in Poe Candy Company 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. Due to the similarities in the products manufactured, 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:



Six case sizes:



(1) 24 - 12
oz. Bags

(2) 6 jars - 60 bars per jar

(3) 23 # wrapped bars

(4) 22 # unwrapped bars

(5) 36 - 4 oz. tubs

(6) 6 - 4 # jars



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DESCRIPTION OF BUSINESS(CONTINUED)



Poe 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       |  |     |  |                     



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, 2005 and 2004, this division
accounted for 67% and 64%, respectively, of the consolidated revenue of Dye Candy Company.



The Poe Division is sold primarily on a Midwest regional basis to national syndicate accounts, repackers, and grocery accounts. For the years ended June 30, 2005 and 2004, the division accounted for 33% and 36%,
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.



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.



(Continued)



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COMPETITION AND MARKETS(CONTINUED)



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 Poe 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 Poe 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



At the present time there are no specific products that the Company is
currently developing, although the Company continues to test various 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.



EMPLOYEES



As of June 30, 2005, the Company had 21 full time employees. There were
17 in manufacturing, 2 in sales and marketing and 2 in finance and administration. This expands to approximately 50 full time personnel during the two busy production seasons in spring and fall.



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CUSTOMERS



For the years ending June 30 2005 and 2004, Associated Wholesale Grocers accounted for 21% and 26% of gross sales,
respectively. For the years ending June 30, 2005 and 2004, Wal-Mart and its affiliates accounted for 27% and 23% of gross sales, respectively. No other customer accounted for more than 10% of the Companys revenues in fiscal years 2005 and
2004.



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.



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Item 2 DESCRIPTION OF PROPERTY



The registrant operates from two buildings as follows:



Chase and Poe 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 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.



Chase General Office and Dye Candy Company Operating Plant - During fiscal year 2004 until March 2005, the Company leased a building housing the office and plant located at 3600 Leonard Rd., in St. Joseph,
Missouri. The building contained the general offices of Chase General Corporation, Dye Candy Company, and its divisions. The production plant of Dye Candy Company occupied the remainder of the building. The building was specifically designed for the
type of operations conducted by the registrant with approximately 20,000 square feet for production and approximately 2,000 square feet for the office. The Companys lease on this building expired March 31, 2005, which the Company elected
not to renew.



During March 2005, the Company moved its office
and plant to its current location 1307 South 59th, St. Joseph, Missouri. The building 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 Companies 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, 2005.



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.



(Continued)



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Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)



Security holders



As of September 15, 2005, the latest practicable date, the approximate
number of record holders of common stock was 1,439, 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.



| | (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.



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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.



|                                             |  |        |    |  |        |   
|-------------------------------------------- |  | ------ | -- |  | ------ | --
|                                             |  | 2005   |    |  | 2004   |   
|Net sales                                    |  | 100.00 | %  |  | 100.00 | % 
|Cost of sales                                |  | 74.41  |    |  | 73.44  |   
|                                             |  |        |    |  |        |   
|Gross profit                                 |  | 25.59  |    |  | 26.56  |   
|                                             |  |        |    |  |        |   
|Selling expense                              |  | 10.70  |    |  | 11.64  |   
|General and administrative expense           |  | 10.28  |    |  | 10.38  |   
|                                             |  |        |    |  |        |   
|Income from operations                       |  | 4.61   |    |  | 4.54   |   
|Other income (expense), net                  |  | .06    |    |  | .26    |   
|                                             |  |        |    |  |        |   
|Income before income taxes                   |  | 4.67   |    |  | 4.80   |   
|Provision for income taxes                   |  | 1.04   |    |  | 1.19   |   
|                                             |  |        |    |  |        |   
|Net income                                   |  | 3.63   |    |  | 3.61   |   
|Preferred dividends                          |  | (4.94  | )  |  | (5.76  | ) 
|                                             |  |        |    |  |        |   
|Net (loss) applicable to common stockholders |  | (1.31  | )% |  | (2.15  | )%
|                                             |  |        |    |  |        |   



NET SALES



During the year ended June 30, 2005, net sales
increased 16.6% from June 30, 2004 though June 30, 2005. The increase was due to promotions with customers and expansion of the sales market. Additionally, the Company continued to expand its sales through its website.



COST OF SALES



Cost of sales for the year ended June 30, 2005 as compared to the year
ended June 30, 2004, increased by 18.1%. This was due to the additional sales that required more materials and labor, along with rate increases for freight in/out; rent increases for new leased facility and depreciation for additional
equipment.



GROSS PROFIT



Gross profit for the year ended June 30, 2005 increased 12.3% as
compared to the year ended June 30, 2004. This was due to the greater volume in sales for the year along with increased prices for products and spreading the fixed portion of manufacturing overhead costs over a larger sales amount.



SELLING EXPENSES



Selling expenses for the year ended June 30, 2005 increased 7.1% as
compared to the year ended June 30, 2004. The majority of this increase is due to an increase in commissions paid for the increased sales to expand market share.



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GENERAL AND ADMINISTRATIVE EXPENSES



General and administrative expenses for the year ended June 30, 2005 increased 15.5% as compared to the year ended
June 30, 2004. Professional fees for the year ended June 30, 2005 increased $17,863. Net losses from sales of equipment related to the move to the new facility from the former plant location for the current year was $18,056 as compared to
$-0- loss incurred for year ended June 30, 2004.



INCOME FROM OPERATIONS



Income from operations
for the year ended June 30, 2005 was 4.61% of net sales as compared to 4.54% of net sales for the year ended June 30, 2004 for the reasons described above.



OTHER INCOME (EXPENSE), NET



Other income and expense decreased by $4,111 for the year ended June 30, 2005 as compared to the year ended June 30, 2004. This was due to a
decrease in miscellaneous income of $1,838, a decrease in interest income of $977, and an increase in interest expense of $1,296.



INCOME BEFORE INCOME TAXES



Income before income taxes was $121,155 for the year ended June 30, 2005. This increased by $14,423 as compared to the year ended June 30, 2004.



The reasons for the increase are discussed above.



PROVISION FOR INCOME TAXES



Provision for income taxes was $27,077 for the year ended June 30,
2005. This was an increase of $545 as compared to the year ended June 30, 2004.



NET INCOME



Net income
for the year ended June 30, 2005 was $94,078 which is an increase of $13,878 as compared to the year ended June 30, 2004. The reasons for the increase are discussed above.



PREFERRED DIVIDENDS



Preferred dividends were $128,072 for the years ended June 30, 2005 and 2004.



NET (LOSS) APPLICABLE TO COMMON STOCKHOLDERS



Net (loss) applicable to common stockholders was $(33,994) for the year ended June 30, 2005 compared to $(47,872) for
the year ended June 30, 2004 for the reasons discussed above.



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LIQUIDITY AND SOURCES OF CAPITAL



Positive cash flows from operating activities were generated for fiscal years ended 2005 in the amount of $140,229, compared
to positive cash flows from operating activities generated for fiscal year ended June 30, 2004 in the amount of $135,935.



At various times during the years, and in anticipation of heavier cash demands due to seasonal production, plant improvements, and/or major promotional
programs, it is the Companys practice to invest in short term U.S. Treasury obligations or financial institution certificates of deposit. At June 30, 2005, the Company had $34,157 invested in a short term certificate of deposit to meet
the 2006 fall production season which is included as a cash equivalent on the balance sheet.



The Company continually monitors raw material pricing, and when a price increase/decrease is anticipated, adjustments to inventory levels are made accordingly. Raw materials increased approximately $2,032 from
June 30, 2004 to June 30, 2005. The current year slight increase can be attributed to the fact of the Company watching markets for these commodities, and purchases were made accordingly.



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 decreased $34,001 at June 30, 2005 from June 30, 2004. The decrease is attributed to the Company purchasing large quantities during the 2003 year of a clam shell
packaging that would fulfill the Companys packaging needs for several seasons.



Finished goods inventory decreased $948 from June 30, 2004 to June 30, 2005. This slight decrease was due to plant operations being closed for holiday at end of fiscal year June 30, 2005. 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. These write offs have been immaterial over the prior three years. This year, when the Company moved its office and plant facilities, various equipment with a
book value of $23,797 was abandoned. The Company, for fiscal year ended June 30, 2005, did acquire a Hayssen Bagmaker with scale to streamline packaging operations. Purchases of $285,311 and $81,822 were made during the years ended
June 30, 2005 and 2004, respectively, to upgrade and update existing production, transportation, and office equipment. Depending on results of

operations and cash flows, the Company is hoping to replace their antiquated brittle cookers in the next several years with no set target date. The anticipated cost of a new brittle cooker is approximately $8,000. The Company believes it
needs two of these. Net cash used in investing activities was $(275,311) and $(81,822) for the years ended June 30, 2005 and 2004, respectively.



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LIQUIDITY AND SOURCES OF CAPITAL(CONTINUED)



For the past ten years, the Company has not been indebted except for the
series B notes. On December 20, 2004, the remaining balance of $7,032 was paid in full to related parties. The Company did borrow $80,010 on a line-of-credit during the fall 2004 busy season and was paid in full November 2004. The Company
received an economic incentive of $25,000, which is a forgivable loan at a rate of $5,000 per year. Net cash provided by (used in) financing activities was $17,968 and $(15,000) for the years ended June 30, 2005 and 2004, respectively.



The Companys lease on its office and plant facility is
effective through March 31, 2025 at $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.



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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.



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 December 2003, the Financial Accounting Standards Board (FASB) revised Interpretation 46 Consolidation of Variable Interest Entities (FIN 46(R),
which was effective for the Company beginning January 31, 2003. FIN 46 addresses the consolidation by business enterprises of variable interest entities that have certain characteristics of control ordinarily held by owners.



Application of FIN 46 had no effect on the Companys financial
condition, results of operations or liquidity.



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Item 7 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The Consolidated Financial Statements meeting the requirements of Regulation
S-B are contained on pages 14 through 29 of this Form 10-KSB.



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CHASE GENERAL CORPORATION AND SUBSIDIARY



CONSOLIDATED FINANCIAL REPORT



Table of
Contents



|                                                        |  |     
|------------------------------------------------------- |  | ----
|                                                        |  | PAGE
|Report of Independent Registered Public Accounting Firm |  | 15  
|                                                        | 
|Financial Statements                                    |  |     
|                                                        | 
|Consolidated Balance Sheet                              |  | 16  
|                                                        | 
|Consolidated Statements of Operations                   |  | 18  
|                                                        | 
|Consolidated Statements of Stockholders Equity         |  | 19  
|                                                        | 
|Consolidated Statements of Cash Flows                   |  | 20  
|                                                        | 
|Notes to Consolidated Financial Statements              |  | 22  



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LOGO



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 balance sheet of Chase General Corporation and Subsidiary as of June 30, 2005, and the related consolidated statements of operations, stockholders equity, and cash flows for the years ended June 30, 2005 and
2004. 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 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 financial position of Chase General Corporation and Subsidiary as of June 30, 2005, and the results of their operations and their
cash flows for the years ended June 30, 2005 and 2004, in conformity with U. S. generally accepted accounting principles.



LOGO



Kansas City,
Missouri

August 26, 2005



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

an affiliation of separate and independent legal entities.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2005



|                                                                |  |   |          
|--------------------------------------------------------------- |  | - | ---------
|ASSETS                                                          |  |   |          
|CURRENT ASSETS                                                  |  |   |          
|Cash and cash equivalents                                       |  | $ | 60,805   
|Receivables:                                                    |  |   |          
|Trade, less allowance for doubtful accounts of $13,170 (Note 8) |  |   | 185,521  
|Income tax refund claims                                        |  |   | 18,425   
|Inventories:                                                    |  |   |          
|Finished goods                                                  |  |   | 110,403  
|Goods in process                                                |  |   | 4,440    
|Raw materials                                                   |  |   | 38,188   
|Packaging materials                                             |  |   | 90,845   
|Prepaid expenses                                                |  |   | 3,197    
|Deferred income taxes (Note 4)                                  |  |   | 4,230    
|                                                                |  |   |          
|Total current assets                                            |  |   | 516,054  
|                                                                |  |   |          
|PROPERTY AND EQUIPMENT                                          |  |   |          
|Land                                                            |  |   | 35,000   
|Buildings                                                       |  |   | 85,738   
|Machinery and equipment                                         |  |   | 711,590  
|Trucks and autos                                                |  |   | 128,987  
|Office equipment                                                |  |   | 51,636   
|Leasehold improvements                                          |  |   | 67,025   
|                                                                |  |   |          
|Total                                                           |  |   | 1,079,976
|Less accumulated depreciation                                   |  |   | 695,880  
|                                                                |  |   |          
|Total property and equipment                                    |  |   | 384,096  
|                                                                |  |   |          
|TOTAL ASSETS                                                    |  | $ | 900,150  
|                                                                |  |   |          



These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2005



|                                                |  |   |            |  
|----------------------------------------------- |  | - | ---------- | -
|LIABILITIES AND STOCKHOLDERS EQUITY            |  |   |            |  
|CURRENT LIABILITIES                             |  |   |            |  
|Accounts payable                                |  | $ | 104,380    |  
|Forgivable loan - bank (Note 2)                 |  |   | 5,000      |  
|Accrued expenses                                |  |   | 23,029     |  
|                                                |  |   |            |  
|Total current liabilities                       |  |   | 132,409    |  
|                                                |  |   |            |  
|LONG-TERM LIABILITIES                           |  |   |            |  
|Deferred income taxes (Note 4)                  |  |   | 29,812     |  
|Forgivable loan - bank (Note 2)                 |  |   | 20,000     |  
|                                                |  |   |            |  
|Total long-term liabilities                     |  |   | 49,812     |  
|                                                |  |   |            |  
|Total liabilities                               |  |   | 182,221    |  
|                                                |  |   |            |  
|STOCKHOLDERS EQUITY                            |  |   |            |  
|Capital stock issued and outstanding: (Note 3)  |  |   |            |  
|Prior cumulative preferred stock, $5 par value: |  |   |            |  
|Series A (liquidation preference $1,920,000)    |  |   | 500,000    |  
|Series B (liquidation preference $1,875,000)    |  |   | 500,000    |  
|Cumulative preferred stock, $20 par value:      |  |   |            |  
|Series A (liquidation preference $4,433,873)    |  |   | 1,170,660  |  
|Series B (liquidation preference $722,581)      |  |   | 190,780    |  
|Common stock, $1 par value                      |  |   | 969,834    |  
|Paid-in capital in excess of par                |  |   | 3,134,722  |  
|Accumulated deficit                             |  |   | (5,748,067 | )
|                                                |  |   |            |  
|Total stockholders equity                      |  |   | 717,929    |  
|                                                |  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY      |  | $ | 900,150    |  
|                                                |  |   |            |  



These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended June 30, 2005 and 2004



|                                                                |  |      |           |   |      |   |           |  
|--------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                |  | 2005 |           |   | 2004 |  
|NET SALES (NOTE 8)                                              |  | $    | 2,591,492 |   |      | $ | 2,222,702 |  
|COST OF SALES                                                   |  |      | 1,928,351 |   |      |   | 1,632,252 |  
|                                                                |  |      |           |   |      |   |           |  
|Gross Profit                                                    |  |      | 663,141   |   |      |   | 590,450   |  
|                                                                |  |      |           |   |      |   |           |  
|OPERATING EXPENSES                                              |  |      |           |   |      |   |           |  
|Selling expenses                                                |  |      | 277,329   |   |      |   | 258,839   |  
|General and administrative expenses                             |  |      | 266,356   |   |      |   | 230,689   |  
|                                                                |  |      |           |   |      |   |           |  
|Total operating expenses                                        |  |      | 543,685   |   |      |   | 489,528   |  
|                                                                |  |      |           |   |      |   |           |  
|Income from operations                                          |  |      | 119,456   |   |      |   | 100,922   |  
|                                                                |  |      |           |   |      |   |           |  
|OTHER INCOME (EXPENSE), NET                                     |  |      |           |   |      |   |           |  
|Interest income                                                 |  |      | 474       |   |      |   | 1,451     |  
|Miscellaneous income                                            |  |      | 2,943     |   |      |   | 4,781     |  
|Interest (expense)                                              |  |      | (1,718    | ) |      |   | (422      | )
|                                                                |  |      |           |   |      |   |           |  
|Total other income (expense), net                               |  |      | 1,699     |   |      |   | 5,810     |  
|                                                                |  |      |           |   |      |   |           |  
|Income before income taxes                                      |  |      | 121,155   |   |      |   | 106,732   |  
|PROVISION FOR INCOME TAXES (NOTE 4)                             |  |      | 27,077    |   |      |   | 26,532    |  
|                                                                |  |      |           |   |      |   |           |  
|NET INCOME                                                      |  |      | 94,078    |   |      |   | 80,200    |  
|Preferred dividends                                             |  |      | (128,072  | ) |      |   | (128,072  | )
|                                                                |  |      |           |   |      |   |           |  
|Net loss applicable to common stockholders                      |  | $    | (33,994   | ) |      | $ | (47,872   | )
|                                                                |  |      |           |   |      |   |           |  
|NET LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED (NOTE 5) |  | $    | (.04      | ) |      | $ | (.05      | )
|                                                                |  |      |           |   |      |   |           |  
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING             |  | $    | 969,834   |   |      | $ | 969,834   |  
|                                                                |  |      |           |   |      |   |           |  



These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended June 30, 2005 and 2004



|                        |  |                                 |         |                            |   |             |  |                |           |                    |   |         |       |   |         |  |   |           |  |   |            |   |  |   |        
|----------------------- |  | ------------------------------- | ------- | -------------------------- | - | ----------- |  | -------------- | --------- | ------------------ | - | ------- | ----- | - | ------- |  | - | --------- |  | - | ---------- | - |  | - | -------
|                        |  | Prior CumulativePreferred Stock |         | Cumulative Preferred Stock |   | CommonStock |  | Paid-inCapital |           | AccumulatedDeficit |   |         | Total
|                        |  | Series A                        |         | Series B                   |   | Series A    |  | Series B       |           |                    |   |        
|BALANCE , JUNE 30, 2003 |  | $                               | 500,000 |                            | $ | 500,000     |  | $              | 1,170,660 |                    | $ | 190,780 |       | $ | 969,834 |  | $ | 3,134,722 |  | $ | (5,922,345 | ) |  | $ | 543,651
|                        |  |                                 |         |                            |   |             |  |               
|Net income              |  |                                 |        |                            |   |            |  |                |          |                    |   |        |       |   |        |  |   |          |  |   | 80,200     |   |  |   | 80,200 
|                        |  |                                 |         |                            |   |             |  |                |           |                    |   |         |       |   |         |  |   |           |  |   |            |   |  |   |        
|BALANCE , JUNE 30, 2004 |  |                                 | 500,000 |                            |   | 500,000     |  |                | 1,170,660 |                    |   | 190,780 |       |   | 969,834 |  |   | 3,134,722 |  |   | (5,842,145 | ) |  |   | 623,851
|                        |  |                                 |         |                            |   |             |  |               
|Net income              |  |                                 |        |                            |   |            |  |                |          |                    |   |        |       |   |        |  |   |          |  |   | 94,078     |   |  |   | 94,078 
|                        |  |                                 |         |                            |   |             |  |                |           |                    |   |         |       |   |         |  |   |           |  |   |            |   |  |   |        
|BALANCE , JUNE 30, 2005 |  | $                               | 500,000 |                            | $ | 500,000     |  | $              | 1,170,660 |                    | $ | 190,780 |       | $ | 969,834 |  | $ | 3,134,722 |  | $ | (5,748,067 | ) |  | $ | 717,929
|                        |  |                                 |         |                            |   |             |  |                |           |                    |   |         |       |   |         |  |   |           |  |   |            |   |  |   |        



These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2005 and 2004



|                                                                 |  |      |            |   |      |   |            |  
|---------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                 |  | 2005 |            |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Collections from customers                                       |  | $    | 2,545,329  |   |      | $ | 2,106,544  |  
|Interest received                                                |  |      | 474        |   |      |   | 1,451      |  
|Other income                                                     |  |      | 2,943      |   |      |   | 4,781      |  
|Cost of sales, selling, general and administrative expenses paid |  |      | (2,361,605 | ) |      |   | (1,972,871 | )
|Interest paid                                                    |  |      | (2,140     | ) |      |   | (1,322     | )
|Income taxes paid/refund received                                |  |      | (44,772    | ) |      |   | (2,648     | )
|                                                                 |  |      |            |   |      |   |            |  
|Net cash provided by operating activities                        |  |      | 140,229    |   |      |   | 135,935    |  
|                                                                 |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Purchases of property and equipment                              |  |      | (285,311   | ) |      |   | (81,822    | )
|Net proceeds from sale of property and equipment                 |  |      | 10,000     |   |      |   |           |  
|                                                                 |  |      |            |   |      |   |            |  
|Net cash (used in) investing activities                          |  |      | (275,311   | ) |      |   | (81,822    | )
|                                                                 |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Principal payments on notes payable, Series B                    |  |      | (7,032     | ) |      |   | (15,000    | )
|Proceeds from forgivable loan                                    |  |      | 25,000     |   |      |   |           |  
|Proceeds from line-of-credit                                     |  |      | 80,010     |   |      |   |           |  
|Principal payments on line-of-credit                             |  |      | (80,010    | ) |      |   |           |  
|                                                                 |  |      |            |   |      |   |            |  
|Net cash provided by (used in) financing activities              |  |      | 17,968     |   |      |   | (15,000    | )
|                                                                 |  |      |            |   |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |  |      | (117,114   | ) |      |   | 39,113     |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                     |  |      | 177,919    |   |      |   | 138,806    |  
|                                                                 |  |      |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                           |  | $    | 60,805     |   |      | $ | 177,919    |  
|                                                                 |  |      |            |   |      |   |            |  



These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2005 and 2004



|                                                                                  |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | 2005 |         |   | 2004 |  
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES         |  |      |         |   |      |   |         |  
|Net income                                                                        |  | $    | 94,078  |   |      | $ | 80,200  |  
|                                                                                  |  |     
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 53,357  |   |      |   | 41,414  |  
|Loss on sale of equipment                                                         |  |      | 18,056  |   |      |   |        |  
|Provision for doubtful accounts                                                   |  |      | 1,939   |   |      |   | 1,181   |  
|Deferred taxes                                                                    |  |      | 25,582  |   |      |   |        |  
|Effects of changes in operating assets and liabilities:                           |  |      |         |   |      |   |         |  
|Trade receivables                                                                 |  |      | (46,163 | ) |      |   | 4,213   |  
|Income taxes refund claims receivable                                             |  |      | (18,425 | ) |      |   |        |  
|Inventories                                                                       |  |      | 32,086  |   |      |   | (73,467 | )
|Prepaid expenses                                                                  |  |      | (257    | ) |      |   | 14,861  |  
|Accounts payable                                                                  |  |      | 9,729   |   |      |   | 45,934  |  
|Accrued expenses                                                                  |  |      | (4,901  | ) |      |   | (2,285  | )
|Income taxes payable                                                              |  |      | (24,852 | ) |      |   | 23,884  |  
|                                                                                  |  |      |         |   |      |   |         |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  | $    | 140,229 |   |      | $ | 135,935 |  
|                                                                                  |  |      |         |   |      |   |         |  



These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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##### Table of Contents

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
Company and Poe Candy Company. Operations in Chase Candy Company involve production and sale of a candy bar marketed under the trade name Cherry Mash. Operations in Poe Candy Company 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. Due to the
similarities in the products manufactured, 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.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO 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 including shipping and
handling charges to customers, less the estimated returns, customer allowances and customer discounts.



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, 2005 and 2004 was $150,803 and $117,318, 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.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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  |  | 5 -25 years



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 by 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.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



EARNINGS PER SHARE(CONTINUED)



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:



|                                                                             |  |         |  |        
|---------------------------------------------------------------------------- |  | ------- |  | -------
|                                                                             |  | 2005    |  | 2004   
|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 



ADVERTISING EXPENSE



Advertising is expensed when incurred. Advertising expense was $810 and $1,422 for the
years ended June 30, 2005 and 2004, respectively.



RECENT ACCOUNTING
PRONOUNCEMENTS



In December 2003, the Financial Accounting Standards Board
(FASB) revised Interpretation 46 Consolidation of Variable Interest Entities[FIN 46(R)], which was effective for the Company beginning January 31, 2003. FIN 46 addresses the consolidation by business enterprises of variable interest
entities that have certain characteristics of control ordinarily held by owners.



Application of FIN 46 had no effect on the Companys financial condition, results of operations or liquidity.



NOTE 2 - FORGIVABLE LOAN



The Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Company has met
the criteria of occupying a 20,000 square foot building. In addition, the Company must meet the criteria to create a minimum of two new full-time equivalent jobs during the first year of operation in the new facility, and maintain 19 existing jobs
each year thereafter until the five year term has expired. Once the Company is no longer legally entitled to return the monies, the liability will be reclassified as deferred revenue and amortized into income over the life of new asset (leasehold
improvements) the forgivable loan related to.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - CAPITAL STOCK



Capital stock authorized, issued and outstanding as of June 30, 2005 is as follows:



|                                                              |  |            |  |                      
|------------------------------------------------------------- |  | ---------- |  | ---------------------
|                                                              |  | Shares    
|                                                              |  | Authorized |  | Issued andOutstanding
|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                
|                                                              |  |           
|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, 2005 totaled $6,540,014. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2005:



|               |  |   |      
|-------------- |  | - | -----
|6% Convertible |  |   |      
|Series A       |  | $ | 13.95
|Series B       |  |   | 13.50
|               | 
|5% Convertible |  |   |      
|Series A       |  |   | 55.75
|Series B       |  |   | 55.75



Convertible six percent 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 four common shares for one share of Series A and 3.75 common shares for one share of Series B.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - 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 4 - PROVISION FOR INCOME TAXES



The sources of deferred tax assets and liability and the tax effect of
each are as follows:



|                           |  |      |        |   |      |   |  
|-------------------------- |  | ---- | ------ | - | ---- | - | -
|                           |  | 2005 |        |   | 2004
|Deferred tax liability:    |  |      |        |   |      |   |  
|Property and equipment     |  | $    | 29,812 |   |      | $ | 
|                           |  |      |        |   |      |   |  
|Deferred tax assets:       |  |      |        |   |      |   |  
|Inventories                |  |      | (180   | ) |      |   | 
|Trade receivables          |  |      | (4,050 | ) |      |   | 
|                           |  |      |        |   |      |   |  
|Total deferred tax assets  |  |      | (4,230 | ) |      |   | 
|                           |  |      |        |   |      |   |  
|NET DEFERRED TAX LIABILITY |  | $    | 25,582 |   |      | $ | 
|                           |  |      |        |   |      |   |  



The net deferred tax liability is
presented in the accompanying balance sheet as follows:



|                                  |  |      |        |   |      |   |  
|--------------------------------- |  | ---- | ------ | - | ---- | - | -
|                                  |  | 2005 |        |   | 2004
|Current deferred tax asset        |  | $    | (4,230 | ) |      | $ | 
|Noncurrent deferred tax liability |  |      | 29,812 |   |      |   | 
|                                  |  |      |        |   |      |   |  
|NET DEFERRED TAX LIABILITY        |  | $    | 25,582 |   |      | $ | 
|                                  |  |      |        |   |      |   |  



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - PROVISION FOR INCOME TAXES(CONTINUED)



The provision for income taxes for the years ended June 30, 2005 and 2004 consists of
the following:



|                     |  |      |        |      |   |       
|-------------------- |  | ---- | ------ | ---- | - | ------
|                     |  | 2005 |        | 2004
|Current tax expense  |  | $    | 1,495  |      | $ | 26,532
|Deferred tax expense |  |      | 25,582 |      |   |      
|                     |  |      |        |      |   |       
|                     |  | $    | 27,077 |      | $ | 26,532
|                     |  |      |        |      |   |       



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, 2005 and 2004 due to the following:



|                                                               |  |      |         |   |      |   |         |  
|-------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                               |  | 2005 |         |   | 2004 |  
|Computed expected tax (benefit)                              |  | $    | 42,404  |   |      | $ | 36,289  |  
|Increase (decrease) in income taxes (benefits) resulting from: |  |      |         |   |      |   |         |  
|State income taxes, net of federal benefit                     |  |      | 6,247   |   |      |   | 5,672   |  
|Nondeductible (income) expenses                                |  |      | 157     |   |      |   | 678     |  
|Benefit of income taxed at lower rates                         |  |      | (11,904 | ) |      |   | (11,414 | )
|Other                                                          |  |      | (9,827  | ) |      |   | (4,693  | )
|                                                               |  |      |         |   |      |   |         |  
|                                                               |  |      | $27,077 |   |      | $ | 26,532  |  
|                                                               |  |      |         |   |      |   |         |  



NOTE 5 - LOSS PER SHARE



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



|                                                   |  |      |         |   |      |   |         |  
|-------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                   |  | 2005 |         |   | 2004 |  
|Net income                                         |  | $    | 94,078  |   |      | $ | 80,200  |  
|                                                   |  |      |         |   |      |   |         |  
|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                     |  | $    | (33,994 | ) |      | $ | (47,872 | )
|                                                   |  |      |         |   |      |   |         |  
|Weighted average of outstanding common shares      |  |      | 969,834 |   |      |   | 969,834 |  
|                                                   |  |      |         |   |      |   |         |  
|Loss per share                                     |  | $    | (.04    | ) |      | $ | (.05    | )
|                                                   |  |      |         |   |      |   |         |  



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - LOSS PER SHARE (CONTINUED)



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



NOTE 6 - 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 59th, 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 requires payments of $6,500 per month. Rental expense was $50,797 and $35,460 for the years ended June 30, 2005 and 2004, respectively. The amounts are included in cost of
sales.



Future minimum lease payments under this lease are as follows:



Year ending June 30:



|           |  |   |          
|---------- |  | - | ---------
|2006       |  | $ | 78,000   
|2007       |  |   | 78,000   
|2008       |  |   | 78,000   
|2009       |  |   | 78,000   
|2010       |  |   | 78,000   
|Thereafter |  |   | 1,150,500
|           |  |   |          
|           |  | $ | 1,540,500
|           |  |   |          



As of
June 30, 2005, the Company had raw materials purchase commitments with two vendors totaling $51,114.



NOTE 7 - 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 8 -
CONCENTRATION OF CREDIT RISK



For the years ending June 30, 2005 and
2004, two customers accounted for 48% and 49%, respectively, of the gross sales. For the year ending June 30, 2005, three customers accounted for 58.91% of accounts receivable.



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##### Table of Contents

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



Not applicable



Item 8A CONTROLS AND PROCEDURES



The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the
Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Companys principal executive officer who is also the chief financial and accounting officer has reviewed and evaluated the Companys
disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this report (the Evaluation Date).
Based on such evaluation, such officer has concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company
required to be included in the Companys periodic filings under the Exchange Act.



There have not been any changes in the Companys internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Companys most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



Item 8B OTHER INFORMATION



Not applicable



PART III



Item 9 DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS



| | (a) | Directors
| | --- | ---------



|                |  |     |  |                                |  |         
|--------------- |  | --- |  | ------------------------------ |  | --------
|Name            |  | Age |  | Periods of Service as Director |  | Terms   
|Barry M. Yantis |  | 60  |  | 1980 to present                |  | One year
|Brett A. Yantis |  | 37  |  | January 21, 1999 to present    |  | One year
|Brian A. Yantis |  | 57  |  | July 16, 1986 to present       |  | One year



Executive
Officers



|                |  |     |  |                             |  |                              |  |                        
|--------------- |  | --- |  | --------------------------- |  | ---------------------------- |  | -----------------------
|Name            |  | Age |  | Position                    |  | Years ofService asan Officer |  | Term                   
|Barry M. Yantis |  | 60  |  | President, CEOand Treasurer |  | 26                           |  | Until successor elected
|Brett A. Yantis |  | 37  |  | Vice President              |  | 3                            |  | Until successor elected
|Brian A. Yantis |  | 57  |  | Secretary                   |  | 13                           |  | Until successor elected



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##### Table of Contents

Item 9 DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS(CONTINUED)



| | (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-six years, twelve years as vice-president and fourteen years as president. He has been on the
board of directors for twenty-six years and has been associated with the candy business for thirty-one 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 twelve 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 years and has been a vice-president of Aon Risk Services in Chicago, Illinois during the past
sixteen years.



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



| | (d) | Involvement in Certain Legal Proceedings
| | --- | ----------------------------------------



The directors and executive officers have had no involvement with any legal proceedings within the past five years.



| | (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.



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##### Table of Contents

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 |  | FiscalYear End |  | Salary              |  | Bonus  |       | Other AnnualCompensation |   | RestrictedStockAward (s) |  | Option/SARs (#) |  | LTIPPayouts |  | All otherCompensation
|Barry M. Yantis             |  | 1) 06-30-05    |  | $121,900            |  | $      |      |                          | $ | 3,960                    |  |                |  |            |  |                      |  | 
|Barry M. Yantis             |  | 1) 06-30-04    |  | $112,625            |  | $      |      |                          | $ |                         |  |                |  |            |  |                      |  | 
|Barry M. Yantis             |  | 1) 06-30-03    |  | $106,000            |  | $      | 6,667 |                          | $ |                         |  |                |  |            |  |                      |  | 



| | 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------



| | (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 2005, $183 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.



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##### Table of Contents

Item 10 EXECUTIVE COMPENSATION(CONTINUED)



| | (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.



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



|                                                       |  |                                  |  |                                         |  |           
|------------------------------------------------------ |  | -------------------------------- |  | --------------------------------------- |  | ----------
|Title of Class                                         |  | Name and Address                 |  | Amountsand Natureof BeneficialOwnership |  | % of Class
|(a)    Security ownership of certain beneficial owners |  |                                  |  |                                         |  |           
|                                                       |  |                                  | 
|Common; par value $1 per share                         |  | Barry Yantis, CEO & Director     |  | 194,385(1)                              |  | 16.9%(2)  
|                                                       |  | 5605 Osage Drive                 |  |                                         |  |           
|                                                       |  | St. Joseph, Mo.                  |  |                                         |  |           
|                                                       |  | 64503                            |  |                                         |  |           
|                                                       |  |                                  | 
|                                                       |  | Brian Yantis, Officer & Director |  | 97,192(1)                               |  | 8.4%(2)   
|                                                       |  | 1210 E. Clarendon                |  |                                         |  |           
|                                                       |  | Arlington Heights, IL.           |  |                                         |  |           
|                                                       |  | 60004                            |  |                                         |  |           



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##### Table of Contents

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



|                                                                                                                                 |  |                                  |  |                                         |  |            |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- |  | --------------------------------------- |  | ---------- | -
|                                                                                                                                 |  |                                  | 
|Title of Class                                                                                                                   |  | Name and Address                 |  | Amountsand Natureof BeneficialOwnership |  | % of Class |  
|(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.                                                                                |  |                                  |  |                                         |  |            |  



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 current 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.



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##### Table of Contents

Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)



| | (b) | Certain business relationships
| | --- | ------------------------------



Not applicable



| | (c) | Indebtedness of management
| | --- | --------------------------



Not applicable



| | (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 3.



| | (11) | Computation of per share earnings - Refer to Note 5.
| | ---- | ----------------------------------------------------



| | (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
| | ---- | -------------------------------------



Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table shows the aggregate fees billed to the Company for professional services by McGladrey & Pullen, LLP for the years ended
June 30, 2005 and 2004.



|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|                   |  | 2005 |        | 2004
|Audit fees         |  | $    | 46,700 |      | $ | 40,200
|Audit related fees |  |      |       |      |   |      
|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 27, 2005 |  | 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 27,
2005                                                                                        
|Date                                                                                                      
|/s/    Brett Yantis                                                                                       
|Brett Yantis                                                                                              
|Vice-President and Director                                                                               
|September 27, 2005                                                                                        
|Date                                                                                                      
|/s/    Brian A. Yantis                                                                                    
|Brian A. Yantis                                                                                           
|Secretary and Director                                                                                    
|September 23, 2005                                                                                        
|Date                                                                                                      



36