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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



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



For the Fiscal Year Ended June 30, 2004



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



For transition period from
 to



Commission File Number 2-5916



CHASE GENERAL CORPORATION

(Name of
small issuer in its charter)



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



3600 Leonard Road,
St. Joseph, Missouri 64503

(Address of principal executive offices) (Zip Code)



(816) 279-1625

(Issuers telephone number, including area code)



Securities registered under Section 12(b) of the Act:

None



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

None



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 $2,105,384.



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, 2004 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 four case sizes:



(1) 60 count pack



(2) 12
boxes of 24 bars per box



(3) 200 count shipper box



(4) 96 count shipper box



In addition to the regular size bar, a mini-mash is distributed
in four case sizes:



(1) 24 - 12 oz. Bags



(2) 6 jars - 60 bars per jar



(3) 23 # wrapped bars



(4) 22 # unwrapped bars



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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



(2) Coconut Stacks



(3) Home Style Poe Fudge



(4) Peco Flake



(5) Peanut Squares



(6) Peanut Brittle



(7) Peanut Clusters



(8) Champion Crème Drops



(9) Jelly Candies



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, and vendors. Cherry
Mash bars are marketed in the Midwest region of the United States. For the years ended June 30, 2004 and 2003, this division accounted for 64% and 63%, 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, 2004 and 2003, the division accounted for 36% and 37%, 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 90% 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, 2004 the Company had 20 full time employees. There were 16 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, 2004 and 2003, Associated Wholesale Grocers accounted for 25.70% and 22.28% of gross sales,
respectively. For the years ending June 30, 2004 and 2003, Wal-Mart and its affiliates accounted for 22.87% and 22.79% of gross sales, respectively. No other customer accounted for more than 10% of the Companys revenues in fiscal years 2004
and 2003.



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 - The building housing the office and plant is located in St. Joseph, Missouri. The building contains the general offices of Chase General Corporation, Dye Candy Company, and
its divisions. The production plant of Dye Candy Company occupies the remainder of the building. The building was specifically designed for the type of operations conducted by the registrant and is adequate to meet present requirements. The
production plant is approximately 20,000 square feet and the office is approximately 2,000 square feet. The Companys lease on this building expires March 31, 2005. The Company has elected not to renew this lease, but is pursuing options to
relocate the office and operating plant to a new facility.



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, 2004.



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, 2004, 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. Refer to Note 1, Notes to Financial Statements for 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 OPERATIONS
|------ | ----------------------------------------------------------



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.



|                                             |  |        |    |  |        |   
|-------------------------------------------- |  | ------ | -- |  | ------ | --
|                                             |  | 2004   |    |  | 2003   |   
|Net sales                                    |  | 100.00 | %  |  | 100.00 | % 
|Cost of sales                                |  | 73.44  |    |  | 78.29  |   
|                                             |  |        |    |  |        |   
|Gross profit                                 |  | 26.56  |    |  | 21.71  |   
|Selling expense                              |  | 11.64  |    |  | 11.15  |   
|General and administrative expense           |  | 10.38  |    |  | 11.55  |   
|                                             |  |        |    |  |        |   
|Income (loss) from operations                |  | 4.54   |    |  | (0.99  | ) 
|Other income, net                            |  | .26    |    |  | .35    |   
|                                             |  |        |    |  |        |   
|Income (loss) before income taxes            |  | 4.80   |    |  | (0.64  | ) 
|Provision for income taxes                   |  | 1.19   |    |  | .04    |   
|                                             |  |        |    |  |        |   
|Net income (loss)                            |  | 3.61   |    |  | (0.68  | ) 
|Preferred dividends                          |  | (5.76  | )  |  | (6.41  | ) 
|                                             |  |        |    |  |        |   
|Net (loss) applicable to common stockholders |  | (2.15  | )% |  | (7.09  | )%
|                                             |  |        |    |  |        |   



NET SALES



During the year ended June 30, 2004, net sales increased
11.3% from June 30, 2003 though June 30, 2004. 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, 2004 as compared to the year ended
June 30, 2003 increased by 4.4%. This was due to the additional sales that required more materials, as well as labor, along with labor rate increases.



GROSS PROFIT



Gross profit for the year ended June 30, 2004 increased 36.2% as compared to the year ended June 30, 2003. This was due to the greater volume in sales for
the year that did not require additional material and labor costs in the same proportion for those sales and spreading the fixed portion of manufacturing overhead costs over a larger sales amount.



SELLING EXPENSES



Selling expenses for the year ended June 30, 2004 increased 16.2% as
compared to the year ended June 30, 2003. The majority of this increase is due to an increase in sales salaries for meeting various incentive goals and having 2 fulltime sales personnel for the entire year. Commissions also increased due to the
sales increase. Advertising and promotional costs also increased, which resulted in the significant sales increase.



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GENERAL AND ADMINISTRATIVE EXPENSES



General and administrative expenses, for the year ended June 30, 2004, were consistent to the year ended June 30, 2003.
Professional fees for the year ended June 30, 2004 increased $22,804. There were no losses from sales of equipment for the current year as compared to the $24,994 loss incurred for year ended June 30, 2003.



INCOME (LOSS) FROM OPERATIONS



Income from operations for the year ended June 30, 2004 was 4.79% of net
sales as compared to (1.05)% of net sales for the year ended June 30, 2003 for the reasons described above.



OTHER INCOME (EXPENSE), NET



Other income and expense decreased by $1,245 for the year ended June 30, 2004 as compared to the year ended June 30, 2003. This was due to a decrease in
miscellaneous income of $1,974 and a decrease in interest expense of $900 due to a portion of Notes Payable, Series B being paid off in the current year.



INCOME (LOSS) BEFORE INCOME TAXES



Income (loss) before income taxes was $106,732 for the year ended June 30, 2004. This increased by $119,579 as compared to the year ended June 30, 2003.



The reasons for the increase are discussed above.



PROVISION FOR INCOME TAXES



Provisions for income taxes was $26,532 for the year ended June 30, 2004.
This was an increase of $25,714 as compared to the year ended June 30, 2003. The increase was due to higher pre-tax income.



NET INCOME (LOSS)



Net income for the year ended June 30, 2004 was $80,200 which is an increase of $93,865 as compared to the year ended June 30, 2003. The reasons for the
increase are discussed above.



PREFERRED DIVIDENDS



Preferred dividends were $128,072 for the years ended
June 30, 2004 and 2003.



NET (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS



Net (loss) applicable to common stockholders
was $(47,872) for the year ended June 30, 2004 compared to $(141,737) for the year ended June 30, 2003 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 2004 in the amount of $135,935,
while negative cash flows from operating activities were generated for fiscal year ended June 30, 2003 in the amount of $10,990.



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, 2004, the Company had $100,667 invested in short term certificates of deposit to meet the
2005 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 decreased approximately $10,348 from June
30, 2003 to June 30, 2004. The current year slight decrease can be attributed to the fact that purchase commitments at June 30, 2004 were approximately $4,000 lower than at June 30, 2003. Therefore, there was approximately the same amount of goods
received in the prior year as compared to the current year. The Company watches markets for these commodities, and purchases are 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 increased
$24,126 at June 30, 2004 from June 30, 2003. The increase is attributed to increased petroleum prices, which impacts the Companys plastic packaging. New packaging of a clam shell was introduced during the 2003 year. These items were purchased
during 2003 in quantities large enough to fulfill the Companys packaging needs for one season, which accounts for the relative small increase at June 30, 2004.



Finished goods inventory increased $60,417 from June 30, 2003 to June 30, 2004. This increase was due to timing of customer
purchases of the Cherry Mash products. 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 past three years. The Company also continues to replace old
equipment on a yearly basis in order to streamline operations. However, due to cash flow needs in other areas, the Company has not been able to update the equipment at any significant level. Purchases of $81,822 and $15,254 were made during the
years ended June 30, 2004 and 2003, respectively, to upgrade and update existing production, transportation, and office equipment. The Company has paid a down payment of $45,820 as of June 30, 2004 towards purchase of a bagger machine to be
delivered in September 2004. Total price of the bagging machine is $114,550. 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 $(81,822) and $(9,754) for the years ended June 30, 2004 and 2003, 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. The entire
amount at June 30, 2004 of $7,032 is classified as current. On December 20, 2002, the Company received approval to extend the notes to December 20, 2004 at the current 6% rate of interest, with the agreement that this would be the final note
extension. The remaining balance is related party notes payable. The note is expected to be paid in full by December 20, 2004. Net cash used in financing activities was $(15,000) and $(28,978) for the years ended June 30, 2004 and 2003,
respectively.



The Companys lease on its office and
plant facility is effective through March 31, 2005 at $2,955 per month. The Company has decided not to renew this lease. The Company will lease a new office/warehouse facility from a Company, owned by one of the Companys directors. The
facility is currently being built with intended occupancy March 1, 2005.



In order to maintain funds to finance operations and meet debt obligations, it is the intention of management to continue its efforts to expand the present market area and increase sales to its 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 August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143 (SFAS 143), Accounting
for AssetRetirement Obligations, which was effective for us beginning July 1, 2003. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated
asset retirement costs.



In May 2003, the FASB issued SFAS No.
150 (SFAS 150) Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. Many of those instruments were previously classified as equity. This was effective for us beginning
July 1, 2003.



The adoption of SFAS No. 143 and SFAS No. 150,
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 28 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, 2004, and the related consolidated statements of operations, stockholders equity, and cash flows for the years ended June 30, 2004 and 2003.
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 audit.



We conducted our audits in accordance with 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, 2004, and the results of their operations and their cash flows for
the years ended June 30, 2004 and 2003, in conformity with U. S. generally accepted accounting principles.



LOGO



Kansas City, Missouri

August 27, 2004



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

an affiliation of separate and independent legal
entities.



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2004



ASSETS



|                                                                |  |   |          
|--------------------------------------------------------------- |  | - | ---------
|CURRENT ASSETS                                                  |  |   |          
|Cash and cash equivalents                                       |  | $ | 177,919  
|Receivables:                                                    |  |   |          
|Trade, less allowance for doubtful accounts of $11,231 (Note 8) |  |   | 141,297  
|Inventories:                                                    |  |   |          
|Finished goods                                                  |  |   | 111,351  
|Goods in process                                                |  |   | 3,609    
|Raw materials                                                   |  |   | 36,156   
|Packaging materials                                             |  |   | 124,846  
|Prepaid expenses                                                |  |   | 2,940    
|                                                                |  |   |          
|Total current assets                                            |  |   | 598,118  
|                                                                |  |   |          
|PROPERTY AND EQUIPMENT                                          |  |   |          
|Land                                                            |  |   | 35,000   
|Buildings                                                       |  |   | 85,738   
|Machinery and equipment                                         |  |   | 731,646  
|Trucks and autos                                                |  |   | 90,042   
|Office equipment                                                |  |   | 48,663   
|Leasehold improvements                                          |  |   | 121,356  
|                                                                |  |   |          
|Total, at cost                                                  |  |   | 1,112,445
|Less accumulated depreciation                                   |  |   | 932,247  
|                                                                |  |   |          
|Total property and equipment                                    |  |   | 180,198  
|                                                                |  |   |          
|TOTAL ASSETS                                                    |  | $ | 778,316  
|                                                                |  |   |          



These consolidated
financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



16



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2004



LIABILITIES AND STOCKHOLDERS EQUITY



|                                                       |  |   |            |  
|------------------------------------------------------ |  | - | ---------- | -
|CURRENT LIABILITIES                                    |  |   |            |  
|Accounts payable                                       |  | $ | 94,651     |  
|Current maturities of notes payable, Series B (Note 2) |  |   | 7,032      |  
|Accrued expense                                        |  |   | 27,930     |  
|Income taxes payable                                   |  |   | 24,852     |  
|                                                       |  |   |            |  
|Total current liabilities                              |  |   | 154,465    |  
|                                                       |  |   |            |  
|STOCKHOLDERS EQUITY                                   |  |   |            |  
|Capital stock issued and outstanding: (Note 3)         |  |   |            |  
|Prior cumulative preferred stock, $5 par value:        |  |   |            |  
|Series A (liquidation preference $1,890,000)           |  |   | 500,000    |  
|Series B (liquidation preference $1,845,000)           |  |   | 500,000    |  
|Cumulative preferred stock, $20 par value:             |  |   |            |  
|Series A (liquidation preference $4,375,341)           |  |   | 1,170,660  |  
|Series B (liquidation preference $713,041)             |  |   | 190,780    |  
|Common stock, $1 par value                             |  |   | 969,834    |  
|Paid-in capital in excess of par                       |  |   | 3,134,722  |  
|Accumulated deficit                                    |  |   | (5,842,145 | )
|                                                       |  |   |            |  
|Total stockholders equity                             |  |   | 623,851    |  
|                                                       |  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY             |  | $ | 778,316    |  
|                                                       |  |   |            |  



These consolidated
financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



17



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended June 30, 2004 and 2003



|                                                                |  |      |           |   |      |   |           |  
|--------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                |  | 2004 |           |   | 2003 |  
|NET SALES (NOTE 8)                                              |  | $    | 2,222,702 |   |      | $ | 1,997,813 |  
|COST OF SALES                                                   |  |      | 1,632,252 |   |      |   | 1,564,150 |  
|                                                                |  |      |           |   |      |   |           |  
|Gross Profit                                                    |  |      | 590,450   |   |      |   | 433,663   |  
|                                                                |  |      |           |   |      |   |           |  
|OPERATING EXPENSES                                              |  |      |           |   |      |   |           |  
|Selling expenses                                                |  |      | 258,839   |   |      |   | 222,710   |  
|General and administrative expenses                             |  |      | 230,689   |   |      |   | 230,855   |  
|                                                                |  |      |           |   |      |   |           |  
|Total operating expenses                                        |  |      | 489,528   |   |      |   | 453,565   |  
|                                                                |  |      |           |   |      |   |           |  
|Income (loss) from operations                                   |  |      | 100,922   |   |      |   | (19,902   | )
|                                                                |  |      |           |   |      |   |           |  
|OTHER INCOME (EXPENSE), NET                                     |  |      |           |   |      |   |           |  
|Interest income                                                 |  |      | 1,451     |   |      |   | 1,622     |  
|Miscellaneous income                                            |  |      | 4,781     |   |      |   | 6,755     |  
|Interest (expense) (Note 2)                                     |  |      | (422      | ) |      |   | (1,322    | )
|                                                                |  |      |           |   |      |   |           |  
|Total other income (expense), net                               |  |      | 5,810     |   |      |   | 7,055     |  
|                                                                |  |      |           |   |      |   |           |  
|Income (loss) before income taxes                               |  |      | 106,732   |   |      |   | (12,847   | )
|PROVISION FOR INCOME TAXES (NOTE 4)                             |  |      | 26,532    |   |      |   | 818       |  
|                                                                |  |      |           |   |      |   |           |  
|NET INCOME (LOSS)                                               |  |      | 80,200    |   |      |   | (13,665   | )
|Preferred dividends                                             |  |      | (128,072  | ) |      |   | (128,072  | )
|                                                                |  |      |           |   |      |   |           |  
|Net loss applicable to common stockholders                      |  | $    | (47,872   | ) |      | $ | (141,737  | )
|                                                                |  |      |           |   |      |   |           |  
|NET LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED (NOTE 5) |  | $    | (.05      | ) |      | $ | (.15      | )
|                                                                |  |      |           |   |      |   |           |  
|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.



18



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended June 30, 2004 and 2003



|                                 |  |                                 |         |                            |   |             |  |                |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  
|-------------------------------- |  | ------------------------------- | ------- | -------------------------- | - | ----------- |  | -------------- | --------- | ------------------- | - | ------- | ----- | - | ------- |  | - | --------- |  | - | ---------- | - |  | - | ------- | -
|                                 |  | Prior CumulativePreferred Stock |         | Cumulative Preferred Stock |   | CommonStock |  | Paid-inCapital |           | Accumulated Deficit |   |         | Total |  
|                                 |  | Series A                        |         | Series B                   |   | Series A    |  | Series B       |           |                     |   |        
|BALANCE (DEFICIT), JUNE 30, 2002 |  |                                 | 500,000 |                            |   | 500,000     |  |                | 1,170,660 |                     |   | 190,780 |       |   | 969,834 |  |   | 3,134,722 |  |   | (5,908,680 | ) |  |   | 557,316 |  
|Net loss                         |  |                                 |        |                            |   |            |  |                |          |                     |   |        |       |   |        |  |   |          |  |   | (13,665    | ) |  |   | (13,665 | )
|                                 |  |                                 |         |                            |   |             |  |                |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  
|BALANCE (DEFICIT), 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 (DEFICIT), JUNE 30, 2004 |  | $                               | 500,000 |                            | $ | 500,000     |  | $              | 1,170,660 |                     | $ | 190,780 |       | $ | 969,834 |  | $ | 3,134,722 |  | $ | (5,842,145 | ) |  | $ | 623,851 |  
|                                 |  |                                 |         |                            |   |             |  |                |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  



These consolidated
financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



19



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2004 and 2003



|                                                                 |  |      |            |   |      |   |            |  
|---------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                 |  | 2004 |            |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Collections from customers                                       |  | $    | 2,106,544  |   |      | $ | 1,869,492  |  
|Interest received                                                |  |      | 1,451      |   |      |   | 1,622      |  
|Other income                                                     |  |      | 4,781      |   |      |   | 6,755      |  
|Cost of sales, selling, general and administrative expenses paid |  |      | (1,972,871 | ) |      |   | (1,876,478 | )
|Interest paid                                                    |  |      | (1,322     | ) |      |   | (3,862     | )
|Income tax refund received                                       |  |      | (2,648     | ) |      |   | (8,519     | )
|                                                                 |  |      |            |   |      |   |            |  
|Net cash provided by (used in) operating activities              |  |      | 135,935    |   |      |   | (10,990    | )
|                                                                 |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Purchases of property and equipment                              |  |      | (81,822    | ) |      |   | (15,254    | )
|Proceeds from sale of property and equipment                     |  |      |           |   |      |   | 5,500      |  
|                                                                 |  |      |            |   |      |   |            |  
|Net cash (used in) investing activities                          |  |      | (81,822    | ) |      |   | (9,754     | )
|                                                                 |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Principal payments on notes payable, Series B                    |  |      | (15,000    | ) |      |   | (28,978    | )
|                                                                 |  |      |            |   |      |   |            |  
|Net cash (used in) financing activities                          |  |      | (15,000    | ) |      |   | (28,978    | )
|                                                                 |  |      |            |   |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             |  |      | 39,113     |   |      |   | (49,722    | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                     |  |      | 138,806    |   |      |   | 188,528    |  
|                                                                 |  |      |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                           |  | $    | 177,919    |   |      | $ | 138,806    |  
|                                                                 |  |      |            |   |      |   |            |  



These consolidated
financial statements should be read

only in connection with the accompanying

notes to consolidated financial statements.



20



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 2004 and 2003



|                                                                                                   |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                   |  | 2004 |         |   | 2003 |  
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                |  |      |         |   |      |   |         |  
|Net income (loss)                                                                                  |  | $    | 80,200  |   |      | $ | (13,665 | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |      |         |   |      |   |         |  
|Depreciation                                                                                       |  |      | 41,414  |   |      |   | 49,510  |  
|Loss on sale of equipment                                                                          |  |      |        |   |      |   | 24,994  |  
|Provision for doubtful accounts                                                                    |  |      | 1,181   |   |      |   | 216     |  
|Effects of changes in operating assets and liabilities:                                            |  |      |         |   |      |   |         |  
|Trade receivable                                                                                   |  |      | 4,213   |   |      |   | (24,989 | )
|Income tax refund claims receivable                                                                |  |      |        |   |      |   | 8,369   |  
|Inventories                                                                                        |  |      | (73,467 | ) |      |   | (36,544 | )
|Prepaid expense                                                                                    |  |      | 14,861  |   |      |   | 4,309   |  
|Income taxes payable                                                                               |  |      | 23,884  |   |      |   | 968     |  
|Accounts payable                                                                                   |  |      | 45,934  |   |      |   | (17,883 | )
|Accrued expenses                                                                                   |  |      | (2,285  | ) |      |   | (6,275  | )
|                                                                                                   |  |      |         |   |      |   |         |  
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                |  | $    | 135,935 |   |      | $ | (10,990 | )
|                                                                                                   |  |      |         |   |      |   |         |  



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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##### Table of Contents

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, 2004 and 2003 was $117,318 and $103,764, respectively.



RECEIVABLES



Accounts receivable are uncollateralized customer obligation 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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##### Table of Contents

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               |  | 25 years     
|Machinery and equipment |  | 3 -10 years  
|Trucks and autos        |  | 3 - 5 years  
|Office Equipment        |  | 5 -10 years  
|Leasehold improvements  |  | 8 -31.5 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



The Company has no significant timing differences that would give rise to deferred tax items.



EARNINGS PER SHARE



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



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



|                                                                             |  |         |  |        
|---------------------------------------------------------------------------- |  | ------- |  | -------
|                                                                             |  | 2004    |  | 2003   
|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 



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



RECENT ACCOUNTING PRONOUNCEMENTS



In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143 (SFAS 143),
Accounting for Asset Retirement Obligations, which was effective for us beginning July 1, 2003. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs.



In May 2003, the FASB issued SFAS No. 150
(SFAS 150) Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.This statement establishes standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. Many of those instruments were previously classified as equity. This was effective for us beginning
July 1, 2003.



The adoption of SFAS No. 143 and SFAS No. 150, had no effect on
the Companys financial condition, results of operations or liquidity.



NOTE 2 - NOTES PAYABLE, SERIES B



As of June 30, 2004, the
outstanding Series B notes total $7,032, which are owed to officers and directors of the Company. The notes were extended to December 20, 2004 at 6% interest rate, with the agreement that this will be the final note extension.



Related party interest expense was $422 and $1,322 for the years ended June 30, 2004 and
2003, respectively.



The Company has agreed to secure the payment of principal
and interest on the notes by the pledge of the capital stock of Dye Candy Company under an indenture dated December 1, 1967, and supplemental indenture dated June 30, 1970.



The indenture provides for a sinking fund deposit to be made by the Company each year of not less than one-fourth of the Companys
fiscal year surplus net earnings, which exceeds the amount of interest required to be paid on the outstanding notes. If at any time the sinking fund deposits aggregate $10,000 or more, the same will be applied to prepayment of the notes
outstanding. At June 30, 2004, there was no sinking fund requirements.



Dividends, other than stock dividends, may not be paid on capital stock at any time interest on the notes is not current.



25



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - CAPITAL STOCK



Capital stock authorized, issued and outstanding as of June 30, 2004 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, 2004 totaled $6,411,942. Total dividends in arrears, on a per share basis, consist of the following at June 30, 2004:



|               |  |   |      
|-------------- |  | - | -----
|6% Convertible |  |   |      
|Series A       |  | $ | 13.65
|Series B       |  |   | 13.20
|5% Convertible |  |   |      
|Series A       |  |   | 54.75
|Series B       |  |   | 54.75



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



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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 income tax provision differs from the amount of income tax determined
by applying the statutory federal income tax rate to pretax income (loss) for the years ended June 30, 2004 and 2003 due to the following:



|                                                               |  |      |         |   |      |   |        |  
|-------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                                                               |  | 2004 |         |   | 2003 |  
|Computed expected tax (benefit)                              |  | $    | 36,289  |   |      | $ | (4,646 | )
|Increase (decrease) in income taxes (benefits) resulting from: |  |      |         |   |      |   |        |  
|State income taxes, net of federal benefit                     |  |      | 5,672   |   |      |   | (770   | )
|Nondeductible expenses                                         |  |      | 678     |   |      |   | 206    |  
|Benefit of income taxed at lower rates                         |  |      | (11,414 | ) |      |   | 2,719  |  
|Other                                                          |  |      | (4,693  | ) |      |   | 3,309  |  
|                                                               |  |      |         |   |      |   |        |  
|                                                               |  | $    | 26,532  |   |      | $ | 818    |  
|                                                               |  |      |         |   |      |   |        |  



NOTE 5 - LOSS PER SHARE



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



|                                                   |  |      |         |   |      |   |          |  
|-------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|                                                   |  | 2004 |         |   | 2003 |  
|Net income (loss)                                  |  | $    | 80,200  |   |      | $ | (13,665  | )
|                                                   |  |      |         |   |      |   |          |  
|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                   |  | $    | (47,872 | ) |      | $ | (141,737 | )
|                                                   |  |      |         |   |      |   |          |  
|Weighted average of outstanding common shares      |  |      | 969,834 |   |      |   | 969,834  |  
|                                                   |  |      |         |   |      |   |          |  
|Loss per share                                     |  | $    | (.05    | ) |      | $ | (.15     | )
|                                                   |  |      |         |   |      |   |          |  



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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 manufacturing facility located at 3600 Leonard Road, St. Joseph, Missouri. The period of the lease is from
April 1, 1995 through March 31, 2005, and requires payments of $2,955 per month. Rental expense was $35,460 for the years ended June 30, 2004 and 2003. The amounts are included in cost of sales.



Future minimum lease payments under this lease are as follows:



|                          |  |   |       
|------------------------- |  | - | ------
|Year ending June 30, 2005 |  | $ | 26,595
|                          |  |   |       



As of June 30, 2004, the Company had
raw materials purchase commitments with two vendors totaling $30,103. In addition, the Company has paid a deposit of $45,820 towards purchase of a $114,000 Hayssen bagger to be delivered in September 2004.



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 financial instruments.



NOTE 8 - CONCENTRATION OF CREDIT RISK



For the years ending June 30, 2004 and 2003, two customers accounted for 48.57% and 45.07%, respectively, of the gross sales. As of June 30, 2004, one customer accounted
for 39.25% of net accounts receivable.



NOTE 9 - RECLASSIFICATIONS OF
CERTAIN EXPENSES



Certain expenses on the statement of operations for the
year ended June 30, 2003 have been reclassified, with no effect on net income or earnings per common share, to be consistent with classifications adopted for the year ended June 30, 2004.



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##### Table of Contents

|Item 8 | CHANGE IN AND DISAGREEMENTS WITH ACCCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------ | ------------------------------------------------------------------------------------



On June 30, 2003, we engaged McGladrey & Pullen, LLP as our independent auditors for the year ended June 30, 2003 and
dismissed our former independent auditors, Clifton Gunderson LLP as of June 20, 2003 which received Board approval. None of the reports of our former auditors in respect of our financial statements for Fiscal 2002 contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to uncertainty, audit scope, or accounting principles.



During our prior recent fiscal year and to the date of their dismissal, there have been no disagreements between us and our former auditors on any matter
of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which if not resolved to the satisfaction of the former auditors, would have caused it to make reference to the subject matter of the disagreement
in connection with its report.



|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.



PART III



|Item 9 | DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
|------ | -------------------------------------------------



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



|                |  |     |  |                                |  |         
|--------------- |  | --- |  | ------------------------------ |  | --------
|Name            |  | Age |  | Periods of Service as Director |  | Terms   
|Barry M. Yantis |  | 59  |  | 1980 to present                |  | One year
|Brett A. Yantis |  | 36  |  | January 21, 1999 to present    |  | One year
|Brian A. Yantis |  | 56  |  | July 16, 1986 to present       |  | One year



29



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##### Table of Contents

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



See Item 9(b) for offices held by Barry M. Yantis, Brett A. Yantis, and Brian A. Yantis.



| | (b) | Executive Officers
| | --- | ------------------



|                |  |     |  |                              |  |                                |  |                        
|--------------- |  | --- |  | ---------------------------- |  | ------------------------------ |  | -----------------------
|Name            |  | Age |  | Position                     |  | Years of Service as an Officer |  | Term                   
|Barry M. Yantis |  | 59  |  | President, CEO and Treasurer |  | 25                             |  | Until successor elected
|Brett A. Yantis |  | 36  |  | Vice President               |  | 2                              |  | Until successor elected
|Brian A. Yantis |  | 56  |  | Secretary                    |  | 12                             |  | Until successor elected



| | (c) | Certain Significant Employees
| | --- | -----------------------------



There are no significant employees other than above.



| | (d) | Family Relationships
| | --- | --------------------



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



| | (e) | Business Experience
| | --- | -------------------



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



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



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



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



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##### Table of Contents

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



| | (g) | Promoters and Control Persons
| | --- | -----------------------------



Not applicable



| | (h) | 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.



|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) 06-30-04    |  | $                   | 112,625 |        | $ |                         |  | $                        |      |                 |  |             |  |                       |  |  | 
|Barry M. Yantis             |  | 1) 06-30-03    |  | $                   | 106,000 |        | $ | 6,667                    |  | $                        |      |                 |  |             |  |                       |  |  | 
|Barry M. Yantis             |  | 1) 06-30-02    |  | $                   | 106,000 |        | $ |                         |  | $                        | 5,000 |                 |  |             |  |                       |  |  | 



|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 awards table
| | --- | --------------------------------



Not applicable



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##### Table of Contents

|Item 10 | EXECUTIVE COMPENSATION(CONTINUED)
|------- | ---------------------------------



| | (f) | Defined benefit or actuarial plan disclosure
| | --- | --------------------------------------------



Not applicable



| | (g) | 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 2004, $160 of travel expenses were reimbursed to board member Brian A. Yantis.



| | (h) | 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.



| | (i) | Report on repricing of option/SARs
| | --- | ----------------------------------



Not applicable



| | (j) | 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.



| | (k) | Board compensation committee report on executive compensation
| | --- | -------------------------------------------------------------



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



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##### Table of Contents

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



|                                                                                                                                |  |                                                                                 |  |                                        |     |  |            |     
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -------------------------------------- | --- |  | ---------- | ----
|Title of Class                                                                                                                  |  | Name and Address                                                                |  | AmountsandNature ofBeneficialOwnership |     |  | % of Class |     
|(a)    Security ownership of certain beneficial owners                                                                          |  |                                                                                 |  |                                        |     |  |            |     
|                                                                                                                                |  |                                                                                 | 
|Common; par value $1 per share                                                                                                  |  | Barry Yantis, CEO & Director 5605 Osage Drive St. Joseph, Mo. 64503             |  | 194,385                                | (1) |  | 16.9       | %(2)
|                                                                                                                                |  |                                                                                 | 
|                                                                                                                                |  | Brian Yantis, Officer & Director 1210 E. Clarendon Arlington Heights, IL. 60004 |  | 97,192                                 | (1) |  | 8.4        | %(2)
|                                                                                                                                |  |                                                                                 | 
|(b)    Security ownership of management                                                                                         |  |                                                                                 |  |                                        |     |  |            |     
|                                                                                                                                |  |                                                                                 | 
|Common; par value $1 per share                                                                                                  |  | Two directors and CEO as a group                                                |  | 110,856                                |     |  | 11.4       | %   
|                                                                                                                                |  |                                                                                 | 
|Prior Cumulative Preferred, $5 par value: Series A, 6% convertible                                                              |  | Two directors and CEO as a group                                                |  | 21,533                                 |     |  | 21.5       | %   
|                                                                                                                                |  |                                                                                 | 
|Prior Cumulative Preferred $5 par value: Series B, 6% convertible                                                               |  | Two directors and CEO as a group                                                |  | 21,533                                 |     |  | 21.5       | %   
|                                                                                                                                |  |                                                                                 | 
|Cumulative Preferred, $20 par value: Series A, $5 convertible                                                                   |  | Two directors and CEO as a group                                                |  | 3,017                                  |     |  | 5.2        | %   
|                                                                                                                                |  |                                                                                 | 
|Cumulative Preferred, $20 par value: Series B, $5 convertible                                                                   |  | Two directors and CEO as a group                                                |  | 630                                    |     |  | 6.6        | %   
|                                                                                                                               
|(1)Includes 120,477 and 60,244 shares, respectively, which could be received within 30 days upon conversion of preferred stock. | 
|                                                                                                                               
|(2)Reflects the percentage assuming the preferred shares above were converted into common stock.                                | 
|                                                                                                                               
|(b)    No known change of control is anticipated.                                                                               | 



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##### Table of Contents

|Item 12 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|------- | ----------------------------------------------



| | (a) | Transactions with management and others
| | --- | ---------------------------------------



The registrants subsidiary, Dye Candy Company will be entering into an operating lease agreement during the next 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 has not been determined at this time.



| | (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) | Rights of security holders including indentures - Refer to Notes 2 and 3.
| | --- | -------------------------------------------------------------------------

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

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

| | (31) | Certifications - 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, 2004 and 2003.



|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|                   |  | 2004 |        | 2003
|Audit fees         |  | $    | 40,200 |      | $ | 28,000
|Audit related fees |  |      |       |      |   |      
|Tax fees           |  |      |       |      |   |      
|All other fees     |  |      |       |      |   |      



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##### Table of Contents

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: |  | 9-27-04 |  |                           |  | 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
|                                                                                                          
|9-27-04                                                                                                   
|Date                                                                                                      
|                                                                                                          
|/S/    BARRY M.
YANTIS                                                                                    
|Brett Yantis                                                                                              
|Vice-President and Director                                                                               
|                                                                                                          
|9-27-04                                                                                                   
|Date                                                                                                      
|                                                                                                          
|/S/    BARRY M.
YANTIS                                                                                    
|Brian A. Yantis                                                                                           
|Secretary and Director                                                                                    
|                                                                                                          
|9-27-04                                                                                                   
|Date                                                                                                      



35