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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, 2006



| ̈ | 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.)

1307 South 59th, St. Joseph, Missouri 64507

(Address of principal executive offices) (Zip Code)

(816) 279-1625

(Issuers telephone number)

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

None

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

None

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

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

Check if 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

Issuers revenues for its most recent fiscal year: $2,326,403

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b of the Exchange Act).

Yes ̈No  x

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

The number of shares of outstanding common stock of the
issuer as of August 31, 2006 was 969,834.



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PART I



|Item 1 | DESCRIPTION OF BUSINESS
|------ | -----------------------

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

PRINCIPAL PRODUCTS AND SERVICES AND METHODS OF DISTRIBUTION

The subsidiary, Dye Candy Company, operates two divisions,
Chase Candy Company and Poe Candy Company. Operations in Chase Candy Company involve production and sale of a candy bar marketed under the trade name Cherry Mash. Operations in Poe Candy Company involve production and sale of coconut,
peanut, chocolate, and fudge confectioneries. Division products are sold to the same type of customers in the same geographical areas. In addition, both divisions share a common labor force and utilize the same basic equipment and raw materials. Due
to the similarities in the products manufactured, segment reporting for the two divisions is not maintained by Management and, accordingly, is not available for inclusion in this filing.

The principal products produced are as follows:

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

(1) 60 count pack

(2) 12 boxes of 24 bars per box

(3) 200 count shipper box

(4) 100 count
shipper box

(5) 100 # 2 box Counter Display

(6) 4 box - 36 count Counter Display

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

Six case sizes:

(1) 24 - 12 oz. Bags

(2) 6 jars - 60 bars per jar

(3) 23 # wrapped bars

(4) 22 # unwrapped bars

(5) 12 - 12 oz. bags

(6) 6 - 4 # jars



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DESCRIPTION OF BUSINESS(CONTINUED)

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

(1) Coconut Bon-Bons

(2) Coconut Stacks

(3) Home Style Poe Fudge

(4) Peco Flake

(5) Peanut Square

(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, vendors and repackers. Cherry Mash bars are marketed in the Midwest region of the United States. For the years ended June 30,
2006 and 2005, this division accounted for 62% and 67%, 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, 2006 and 2005, the division accounted for 38% and 33%, respectively, of the consolidated revenue of Dye
Candy Company.

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

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

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

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

(Continued)



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COMPETITION AND MARKETS(CONTINUED)

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

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

RESEARCH AND DEVELOPMENT

During the current fiscal year, the Company developed vanilla and chocolate mini mash products to be marketed during the busy season starting
September 1, 2006. 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, 2006, the Company had 22 full time employees. There were 18 in manufacturing, 2 in sales and marketing and 2 in finance and administration. This expands to approximately 35 full time personnel
during the two busy production seasons in spring and fall.



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CUSTOMERS

For the years ending June 30, 2006 and 2005, Associated Wholesale Grocers accounted for 25% and 21% of gross sales, respectively. For the years ending June 30, 2006 and 2005, Wal-Mart and its affiliates
accounted for 26% and 27% of gross sales, respectively. No other customer accounted for more than 10% of the Companys revenues in fiscal years 2006 and 2005.

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

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

NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

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

REPORTS TO SECURITY HOLDERS

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



|Item 2 | DESCRIPTION OF PROPERTY
|------ | -----------------------

The registrant operates
from two buildings as follows:

Chase 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 over seventy years old and is in fair condition and
adequate to meet present requirements. The warehouse has approximately 15,000 square feet and is not encumbered.

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

The Company believes both facilities are adequately covered by insurance.



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|Item 3 | LEGAL PROCEEDINGS
|------ | -----------------

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



|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, 2006.



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PART II



|Item 5 | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------ | --------------------------------------------------------

Market information

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

Security holders

As of September 15, 2006, the latest practicable date, the approximate number of record holders of common stock was 1,869, including individual participants in security listings.

Dividends



| | (1) | Dividend history and restrictions
| | --- | ---------------------------------

No dividends
have been paid during the past two fiscal years and there are no dividend restrictions.



| | (2) | Dividend policy
| | --- | ---------------

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

Securities authorized for issuance under equity compensation plans

The Company does not have any
equity compensation plans.



|Item 6 | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|------ | ---------------------------------------------------------

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

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



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RESULTS OF OPERATIONS

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



|                                             |  |        |    |  |        |   
|-------------------------------------------- |  | ------ | -- |  | ------ | --
|                                             |  | 2006   |    |  | 2005   |   
|Net sales                                    |  | 100.00 | %  |  | 100.00 | % 
|Cost of sales                                |  | 82.67  |    |  | 74.41  |   
|                                             |  |        |    |  |        |   
|Gross profit                                 |  | 17.33  |    |  | 25.59  |   
|                                             |  |        |    |  |        |   
|Selling expense                              |  | 11.68  |    |  | 10.70  |   
|General and administrative expense           |  | 11.70  |    |  | 10.28  |   
|                                             |  |        |    |  |        |   
|Income (loss) from operations                |  | (6.05  | )  |  | 4.61   |   
|Other income (expense), net                  |  | (.07   | )  |  | .06    |   
|                                             |  |        |    |  |        |   
|Income (loss) before income taxes            |  | (6.12  | )  |  | 4.67   |   
|Provision for income taxes (benefits)        |  | (2.17  | )  |  | 1.04   |   
|                                             |  |        |    |  |        |   
|Net income (loss)                            |  | (3.95  | )  |  | 3.63   |   
|Preferred dividends                          |  | (5.51  | )  |  | (4.94  | ) 
|                                             |  |        |    |  |        |   
|Net (loss) applicable to common stockholders |  | (9.46  | )% |  | (1.31  | )%
|                                             |  |        |    |  |        |   

NET SALES

During the year ended June 30, 2006, net sales decreased 10.2% from June 30, 2005 through June 30, 2006. The decrease was primarily due to Chase orders received in the current year from a customer
changing a standard order from a 24 count packaging bag to a 12 count packaging bag, which resulted in less volume. In addition, the Companys returns and allowances increased $12,043 or 23% for the year ended June 30, 2006, compared to
the year ended June 30, 2005. There was no loss of significant customers.

COST OF SALES

Cost of sales for the year ended June 30, 2006, as compared to the year ended June 30, 2005, decreased by 0.3%. The multiple increases in rates
for fuel and petroleum products have caused 4% increases for shipping and production supply costs while direct material costs decreased 8% from the year ended June 30, 2005, which allowed for an overall slight decrease in cost of sales.

GROSS PROFIT

Gross
profit for the year ended June 30, 2006 decreased 39.2% as compared to the year ended June 30, 2005. This was due to the 10% decrease in sales volume for the year along with increased prices for fuel and petroleum products, while the fixed
costs of manufacturing overhead costs remained constant despite the drop in sales.



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SELLING EXPENSES

Selling expenses for the year ended June 30, 2006 decreased 2% as compared to the year ended June 30, 2005. No significant change in selling expenses was expected due to the fact that there have been no
significant changes in the nature of operations and managements efforts to control these costs.

GENERAL AND ADMINISTRATIVE
EXPENSES

General and administrative expenses for the year ended June 30, 2006 increased 2.15% as compared to the year ended
June 30, 2005. Professional fees for the year ended June 30, 2006 increased $14,079.

INCOME (LOSS) FROM OPERATIONS

Income (loss) from operations for the year ended June 30, 2006 was (6.05)% of net sales as compared to 4.61% of net sales for the
year ended June 30, 2005 for the reasons described above.

OTHER INCOME (EXPENSE), NET

Other income and (expense) decreased by $3,440 for the year ended June 30, 2006 as compared to the year ended June 30, 2005. This was due to a
decrease in miscellaneous income of $2,086, an increase in interest income of $144, and an increase in interest expense of $1,498.

INCOME (LOSS) BEFORE INCOME TAXES

Income (loss) before income taxes was $(142,402) for the year ended June 30, 2006 as
compared to $121,155 for the year ended June 30, 2005.

The reasons for the decrease are discussed above.

PROVISION FOR INCOME TAXES (BENEFIT)

Benefit for income taxes was $(50,377) for the year ended June 30, 2006 as compared to the year ended June 30, 2005 provision for income taxes of $27,077.

NET LOSS

Net loss for the year ended
June 30, 2006 was $(92,025) which is a decrease of $186,103 as compared to the year ended June 30, 2005. The reasons for the decrease are discussed above.

PREFERRED DIVIDENDS

Preferred dividends were $128,072 for the years ended June 30, 2006 and
2005.

NET (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

Net (loss) applicable to common stockholders was $(220,097) for the year ended June 30, 2006 compared to $(33,994) for the year ended June 30, 2005 for the reasons discussed above.



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LIQUIDITY AND SOURCES OF CAPITAL

Positive cash flows from operating activities were generated for fiscal year ended 2006 in the amount of $1,606, compared to positive cash flows from
operating activities generated for fiscal year ended June 30, 2005 in the amount of $140,229.

The Company continually monitors raw
material pricing, and when a price increase/decrease is anticipated, adjustments to inventory levels are made accordingly. Raw materials had a slight decrease of $986 from June 30, 2005 to June 30, 2006. The current year decrease can be
attributed to the fact of the Company watching markets for these commodities, and purchases were made accordingly.

Packaging materials are
purchased in large volumes and carried for several years due to the high cost from suppliers to cut dies and print materials. Therefore, when supplier pricing remains consistent over the years and is not predicted to increase, the Company utilizes
its present inventory supply without making additional purchases necessary to lock in pricing.

Packaging materials decreased $10,170 at
June 30, 2006 from June 30, 2005. The decrease is attributed to the Company purchasing large quantities during the 2003 year of a clam shell packaging that has fulfilled the Companys packaging needs for several seasons.

Finished goods inventory decreased $38,772 from June 30, 2005 to June 30, 2006. This decrease was due to fewer customer orders at the end of
fiscal year June 30, 2006 than at end of fiscal year June 30, 2005. Goods in process remained comparable to prior years.

The
Company continues to write off equipment that is no longer useful to the operations of the Company. Purchases of $26,853 and $285,311 were made during the years ended June 30, 2006 and 2005, respectively. In the prior year, the Company acquired
a Hayssen bagmaker machine for $118,000 and, due to the relocating to a new manufacturing facility, had upgrade expenditures of $150,000. For the current year, acquisitions consisted of upgrading the corn syrup line. Depending on results of
operations and cash flows, the Company is hoping to replace their antiquated brittle cookers and a mini mash wrapper machine in the next several years with no set target date. The anticipated cost of the equipment is approximately $76,000. Net cash
used in investing activities was $(35,853) and $(275,311) for the years ended June 30, 2006 and 2005, respectively.

On
December 20, 2004, the remaining balance of $7,032 on Series B notes was paid in full to related parties. The Company did borrow $250,000 on a line-of-credit during the fall 2005 busy season and was paid in full November 2005. The Company
received an economic incentive of $25,000 in the 2005 fiscal year, which is a forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank has established an Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for
this loan. Net cash provided by (used in) financing activities was $-0- and $17,968 for the years ended June 30, 2006 and 2005, respectively.

The Companys lease on its office and plant facility is effective through March 31, 2025 at $6,500 per month. The facility is owned by a director and his spouse.

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



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LIQUIDITY AND SOURCES OF CAPITAL(CONTINUED)

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

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

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

REVENUE RECOGNITION

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

RECEIVABLES

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

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.



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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 November 2004, the Financial Accounting Standards board (FASB) issued
Statement of Financial Accounting Standards No. 151 Inventory Costs. FASB 151 amends ARB No. 43, Chapter 4, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The new standard is effective for inventory costs incurred during the fiscal years beginning after June 15, 2005. The Company
adopted this statement in its current fiscal year ending June 30, 2006 but adoption had no material effect on financial position or results of operations.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R
establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services or incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity
instruments or that may be settled by the issuance of those equity instruments. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of
the award and to recognize that cost over the period during which an employee is required to provide service in exchange for the award. Public entities filing as small business issuers will be required to apply SFAS 123R in the first annual
reporting period beginning after December 15, 2005. The Company will adopt this statement in its next fiscal year ending June 30, 2007. The adoption of SFAS 123R will likely not have an impact on our consolidated financial statements.



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RECENT ACCOUNTING PRONOUNCEMENTS(CONTINUED)

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS 154 requires retrospective application for reporting a change in accounting principle unless such
application is impracticable or unless transition requirements specific to a newly adopted accounting principle require otherwise. SFAS 154 also requires the reporting of a correction of an error by restating previously issued financial statements.
The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The Company does not believe the adoption of SFAS 154 will have a material effect on our financial position or
results of operations.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes.FIN 48
was issued to clarify the accounting for uncertainty regarding a position taken in an entitys tax return. This Statement requires a 2-step evaluation of tax positions. Step one is recognitionif it is not more likely than not
that a tax position would be sustained upon examination; the benefit of the tax position should not be recognized in the financial statements. Step two is measurementfor a tax position that meets the more likely than not criterion in Step 1
should be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The new interpretation is effective for fiscal years beginning after December 15, 2006. The Company will
adopt this interpretation in its fiscal year ending June 30, 2008. The Company does not believe the adoption of FIN 48 will have a material effect on its consolidated financial statements.



|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 31 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, 2006, and the related consolidated statements of operations, stockholders equity, and cash flows for the years ended June 30, 2006 and
2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chase General
Corporation and Subsidiary as of June 30, 2006, and the results of their operations and their cash flows for the years ended June 30, 2006 and 2005, in conformity with U. S. generally accepted accounting principles.



|                     
|---------------------
|                     
|LOGO                 
|Kansas City, Missouri
|August 22, 2006      

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

an affiliation of separate and independent legal entities.



15



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2006



|                                                                 |  |   |          
|---------------------------------------------------------------- |  | - | ---------
|ASSETS                                                           |  |   |          
|CURRENT ASSETS                                                   |  |   |          
|Cash and cash equivalents                                        |  | $ | 26,558   
|Receivables:                                                     |  |   |          
|Trade, less allowance for doubtful accounts of $11,886 (Note 11) |  |   | 111,217  
|Advance to shareholder (Note 2)                                  |  |   | 9,000    
|Income tax refund claims                                         |  |   | 29,197   
|Inventories:                                                     |  |   |          
|Finished goods                                                   |  |   | 71,631   
|Goods in process                                                 |  |   | 4,515    
|Raw materials                                                    |  |   | 37,202   
|Packaging materials                                              |  |   | 80,675   
|Prepaid expenses                                                 |  |   | 12,446   
|Deferred income taxes (Note 6)                                   |  |   | 16,051   
|                                                                 |  |   |          
|Total current assets                                             |  |   | 398,492  
|                                                                 |  |   |          
|PROPERTY AND EQUIPMENT                                           |  |   |          
|Land                                                             |  |   | 35,000   
|Buildings                                                        |  |   | 85,738   
|Machinery and equipment                                          |  |   | 729,257  
|Trucks and autos                                                 |  |   | 128,986  
|Office equipment                                                 |  |   | 39,742   
|Leasehold improvements                                           |  |   | 68,021   
|                                                                 |  |   |          
|Total                                                            |  |   | 1,086,744
|Less accumulated depreciation                                    |  |   | 737,443  
|                                                                 |  |   |          
|Total property and equipment                                     |  |   | 349,301  
|                                                                 |  |   |          
|TOTAL ASSETS                                                     |  | $ | 747,793  
|                                                                 |  |   |          

These consolidated financial statements should be read

only in connection with the accompanying notes

to consolidated financial statements.



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

June 30, 2006



|                                                         |  |   |            |  
|-------------------------------------------------------- |  | - | ---------- | -
|LIABILITIES AND STOCKHOLDERS EQUITY                     |  |   |            |  
|CURRENT LIABILITIES                                      |  |   |            |  
|Accounts payable                                         |  | $ | 61,515     |  
|Current maturities of forgivable loan - bank (Note 3)    |  |   | 5,000      |  
|Accrued expenses                                         |  |   | 17,070     |  
|Deferred income (Note 3)                                 |  |   | 1,299      |  
|                                                         |  |   |            |  
|Total current liabilities                                |  |   | 84,884     |  
|                                                         |  |   |            |  
|LONG-TERM LIABILITIES                                    |  |   |            |  
|Deferred income (Note 3)                                 |  |   | 3,052      |  
|Deferred income taxes (Note 6)                           |  |   | 18,953     |  
|Forgivable loan - bank, less current maturities (Note 3) |  |   | 15,000     |  
|                                                         |  |   |            |  
|Total long-term liabilities                              |  |   | 37,005     |  
|                                                         |  |   |            |  
|Total liabilities                                        |  |   | 121,889    |  
|                                                         |  |   |            |  
|COMMITMENTS AND CONTINGENCIES (NOTES 9 AND 12)           |  |   |           |  
|STOCKHOLDERS EQUITY                                     |  |   |            |  
|Capital stock issued and outstanding: (Note 5)           |  |   |            |  
|Prior cumulative preferred stock, $5 par value:          |  |   |            |  
|Series A (liquidation preference $1,950,000)             |  |   | 500,000    |  
|Series B (liquidation preference $1,905,000)             |  |   | 500,000    |  
|Cumulative preferred stock, $20 par value:               |  |   |            |  
|Series A (liquidation preference $4,492,405)             |  |   | 1,170,660  |  
|Series B (liquidation preference $732,121)               |  |   | 190,780    |  
|Common stock, $1 par value                               |  |   | 969,834    |  
|Paid-in capital in excess of par                         |  |   | 3,134,722  |  
|Accumulated deficit                                      |  |   | (5,840,092 | )
|                                                         |  |   |            |  
|Total stockholders equity                               |  |   | 625,904    |  
|                                                         |  |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY               |  | $ | 747,793    |  
|                                                         |  |   |            |  

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, 2006 and 2005



|                                                                |  |      |           |   |      |   |           |  
|--------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                |  | 2006 |           |   | 2005 |  
|NET SALES (NOTE 11)                                             |  | $    | 2,326,403 |   |      | $ | 2,591,492 |  
|COST OF SALES                                                   |  |      | 1,923,168 |   |      |   | 1,928,351 |  
|                                                                |  |      |           |   |      |   |           |  
|Gross Profit                                                    |  |      | 403,235   |   |      |   | 663,141   |  
|                                                                |  |      |           |   |      |   |           |  
|OPERATING EXPENSES                                              |  |      |           |   |      |   |           |  
|Selling expenses                                                |  |      | 271,820   |   |      |   | 277,329   |  
|General and administrative expenses                             |  |      | 272,076   |   |      |   | 266,356   |  
|                                                                |  |      |           |   |      |   |           |  
|Total operating expenses                                        |  |      | 543,896   |   |      |   | 543,685   |  
|                                                                |  |      |           |   |      |   |           |  
|Income (loss) from operations                                   |  |      | (140,661  | ) |      |   | 119,456   |  
|                                                                |  |      |           |   |      |   |           |  
|OTHER INCOME (EXPENSE), NET                                     |  |      |           |   |      |   |           |  
|Interest income                                                 |  |      | 618       |   |      |   | 474       |  
|Miscellaneous income                                            |  |      | 857       |   |      |   | 2,943     |  
|Interest (expense)                                              |  |      | (3,216    | ) |      |   | (1,718    | )
|                                                                |  |      |           |   |      |   |           |  
|Total other income (expense), net                               |  |      | (1,741    | ) |      |   | 1,699     |  
|                                                                |  |      |           |   |      |   |           |  
|Income (loss) before income taxes                               |  |      | (142,402  | ) |      |   | 121,155   |  
|PROVISION FOR INCOME TAXES (BENEFITS) (NOTE 6)                  |  |      | (50,377   | ) |      |   | 27,077    |  
|                                                                |  |      |           |   |      |   |           |  
|NET INCOME (LOSS)                                               |  |      | (92,025   | ) |      |   | 94,078    |  
|Preferred dividends                                             |  |      | (128,072  | ) |      |   | (128,072  | )
|                                                                |  |      |           |   |      |   |           |  
|Net loss applicable to common stockholders                      |  | $    | (220,097  | ) |      | $ | (33,994   | )
|                                                                |  |      |           |   |      |   |           |  
|NET LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED (NOTE 7) |  | $    | (.23      | ) |      | $ | (.04      | )
|                                                                |  |      |           |   |      |   |           |  
|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, 2006 and 2005



|                        |  |                                  |         |                            |   |              |  |                 |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  
|----------------------- |  | -------------------------------- | ------- | -------------------------- | - | ------------ |  | --------------- | --------- | ------------------- | - | ------- | ----- | - | ------- |  | - | --------- |  | - | ---------- | - |  | - | ------- | -
|                        |  | Prior Cumulative Preferred Stock |         | Cumulative Preferred Stock |   | Common Stock |  | Paid-in Capital |           | Accumulated Deficit |   |         | Total |  
|                        |  | Series A                         |         | Series B                   |   | Series A     |  | Series B        |           |                     |   |         |       |   |         |  |   |          
|BALANCE , JUNE 30, 2004 |  | $                                | 500,000 |                            | $ | 500,000      |  | $               | 1,170,660 |                     | $ | 190,780 |       | $ | 969,834 |  | $ | 3,134,722 |  | $ | (5,842,145 | ) |  | $ | 623,851 |  
|Net income              |  |                                  |        |                            |   |             |  |                 |          |                     |   |        |       |   |        |  |   |          |  |   | 94,078     |   |  |   | 94,078  |  
|                        |  |                                  |         |                            |   |              |  |                 |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  
|BALANCE , JUNE 30, 2005 |  |                                  | 500,000 |                            |   | 500,000      |  |                 | 1,170,660 |                     |   | 190,780 |       |   | 969,834 |  |   | 3,134,722 |  |   | (5,748,067 | ) |  |   | 717,929 |  
|Net (loss)              |  |                                  |        |                            |   |             |  |                 |          |                     |   |        |       |   |        |  |   |          |  |   | (92,025    | ) |  |   | (92,025 | )
|                        |  |                                  |         |                            |   |              |  |                 |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  
|BALANCE , JUNE 30, 2006 |  | $                                | 500,000 |                            | $ | 500,000      |  | $               | 1,170,660 |                     | $ | 190,780 |       | $ | 969,834 |  | $ | 3,134,722 |  | $ | (5,840,092 | ) |  | $ | 625,904 |  
|                        |  |                                  |         |                            |   |              |  |                 |           |                     |   |         |       |   |         |  |   |           |  |   |            |   |  |   |         |  

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, 2006 and 2005



|                                                                 |  |      |            |   |      |   |            |  
|---------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                 |  | 2006 |            |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Collections from customers                                       |  | $    | 2,400,707  |   |      | $ | 2,545,329  |  
|Interest received                                                |  |      | 618        |   |      |   | 474        |  
|Other income                                                     |  |      | 208        |   |      |   | 2,943      |  
|Cost of sales, selling, general and administrative expenses paid |  |      | (2,413,636 | ) |      |   | (2,361,605 | )
|Interest paid                                                    |  |      | (3,216     | ) |      |   | (2,140     | )
|Income taxes (paid) refund received                              |  |      | 16,925     |   |      |   | (44,772    | )
|                                                                 |  |      |            |   |      |   |            |  
|Net cash provided by operating activities                        |  |      | 1,606      |   |      |   | 140,229    |  
|                                                                 |  |      |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                             |  |      |            |   |      |   |            |  
|(Increase) in advance to officer                                 |  |      | (9,000     | ) |      |   |           |  
|Purchases of property and equipment                              |  |      | (26,853    | ) |      |   | (285,311   | )
|Net proceeds from sale of property and equipment                 |  |      |           |   |      |   | 10,000     |  
|                                                                 |  |      |            |   |      |   |            |  
|Net cash (used in) investing activities                          |  |      | (35,853    | ) |      |   | (275,311   | )
|                                                                 |  |      |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                             |  |      |            |   |      |   |            |  
|Principal payments on notes payable, Series B                    |  |      |           |   |      |   | (7,032     | )
|Proceeds from forgivable loan                                    |  |      |           |   |      |   | 25,000     |  
|Proceeds from line-of-credit                                     |  |      | 250,050    |   |      |   | 80,010     |  
|Principal payments on line-of-credit                             |  |      | (250,050   | ) |      |   | (80,010    | )
|                                                                 |  |      |            |   |      |   |            |  
|Net cash provided by (used in) financing activities              |  |      |           |   |      |   | 17,968     |  
|                                                                 |  |      |            |   |      |   |            |  
|NET (DECREASE) IN CASH AND CASH EQUIVALENTS                      |  |      | (34,247    | ) |      |   | (117,114   | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                     |  |      | 60,805     |   |      |   | 177,919    |  
|                                                                 |  |      |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                           |  | $    | 26,558     |   |      | $ | 60,805     |  
|                                                                 |  |      |            |   |      |   |            |  

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, 2006 and 2005



|                                                                                  |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | 2006 |         |   | 2005 |  
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES         |  |      |         |   |      |   |         |  
|Net income (loss)                                                                 |  | $    | (92,025 | ) |      | $ | 94,078  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 61,648  |   |      |   | 53,357  |  
|Loss on sale of equipment                                                         |  |      |        |   |      |   | 18,056  |  
|Provision (credit) for bad debts                                                  |  |      | (1,284  | ) |      |   | 1,939   |  
|Deferred income amortization                                                      |  |      | (649    | ) |      |   |        |  
|Deferred income taxes                                                             |  |      | (22,680 | ) |      |   | 25,582  |  
|Effects of changes in operating assets and liabilities:                           |  |      |         |   |      |   |         |  
|Trade receivables                                                                 |  |      | 75,588  |   |      |   | (46,163 | )
|Income taxes refund claims receivable                                             |  |      | (10,772 | ) |      |   | (18,425 | )
|Inventories                                                                       |  |      | 49,853  |   |      |   | 32,086  |  
|Prepaid expenses                                                                  |  |      | (9,249  | ) |      |   | (257    | )
|Accounts payable                                                                  |  |      | (42,865 | ) |      |   | 9,729   |  
|Accrued expenses                                                                  |  |      | (5,959  | ) |      |   | (4,901  | )
|Income taxes payable                                                              |  |      |        |   |      |   | (24,852 | )
|                                                                                  |  |      |         |   |      |   |         |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  | $    | 1,606   |   |      | $ | 140,229 |  
|                                                                                  |  |      |         |   |      |   |         |  

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.



22



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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, 2006 and 2005 was $155,352 and $150,803, respectively.

RECEIVABLES

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

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

INVENTORIES

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



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##### 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               |  | 39 years   
|Machinery and equipment |  | 5 -7 years 
|Trucks and autos        |  | 5 years    
|Office Equipment        |  | 5 - 7 years
|Leasehold improvements  |  | 5 -25 years

IMPAIRMENT OF LONG-LIVED ASSETS

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

INCOME TAXES

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

EARNINGS PER SHARE

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



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE(CONTINUED)



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



|                                                                             |  |         |  |        
|---------------------------------------------------------------------------- |  | ------- |  | -------
|                                                                             |  | 2006    |  | 2005   
|Shares issuable upon conversion of Series A Prior Cumulative Preferred Stock |  | 400,000 |  | 400,000
|Shares issuable upon conversion of Series B Prior Cumulative Preferred Stock |  | 375,000 |  | 375,000
|Shares issuable upon conversion of Series A Cumulative Preferred Stock       |  | 222,133 |  | 222,133
|Shares issuable upon conversion of Series B Cumulative Preferred Stock       |  | 36,200  |  | 36,200 

ADVERTISING EXPENSE

Advertising is expensed when incurred. Advertising expense was $1,210 and $810 for the years ended June 30, 2006 and 2005, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards board (FASB) issued Statement of
Financial Accounting Standards No. 151 Inventory Costs. FASB 151 amends ARB No. 43, Chapter 4, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production facilities. The new standard is effective for inventory costs incurred during the fiscal years beginning after June 15, 2005. The Company adopted
this statement in its current fiscal year ending June 30, 2006 but adoption had no material effect on financial position or results of operations.



25



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##### Table of Contents

RECENT ACCOUNTING PRONOUNCEMENTS(CONTINUED)



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123 (revised 2004) (SFAS 123R), Share-Based Payment.SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services or
incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R requires a public entity to measure the cost
of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period during which an employee is required to provide service in exchange for the
award. Public entities filing as small business issuers will be required to apply SFAS 123R in the first annual reporting period beginning after December 15, 2005. the Company will adopt this statements in its next fiscal year ending
June 30, 2007. The adoption of SFAS 123R will likely not have an impact on our consolidated financial statements.

In May 2005, the FASB issued SFAS
No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other
changes, SFAS 154 requires retrospective application for reporting a change in accounting principle unless such application is impracticable or unless transition requirements specific to a newly adopted accounting principle require otherwise. SFAS
154 also requires the reporting of a correction of an error by restating previously issued financial statements. The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15,
2005. The Company does not believe the adoption of SFAS 154 will have a material effect on our financial position or results of operations.

In July 2006,
the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes.FIN 48 was issued to clarify the accounting for uncertainty regarding a position taken in an entitys tax return. This Statement requires a 2-step
evaluation of tax positions. Step one is recognition - if it is not more likely than not that a tax position would be sustained upon examination; the benefit of the tax position should not be recognized in the financial statements. Step
two is measurementfor a tax position that meets the more likely than not criterion in Step 1 should be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The new
interpretation is effective for fiscal years beginning after December 15, 2006. The Company will adopt this interpretation in its fiscal year ending June 30, 2008. The Company does not believe the adoption of FIN 48 will have a material
effect on its consolidated financial statements.

NOTE 2 - ADVANCE TO STOCKHOLDER

The Company recorded an advance to a stockholder for $9,000 as of June 30, 2006. The advance is non-interest bearing with no stated maturity date. The advance, included in current assets, was collected during
August 2006.



26



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - FORGIVABLE LOAN AND DEFERRED INCOME

During 2004, the Company received a $25,000 economic development incentive from Buchanan County, which is a five year forgivable loan at a rate of $5,000 per year. The Nodaway Valley Bank has established an
Irrevocable Standby Letter of Credit in the amount of $25,000 as collateral for this loan, with a maturity date of December 31, 2009. The Company has met the criteria of occupying a 20,000 square foot building and the criteria of creating a
minimum of two new full-time equivalent jobs during the first year of operation in the new facility. In addition, the Company maintained 19 existing jobs the year thereafter and will be required to do so until the five year term has expired. Once
the Company is no longer legally entitled to return the monies, the liability will be reclassified as deferred revenue and amortized into income over the life of the lease term of the new facility. At June 30, 2006, $5,000 has been reclassified
to deferred revenue and $649 has been amortized into income.

NOTE 4 - NOTE PAYABLE - BANK

Effective June 3, 2005, the Company has a line-of-credit agreement with an original maturity date of June 3, 2006. The agreement was renewed June 3, 2006
with a new maturity date of December 31, 2006. The line-of-credit is collateralized by certain equipment and bears interest at an annual rate of 8%. At June 30, 2006 there was no balance outstanding on the line-of-credit.

NOTE 5 - CAPITAL STOCK

Capital stock authorized, issued and
outstanding as of June 30, 2006 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              



27



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##### Table of Contents

CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -CAPITAL STOCK(CONTINUED)



Cumulative Preferred Stock dividends in arrears at June 30, 2006 totaled $6,668,086. Total dividends in arrears,
on a per share basis, consist of the following at June 30, 2006:



|               |  |   |      
|-------------- |  | - | -----
|6% Convertible |  |   |      
|Series A       |  | $ | 14.25
|Series B       |  |   | 13.80
|5% Convertible |  |   |      
|Series A       |  |   | 56.75
|Series B       |  |   | 56.75

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

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 6 - PROVISION FOR INCOME TAXES (BENEFIT)

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



|                                  |  |      |         |  
|--------------------------------- |  | ---- | ------- | -
|                                  |  | 2006 |        
|Deferred tax liability:           |  |      |         |  
|Property and equipment            |  | $    | 20,230  |  
|                                  |  |      |         |  
|Deferred tax assets:              |  |      |         |  
|Current:                          |  |      |         |  
|Inventories                       |  |      | (117    | )
|Trade receivables                 |  |      | (3,487  | )
|Contribution carryover            |  |      | (533    | )
|Net operating loss (carryforward) |  |      | (11,914 | )
|                                  |  |      |         |  
|Total current assets              |  |      | (16,051 | )



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6
- PROVISION FOR INCOME TAXES (BENEFIT)(CONTINUED)



|                           |  |   |         |  
|-------------------------- |  | - | ------- | -
|Noncurrent:                |  |   |         |  
|Deferred income            |  |   | (1,277  | )
|                           |  |   |         |  
|Total deferred tax assets  |  |   | (17,328 | )
|                           |  |   |         |  
|NET DEFERRED TAX LIABILITY |  | $ | 2,902   |  
|                           |  |   |         |  

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



|                                  |  |      |         |  
|--------------------------------- |  | ---- | ------- | -
|                                  |  | 2006 |        
|Current deferred tax asset        |  | $    | (16,051 | )
|Noncurrent deferred tax liability |  |      | 18,953  |  
|                                  |  |      |         |  
|NET DEFERRED TAX LIABILITY        |  | $    | 2,902   |  
|                                  |  |      |         |  

The provision for income taxes for the years ended June 30, 2006 and 2005 consists of the following:



|                              |  |      |         |   |      |   |       
|----------------------------- |  | ---- | ------- | - | ---- | - | ------
|                              |  | 2006 |         |   | 2005
|Current tax expense (benefit) |  | $    | (27,697 | ) |      | $ | 1,495 
|Deferred tax expense          |  |      | (22,680 | ) |      |   | 25,582
|                              |  |      |         |   |      |   |       
|                              |  | $    | (50,377 | ) |      | $ | 27,077
|                              |  |      |         |   |      |   |       

The income tax provision differs from the amount of income tax determined by applying the statutory federal income
tax rate to pretax income for the years ended June 30, 2006 and 2005 due to the following:



|                                                               |  |      |         |   |      |   |         |  
|-------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                               |  | 2006 |         |   | 2005 |  
|Computed expected tax (benefit)                              |  | $    | (49,841 | ) |      | $ | 42,404  |  
|Increase (decrease) in income taxes (benefits) resulting from: |  |      |         |   |      |   |         |  
|State income taxes, net of federal benefit                     |  |      | (5,342  | ) |      |   | 6,247   |  
|Nondeductible expenses                                         |  |      | 469     |   |      |   | 157     |  
|Effect of (income) loss taxed at lower rates                   |  |      | 11,053  |   |      |   | (11,904 | )
|Other                                                          |  |      | (6,716  | ) |      |   | (9,827  | )
|                                                               |  |      |         |   |      |   |         |  
|                                                               |  | $    | (50,377 | ) |      | $ | 27,077  |  
|                                                               |  |      |         |   |      |   |         |  



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7 - LOSS PER SHARE

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



|                                                   |  |      |          |   |      |   |         |  
|-------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                                   |  | 2006 |          |   | 2005 |  
|Net income (loss)                                  |  | $    | (92,025  | ) |      | $ | 94,078  |  
|                                                   |  |      |          |   |      |   |         |  
|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                     |  | $    | (220,097 | ) |      | $ | (33,994 | )
|                                                   |  |      |          |   |      |   |         |  
|Weighted average of outstanding common shares      |  |      | 969,834  |   |      |   | 969,834 |  
|                                                   |  |      |          |   |      |   |         |  
|Loss per share                                     |  |      | (.23     | ) |      | $ | (.04    | )
|                                                   |  |      |          |   |      |   |         |  

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

NOTE 8 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION



|                                              |  |      |         |   |      |   |       
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------
|                                              |  | 2006 |         |   | 2005
|Cash payments (refunds) for:                  |  |      |         |   |      |   |       
|Income taxes, net of refunds                  |  | $    | (16,925 | ) |      | $ | 44,772
|                                              |  |      |         |   |      |   |       
|Interest                                      |  | $    | 3,216   |   |      | $ | 1,718 
|                                              |  |      |         |   |      |   |       
|Non-cash transaction:                         |  |      |         |   |      |   |       
|Reclass of forgivable loan to deferred income |  | $    | 5,000   |   |      | $ |      
|                                              |  |      |         |   |      |   |       

NOTE 9 - COMMITMENTS

Dye Candy Company leases its office and manufacturing facility from a Company that is owned by a director and his spouse located at 1307 South 59th, St. Joseph, Missouri. The period of the lease is from February 1, 2005 through March 31, 2025 with an option to extend for an additional term of five years, and requires payments of $6,500
per month. Rental expense was $78,000 and $50,797 for the years ended June 30, 2006 and 2005, respectively. The amounts are included in cost of sales.



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CHASE GENERAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS(CONTINUED)



Future minimum lease payments under this lease are as follows:

Year ending June 30:



|           |  |   |          
|---------- |  | - | ---------
|2007       |  | $ | 78,000   
|2008       |  |   | 78,000   
|2009       |  |   | 78,000   
|2010       |  |   | 78,000   
|2011       |  |   | 78,000   
|Thereafter |  |   | 1,072,500
|           |  |   |          
|           |  | $ | 1,462,500
|           |  |   |          

As of June 30, 2006, the Company had raw materials purchase commitments with three vendors totaling $114,838.

NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

NOTE 11 - CONCENTRATION OF CREDIT RISK

For the years ending June 30, 2006 and 2005, two customers accounted for 51% and 48%, respectively, of the gross sales. For the year ending June 30, 2006, three
customers accounted for 55% of accounts receivable.

NOTE 12 - LEGAL PROCEEDINGS

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



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##### Table of Contents

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

Not applicable



|Item 8A | CONTROLS AND PROCEDURES
|------- | -----------------------

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

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



|Item 8B | OTHER INFORMATION
|------- | -----------------

Not applicable



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##### Table of Contents

PART III



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



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



|                |  |     |  |                                |  |         
|--------------- |  | --- |  | ------------------------------ |  | --------
|Name            |  | Age |  | Periods of Service as Director |  | Terms   
|Barry M. Yantis |  | 61  |  | 1980 to present                |  | One year
|Brett A. Yantis |  | 38  |  | January 21, 1999 to present    |  | One year
|Brian A. Yantis |  | 58  |  | July 16, 1986 to present       |  | One year

Executive Officers



|                |  |     |  |                              |  |                              |  |                        
|--------------- |  | --- |  | ---------------------------- |  | ---------------------------- |  | -----------------------
|Name            |  | Age |  | Position                     |  | Years ofService asan Officer |  | Term                   
|Barry M. Yantis |  | 61  |  | President, CEO and Treasurer |  | 27                           |  | Until successor elected
|Brett A. Yantis |  | 38  |  | Vice President               |  | 4                            |  | Until successor elected
|Brian A. Yantis |  | 58  |  | Secretary                    |  | 14                           |  | Until successor elected



| | (b) | Certain Significant Employees
| | --- | -----------------------------

There are no
significant employees other than above.



| | (c) | Family Relationships
| | --- | --------------------

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

Business Experience



| | (1) | Barry M. Yantis, president and treasurer has been an officer of the Company for twenty-seven years, twelve years as vice-president and fifteen years as president. He has been on the
board of directors for twenty-seven years and has been associated with the candy business for thirty-two 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 thirteen 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-one years and
has been a vice-president of Aon Risk Services in Chicago, Illinois during the past seventeen years.



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



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##### Table of Contents

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

On
December 16, 2005, a lawsuit was filed by 3600 S. Leonard Road, LLC., (the Plaintiff) against the Company in the Circuit Court of Buchanan County, Missouri. The Plaintiff alleges that the Company failed to honor certain sections of a lease
agreement entered into between the Plaintiff, as owner and landlord of the premises subject to the lease agreement, and the Company, as tenant to the premises. The Plaintiff is seeking damages in an amount in excess of $5,000. The Company has filed
a response with the Circuit Court denying all material allegations made by the Plaintiff. A status review hearing was held March 15, 2006 in the Circuit Court where upon the Judges ruled for the parties to meet to agree to a scheduling order.
The Company is expecting to go to trial in December 2006. The Company believes the claim is without merit and intends to contest it vigorously, however the outcome of this lawsuit cannot be predicted at this time.



| | (e) | Audit Committee Financial Expert
| | --- | --------------------------------

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



| | (f) | Code of Ethics
| | --- | --------------

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



|Item 10 | EXECUTIVE COMPENSATION
|------- | ----------------------



| | (a) | General
| | --- | -------

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

(b)



|                            |  |                |  |                            |         |        |   |                          |  |                          |       |                 |   |             |   |                       |   |  |  
|--------------------------- |  | -------------- |  | -------------------------- | ------- | ------ | - | ------------------------ |  | ------------------------ | ----- | --------------- | - | ----------- | - | --------------------- | - |  | -
|                            |  |                |  | Summary Compensation Table |         |        |   |                          |  |                          |       |                
|                            |  |                |  |                            |         |        |   |                          |  | Long Term Compensation   |       |                
|                            |  |                |  | Annual Compensation        |         | Awards |   | Payouts                  |  |                         
|Name and Principal Position |  | FiscalYear End |  | Salary                     |         | Bonus  |   | Other AnnualCompensation |  | RestrictedStockAward (s) |       | Option/SARs (#) |   | LTIPPayouts |   | All otherCompensation
|Barry M. Yantis             |  | 1) 06-30-06    |  | $                          | 121,900 |        | $ |                         |  | $                        | 2,675 |                 |  |             |  |                       |  |  | 
|Barry M. Yantis             |  | 1) 06-30-05    |  | $                          | 121,900 |        | $ |                         |  | $                        | 3,960 |                 |  |             |  |                       |  |  | 
|Barry M. Yantis             |  | 1) 06-30-04    |  | $                          | 112,625 |        | $ |                         |  | $                        |      |                 |  |             |  |                       |  |  | 



|1) | CEO, President and Treasurer
|-- | ----------------------------



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



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



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##### Table of Contents

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



| | (c) | Option/SAR grants table
| | --- | -----------------------

Not applicable



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

Not applicable



| | (e) | Long-term incentive plan awards table
| | --- | -------------------------------------

Not
applicable



| | (f) | Compensation of Directors
| | --- | -------------------------

Directors are not
compensated for services on the board. The directors are reimbursed for travel expenses incurred in attending board meetings. During the fiscal year 2006, $311 of travel expenses were reimbursed to board member Brian A. Yantis.



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

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



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

Not applicable



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

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



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

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



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



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



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



|(c) | No known change of control is anticipated.
|--- | ------------------------------------------



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##### Table of Contents

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



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

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



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

Not applicable



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

Shareholder advance of
$9,000 at June 30, 2006 was paid in full during August 2006.



| | (d) | Transactions with promoters
| | --- | ---------------------------

Not applicable



|Item 13 | EXHIBITS
|------- | --------

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

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



| | (3) | Articles of Incorporation and By-Laws
| | --- | -------------------------------------

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



| | (4) | Instruments defining the rights of security holders including indentures - Refer to Note 3.
| | --- | -------------------------------------------------------------------------------------------



| | (11) | Computation of per share earnings - Refer to Note 6.
| | ---- | ----------------------------------------------------



| | (14) | Code of Ethics - attached
| | ---- | -------------------------



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



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



| | (32) | Section 1350 Certification  attached
| | ---- | -------------------------------------



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##### Table of Contents

|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, 2006 and 2005.



|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|                   |  | 2006 |        | 2005
|Audit fees         |  | $    | 51,000 |      | $ | 46,700
|Audit related fees |  |      |       |      |   |      
|Tax fees           |  |      |       |      |   |      
|All other fees     |  |      |       |      |   |      



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SIGNATURES

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



|      |  |         |  |                                        |  |     |  |                                                                        
|----- |  | ------- |  | -------------------------------------- |  | --- |  | -----------------------------------------------------------------------
|      |  |         |  | CHASE GENERAL CORPORATION (Registrant)
|      |  |         |  |                                       
|Date: |  | 9-26-06 |  |                                        |  | 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



|       
|-------
|9-26-06
|Date   



|                           
|---------------------------
|/s/ Brett Yantis           
|Brett Yantis               
|Vice-President and Director



|       
|-------
|9-26-06
|Date   



|                      
|----------------------
|/s/ Brian A. Yantis   
|Brian A. Yantis       
|Secretary and Director



|       
|-------
|9/25/06
|Date   



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