As a regulated utility company, stockholders equity is an important performance indicator. The NYPSC allows us to earn a just and reasonable return on stockholders' equity. Stockholders' equity is therefore a precursor of future earnings potential. In 2007, stockholders' equity increased by $4.5 million due, in part, to a rights offering to holders of our common stock in which we raised $4.6 million net of expenses. The increase in stockholders' equity was also due, in part, to improved net income. We currently plan to continue our focus on building stockholders' equity.

Other indicators that are tracked are the safety and efficiency of our operations. These include leak repair, main and service replacements and customer service metrics. During 2007 we made a significant effort to improve our infrastructure and we are continuing this program in 2008. We repaired 218 leaks and replaced 240 services and 2.55 miles of gas main during the first six months of fiscal 2008.

For the fiscal year 2008 the plans for the Operations Department are to replace 12" main at a road crossing on a pipeline that supplies several major customers on the Corning System. For the summer of 2008 Operations will be in process of replacing 7 miles of bare steel distribution main and 400 bare steel services. This work will be done by Company and Contract labor on 15 different distribution projects chosen based on system condition. In addition to this replacement program we will be performing minor upgrades to 6 of our System Gate stations, replacing approximately 800 meters, upgrading a segment of our main pipeline feed to the Bath Gas System and upgrade several outdated vehicles and equipment.

Gas supply is our largest expense. We signed an asset agreement with Merrill Lynch Commodities in 2007 to be our agent in managing our upstream storage and pipeline contracts, and that contract expired in March 2008 but has been extended until June 30, 2008. During the second quarter of 2008 we issued a request for proposals for a new asset manager and we are currently evaluating the responses.

For the three months ended March 31, 2008 earnings increased by $276,274 compared to the same period last year. We had net income of $993,067 or $1.23 per share in the first six months of 2008 compared to $609,202 or $1.20 per share in the same period of 2007, an increase of 63%. We believe both increases are attributable to our rate increase, approved by the NYSPSC, that went into effect in December 2007.

Utility operating revenue increased $62,399 in the three months ended March 31, 2008 compared to the same period last year, again due to our rate increase approved by the NYPSC, that went into effect in December 2007. We believe utility operating revenue decreased over the six month ending March 31, 2008 compared to the same period last year due mainly to lower cost of gas and slightly warmer weather.

As a natural gas distribution company, our revenue depends upon weather patterns. Our decrease in revenue, particularly with respect to retail residential and commercial customers, may be due partially to warmer weather during the three months and six months ended March 31, 2008 compared to the same period of 2007.

Margin increased by $170,095 for the three months ended March 31, 2008 compared to the same period last year. Our margin also increased for the six months ended March 31, 2008 as compared to the same period of 2007. We believe these increases are due to our recent rate case, which permits us to recover a higher rate of return on stockholders' equity than we were permitted in 2007.

Looking forward to the remainder of the fiscal year ending September 30, 2008, we anticipate our margin will continue to be higher for the third and fourth quarter as compared to the same period in 2007.

Purchased gas expense decreased $107,696 to $6,824,870 in the three months ended March 31, 2008 compared to $6,932,566 in the same period last year due primarily to the lower gas cost. The decrease for the six months ended March 31, 2008 is $252,151 for the same reason. Other operating and maintenance expense decreased in this quarter of 2008 to $2,268,878 compared to $2,653,284 in the same quarter of 2007 due primarily to more efficient operation. This was also the primary factor in the decrease of $466,632 in the six months ended March 31, 2008 compared to the same period last year. Depreciation expense increased to $175,869 in the first quarter of 2008 from $155,667 in 2007 due to increased investment in plant property and equipment. The increase for the six months ended March 31, 2008 of $38,553 over the comparable period last year was also due to increased investment in capital items.

Internally generated cash from operating activities consists of net income, adjusted for non-cash expenses and changes in operating assets and liabilities. Non-cash items include depreciation and amortization, gain on sale of securities, deferred income taxes and losses on sale of discontinued operations. Over or under recovered gas costs significantly impact cash flow. In addition, there are significant year-to-year changes in regulatory assets that impact cash flow. Cash flows from investing activities consist primarily of capital expenditures.

During the third quarter of 2007 we concluded a rights offering to our existing shareholders raising approximately $4.6 million (net of expenses). We have already begun using these funds for capital investments. Capital expenditures have historically exceeded $1.0 million annually and will increase significantly due to a mandate in our recently approved rate order to improve our infrastructure. In the past six months we have invested $1.5 in capital investments to improve our infrastructure including upgrading our distribution system through replacing mains and customer service lines.

Cash flows from financing activities consist of repayment of long-term debt and borrowings and repayments under our lines-of-credit. For our consolidated operations, we had a $6.6 million line of credit during 2007 that increased to $7.0 million in March of 2008. We also negotiated an interest rate reduction of 50 basis points for the line of credit. The amount outstanding under this line on March 31, 2008 was $5.2 million. As security for the line of credit, collateral assignments have been executed which assign to the lender various rights in the investment trust account. In addition, our lender has a purchase money interest in and to all natural gas purchases by us utilizing funds advanced by the bank under the line-of-credit agreement and all proceeds of sale thereof and accounts receivable pertaining to such sale. We rely heavily on our credit lines to finance gas purchases that we place in storage.

We have $9.6 million in long term debt outstanding. We repaid $207,521 in the first six months of 2008 consistent with the requirements of our debt instruments.

In 2007 we entered in to an asset management agreement with Merrill Lynch Commodities and purchased $3.8 million of gas by the end of September 2007 that was placed into storage. During the first quarter of 2008 we withdrew gas from storage and by March 31, 2008 had $422,000 left in storage.

We have no off balance sheet arrangements.

In March 2008, we refinanced a line of credit and a term loan with local banks in order to increase our credit limit and decrease interest expense. The limit on the line of credit was increased from $6.6 million to $7.0 million. The interest rate on each loan was reduced by 50 basis points from 30 days LIBOR plus 1.85 basis points to 30 days LIBOR plus 1.35 basis points. The initial interest rate on each loan (after refinancing) was 4.46% and will be adjusted monthly. The interest rate (30 day Libor plus 1.35 BP) on this loan and these lines was 4.05 percent at March 31, 2008. This interest rate reduction of 50 basis points for each loan follows reductions we obtained in October 2007 from Prime Rate minus .50% to 30 days LIBOR plus 1.85 basis points for the same loans. We believe we are in compliance with the financial covenants in these debt instruments as of March 31, 2008.

As a regulated public utility, our earnings are primarily determined by a rate of return set by NYPSC on the investments in our facilities and equipment (i.e., our rate base). On June 28, 2007 the Company filed a rate case with the NYPSC requesting an increase of $581,038 for rates to become effective June 2008. In November 2007, we amended our June 28, 2007 filing to make the rate case a mini filing so that under the NYPSC regulations the Company would be permitted to increase the amount requested to $681,000 and accelerate the effective date of the increase. On December 12, 2007, the NYPSC granted us a 2.5% ($681,000) rate increase effective December 17, 2007. In addition, the NYPSC allowed us to retain $250,000 in revenue from gas producers relevant to producer interconnects with the Corning system. Because the NYPSC imputed $250,000 in revenue from gas producers interconnected with the Corning system in its determination of the $681,000 rate relief, the NYPSC allowed us to retain the first $250,000 of such revenues and 10 percent of any amount above that level.  

Our significant accounting policies are described in the notes to the Consolidated Financial Statements. It is increasingly important to understand that the application of generally accepted accounting principles involve certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues and expenses. Thus, the application of these principles can result in varying results from company to company. The most significant principles that impact us are discussed below.

We record revenues from residential and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers' meters are read at the end of each month. We do not accrue revenue for gas delivered but not yet billed. We do not currently anticipate adopting unbilled revenue recognition and we do not believe it would have a material impact on our financial results. Our tariffs contain mechanisms that provide for the recovery of the cost of gas applicable to firm customers, which includes estimates. Under these mechanisms, we periodically adjust our rates to reflect increases and decreases in the cost of gas. Annually, we reconcile the difference between the total gas costs collected from customers and the cost of gas. We defer any excess or deficiency and subsequently either recover it from, or refund it to, customers over the following twelve-month period. To the extent estimates are inaccurate, a regulatory asset on the balance sheet is increased or decreased.

All of our business is subject to regulation. Our regulated utility records the results of its regulated activities in accordance with SFAS No.71, "Accounting for the Effects of Certain Types of Regulation", which results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. SFAS No. 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as revenue and expense in non-regulated businesses. In certain circumstances, SFAS No. 71 allows entities whose rates are determined by third-party regulators to defer costs as "regulatory" assets in the balance sheet to the extent that the entity expects to recover these costs in future rates. Management believes that currently available facts support the continued application of SFAS No. 71 and that all regulatory assets and liabilities are recoverable or refundable through the regulatory environment.

The amounts reported in our financial statements related to pension and other post-retirement benefits are determined on an actuarial basis, therefore certain assumptions are required to calculate those amounts. These assumptions include the discount rate, the expected return on plan assets, the rate of compensation increase and, for other post-retirement benefits, the expected annual rate of increase in per capita cost of covered medical and prescription benefits. Changes in actuarial assumptions and actuarial experience could have a material impact on the amount of pension and post-retirement benefit costs and funding requirements. However, we expect to recover our entire net periodic pension and other post-retirement benefit costs attributed to employees in our utility segment in accordance with the applicable NYPSC authorization. For financial reporting purposes, the difference between the amounts of such costs as determined under applicable accounting principles is recorded as either a regulatory asset or liability.

This report contains statements which, to the extent they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). In this respect, the words "estimate", "project", "anticipate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results. Accordingly, actual results may differ materially from those expressed in any forward looking statements. Factors that could cause results to differ materially from our management's expectations include, but are not limited to, those listed under Item 1A - "Risk Factors" of our Form 10-K in addition to:

 Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events.

Disclosure Controls and Procedures. As of the end of the period covered by this quarterly report on Form 10-Q the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the evaluation date, our disclosure controls and procedures were effective to ensure that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported in a timely manner.

Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 1. Legal Proceedings.

We did not become a party to or settle any legal proceedings in the quarter ended March 31, 2008.

We have nothing to report under this item.

We have nothing to report under this item.

We have nothing to report under this item.

We have nothing to report under this item.

31.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________

* Filed or furnished herewith

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CORNING NATURAL GAS CORPORATION

Date: May 14, 2008 ________________________________________

Date: May 14, 2008 ________________________________________