CHASE PACKAGING CORP - Quarter Report: 2011 March (Form 10-Q)

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number: 0-21609

 

CHASE PACKAGING CORPORATION

(Exact name of registrant as specified in its charter)

 

 

636 River Road, Fair Haven, New Jersey  07704

(Address of principal executive offices)  (Zip Code)

 

(732) 741-1500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes x  No o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

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- INDEX -

 

			Page(s)
PART I	Financial Information:
ITEM 1	Financial Statements:
	Condensed Balance Sheets - March 31, 2011 (Unaudited) and December 31, 2010		1
	Condensed Statements of Operations (Unaudited) - Cumulative Period During the Development Stage (January 1, 1999 to March 31, 2011) and the Three Months Ended March 31, 2011 and 2010		2
	Statements of Shareholders’ Equity		3
	Condensed Statements of Cash Flows (Unaudited) - Cumulative Period During the Development Stage (January 1, 1999 to March 31, 2011) and the Three Months Ended March 31, 2011 and 2010		6
	Notes to Interim Condensed Financial Statements (Unaudited)		7
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		12
ITEM 4	Controls and Procedures		12
PART II	Other Information		13
EXHIBITS INDEX			13
SIGNATURES			15
EXHIBITS			16

 

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PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

CHASE PACKAGING CORPORATION

(A Development Stage Company)

CONDENSED BALANCE SHEETS

 

		March 31, 2011			December 31, 2010
		(unaudited)
- ASSETS -
CURRENT ASSETS:
Cash and cash equivalents		$	1,573,364		$	1,581,989
TOTAL ASSETS		$	1,573,364		$	1,581,989
- LIABILITIES AND SHAREHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	14,775		$	1,388
TOTAL CURRENT LIABILITIES		14,775			1,388
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock $1.00 par value; 4,000,000 shares authorized:		—			—
Series A 10% Convertible Preferred stock; 50,000 shares authorized; 18,775 issued and outstanding in 2011 and 2010: liquidation preference of $1,877,500 in 2011 and 2010		18,775			18,775
Common stock, $.10 par value, 200,000,000 shares authorized; 15,536,275 shares issued and outstanding in 2011 and 2010		1,553,628			1,553,628
Additional paid-in capital		4,077,068			4,077,068
Accumulated deficit		(3,626,121		)	(3,626,121		)
Deficit accumulated during the development stage		(464,761		)	(442,749		)
TOTAL SHAREHOLDERS’ EQUITY		1,558,589			1,580,601
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,573,364		$	1,581,989

 

See notes to interim condensed financial statements.

 

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CHASE PACKAGING CORPORATION

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Cumulative During the Development Stage (January 1, 1999 to			Three Months Ended March 31,
		March 31, 2011)			2011			2010
NET SALES		$	—		$	—		$	—
EXPENSES:
General and administrative expenses		515,710			22,210			27,216
LOSS FROM OPERATIONS		(515,710		)	(22,210		)	(27,216		)
OTHER INCOME (EXPENSE)
Interest expense		(8,591		)	—			—
Interest and other income		59,540			198			207
TOTAL OTHER INCOME		50,949			198			207
LOSS BEFORE INCOME TAXES		(464,761		)	(22,012		)	(27,009		)
Provision for income taxes		—			—			—
NET LOSS		$	(464,761	)	$	(22,012	)	$	(27,009	)
BASIC AND DILUTED NET LOSS PER COMMON SHARE					$	—		$	—
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — BASIC AND DILUTED					15,536,275			15,536,275

 

See notes to interim condensed financial statements.

 

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CHASE PACKAGING CORPORATION

(A Development Stage Company)

STATEMENTS OF SHAREHOLDERS’ EQUITY

 

		Preferred Stock					Common Stock					Additional Paid- in			Common Stock			Accumulated			Deficit Accumulated During the Development
		Shares		Amount			Shares		Amount			Capital			Subscribed			Deficit			Stage			Total
Balance at January 1, 1999		—		$	—		7,002,964		$	700,296		$	2,914,207		$	—		$	(3,626,121	)	$	—		$	(11,618	)
Net loss for the year ended December 31, 1999		—		—			—		—			—			—			—			(5,510		)	(5,510		)
Balance at December 31, 1999		—		—			7,002,964		700,296			2,914,207			—			(3,626,121		)	(5,510		)	(17,128		)
Net loss for the year ended December 31, 2000		—		—			—		—			—			—			—			(891		)	(891		)
Balance at December 31, 2000		—		—			7,002,964		700,296			2,914,207			—			(3,626,121		)	(6,401		)	(18,019		)
Private placement and warrant exercise		—		—			1,624,311		162,432			(156,932		)	—			—			—			5,500
Net loss for the year ended December 31, 2001		—		—			—		—			—			—			—			(5,086		)	(5,086		)
Balance at December 31, 2001		—		—			8,627,275		862,728			2,757,275			—			(3,626,121		)	(11,487		)	(17,605		)
Stock subscriptions		—		—			—		—			—			8,000			—			—			8,000
Net loss for the year ended December 31, 2002		—		—			—		—			—			—			—			(7,082		)	(7,082		)
Balance at December 31, 2002		—		—			8,627,275		862,728			2,757,275			8,000			(3,626,121		)	(18,569		)	(16,687		)
Net loss for the year ended December 31, 2003		—		—			—		—			—			—			—			(8,221		)	(8,221		)
Balance at December 31, 2003		—		—			8,627,275		862,728			2,757,275			8,000			(3,626,121		)	(26,790		)	(24,908		)

 

See notes to interim condensed financial statements.

 

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CHASE PACKAGING CORPORATION

(A Development Stage Company)

STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

 

		Preferred Stock				Common Stock				Additional Paid- in		Common Stock		Accumulated		Deficit Accumulated During the Development
		Shares		Amount		Shares		Amount		Capital		Subscribed		Deficit		Stage		Total
Net income for the year ended December 31, 2004		—		—		—		—		—		—		—		1,237		1,237
Balance at December 31, 2004		—		—		8,627,275		862,728		2,757,275		8,000		(3,626,121	)	(25,553	)	(23,671	)
Net loss for the year ended December 31, 2005		—		—		—		—		—		—		—		(16,627	)	(16,627	)
Balance at December 31, 2005		—		—		8,627,275		862,728		2,757,275		8,000		(3,626,121	)	(42,180	)	(40,298	)
Net loss for the year ended December 31, 2006		—		—		—		—		—		—		—		(12,707	)	(12,707	)
Balance at December 31, 2006		—		—		8,627,275		862,728		2,757,275		8,000		(3,626,121	)	(54,887	)	(53,005	)
Private placement		13,334		13,334		6,667,000		666,700		1,282,324		—		—		—		1,962,358
Prior stock subscription		68		68		34,000		3,400		6,732		(8,000	)	—		—		2,200
Convertible debt		416		416		208,000		20,800		41,184		—		—		—		62,400
Net loss for the year ended December 31, 2007		—		—		—		—		—		—		—		(32,227	)	(32,227	)
Balance at December 31, 2007		13,818		13,818		15,536,275		1,553,628		4,087,515		—		(3,626,121	)	(87,114	)	1,941,726
Preferred shares issued as Dividend		1,718		1,718		—		—		(1,718	)	—		—		—		—
Cash in lieu of stock		—		—		—		—		(3,150	)	—		—		—		(3,150	)
Net loss for the year ended December 31, 2008		—		—		—		—		—		—		—		(176,191	)	(176,191	)
Balance at December 31, 2008		15,536		15,536		15,536,275		1,553,628		4,082,647		—		(3,626,121	)	(263,305	)	1,762,385
Preferred shares issued as dividend		1,542		1,542		—		—		(1,542	)	—		—		—		—
Cash in lieu of stock		—		—		—		—		(1,160	)	—		—		—		(1,160	)
Net loss for the year ended December 31, 2009		—		—		—		—		—		—		—		(92,160	)	(92,160	)
Balance at December 31, 2009		17,078		17,078		15,536,275		1,553,628		4,079,945		—		(3,626,121	)	(355,465	)	1,669,065

 

See notes to interim condensed financial statements.

 

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CHASE PACKAGING CORPORATION

(A Development Stage Company)

STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

 

		Preferred Stock					Common Stock					Additional Paid- in			Common Stock			Accumulated			Deficit Accumulated During the Development
		Shares		Amount			Shares		Amount			Capital			Subscribed			Deficit			Stage			Total
Preferred shares issued as dividend		1,697		1,697			—		—			(1,697		)	—			—			—			—
Cash in lieu of stock		—		—			—		—			(1,180		)	—			—			—			(1,180		)
Net loss for the year ended December 31, 2010		—		—			—		—			—			—			—			(87,284		)	(87,284		)
Balance at December 31, 2010		18,775		$	18,775		15,536,275		$	1,553,628		$	4,077,068		$	—		$	(3,626,121	)	$	(442,749	)	$	1,580,601
Net loss for the quarter ended March 31, 2011		—		—			—		—			—			—			—			(22,012		)	(22,012		)
Balance at March 31, 2011		18,775		$	18,775		15,536,275		$	1,553,628		$	4,077,068		$	—		$	(3,626,121	)	$	(464,761	)	$	1,558,589

 

See notes to interim condensed financial statements.

 

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CHASE PACKAGING CORPORATION

(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Cumulative During the Development Stage (January 1, 1999 to			Three Months Ended March 31,
		March 31, 2011)			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(464,761	)	$	(22,012	)	$	(27,009	)
Change in assets and liabilities:
Accounts payable and accrued expenses		(404		)	13,387			14,117
Net cash (used in) operating activities		(465,165		)	(8,625		)	(12,892		)
CASH FLOWS FROM INVESTING ACTIVITIES		—			—			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt		56,500			—			—
Proceeds from private placement/exercise of stock warrants		5,500			—			—
Capital contribution		8,000			—			—
Proceeds from private placement		1,962,358			—			—
Cash dividends paid on preferred stock		(5,490		)	—			—
Net cash provided by financing activities		2,026,868			—			—
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		1,561,703			(8,625		)	(12,892		)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD		11,661			1,581,989			1,671,574
CASH AND CASH EQUIVALENTS, AT END OF PERIOD		$	1,573,364		$	1,573,364		$	1,658,682
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest		$	—		$	—		$	—
Income taxes		$	—		$	—		$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock issued as stock dividend		$	3,260		$	—		$	—
416 Private Placement Units were issued in exchange for $56,500 of convertible notes plus $5,900 of accrued interest		$	62,400		$	—		$	—
68 Private Placement Units were issued in exchange for $8,000 of stock subscriptions plus $2,200 of accrued interest		$	10,200		$	—		$	—

 

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CHASE PACKAGING CORPORATION

(A Development Stage Company)

NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(Unaudited)

 

NOTE 1 — BASIS OF PRESENTATION:

 

Chase Packaging Corporation (the “Company”), a Texas corporation, previously manufactured woven paper mesh for industrial applications and polypropylene mesh fabric bags for agricultural use and distributed agricultural packaging manufactured by other companies.

 

Since January 1, 1999, the Board of Directors of the Company has devoted its efforts to establishing a new business and, accordingly, the Company is considered to be a development stage company in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 915.

 

Management’s plans for the Company include securing a merger or acquisition, raising additional capital, and/or other strategies designed to optimize shareholder value. However, no assurance can be given that management will be successful in its efforts. The failure to achieve these plans will have a material adverse effect on the Company’s financial position, results of operations, and ability to continue as a going concern.

 

The interim condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation and a reasonable understanding of the information presented. The Condensed Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q should be read in conjunction with the financial statements and the related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as amended, previously filed with the SEC.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of financial position as of March 31, 2011, results of operations for the three months ended March 31, 2011 and 2010, and cash flows for the three months ended March 31, 2011 and 2010, as applicable, have been made. The results of operations for the three months ended March 31, 2011 and 2010 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

NOTE 2 —   BASIC AND DILUTED NET LOSS PER COMMON SHARE:

 

Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding.  Diluted net loss per share is computed by dividing the net loss by the sum of the weighted-average number of common shares outstanding plus the dilutive effect of shares issuable through the exercise of common stock equivalents.

 

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We have excluded 25,684,000 and 23,987,000 common stock equivalents (warrants and preferred stock convertible to common stock) from the calculation of diluted loss per share for the three months ended March 31, 2011 and 2010, respectively, which, if included, would have an antidilutive effect.

 

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS:

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

NOTE 4 - 2007 PRIVATE PLACEMENT UNITS (“UNIT”):

 

On September 7, 2007, the Company completed a private placement, pursuant to which 13,334 units (the “Units”) were sold at a per Unit cash purchase price of $150, for a total subscribed amount of $2,000,100. Each Unit consists of: (1) one share of Series A 10% convertible preferred stock, par value $1.00, stated value $100 (the “Preferred Stock”); (2) 500 shares of the Company’s common stock, par value $0.10 (the “Common Stock”); and (3) 500 warrants (the “Warrants”) exercisable into Common Stock on a one-for-one basis.

 

Each Warrant contained in a Unit has a term of five years during which such Warrant may be exercised, at $0.15 per share, into one share of Common Stock. A total of 6,605 Units were purchased by related parties, including significant shareholders. The exercise price of the Warrants is subject to adjustment to reflect recapitalizations, stock dividends, mergers, stock splits, and similar events that would otherwise dilute the relative number of shares of Common Stock into which the Warrants may be exercised.

 

Each share of Preferred Stock contained in a Unit has a stated value of $100 and is convertible at any time into Common Stock at a rate of $0.10 per share. The conversion price of the Preferred Stock is subject to adjustment to reflect recapitalizations, stock dividends, mergers, stock splits, and similar events that would otherwise dilute the relative number of shares of Common Stock into which the Preferred Stock may be converted.

 

There are 4,000,000 shares of Preferred Stock currently authorized for issuance. At the discretion of the Company’s Board of Directors, the Company may pay to the holders of the Preferred Stock a semi-annual dividend of ten percent payable in cash or in kind (i.e., in additional shares of Preferred Stock) or any combination thereof. The holder of each share of Preferred Stock has one vote for each underlying share of Common Stock as if such Preferred Stock had been converted. At any time prior to conversion, the Company’s Board of Directors may redeem any portion or all of the Preferred Stock at a price of $100 per share of Preferred Stock. Each share of Preferred Stock has a liquidation value of $100 per share. At any time after August 2, 2011, the holders of 66 2/3% or more of the shares of Preferred Stock then outstanding may request the liquidation of their Preferred Stock. In the event that, at the time of such requested liquidation, the Company’s cash funds (in excess of a $50,000 reserve fund) then available to effect such liquidation are inadequate for such purpose, the requested liquidation shall take place (on a pro-rata basis) only to the extent such excess cash funds are available for such purpose. In the event of a merger transaction approved by the holders of the Common Stock, the holders of the Preferred Stock will have the right to a cash payment of $100 per share in connection with such merger, or the Preferred Stock will be automatically converted at the then applicable conversion rate. There was no beneficial conversion feature recorded since the Common Stock was selling for less than $0.10 per share at the time of the closing (which approximated fair value).

 

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Legal and professional fees of approximately $38,000 were incurred in connection with this private placement transaction resulting in net proceeds of approximately $1,962,000.

 

NOTE 5 — DIVIDENDS:

 

On November 1, 2010, the Company announced that the Board of Directors had declared a ten percent stock dividend on its outstanding Series A 10% Convertible Preferred Stock.  Shareholders of record as of November 15, 2010 received the stock dividend for each share of Series A Preferred Stock owned on that date, payable December 1, 2010.   As of November 1, 2010, the Company had 17,078 shares of Preferred Stock outstanding; the total dividend paid consisted of 1,696 shares of Series A Preferred Stock (which are convertible into 1,696,000 shares of common stock) with a fair value of $169,600 and $1,180 cash in lieu of fractional shares.  Due to the absence of Retained Earnings, the $1,180 of cash and $1,697 par value of Preferred Stock dividend totaling $2,876 was charged against Additional Paid-in Capital.

 

NOTE 6 — STOCK AWARDS PLAN:

 

The Company’s 2008 Stock Awards Plan (the “2008 Plan”) was approved at the Company’s annual meeting of shareholders held on June 3, 2008.  The 2008 Plan became effective April 9, 2008, and terminates on April 8, 2018.  Subject to certain adjustments, 2,000,000 shares of Common Stock may be issued pursuant to awards under the 2008 Plan.  A maximum of 80,000 shares may be granted in any one year in any form to any one participant, of which a maximum of:  (i) 50,000 shares may be granted to a participant in the form of stock options; and (ii) 30,000 shares may be granted to a participant in the form of Common Stock or restricted stock.  The 2008 Plan will be administered by a committee of the Board of Directors.  Employees, including any employee who is also a director or an officer, consultants, and outside directors of the Company, are eligible to participate in the 2008 Plan.   As of March 31, 2011, no options had been issued under the 2008 Plan.

 

NOTE 7 - FAIR VALUE MEASUREMENTS:

 

The Company adopted FASB’s ASC 820 “Fair Value Measurements” as it applies to its financial instruments, and FASB’s ASC 820 “The Fair Value Option for Financial Assets and Financial Liabilities” (including an amendment which defines fair value), which outline a framework for measuring fair value and detail the required disclosures about fair value measurements, which permits companies to irrevocably choose to measure certain financial instruments and other items at fair value. ASC 820 also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities.

 

Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. ASC 820 establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. ASC 820 requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.

 

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Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in the Company’s balance sheets, the Company has elected not to record any other assets or liabilities at fair value, as permitted by ASC 820. No events occurred during the three months ended March 31, 2011 which would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.

 

The Company determines fair values for its investment assets as follows:

 

Cash equivalents at fair value — the Company’s cash equivalents, at fair value, consist of money market funds and treasury bills — marked to market. The Company’s money market funds and treasury bills are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices from an exchange.

 

The following table provides information on those assets and liabilities measured at fair value on a recurring basis.

 

		Carrying Amount In Balance Sheet March 31, 2011			Fair Value March 31, 2011			Fair Value Measurement Using (unaudited)
		(unaudited)			(unaudited)			Level 1			Level 2			Level 3
Assets:
Money Market Funds		$	1,555,000		$	1,555,000		$	1,555,000		$	—		$	—

 

		Carrying Amount In Balance Sheet December 31,			Fair Value December 31,			Fair Value Measurement Using
		2010			2010			Level 1			Level 2			Level 3
Assets:
Money Market Funds		$	1,570,000		$	1,570,000		$	1,570,000		$	—		$	—

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES:

 

Commencing November 1, 2007, the Company’s Board of Directors agreed to pay the Company’s Chief Financial Officer an annual salary of $17,000. No other officers or directors of the Company receive compensation other than reimbursement of out-of-pocket expenses incurred in connection with Company business and development.

 

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