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EX-32.2 - CERTIFICATION - CHASE PACKAGING CORPcpka_ex322.htm
EX-32.1 - CERTIFICATION - CHASE PACKAGING CORPcpka_ex321.htm
EX-31.2 - CERTIFICATION - CHASE PACKAGING CORPcpka_ex312.htm
EX-31.1 - CERTIFICATION - CHASE PACKAGING CORPcpka_ex311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2013

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)
 
Texas
 
93-1216127
(State or other jurisdiction of incorporation)
 
(IRS Employer Identification No.)
 
636 River Road, Fair Haven, NJ 07704
(Address of principal executive offices and zip code)
 
(732) 741.1500
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.10 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 o No x

Indicate by check 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405) is not contained herein, and will not 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-K or any amendment to this Form 10-K. 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.

Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $305,270.

Number of shares of common stock outstanding as of July 25, 2014: 15,536,275

Documents incorporated by reference

Listed below are documents, parts of which are incorporated herein by reference, and the part of this report into which the document is incorporated: None
 


 
 

 
CHASE PACKAGING CORPORATION
(A Development Stage Company)
FORM 10-K
For the Fiscal Year Ended December 31, 2013
TABLE OF CONTENTS
 
     
PAGE NO
 
PART I
       
           
ITEM 1
BUSINESS
    3  
ITEM 1A
RISK FACTORS
    4  
ITEM 1B
UNRESOLVED STAFF COMMENTS
    5  
ITEM 2
DESCRIPTION OF PROPERTIES
    5  
ITEM 3
LEGAL PROCEEDINGS
    5  
ITEM 4
MINE SAFETY DISCLOSURES
    5  
           
PART II
           
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    6  
ITEM 6
SELECTED FINANCIAL DATA
    6  
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    6  
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    7  
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    8  
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    9  
ITEM 9A
CONTROLS AND PROCEDURES
    9  
ITEM 9B
OTHER INFORMATION
    10  
           
PART III
       
           
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    11  
ITEM 11
EXECUTIVE COMPENSATION
    12  
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    13  
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    15  
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
    15  
           
PART IV
       
           
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    16  
SIGNATURES
    18  

 
2

 
 
PART I
 
FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “ intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our; research and development activities, distributor channel; compliance with regulatory impositions; and our capital needs. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
 
Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
 
For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under “Part I, Item 1A, Description of Business - Risk Factors.”

ITEM 1. BUSINESS.

General

The Company is a Texas corporation which, prior to 1998, was engaged in the specialty packaging business, primarily as a supplier of packaging products to the agricultural industry. During 1997, the Company commenced an orderly liquidation of its assets (described below) which was completed in 1997. At present, management of the Company is seeking to secure a suitable merger partner wishing to go public or to acquire private companies to create investment value for the Company. For purposes of Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company is considered a shell company.

History

Prior Business Operations

The Company was established in July of 1993 as a wholly-owned subsidiary of TGC Industries, Inc. On July 30, 1993, the Company purchased certain assets of Union Camp Corporation's packaging division for a purchase price of approximately $6.14 million. The assets purchased included substantially all of the business of weaving and constructing Saxolin® paper mesh and polypropylene plastic mesh bagging material for agricultural and industrial applications and substantially all of the properties related to Union Camp’s packaging division. The properties acquired by Chase consisted of Union Camp's plant facilities located in Portland, Oregon, and Idaho Falls, Idaho, and all machinery, equipment, and inventories connected with these facilities.

The Company experienced losses from 1994 through 1997, and in 1997 the Company's secured lender decided not to renew the Company's operating line of credit. The Company's Board of Directors therefore determined that it was in the best interest of the Company and all of its creditors to liquidate in an orderly fashion.

Effective July 21, 1997, the Company sold its operations at Idaho Falls, Idaho, to Lockwood Packing Corporation ("Lockwood"). The assets sold included substantially all of the Company's equipment, furniture, fixtures, and other assets located in the Idaho Falls, Idaho, facility for a total of $75,000. In addition, the Company sold inventory from the Idaho Falls operation to Lockwood for $255,000. The proceeds from these sales were used to reduce the Company's loan balance with its lender.

On July 25, 1997, the Company notified its creditors by mail that the Company would begin an orderly liquidation of all of its remaining assets, outside of a formal bankruptcy or receivership proceeding, in a manner intended to maximize the asset values. The Company retained the firm of Edward Hostmann, Inc. to assist the Company in such liquidation which was completed during 1997.

 
3

 

Post-Liquidation Operations

Since 1999, the Board of Directors has devoted its efforts to establishing a new business or engaging in a merger or other reorganization transaction and, accordingly, the Company is being treated as a development stage company in accordance with Statement of Financial Accounting Standards ASC Topic 915.
 
The Company closed a private placement of 13,334 units (the “Units”) on September 7, 2007. Each Unit was sold for $150 and consisted of: one share of Series A 10% Convertible Preferred Stock ($100 stated value) convertible into 1,000 shares of the Company’s common stock (the “common stock”); 500 shares of common stock; and 500 five-year warrants, each warrant exercisable for one share of common stock at $0.15 per share. Gross proceeds from the offering were $2,000,100, expenses of the offering were approximately $38,000, and net proceeds were approximately $1,962,000.
 
ITEM 1A. RISK FACTORS.

The expenses related to identifying a target business and to complete a business combination will increase our losses.

Until presented with a specific opportunity for a business combination, we will be unable to ascertain with any degree of certainty the time and costs required to select and evaluate a target business and to structure and complete the business combination. Any costs incurred in connection with the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital otherwise available to complete a business combination and thereafter operate the acquired business. We cannot provide assurance that we will be successful in identifying a target business and completing a business combination on terms favorable to our shareholders, if at all.

The tax treatment of a potential business combination is not clear.

We will endeavor to structure a business combination so as to achieve the most favorable tax treatment to us and to the target business and the shareholders of both companies. We cannot provide assurance that the Internal Revenue Service or appropriate state tax authorities will agree with our tax treatment of the business combination.

We have limited ability to evaluate management’s target business. We cannot anticipate what role, if any, our management will play in a combined business and whether our management has the necessary experience to manage the combined business. We do not know if we will be able to recruit more management if necessary.

Although we intend to carefully scrutinize the management of a prospective target business before effecting a business combination, we cannot assure you that our assessment of the target's management will prove to be correct. In addition, we cannot assure you that the target's future management will have the necessary skills, qualifications, or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more of our officers and directors will remain associated in some capacity following a business combination, it is uncertain whether all of them will devote their full efforts to our affairs after a business combination. Moreover, we cannot assure you that our officers and directors will have significant experience or knowledge relating to the operations of the particular target business.

We may seek to recruit additional management personnel to supplement the incumbent management of the target business. We cannot assure you, however, that we will be able to recruit additional managers who have the requisite skills, knowledge, or experience necessary to enhance the incumbent management and successfully operate the target business.

 
4

 
 
In our search for an appropriate combination partner, we will have to compete with other entities with more experience and greater resources; after a successful business combination we will have to face the competitors of the operating company we combine with.

We may encounter intense competition from other entities seeking to combine with a privately held operating company. Many of these entities, including financial consulting companies and venture capital firms, have longer operating histories and have extensive experience in identifying and effecting business combinations. Many of these competitors also possess significantly greater financial, technical, and other resources than we do. We cannot assure you that we will be able to effectively compete with these entities. Consequently, we may acquire a company with less favorable prospects then we would otherwise prefer, thus making our long-term prospects for success less likely.

If we effect a business combination, we will become subject to competition from the competitors of the acquired business. In particular, industries that experience rapid growth frequently attract larger numbers of competitors, including competitors with greater financial, marketing, technical, and other resources than our resources. We cannot ascertain the level of competition we will face if we effect a business combination, and we cannot assure you that we will be able to compete successfully with these competitors.

The Pink Sheets are characterized by high volatility which may negatively affect our stock price.

Our common stock is quoted on the Pink Sheets under the symbol “CPKA.” The Pink Sheets, and the price of our common stock, are characterized by high volatility. We cannot guarantee any market for our shares of common stock and cannot guarantee that any stable market for our shares of common stock will develop or be sustained. We cannot predict the effect, if any, that our business activities or a business combination might have on the market price.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

The Company neither rents nor owns any properties. The Company utilizes the office space and equipment of its management at no cost. The Company currently has no policy with respect to investment or interests in real estate, real estate mortgages, or securities of, or interests in, persons primarily engaged in real estate activities.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

 
5

 
 
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company's common stock trades in the Pink Sheets under the symbol "CPKA." American Stock Transfer and Trust Company has determined that there were approximately 245 holders of record on December 31, 2013. Trading volume in the Company’s securities has been nominal. The last reported high and low prices on November 18, 2013 were $0.08 and $0.05, respectively, and the last trade was $0.05.

High and low closing stock prices for the Company’s common stock in the years ended December 31, 2013 and December 31, 2012 are displayed in the following table:

   
2013 Market Price
   
2012 Market Price
 
Quarter Ended
 
High
   
Low
   
High
   
Low
 
                         
March 31
  $ 0.01     $ 0.01     $ 0.06     $ 0.05  
June 30
  $ 0.03     $ 0.01     $ 0.05     $ 0.02  
September 30
  $ 0.03     $ 0.01     $ 0.02     $ 0.02  
December 31
  $ 0.08     $ 0.02     $ 0.03     $ 0.01  

The Company has never paid cash dividends on its shares of common stock and does not anticipate the payment of dividends on its shares of common stock in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA.

Not Applicable.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Results of Operations

During the years ended December 31, 2013 and 2012, the Company had no operations and its only income was from interest income on its short-term investments which are classified as cash and cash equivalents. The Company incurred a loss of $133,257 and $72,679 for the year ended December 31, 2013 and 2012, respectively. General and administrative expenses were $133,118 for the year ended December 31, 2013 compared to $142,656 for the year ended December 31, 2012. The Company had interest and other income of $139, and a net loss of $133,118 for the year ended December 31, 2013, compared with interest and other income of $162, and a net loss of $72,679 for the year ended December 31, 2012. The changes of the value of warrants were $0 and $60,419 for the years ended December 31, 2013 and 2012, respectively, due to the modification to the warrants described below.

Accretion of preferred stock to redemption value were $0 for the year ended December 31, 2013, compared to $100,005 for the year ended December 31, 2012 due to the amendment to the preferred stock described below. Net loss attributable to common stockholders was $133,118 for the year ended December 31, 2013, compared to $172,684 for the year ended December 31, 2012. Decreases in net loss attributable to common stockholders were due primarily to the abovementioned effect from the decrease of the change of the value of warrant to the net income/loss due to the modification to the warrants described below.

 
6

 
 
Amendments made to the Preferred Stock and Warrant Agreements.

On June 30, 2012, the Warrants were modified to extend the maturity date from September 7, 2012 to September 7, 2014 and to remove the fundamental transaction put feature and anti-dilution protection. On or before June 30, 2012, the holders of the Convertible Preferred Stock agreed to an amendment to the Series A 10% Convertible Preferred Stock which deleted the liquidation provision. As a result, the Convertible Preferred Stock is shown as equity (rather than temporary equity) in all filings beginning with the quarter ended June 30, 2012. The amendment to remove the put and the down round protection feature allows for the Warrants to be treated as equity for all filings beginning with the quarter ended June 30, 2012. Please see Note 5 to the financial statements for further explanation.

Liquidity and Capital Resources

At December 31, 2013, the Company had cash and cash equivalents of approximately $1,222,000 consisting mostly of money market funds and U.S. Treasury Bills. Management believes that its cash and cash equivalents are sufficient for its business activities for at least the next twelve months and for the costs of seeking an acquisition of an operating business.

Net cash of approximately $117,000 was used in operations during fiscal 2013, a decrease of approximately $29,000 over the $146,000 used in operations during fiscal 2012. The decrease was due primarily to not incurring in 2013 the costs incurred in 2012 in connection with the Company’s efforts to the amendments made to the Preferred Stock and Warrant Agreements and to the decrease in the legal and professional fees in fiscal 2013.

No cash flows were used or provided by investing activities for each of the periods presented.

No cash flows were used or provided by financing activities for each of the periods presented.

New Authoritative Pronouncements

See Note 2, "Summary of Significant Accounting Policies," in the notes to the financial statements in Item 8 for a full description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein.

Factors Which May Affect Future Results

Future earnings of the Company are dependent on interest rates earned on the Company’s invested balances and expenses incurred. The Company expects to incur significant expenses in connection with its objective of identifying a merger partner or acquiring an operating business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not Applicable.
 
 
7

 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CHASE PACKAGING CORPORATION
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

- INDEX TO FINANCIAL STATEMENTS -
 
   
Pages
 
       
Report of Independent Registered Public Accounting Firm
    F-1  
         
Balance Sheets
    F-2  
         
Statements of Operations
    F-3  
         
Statements of Shareholders’ Equity
    F-4 - F-6  
         
Statements of Cash Flows
    F-7  
         
Notes to Financial Statements
    F-8  
         

 
8

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
Chase Packaging Corporation
(A Development Stage Company)
Fair Haven, NJ
 
We have audited the accompanying balance sheets of Chase Packaging Corporation (a development stage company), (the “Company”) as of December 31, 2013 and 2012, and the related statements of operations, stockholders' equity and cash flows for the years then ended and for the period from January 1, 1999 (inception), to December 31, 2013. These 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 auditing 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Chase Packaging Corporation as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, and from January 1, 1999 (inception), to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ ZBS Group , LLP

Plainview, NY
July 18, 2014

255 Executive Drive, Suite 400 Plainview, New York 11803
Tel: (516) 394-3344 Fax: (516) 908-7867
www.zbscpas.com
 
 
F-1

 
 
CHASE PACKAGING CORPORATION
(A Development Stage Company)
BALANCE SHEETS

   
December 31,
   
December 31,
 
   
2013
   
2012
 
             
ASSETS
             
CURRENT ASSETS:
           
Cash
  $ 1,221,675     $ 1,338,356  
                 
TOTAL ASSETS
  $ 1,221,675     $ 1,338,356  
                 
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
                 
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 14,965     $ 5,118  
              -  
TOTAL CURRENT LIABILITIES
    14,965       5,118  
                 
COMMITMENTS AND CONTINGENCIES
    -       -  
                 
STOCKHOLDERS’ EQUITY:
               
PREFERRED STOCK, $1.00 par value; 4,000,000 authorized: Series A 10% Convertible Preferred stock; 50,000 shares authorized; 24,971 and 22,704 shares issued and outstanding as of December 31, 2013 and 2012, liquidation preference of $2,497,100 and $2,270,400 as of December 31, 2013 and 2012
    2,056,185       2,053,918  
Common stock, $.10 par value 200,000,000 shares authorized; 16,033,862 shares issued and 15,536,275 shares outstanding as of December 31, 2013 and 2012
    1,603,387       1,603,387  
Treasury Stock, $.10 par value 497,587 shares as of December 31, 2013 and 2012
    (49,759 )     (49,759 )
Additional paid-in capital
    2,562,577       2,558,254  
Accumulated deficit
    (3,626,121 )     (3,626,121 )
Deficit accumulated during the development stage
    (1,339,559 )     (1,206,441 )
TOTAL STOCKHOLDERS’ EQUITY
    1,206,710       1,333,238  
                 
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
  $ 1,221,675     $ 1,338,356  

The accompanying notes are an integral part of these financial statements.

 
F-2

 

CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS

   
For The Year Ended
December 31,
    Cumulative During the Development Stage
(January 1, 1999 to December 31,
 
   
2013
   
2012
   
  2013)
 
                   
NET SALES
  $ -     $ -     $ -  
                         
EXPENSES:
                       
General and administrative expense
    133,257       142,656       874,824  
                         
LOSS FROM OPERATIONS
    (124,597 )     (142,656 )     (874,824 )
                         
OTHER INCOME (EXPENSE)
                       
                         
Interest expense
    -       -       (8,591 )
Interest and other income
    139       162       60,184  
Change in warrant liability
    -       60,419       130,456  
Warrant liability extinguishment from modification of warrants
    -       9,396       9,396  
                         
TOTAL OTHER INCOME
    139       69,977       191,445  
                         
LOSS BEFORE INCOME TAXES
    (133,118 )     (72,679 )     (683,379 )
                         
Provision for income taxes
    -       -       -  
                         
NET LOSS
  $ (133,118 )   $ (72,679 )   $ (683,379 )
Accretion Preferred stock to redemption value
    -       (100,005 )     (656,180 )
                   
 
 
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
  $ (133,118 )   $ (172,684 )   $ (1,339,559 )
                         
BASIC AND DILUTED LOSS PER COMMON SHARE
  $ (0.01 )   $ (0.01 )        
                         
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC AND DILUTED
    15,536,275       15,536,275          
 
The accompanying notes are an integral part of these financial statements.

 
F-3

 

CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ DEFICIT
PERIOD FROM JANUARY 1, 1999 – DECEMBER 31, 2013

 
Preferred
 
Common
 
Additional Paid-in
 
Common Stock
 
Accumulated
 
Deficit Accumulated During the Development
 
 
 
Treasury Stock
     
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Subscribed
 
Deficit
 
Stage
 
Shares
 
Amount
 
Total
 
Balance at January 1, 1999
  -   $ -   7,500,551   $ 750,055   $ 2,914,207   $ -   $ (3,626,121 ) $ -   (497,587 ) $ (49,759 ) $ (11,618 )
Net loss for the year ended December 31, 1999
  -     -   -     -     -     -     -     (5,510 ) -     -     (5,510 )
                                                               
Balance at December 31, 1999
  -     -   7,500,551   $ 750,055     2,914,207     -     (3,626,121 )   (5,510 ) (497,587 ) $ (49,759 )   (17,128 )
Net loss for the year ended December 31, 2000
  -     -   -     -     -     -     -     (891 ) -     -     (891 )
                                                               
Balance at December 31, 2000
  -     -   7,500,551   $ 750,055     2,914,207     -     (3,626,121 )   (6,401 ) (497,587 ) $ (49,759 )   (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
  -     -   9,124,862     912,487     2,757,275     -     (3,626,121 )   (11,487 ) (497,587 ) $ (49,759 )   (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
  -     -   9,124,862     912,487     2,757,275     8,000     (3,626,121 )   (18,569 ) (497,587 ) $ (49,759 )   (16,687 )
Net loss for the year ended December 31, 2003
  -     -   -     -     -     -     -     (8,221 ) -     -     (8,221 )
                                                               
Balance at December 31, 2003
  -     -   9,124,862     912,487     2,757,275     8,000     (3,626,121 )   (26,790 ) (497,587 ) $ (49,759 )   (24,908 )
Net income for the year ended December 31, 2004
  -     -   -     -     -     -     -     1,237   -     -     1,237  
                                                               
Balance at December 31, 2004
  -     -   9,124,862     912,487     2,757,275     8,000     (3,626,121 )   (25,553 ) (497,587 ) $ (49,759 )   (23,671 )
Net loss for the year ended December 31, 2005
  -     -   -     -     -     -     -     (16,627 ) -     -     (16,627 )
                                                               
Balance at December 31, 2005
  -     -   9,124,862     912,487     2,757,275     8,000     (3,626,121 )   (42,180 ) (497,587 ) $ (49,759 )   (40,298 )
Net loss for the year ended December 31, 2006
  -     -   -     -     -     -     -     (12,707 ) -     -     (12,707 )
Balance at December 31, 2006
  -   $ -   9,124,862     912,487   $ 2,757,275   $ 8,000   $ (3,626,121 ) $ (54,887 ) (497,587 ) $ (49,759 ) $ (53,005 )

 
F-4

 
 
CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ DEFICIT (CONTINUED)
PERIOD FROM JANUARY 1, 1999 – DECEMBER 31, 2013
 
   
 
 
Preferred
 
Common
 
Additional Paid-in
 
Common Stock
 
Accumulated
 
Deficit Accumulated During the Development
 
 
 
Treasury Stock
     
   
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Subscribed
 
Deficit
 
Stage
 
Shares
 
Amount
 
Total
 
Balance at December 31, 2006
  -   $ -   9,124,862     912,487   $ 2,757,275   $ 8,000   $ (3,626,121 ) $ (54,887 )   (497,587 ) $ (49,759 ) $ (53,005 )
Private placement
  -     -   6,667,000     666,700     (233,736 )   -     -     -     -     -     432,964  
Prior stock subscription
  -     -   34,000     3,400     6,732     (8,000 )   -     -     -     -     2,132  
Conversion of convertible debt
  -     -   208,000     20,800     41,184     -     -     -     -     -     61,984  
Net loss for the year ended December 31, 2007-restated
  -     -   -     -     -     -     -     (423,844 )   -     -     (423,844 )
                                                                 
Balance at December 31, 2007 (restated)
  -     -   16,033,862     1,603,387     2,571,455     -     (3,626,121 )   (478,731 )   (497,587 ) $ (49,759 )   20,231  
                                                                 
Preferred shares issued as dividend
  -     -   -     -     (1,718 )   -     -     -     -     -     (1,718 )
Cash in lieu of stock
  -     -   -     -     (3,150 )   -     -     -     -     -     (3,150 )
Net income for the year ended December 31, 2008-restated
  -     -   -     -     -     -     -     99,192     -     -     99,192  
                                                                 
Balance at December 31, 2008 (restated)
  -     -   16,033,862     1,603,387     2,566,587     -     (3,626,121 )   (379,539 )   (497,587 ) $ (49,759 )   114,555  
                                                                 
Preferred shares issued as dividend
  -     -   -     -     (1,542 )   -     -     -     -     -     (1,542 )
Cash in lieu of stock
  -     -   -     -     (1,160 )   -     -     -     -     -     (1,160 )
Net loss for the year ended December 31, 2009-restated
  -     -   -     -     -     -     -     (401,956 )   -     -     (401,956 )
                                                                 
Balance at December 31, 2009 (restated)
  -     -   16,033,862     1,603,387     2,563,885     -     (3,626,121 )   (781,495 )   (497,587 ) $ (49,759 )   (290,103 )
                                                                 
Preferred shares issued as dividend
  -     -   -     -     (1,697 )   -     -     -     -     -     (1,697 )
Cash in lieu of stock
  -     -   -     -     (1,180 )   -     -     -     -     -     (1,180 )
Net loss for the year ended December 31, 2010-restated
  -     -   -     -     -     -     -     (30,302 )   -     -     (30,302 )
                                                                 
Balance at December 31, 2010 (restated)
  -     -   16,033,862     1,603,387     2,561,008     -     (3,626,121 )   (811,797 )   (497,587 ) $ (49,759 )   (323,282 )
                                                                 
Preferred shares issued as dividend
  -     -   -     -     (1,863 )   -     -     -                 (1,863 )
Net loss for the year ended December 31, 2011
  -     -   -     -     -     -     -     (221,960 )               (221,960 )
                                                                 
Balance at December 31, 2011
  -   $ -   16,033,862     1,603,387   $ 2,559,145   $ -   $ (3,626,121 ) $ (1,033,757 )   (497,587 ) $ (49,759 ) $ (547,105 )
 
 
F-5

 
 
CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS’ DEFICIT (CONTINUED)
PERIOD FROM JANUARY 1, 1999 – DECEMBER 31, 2013

   
 
 
Preferred
 
Common
 
Additional Paid-in
 
Common Stock
 
Accumulated
 
Deficit Accumulated During the Development
 
 
 
Treasury Stock
     
   
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Subscribed
 
Deficit
 
Stage
 
Shares
 
Amount
 
Total
 
Balance at December 31, 2011
  -   $ -     16,033,862   $ 1,603,387   $ 2,559,145   $ -   $ (3,626,121 ) $ (1,033,757 )   (497,587 ) $ (49,759 ) $ (547,105 )
                                                                   
Modification on preferred stock to change to equity on June 30, 2012
  20,637     2,018,516     -     -     -     -     -     -     -     -     2,018,516  
Accretion on preferred stock after classification as equity
  -     33,335     -     -     -     -     -     -     -     -     33,335  
Modification on warrants to change to equity
  -     -     -     -     1,176     -     -     -     -     -     1,176  
Preferred shares issued as dividend
  2,067     2,067     -     -     (2,067 )   -     -     -     -     -     -  
Net loss for the year ended December 31, 2012
  -     -     -     -     -     -     -     (172,684 )   -     -     (172,684 )
                                                                   
Balance at December 31, 2012
  22,704   $ 2,053,918     16,033,862   $ 1,603,387   $ 2,558,254   $ -   $ (3,626,121 ) $ (1,206,441 )   (497,587 ) $ (49,759 ) $ 1,333,238  
                                                                   
Preferred shares issued as dividend
  2,267     2,267     -     -     (2,267 )   -     -     -     -     -     -  
Stock based compensation
  -     -     -     -     6,590     -     -     -     -     -     6,590  
Net loss for the year ended December 31, 2013
  -     -     -     -     -     -     -     (133,118 )   -     -     (133,118 )
                                                                   
Balance at December 31, 2013
  24,971   $ 2,056,185     16,033,862   $ 1,603,387   $ 2,562,577   $ -   $ (3,626,121 ) $ (1,339,559 )   (497,587 ) $ (49,759 ) $ 1,206,710  
 
The accompanying notes are an integral part of these financial statements

 
F-6

 

CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS

   
For The Year Ended
December 31,
   
Cumulative During the Development Stage (January 1, 1999 to
December 31,
 
   
2013
   
2012
   
  2013)
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net loss
  $ (133,118 )   $ (72,679 )   $ (683,379 )
                         
Adjustment to reconcile to net loss to net cash used in operating activities :
                       
Change in warrant liability
    -       (60,419 )     (130,456 )
Warrant liability extinguishment from modification of warrants
    -       (9,396 )     (9,396 )
Stock based compensation
    6,590       -       6,590  
Change in assets and liabilities:
                       
Accounts payable and accrued expenses
    9,847       (4,056 )     (213 )
                         
Net cash used in operating activities
    (116,681 )     (146,550 )     (816,854 )
                         
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 INCREASE (DECREASE) IN CASH
    (116,681 )     (146,550 )     1,210,014  
                         
Cash, at beginning of year/period
    1,338,356       1,484,906       11,661  
                         
CASH, END OF YEAR/PERIOD
  $ 1,221,675     $ 1,338,356     $ 1,221,675  
                         
SUPPLEMENTAL CASH FLOW INFORMATION:
                       
                         
Cash paid for:
                       
Interest
  $ -     $ -     $ 8,591  
Income taxes
  $ -     $ -     $ -  
                         
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
                       
Accretion of preferred stock to redemption value
  $ -     $ (100,005 )   $ (656,180 )
Modification on warrants to change to equity
  $ -     $ 1,176     $ 1,176  
Preferred stock issued as stock dividend
  $ 2,267     $ 2,067     $ 11,154  
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  
 
The accompanying notes are an integral part of these financial statements.
 
 
F-7

 
 
CHASE PACKAGING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 - BASIS OF PRESENTATION:

Chase Packaging Corporation (“the Company”), a Texas Corporation, previously manufactured woven paper mesh for industrial applications, 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 been devoting its efforts to establishing a new business and, accordingly, the Company is being treated as a development stage company in accordance with Financial Accounting Standards Board’s (“FASB”) ASC 915.

Management’s plans for the Company include securing a merger or acquisition, raising additional capital, and 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.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
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 highly liquid investments that are readily convertible into cash with a remaining maturity of three months or less at the time of acquisition to be cash equivalents. The Company maintains its cash and cash equivalents balances with high credit quality financial institutions. As of December 31, 2013, and 2012, the Company had cash and cash equivalents held in financial institutions that were uninsured by Federal Deposit Insurance Corporation in the amount of approximately $1,222,000 and $1,338,000, respectively.
 
Income Taxes
 
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured assuming enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
 
The Company adopted FASB Interpretation of “Accounting for Uncertainty in Income Taxes”. There was no impact on the Company’s financial position, results of operations, or cash flows as a result of implementing this guidance. At December 31, 2013 and 2012, the Company evaluated its tax positions and did not have any unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress.
 
 
F-8

 
 
Recently Issued Accounting Pronouncements Affecting the Company:
 
In June 2014 Accounting Standards Update 2014-10 removed the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The Company will adopt this new standard for the year ended December 31, 2014.
 
Except as indicated above, the Company does not expect the adoption of any other recent accounting pronouncements to have a material impact on its financial statements.
 
NOTE 3 - BASIC AND DILUTED NET LOSS PER COMMON SHARE:
 
Basic and Diluted Net Loss Per Share:
 
Basic loss per common share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding. Diluted loss per share is computed by dividing the net loss by the sum of the weighted-average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the exercise of common stock equivalents.
 
We have excluded 32,030,000 and 29,613,000 common stock equivalents (preferred stock, warrants and stock options) from the calculation of diluted loss per share for the year ended December 31, 2013 and 2012, which, if included, would have an antidilutive effect.
 
NOTE 4 - INCOME TAXES:
 
No current provision for Federal income taxes was required for the years ended December 31, 2013 and 2012, due to the Company’s operating losses. At December 31, 2013 and 2012 the Company had unused net operating loss carry-forwards of approximately $760,000 and $627,000 which expire at various dates through 2032. Most of this amount is subject to annual limitations under certain provisions of the Internal Revenue Code related to “changes in ownership.”
 
As of December 31, 2013 and 2012, the deferred tax assets related to the aforementioned carry-forwards have been fully offset by valuation allowances, since it is more likely than not that significant utilization of such amounts will not occur in the foreseeable future.

   
2013
   
2012
 
Deferred tax assets and valuation allowances consist of:
           
Deferred tax assets:
           
Net operating loss carry forwards
  $ 304,000     $ 251,000  
                 
Less valuation allowance
    (304,000 )     (251,000 )
Net deferred tax assets
  $ -     $ -  
 
We file income tax returns in the U.S. Federal and Texas state jurisdictions. Tax years for fiscal 2008 through 2013 are open and potentially subject to examination by the New Jersey and Texas state taxing authority.
 
 
F-9

 
 
The following is a reconciliation of the tax derived by applying the statutory rate to the earnings before income taxes, and comparing that to the recorded income tax (expense) benefits:
 
   
Year ended
 
   
December 31,
 
   
2013
   
2012
 
Tax benefits (expense) at statutory rate
    35 %     (35 %)
Unrecognized tax benefits (expense) of current period tax losses
    (35 %)     35 %
Effective tax rate
    -       -  
 
The Company had no uncertain tax positions that would necessitate recording of a tax related liability.
 
NOTE 5 - PRIVATE PLACEMENT OFFERING:

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. The proceeds of $2,000,100 were allocated to the instruments as follows:

Warrant liabilities
  $ 141,027  
Redeemable and Convertible Preferred Stock
    1,388,367  
Common Stock
    470,706  
Total allocated gross proceeds:
  $ 2,000,100  

Warrants

As of December 31, 2013 and 2012, warrants to purchase 6,909,000 shares were outstanding, having exercise prices at $0.15 and an expiration date at September 6, 2014.

   
2013
   
2012
 
   
Number of warrants
   
Weighted average exercise price
   
Number of warrants
   
Weighted average exercise price
 
Balance at January 1
    6,909,000     $ 0.15       6,909,000     $ 0.15  
Issued during the period
    -     $ -       -     $ -  
Exercised during the period
    -     $ -       -     $ -  
Expired during the period
    -     $ -       -     $ -  
 
                               
Balance at December 31
    6,909,000     $ 0.15       6,909,000     $ 0.15  

As of December 31, 2013 and 2012, the average remaining contractual life of the outstanding warrants was 0.68 year and 1.67 years, respectively.

The warrants, which were issued to investors in the September 7, 2007, private placement offering, contained a provision for net cash settlement in the event that there was a fundamental transaction (contractually defined as a merger, sale of substantially all assets, tender offer, or share exchange). If a fundamental transaction occurred in which the consideration issued consisted principally of cash or stock in a non-public company, then the warrant holder had the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant. Due to this contingent redemption provision, the warrants required liability classification in accordance with ASC Topic 480, “Distinguishing Liabilities from Equity,” (“ASC 480”) and were recorded at fair value. In addition, these warrants were not indexed to the Company’s stock, and therefore also required liability classification under ASC 815, “Derivatives and Hedging,” (ASC 815).

 
F-10

 
 
NOTE 5 - PRIVATE PLACEMENT OFFERING - CONTINUED:
 
ASC 820 provides requirements for disclosure of liabilities that are measured at fair value on a recurring basis in periods subsequent to the initial recognition. Fair values for warrants are determined using the Binomial Lattice valuation technique. The Binomial Lattice valuation model provides for dynamic assumptions regarding volatility and risk-free interest rates within the total period to maturity. Accordingly, within the contractual term, the Company provided multiple date intervals over which multiple volatilities and risk free interest rates were used. These intervals allow the Binomial Lattice valuation model to project outcomes along specific paths which consider volatilities and risk free rates that would be more likely in an early exercise scenario.

Significant assumptions are determined as follows:
Trading market values—Published trading market values;
Exercise price—Stated exercise price;
Term—Remaining contractual term of the warrant;
Volatility—Historical trading volatility for periods consistent with the remaining terms;
Risk-free rate—Yields on zero coupon government securities with remaining terms consistent with the remaining terms of the warrants.
 
Due to the fundamental transaction provision, which could provide for early redemption of the warrants, the model also considered the probability the Company would enter into a fundamental transaction during the remaining term of the warrant. Since the Company is still in its development stage and is not yet achieving positive cash flow, management believes the probability of a fundamental transaction occurring over the term of the warrant is approximately ranging from 0.75% - 1.00%. For valuation purposes, the Company also assumed that if such a transaction did occur, it was more likely to occur towards the end of the term of the warrants.
 
The warrants issued are not only subject to traditional anti-dilution protection, such as stock splits and dividends, but they were also subject to down-round anti-dilution protection. Accordingly, if the Company sold common stock or common stock indexed financial instruments below the stated exercise price, the exercise price related to these warrants would adjust to that lower amount. The Lattice model used to value the warrants with down-round anti-dilution protection provided for multiple, probability-weighted scenarios at the stated exercise price and at five additional decrements/scenarios on each valuation date in order to encompass the value of the anti-dilution provisions in the estimate of fair value of the warrants, Calculations were performed at the stated exercise price and at five additional decrements/scenarios on each valuation date. The calculations provide for multiple, probability-weighted scenarios reflecting decrements that result from declines in the market prices. Decrements are predicated on the trading market prices in decreasing ranges below the contractual exercise price. For each valuation date, multiple Binomial Lattice calculations were performed which were probability weighted by considering both the Company’s (i) historical market pricing trends, and (ii) an outlook for whether or not the Company may need to issue equity or equity-indexed instruments in the future with a price less than the current exercise price.

Effective June 30, 2012, the Company entered into an amendment to its Warrant Agreement. The amendment to remove the put and the down-round protection feature allows for the Warrants to be treated as equity beginning with the quarter ended June 30, 2012.

The following table summarizes the fair value of the warrants liability as of the balance sheet date:

Fair values
 
December 31,
2013
   
December 31,
2012
   
At transaction
 date
 
September 7, 2007 financing
  $ -     $ -     $ 141,027  

Warrants issued to the placement agents in the private placement are included with the warrants to investors as they have identical exercise prices and terms.

As of December 31, 2013 and 2012, the number of shares indexed to the warrants was 0 and 0, respectively.

 
F-11

 
 
NOTE 5 - PRIVATE PLACEMENT OFFERING - CONTINUED:
 
The following are the assumptions for the valuation of the fair value of the warrant liability:

   
December 31,
2013
   
December 31,
2012
   
At transaction
date
 
Warrants outstanding
    -       -       6,909,000  
Exercise price
    -       -     $ 0.15  
Annual dividend yield
    -       -       4.01 %
Expected life (years)
    -       -       5  
Risk-free interest rate
    -       -       4.14 %
Expected volatility
    -       -       53.94 %
 
Series A 10% Convertible Preferred Stock

The principal terms of the Series A 10% Convertible Preferred Stock were as follows:
 
Voting rights – The Series A 10% Convertible Preferred Stock has voting rights (one vote per share) equal to those of the Company’s common stock.

Dividend rights – The Series A 10% Convertible Preferred Stock carries a fixed cumulative dividend, as and when declared by our Board of Directors, of 10% per annum, accrued daily, compounded annually and payable in cash upon a liquidation event for up to five years, as well as the right to receive any dividends paid to holders of common stock.
 
Conversion rights – The holders of the Series A 10% Convertible Preferred Stock have the right to convert any or all of their Series A 10% Convertible Preferred Stock, at the option of the holder, at any time, into common stock on a one for one thousand basis.
 
Redemption rights –The shares of the Series A 10% Convertible Preferred Stock may be redeemed by the Company, in whole or in part, at the option of the Company, upon written notice by the Company to the holders of Series A 10% Convertible Preferred Stock at any time in the event that the Preferred Stock of one or more holders has not been previously converted. The Company shall redeem each share of Preferred Stock of such holders within thirty (30) days of the Company's delivery of notice to such holders and such holders shall surrender the certificate(s) representing such shares of Preferred Stock.
 
Liquidation entitlement – In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A 10% Convertible Preferred Stock shall be entitled to receive, in preference to the holders of common stock, an amount equal to $100 per share of Series A 10% Convertible Preferred Stock plus all accrued and unpaid dividends.

At any time on or after August 2, 2011, the Holders of 66 2/3% or more of the Preferred Stock then outstanding could have requested 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 requested liquidation were inadequate for such purpose, then such requested liquidation should have taken place (on a ratable basis) only to the extent such excess cash funds were available for such purpose.

Other provisions – There will be proportional adjustments for stock splits, stock dividends, recapitalizations and the like.

Effective June 30, 2012, the holders of the Convertible Preferred Stock agreed to an amendment to the Series A 10% Convertible Preferred Stock which deleted the liquidation provision. As a result, the Convertible Preferred Stock was classified as equity (rather than temporary equity) in all filings beginning with the quarter ended June 30, 2012.

 
F-12

 
 
NOTE 6 - DIVIDENDS:

On November 1, 2012, the Company announced that the Board of Directors had declared a ten percent stock dividend on its outstanding Series A 10% Convertible Preferred Stock. Stockholders of record as of November 15, 2012 received the stock dividend for each share of Series A Preferred Stock owned on that date, payable December 1, 2012. As of November 1, 2012, the Company had 20,637 shares of Preferred Stock outstanding; the total dividend paid consisted of 2,067 shares of Series A Preferred Stock (which are convertible into 2,063,700 shares of Common Stock) with a fair value of $206,700 and a total of 21 fractional shares which will be accumulated until whole shares can be issued. Due to the absence of Retained Earnings, the $2,067 par value of Preferred Stock dividend was charged against Additional Paid-in Capital.

On November 1, 2013, the Company announced that the Board of Directors had declared a ten percent stock dividend on its outstanding Series A 10% Convertible Preferred Stock. Stockholders of record as of November 15, 2013 received the stock dividend for each share of Series A Preferred Stock owned on that date, payable December 1, 2013. As of November 1, 2013, the Company had 22,704 shares of Preferred Stock outstanding; the total dividend paid consisted of 2,267 shares of Series A Preferred Stock (which are convertible into 2,267,000 shares of Common Stock) with a fair value of $226,700 and a total of 14 fractional shares which will be accumulated until whole shares can be issued. Due to the absence of Retained Earnings, the $2,267 par value of Preferred Stock dividend was charged against Additional Paid-in Capital.

NOTE 7 - STOCKHOLDERS’ EQUITY:
 
The Company's 2008 Stock Awards Plan was approved April 9, 2008 by the Board of Directors and ratified at the Company's annual meeting of stockholders held on June 3, 2008. The 2008 Plan became effective April 9, 2008 and will terminate on April 8, 2018. Subject to certain adjustments, the number of shares of Common Stock that may be issued pursuant to awards under the 2008 Plan is 2,000,000 shares. 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.
 
On June 24, 2013, the Company’s Board approved the granting of incentive stock options to the 4 officers and 2 outside directors under the Company’s 2008 Stock Awards Plan for the purchase of 200,000 and 100,000 shares with grant date on June 25, 2013, respectively of the Company’s common stock at an exercise price of $0.03 per share on June 25, 2013.
 
Stock Option
 
The fair value of each option was estimated on June 25, 2013 (date of grant) using the following Black-Scholes assumptions:
 
   
Year ended December 31, 2013
 
Expected term (in years)
    5  
Expected stock price volatility
    185.25 %
Risk-free interest rate
    1.48 %
Expected dividend yield
    -  
 
The Company vested 50% of the optioned shares on date of granting the stock options and 50% of the optioned shares vested on June 25, 2014.

The following table summarizes all stock option activity under the plans:

   
Number of
Options
   
Weighted Average
Exercise Price
   
Weighted Average
Remaining Contractual Life (Years)
   
Aggregate Intrinsic Value
 
Outstanding at January 1, 2013
    -     $ -     $ -     $ -  
Granted
    300,000       0.03       5       9,000  
Exercised
    -       -       -       -  
Forfeited/expired
    -       -       -       -  
Outstanding at December 31, 2013
    300,000     $ 0.03     $ 5     $ 9,000  
Exercisable at December 31, 2013
    150,000     $ 0.03     $ 5     $ 4,500  

 
F-13

 
 
The Company recognized approximately $6,590 and $0 of stock based compensation costs related to stock options awards for the years ended December 31, 2013 and 2012, respectively; and approximately $6,590 for the period from inception to December 31, 2013. The weighted-average grant date fair value of options outstanding at December 31, 2013 was $0.0289. As of December 31, 2013 the unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan was approximately $2,078. These costs will be recognized on a straight line basis over the remaining vesting life which currently extends to June 30, 2014.
 
NOTE 8 - FAIR VALUE MEASUREMENTS:

ASC 820, “Fair Value Measurements and Disclosure,” (“ASC 820”) defines fair value 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, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels are described below:

Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs — Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs — Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

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 year ended December 31, 2013 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 — marked to market. The Company’s money market funds are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices from an exchange.

The following tables provide information on those assets measured at fair value on a recurring basis as of December 31, 2013 and 2012, respectively.

   
Carrying Amount In Balance Sheet
December 31,
   
Fair Value
December 31,
    Fair Value Measurement Using  
   
 2013
   
2013
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                             
Money Market Funds
  $ 1,222,000     $ 1,222,000     $ 1,222,000     $     $  

   
Carrying Amount In Balance Sheet
December 31,
   
Fair Value
December 31,
    Fair Value Measurement Using  
   
 2012
   
2012
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                             
Money Market Funds
  $ 1,338,000     $ 1,338,000     $ 1,338,000     $     $  
 
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
 
The Company’s Board of Directors has 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.
 
 
F-14

 
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.
 
ITEM 9A. CONTROLS AND PROCEDURES.

(a)           Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2013, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting for the period as disclosed below.
 
(b)           Management’s annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
l  
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and the dispositions of the assets of the Company;
l  
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and the board of directors of the Company; and
l  
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with the policies or procedures.

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 
9

 
 
Previously, we have restated our financial statements as of and for the fiscal year ended December 31, 2010, for the period from January 1, 1999 (inception) to December 31, 2010 and as of and for the fiscal quarters ended March 31, June 30 and September 30, 2010. As a result of the delay in filing and the time and effort required for filing these restatements, we have not made timely filing of our Forms 10-Q and Forms 10-K, including this Form 10-K for the year ended December 31, 2013. In connection with management’s assessment of our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, we identified this delay in filing this Form 10-K for the year ended December 31, 2013 as a material weakness in our internal control over financial reporting as of December 31, 2013.
 
Due to the weakness noted, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2013.

Our management does not believe that the material weakness in our internal control over financial reporting had a material effect on our financial condition or results of operations or caused our financial statements for the year ended December 31, 2013 to contain a material misstatement.

Management’s report was not subject to attestation by the Company’s independent registered public accounting firm since the Company is classified as a smaller reporting company.

(c)           Changes in Internal Controls over Financial Reporting.

We will regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new and more efficient systems, consolidating activities, and migrating processes.

During the quarter ended December 31, 2013, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to affect materially, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION.
 
None

 
10

 
 
PART III
 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Board of Directors
 
Information concerning each member of Chase’s Board of Directors is set forth below:

Name, Age, and Business Experience
 
Positions with Company
Allen T. McInnes, Ph.D., 76
Joined the Board of Directors in 1993 and has served as Chairman of the Board, President, and Treasurer of the Company since 1997; Director of TGC Industries, Inc. (“TGC”), a company engaged in the geophysical services industry, since 1993; Chairman of the Board of TGC from July 1993 to March 2004 and Presiding Director of the Board since March 2004; Chief Executive Officer of TGC from August 1993 to March 1996; Director of Tetra Technologies, a chemical manufacturer, from 1993 to 2012; President and Chief Executive Officer of Tetra Technologies, Inc. from April 1996 to January 2000; and Dean of the Rawls College of Business at Texas Tech University from September 2001 to September 2012. Dr. McInnes was selected to serve as a director of the Company due to his extensive background as an experienced leader of major organizations, his experience serving on the boards of other public companies, and his experience as chief executive officer of another public company. In addition, Dr. McInnes’ experience as former Dean of the Business School at Texas Tech University provides the Board with a link to developments in business management practices.
 
Chairman of the Board,
President and Treasurer
     
Herbert M. Gardner, 74
Vice President of the Company since 2001; was a Director of the Company from 1996 to 1997 and rejoined the Board of Directors in 2001; Director of TGC Industries, Inc. (“TGC”), a company engaged in the geophysical services industry, since 1980; Executive Vice President of Barrett-Gardner Associates, Inc., a private merchant banking firm, from November 2002 until June 2009; and previously Senior Vice President of Janney Montgomery Scott LLC, an investment banking firm, from 1978 to 2002; Chairman of the Board of Supreme Industries, Inc. (“Supreme”), a manufacturer of specialized truck bodies and shuttle buses, since 1979; Chief Executive Officer of Supreme from 1979 to January 2011; President of Supreme from June 1992 to February 2006; former Director of Nu-Horizons Electronics Corp., an electronics component distributor, from 1984 until January 2011; and former Director of MKTG, Inc., a marketing and sales promotion company from 1997 until January 2010. Mr. Gardner was selected to serve as a director of the Company because of his strong executive management skills, his business acumen, and his experience as chief executive officer of another public company.
 
Vice President and
 Director
     
William J. Barrett, 74
Secretary of the Company since 2001, was a Director of the Company from 1996 to 1997, and rejoined the Board of Directors in 2001; Director of TGC Industries, Inc. (“TGC”), a company engaged in the geophysical services industry, since 1980; Secretary of TGC from 1986 to November 1997; President of W. J. Barrett Associates, Inc., an investment banking firm, since June 2009; President of Barrett-Gardner Associates, Inc., a private merchant banking firm, from November 2002 until June 2009; previously Senior Vice President of Janney Montgomery Scott LLC, an investment banking firm, from 1978 to 2002; Director, Executive Vice President, and Secretary of Supreme Industries, Inc., a manufacturer of specialized truck bodies and shuttle buses, since 1979; Director of Babson Corporate Investors, a close-end investment company, since July of 2006; and a Director of Babson Participation Investors, a close-end investment company, since July of 2006. Mr. Barrett brings to the Board keen business and financial judgment and an extraordinary understanding of the Company’s business, history, and organization, as well as extensive leadership experience.
 
Secretary and Director
     
Edward L. Flynn, 79
Director of the Company since 2007; Director of TGC Industries, Inc. (“TGC”), a company engaged in the geophysical services industry, since 1999; Owner of Flynn Meyer Company, a management company for the restaurant industry, since 1976; Director and Treasurer of Citri-Lite Co., a soft drink company, since 1994; Director of Supreme Industries, Inc., a manufacturer of specialized truck bodies and shuttle buses, since 2007; and Director of Bioject Medical Technologies Inc., a medical device company, since 2007. Mr. Flynn is an experienced leader of large organizations and brings to the Board strong executive management skills and experience serving on the boards of other public companies.
 
Director
     
Wayne A. Whitener, 62
Director of the Company since 2009; Mr. Whitener has been Director of TGC Industries, Inc. (“TGC”), a company engaged in the geophysical services industry, since 1984; President of TGC since July 1986; Chief Executive Officer of TGC since 1999; Chief Operating Officer of TGC from July 1986 to December 1998; Vice President of TGC from 1983 to July 1986; and a Director of Supreme Industries, Inc., a manufacturer of specialized truck bodies and shuttle buses, since 2008. As the principal executive officer of another public company, Mr. Whitener provides valuable insight and guidance on the issues of corporate strategy and risk management.
 
Director

 
11

 
 
Executive Officers
 
The following table sets forth certain information concerning the persons who serve as executive officers of the Company and who will continue to serve in such positions at the discretion of the Board of Directors.
 
Allen T. McInnes
  76  
Chairman, President, and Treasurer
Herbert M. Gardner
  74  
Vice President
William J. Barrett
  74  
Secretary
Ann C. W. Green
  72  
Chief Financial Officer and Assistant Secretary

Additional information regarding Messrs. McInnes, Gardner, and Barrett is included in the foregoing information relating to the Board of Directors. Ms. Green has served as Chief Financial Officer and Assistant Secretary of the Company since 2001. She is Vice President of W. J. Barrett Associates, Inc., a private merchant banking firm. Ms. Green also serves as Assistant Secretary of each of Supreme Corporation, a specialized manufacturer of truck bodies and shuttle buses, and TGC Industries, Inc., a geophysical services company. She previously served for 15 years as Assistant Vice President of Janney Montgomery Scott, LLC, an investment banking firm.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who own more than 10% of the Company’s common stock, par value $.10 per share (the “ Common Stock ”), to file with the SEC certain reports of beneficial ownership of Common Stock. Based solely on copies of such reports furnished to the Company and written representations that no other reports were required, the Company believes that all applicable Section 16(a) filing requirements were complied with by its directors, officers, and 10% shareholders during the last fiscal year.
 
Committees
 
The Board of Directors has not designated any committees. Since the Company is a development stage company, the Board of Directors believes that it adequately performs all necessary functions regarding governance of the Company.
 
Code of Ethics
 
The Board of Directors has not adopted a code of ethics that applies to its executive officers. Since the Company is a development stage company with no operations and since only one of its executive officers receives compensation, the Board of Directors believes that a code of ethics is not necessary to deter wrongdoing and to promote honest and ethical conduct and accurate disclosure in the Company’s public communications.

ITEM 11. EXECUTIVE COMPENSATION.

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 of the Company receive compensation other than reimbursement of out-of-pocket expenses incurred in connection with Company business and development. There were no equity awards at fiscal year-end.
 
Summary Compensation Table

Name and Principal Position
 
 
 
Year
   
 
Salary
   
 
Bonus
   
Stock Awards
   
Option
Awards
   
Non-Equity
Incentive
Plan Compensation ($)
   
Nonqualified
Deferred Compensation
Earnings
($)
   
All
Other
Compensation
   
Total
 
                                                       
Ann C. W. Green,
 
2013
    $ 17,000       -0-       -0-       -0-       -0-       -0-       -0-       17,000  
Chief Financial Officer  
2012
    $ 17,000       -0-       -0-       -0-       -0-       -0-       -0-       17,000  

 
12

 
 
Director Compensation
 
Directors of the Company are not paid fees, but are reimbursed for expenses incurred in connection with attendance at meetings of the Board of Directors and out-of-pocket expenses incurred in connection with Company business and development.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Name and Address of Beneficial Owner
 
Title of Class
 
Amount and 
Nature of
Beneficial 
Ownership
   
Approximate
Percentage
of Class (1)
 
Allen T. McInnes
P. O. Box 6199 Fair Haven, NJ 07704
 
Common
    5,678,954 (5)     29.7 %
                     
Herbert M. Gardner
P. O. Box 463 Wading River, NY 11792
 
Common
    3,966,387 (2) (5)     21.5 %
                     
William J. Barrett
P. O. Box 6199 Fair Haven, NJ 07704
 
Common
    5,603,405 (3) (5)     28.4 %
                     
Edward L. Flynn
7511 Myrtle Avenue Glendale, NY 11385
 
Common
    1,988,359 (4) (5)     11.6 %
                     
Wayne A. Whitener
101 E. Park Blvd., Ste 955 Plano, TX 75074
 
Common
    122,738 (5)     0.8 %
                     
Ann C. W. Green
P. O. Box 6199 Fair Haven, NJ 07704
 
Common
    898,775 (5)     5.6 %