10KSB 1 v069462_10ksb.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

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

For the fiscal year ended December 31, 2006
  
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
  
(I.R.S. Employer Identification No.)
incorporation or organization)
    

636 River Road
    
Fair Haven, NJ
  
07704
(Address of principal executive offices)
  
(Zip Code)

Registrant's telephone number, including area code: 732-741-1500
Securities registered pursuant to Section 12 (b) of the Act: None

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

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

Issuers revenues for the most recent fiscal year - $ -0-  
The aggregate market value of voting stock held by non-affiliates of the registrant as of December 31, 2006 was $ N/A  

Indicate by check mark whether the registrant has filed all documents and reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x  No o
 
As of December 31, 2006, the registrant had outstanding 8,627,275 shares of Common Stock ($.10 par value)


PART I


Chase Packaging Corporation ("Chase" or the "Company"), is a Texas corporation which 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 as described below.
 
History

Chase Packaging Corporation (the "Company") was established in July of 1993 as a wholly owned subsidiary of TGC Industries, Inc. ("TGC") of Plano, Texas. On July 30, 1993, the Company purchased certain assets of Union Camp Corporation's Chase Packaging division ("Chase Bag"), 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 Chase Bag. 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 had experienced losses for the past years, and 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"), as a going concern. 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 pay down the Company's loan balance with its bank.

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 which is intended to maximize the asset values. The Company retained the firm of Edward Hostmann, Inc. to assist the Company in such liquidation.

The Board of Directors is currently devoting its efforts to establishing a new business and accordingly, the Company is being treated as a development stage company, in accordance with Statement of Financial Accounting Standards No. 7, effective January 1, 1999.



None.



None.

2


No matters were submitted by the Company during the fourth quarter of the fiscal year ended December 31, 2006 to a vote of the Company's security holders, through the solicitation of proxies or otherwise.




The Company's Common Stock was eligible to commence trading under the symbol "CPKA" on March 10, 1997 and the first trade occurred on March 10, 1997, at $.04 per share. The number of shareholders of record as of December 31, 2006 was not known. As a result of the events detailed above, the Company’s securities trade on an extremely limited basis.
 


The Company has experienced cash losses for the past years in spite of numerous infusions of working capital and an aggressive program of inventory and expense reduction. During 1997, the Board of Directors determined that an orderly liquidation was in the best interest of the Company and all of its creditors and retained the firm of Edward Hostmann, Inc. to assist the Company in such liquidation. Accordingly, the Company ceased all operations with the close of business on June 30, 1997.

As part of the liquidation process, effective July 21, 1997, the Company sold most of its assets in Idaho Falls, Idaho (excluding real estate) to Lockwood Packaging Corporation for $330,000. The Company also sold the Idaho Falls real estate (land and building). During July and August of 1997 Chase sold most of its inventory in Portland to other packaging companies. The Company also sold its band label extruder for $125,000 with remaining inventory and machinery and equipment sold at an August 14 auction for gross proceeds of approximately $340,000. As of December 31, 1997, the Company had completed the liquidation of all of its assets.

Effective January 1, 1999, the Board of Directors 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 Statement of Financial Accounting Standards No. 7, as of that date. The Company continues to pay for minor administrative expenses and is generating interest income on its remaining cash balance.

During 2001, the Company sold common shares in a private placement and together with the exercise of common stock purchase warrants, realized net proceeds of $5,500. During 2002, the Company received common stock subscriptions aggregating $8,000. In 2004, 2005, and 2006 the Company received aggregate net proceeds of $47,000 from the issuance of 5% convertible notes. As in the past the Company believes that it will be able to satisfy its ongoing minimal expenses from loans from its officers/shareholders.

During 2006, the Company recorded a net loss of $12,707 compared with $16,627 for 2005 due principally to higher interest expense and less general administrative expenses. The Company as of December 31, 2006 has cumulative losses of $54,887 during its development stage since January 1, 1999. The Company has had recurring losses from operations and its dependency on future financing raises substantial doubt about its ability to continue as a going concern.

No officers of the Company have received a salary during the development stage due to the minimal amount of time spent by any officer.


3


ITEM 7. FINANCIAL STATEMENTS.

CHASE PACKAGING CORPORATION
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005



- INDEX TO FINANCIAL STATEMENTS -


   
Page(s)
  
       
Report of Independent Registered Public Accounting Firm
  
 F-2
  
       
Financial Statements:
      
       
Balance sheets
  
 F-3
  
       
Statements of Operations
  
 F-4
  
       
Statements of Shareholders’ Deficit
  
 F-5
  
       
Statements of Cash Flows
  
 F-6
  
       
Notes to Financial Statements.
  
 F-7 - F-10
  



F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Shareholders
Chase Packaging Corporation



We have audited the accompanying balance sheets of Chase Packaging Corporation (A Development Stage Company) as of December 31, 2006 and 2005 and the related statements of operations, shareholders’ deficit and cash flows for the years then ended and for the development stage period (from January 1, 1999 to December 31, 2006). 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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, 2006 and 2005, and the results of its operations and its cash flows for the years then ended and for the development stage period from January 1, 1999 to December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1, the Company’s recurring losses from operations and its dependency on future financing raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.





____________________________
LAZAR LEVINE & FELIX LLP


New York, New York
March 20, 2007

F-2

CHASE PACKAGING CORPORATION
(A Development Stage Company)
BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005



   
2006
  
2005
  
- ASSETS -
  
CURRENT ASSETS:
          
Cash and cash equivalents
  
$
2,691
  
$
1,186
  
               
TOTAL ASSETS
  
$
2,691
  
$
1,186
  
               
               
- LIABILITIES AND SHAREHOLDERS' (DEFICIT) -
               
CURRENT LIABILITIES:
              
Accrued expenses
  
$
8,696
  
$
9,484
  
Convertible notes payable
    
47,000
    
-
 
TOTAL CURRENT LIABILITIES
    
55,696
    
9,484
  
               
CONVERTIBLE NOTES PAYABLE
    
-
   
32,000
  
               
COMMITMENTS AND CONTINGENCIES
              
               
SHAREHOLDERS' (DEFICIT):
              
Preferred stock $1.00 par value; 4,000,000 shares authorized, none issued and outstanding
    
-
   
-
 
Common stock $.10 par value, 25,000,000 shares authorized, 8,627,275 shares issued and outstanding
   
862,728
    
862,728
  
Additional paid-in capital
    
2,757,275
    
2,757,275
  
Common stock subscribed
    
8,000
    
8,000
  
Accumulated deficit
    
(3,626,121
)
  
(3,626,121
)
Deficit accumulated during the development stage
    
(54,887
)
  
(42,180
)
TOTAL SHAREHOLDERS’ (DEFICIT)
    
(53,005
)
  
(40,298
)
               
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT)
  
$
2,691
  
$
1,186
  



See notes to financial statements.
 

 
F-3
CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS



   
Cumulative
During the Development Stage (January 1, 1999 to
  
For the Year Ended
December 31,
  
   
December 31, 2006
  
2006
  
2005
  
               
NET SALES
  
$
-
 
$
-
 
$
-
 
                     
COSTS AND EXPENSES:
                    
General and administrative expense
    
58,803
    
10,300
    
14,800
  
Reversal of over-accrued expenses
    
(7,077
)
  
-
   
-
 
Interest expense
    
4,391
    
2,515
    
1,876
  
Interest income
    
(1,230
)
  
(108
)
  
(49
)
     
54,887
    
12,707
    
16,627
  
                     
LOSS BEFORE INCOME TAXES
    
(54,887
)
  
(12,707
)
  
(16,627
)
                     
Provision for income taxes
    
-
   
-
   
-
 
                     
NET LOSS
  
$
(54,887
)
$
(12,707
)
$
(16,627
)
                     
                     
                     
LOSS PER COMMON SHARE - Basic and diluted
        
$
-
 
$
-
 
                     
                     
WEIGHTED AVERAGE COMMON
                   
SHARES OUTSTANDING
          
8,627,275
    
8,627,275
  
                     



See notes to financial statements.
 

 
F-4
CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS’ (DEFICIT)


   
Common Stock
  
Additional
Paid-in
  
Common Stock
  
Accumulated
  
(Deficit) Accumulated During the Development
      
   
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
)
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
)


See notes to financial statements.
F-5


CHASE PACKAGING CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
 
   
Cumulative
During the
Development Stage (January 1, 1999 to
  
 
 
For The Year Ended        December 31,       
  
   
December 31, 2006)
  
  2006  
  
  2005  
  
               
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
              
               
CASH FLOWS FROM OPERATING ACTIVITIES:
              
Net loss
  
$
(54,887
)
$
(12,707
)
$
(16,627
)
                     
Change in assets and liabilities:
                    
Accrued expenses
    
(14,583
)
  
(788
)
  
(2,421
)
Net cash (used in) operating activities
    
(69,470
)
  
(13,495
)
  
(19,048
)
                     
CASH FLOWS FROM INVESTING ACTIVITIES
    
-
   
-
   
-
 
                     
CASH FLOWS FROM FINANCING ACTIVITIES
                    
Proceeds from convertible debt
    
47,000
    
15,000
    
19,500
  
Proceeds from private placement/exercise of stock warrants
    
5,500
    
-
   
-
 
Capital contribution
    
8,000
    
-
   
-
 
Net cash provided by financing activities
    
60,500
    
15,000
    
19,500
  
                     
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
(8,970
)
  
1,505
    
452
  
                     
Cash and cash equivalents, at beginning of period
    
11,661
    
1,186
    
734
  
                     
CASH AND CASH EQUIVALENTS, END OF PERIOD
  
$
2,691
  
$
2,691
  
$
1,186
  


See notes to financial statements.
F-6


CHASE PACKAGING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

NOTE 1 - DESCRIPTION OF COMPANY / BASIS OF PRESENTATION:

Chase Packaging Corporation (“the Company”), a Texas Corporation, manufactured woven paper mesh for industrial applications, polypropylene mesh fabric bags for agricultural use and distributed agricultural packaging manufactured by other companies. The Company was a wholly-owned subsidiary of TGC Industries, Inc. (TGC) through July 31, 1996.

The Company had experienced losses for past years, and the Company’s secured lender decided not to renew the Company’s operating line of credit. As a result, the Company’s Board of Directors determined that it was in the best interest of the Company and all of its creditors to liquidate in an orderly fashion.

On June 25, 1997, the Company announced to employees and creditors that it would begin an orderly liquidation of all its assets beginning at the close of business on June 30, 1997. On July 25, 1997, the Company notified its creditors by mail that it would commence with an orderly liquidation of all its remaining assets outside of a formal bankruptcy or receivership proceeding in a manner intended to maximize asset values. Liquidation of the Company’s assets was completed as of December 31, 1997.

The Board of Directors 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 Statement of Financial Accounting Standards No. 7, effective January 1, 1999.

These financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As discussed earlier, the Company is in the development stage, has no business operations of its own and has no sources of revenue. Further, as of December 31, 2006, the Company has negative working capital of $53,005, an accumulated deficit of $3, 681,008 ($54,887 realized during the development stage period from January 1, 1999 to December 31, 2006) and a total shareholders’ deficit of $53,005, all of which raise substantial doubt about the Company’s ability to continue as a going concern.

Managements’ 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:

The Company’s accounting policies are in accordance with accounting policies generally accepted in the United States of America. Outlined below are those policies which are considered particularly significant.

(a) 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.
 
 
F-7
CHASE PACKAGING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

(b) 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 bases. 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.

(c) Loss per Common Share:

Loss per common share - basic and diluted was calculated by dividing the net loss by the weighted average number of shares outstanding for each period presented.

(d)  Recently Issued Accounting Pronouncements Affecting the Company:
 
Statement of Financial Accounting Standard 157, Fair Value Measurements (“SFAS 157”)
 
In September 2006, the Financial Accounting Standard Board issued a standard that provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances.
 
This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The application of this statement is not expected to have an impact on the Company’s financial statement.
 
SEC Staff Accounting Bulletin 108 (“SAB 108”), Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements
 
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements.
 
 
F-8

CHASE PACKAGING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

(d)  Recently Issued Accounting Pronouncements Affecting the Company (Continued)

Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the “roll-over” method and the “iron curtain” method. The roll-over method focuses primarily on the impact of a misstatement on the income statement—including the reversing effect of prior year misstatements—but its use can lead to the accumulation of misstatements in the balance sheet. The iron-curtain method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement.

In SAB 108, the SEC provided guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality assessment. This model is commonly referred to as a "dual approach" because it requires quantification of errors under both the iron curtain and the roll-over methods. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the "dual approach" had always been used or (ii) recording the cumulative effect of initially applying the "dual approach" as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. The application of this statement is not expected to have an impact on the Company’s financial statement.

Financial Accounting Standards Board (FASB) No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”)

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), which provides clarification related to the process associated with accounting for uncertain tax positions recognized in consolidated financial statements. FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. We are required to adopt FIN 48 on November 1, 2007, although early adoption is permitted. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.


NOTE 3 - INCOME TAXES:
 
 
   
 2006
  
 2005
  
Deferred tax assets and liabilities consist of the following:
          
           
Deferred tax assets:
          
Net operating loss carry forwards
  
$
1,122,000
  
$
1,120,000
  
Less valuation allowance
    
(1,122,000
)
  
(1,120,000
)
 
   $ 
-
  
$
-
 

At December 31, 2006, the Company had approximately $3,300,000 of net operating loss carry forwards (“NOL’s”) available which expires in years beginning in 2011. The benefits of these NOL’s may be substantially reduced in the future if the Company is successful in establishing a new business. Since the Company cannot determine that it is more likely than not that they will be able to utilize the deferred tax asset, a 100% a valuation allowance has been provided.
 
 
F-9
CHASE PACKAGING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
 

NOTE 3 - INCOME TAXES (Continued):

In accordance with certain provisions of the Tax Reform Act of 1986, a change in ownership of greater than 50% within a three year period will place an annual limitation on the corporation’s ability to utilize its existing tax benefit carryforwards.


NOTE 4 - CONVERTIBLE DEBT:

The Company has issued the following 5% Convertible Notes:
 

2004 third quarter
  
$
12,500
  
2005 first quarter
    
4,000
  
2005 second quarter
    
8,000
  
2005 third quarter
    
5,000
  
2005 fourth quarter
    
2,500
  
2006 first quarter
    
7,500
  
2006 second quarter
    
7,500
  
   
$
47,000
  
 
The note holders are directors and an officer of the Company. The Notes are convertible into common stock at $0.01 or par value (currently $0.10 per share) whichever is greater. The Company and the Note Holders have the option to mutually extend the term of the Notes if the par value has not been reduced to $0.01. If the Notes are converted at par greater than $0.01, then the Note Holders will, upon conversion, receive a Unit consisting of one share of common stock and a 10-year warrant exercisable at the then par value of the common stock. The Company has analyzed the conversion feature of this debt as an embedded derivative using the guidance provided in SFAS 133 - 'Accounting for Derivative Instruments and Hedging Activities" and Emerging Issues Task Force 00-19-1 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" and has concluded that the conversion feature is afforded equity classification since the Company has sufficient authorized and unissued shares available to settle the contract after considering all other commitments that may require the issuance of stock during the maximum period the derivative contract could remain outstanding. Interest will accrue and be paid at maturity and, if unpaid, added to principal at the time of conversion. The notes, which were originally due one year from issuance, have been extended and are all now due on July 15, 2007. Interest accrued and unpaid as of December 31, 2006 and 2005, aggregated $4,391 and $1,876, respectively. Interest expense on these notes was $2,515 and $1,876 for the years ended December 31, 2006 and 2005, respectively.


NOTE 5 - SHAREHOLDERS’ (DEFICIT):

In July 2002, the Company received $8,000 as payment for 800,000 shares of common stock. Such shares have not been issued as of the filing of this report.


F-10


None.


ITEM 8A. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms,.

(b) Changes in Internal Controls Over Financial Reporting.

In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART III
 


The Board of Directors of the Company consists of three persons who will serve until the next annual meeting of shareholders of the Company. The following table sets forth certain information concerning the individuals serving as Directors of the Company:

Name and Age
 
Date Since Which Continuously a Director of the Company
  
Business Experience and Other Directorships
Allen T. McInnes, 69
  
1993
  
Currently Dean of the Business School of Texas Tech University; Chairman of the Board of TGC Industries, Inc. since 1993 and Chief Executive Officer from August, 1993 to March 31, 1996; Executive Vice President and Director of Tenneco, Inc. 1960-1992; Director of TETRA Technologies since April 1, 1996
Herbert M. Gardner, 67
  
2001
  
Executive Vice President and Treasurer of Barrett-Gardner Associates, Inc., an investment banking firm; Director of Co-Active Marketing Group, Inc., a marketing and sales promotion company; Director of Nu Horizons Electronics Corp., an electronic component distributor; Chairman of the Board and Director of Supreme Industries, Inc., a manufacturer of specialized truck bodies and shuttle buses, since 1979; Director of TGC Industries, a seismic services company; Director of Rumson-Fair Haven Bank and Trust Company, a New Jersey state independent, commercial bank and trust company.
         
William J. Barrett, 67
  
2001
  
President of Barrett-Gardner Associates, Inc., an investment banking firm; Director of Supreme Industries, Inc., a specialized manufacturer of truck bodies and shuttle buses; Director of TGC Industries, Inc., a seismic services company; Chairman of the Board of Rumson-Fair Haven Bank and Trust Company, a New Jersey state independent, commercial bank and trust company.

Unaffiliated Directors of the Company are not paid fees, but will be reimbursed for expenses in connection with meetings of the Board of Directors attended by them.

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Executive Officers

The following table sets forth certain information concerning the persons who serve as executive officers of the Company, and will continue to serve in such positions, as the discretion of the Board of Directors. For those persons who are also Directors of the Company, additional information appears above.

Name
Age
Position
     
Allen T. McInnes
69
Chairman, President


To the best of the Company's knowledge all directors, executive officers, and beneficial owners have complied with the requirements of Section 16(a) of the Exchange Act.



No compensation has been paid by the Company to any officer during the past 3 years. In addition, no compensation has been accrued or provided for due to the minimal amount of time spent by any officer.


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The following table sets forth the names of those persons known to Management to be beneficial owners of more than five percent of the Company's $.10 par value Common Stock as of June 1, 2003. The table also sets forth information with respect to the Company's Common Stock which is beneficially owned by each director and executive officer of the Company, and by all directors and officers of the Company as a group, as of June 1, 2003 (including shares beneficially owned by such persons, pursuant to the rules of beneficial ownership, as a result of the ownership of certain warrants or options) according to data furnished by the persons named. Persons having direct beneficial ownership of the Company's Common Stock possess the sole voting and dispositive power in regard to such stock.

Name and address
  
Title of Class
  
Amount and Nature of
Beneficial Owner
  
Approximate Percentage
of Class (1)
             
Allen T. McInnes
  
Common
  
1,318,954
 
16.22%
             
Herbert M. Gardner
  
Common
  
911,083 (2)
 
11.20%
             
William J. Barrett
 
Common
  
1,035,060 (3)
 
12.73%
             
Special Situations Funds (4)
153 E. 53rd Street, 51st Fl.
New York, NY 10022
  
Common
  
789,165
 
9.70%
             
All directors & officers as a group
(3 persons)
  
Common
  
3,265,097 (5) (6)
  
40.15%


(1) The percentage calculations have been made in accordance with Rule 13d- 3(d) (1) promulgated under the Securities Exchange Act of 1934.
(2) Excludes 78,590 shares of Common Stock owned by Herbert M. Gardner's wife. Mr. Gardner has disclaimed beneficial ownership of these shares.

(3) Excludes 119,345 shares of Common Stock owned by William J. Barrett's wife. Mr. Barrett has disclaimed beneficial ownership of these shares.

(4) MGP Advisors Limited Partnership ("MGP") is the general partner of Special Situations Funds ("Special Situations"). AWM Investment Company, Inc. ("AWM") is the sole general partner of MGP. Austin W. Marxe is the principal limited partner of MGP and is the President and Chief Executive Officer of AWM.

(5) Excludes 800,000 shares of Common Stock issuable pursuant to $8,000 received in July 2002.

(6) Excludes shares of Common Stock issuable pursuant to the conversion of $47,000 of 5% Convertible Notes due 2007. (See Note 4 to Financial Statements for terms of conversion.)



To the best of the Company's knowledge there have been no transactions with management or other related parties to which the Company has been a party.

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ITEM 13. EXHIBITS

Exhibits

Exhibit 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregated fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of our annual financial statements and review of financial statements included in our Forms 10-QSB were $12,500 and $12,000 for 2006 and 2005, respectively.

Audit Related Fees

None

Tax Fees

The aggregated fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the preparation of our corporate tax returns were $1,500 for each of the 2006 and 2005 years.

All Other Fees

None

Audit Committee Pre-Approval Policies

The Board of Directors which functions as the audit committee makes reasonable inquiry as to the independence of our principal auditors based upon the considerations set forth in Rule 2-01 of Regulation S-X, including the examination of representation letters furnished by the principal accountant. The audit committee has not approved any services beyond those required for the audit of our annual financial statements and review of financial statements included in our Forms 10-KSB and the preparation of our annual tax return.

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SIGNATURES

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

CHASE PACKAGING CORPORATION
 
Date: March 23, 2007   By:   /s/ Allen McInnes 
 
Allen McInnes
President & Principal Executive Officer
   
     
  By:   /s/ Ann W. Green 
   
Ann W. Green
Assistant Secretary
Principal Financial and Accounting Officer

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