U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDING MARCH 31, 1997.
[ ] 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 small business issuer as specified in its charter)
Texas 93-1216127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 NW Nicolai Street
Portland, Oregon 97210
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number, including area code: 503/228-4366
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
---- ----
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at April 30, 1997
Common Stock ($.10 Par Value) 7,002,964
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Incorporated herein is the following unaudited financial
information:
Consolidated Balance Sheet as of March 31, 1997.
Consolidated Statements of Operations for the three-
month periods ended March 31, 1997 and 1996.
Consolidated Statements of Cash Flows for the three-
month periods ended March 31, 1997 and 1996.
Notes to Consolidated Financial Statements.
CHASE PACKAGING CORPORATION
BALANCE SHEET
(Unaudited)
<TABLE>
<S> <C>
March 31, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,426
Accounts receivable, net of allowance
for doubtful accounts of $91,853 982,142
Inventories 2,056,735
Prepaid expenses 334,446
---------
Total current assets 3,391,749
PROPERTY, PLANT, AND EQUIPMENT - at cost
Buildings 380,999
Machinery and equipment 2,175,762
---------
2,556,761
Less accumulated depreciation 999,872
1,556,889
Land 72,890
---------
1,629,779
OTHER ASSETS 9,229
Total assets $ 5,030,757
=========
See notes to financial statements.
</TABLE>
CHASE PACKAGING CORPORATION
BALANCE SHEET -- CONTINUED
(Unaudited)
<TABLE>
<S> <C>
March 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 899,458
Accrued liabilities 438,783
Advance billings 120,978
Line-of-credit 1,330,428
----------
Total current liabilities 2,789,647
LONG-TERM OBLIGATIONS ---
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value - authorized
shares, 4,000,000; issued and outstanding
shares, none ---
Common stock, $.10 par value - authorized
25,000,000; issued and outstanding
7,002,964 shares 700,296
Additional paid-in capital 2,914,207
Accumulated deficit (1,373,393)
-----------
2,241,110
Total liabilities and stockholders'
equity $ 5,030,757
=========
See notes to financial statements.
</TABLE>
CHASE PACKAGING CORPORATION
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note A)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
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Three months ended
March 31,
-------------------
1997 1996
SALES $ 2,167,355 $ 2,396,817
COSTS AND EXPENSES
Cost of sales 2,177,228 2,391,214
Selling, general and administrative 365,574 510,136
Interest expense 68,841 212,660
--------- --------
2,611,643 3,114,010
LOSS BEFORE EXTRAORDINARY ITEM
AND INCOME TAXES (444,288) (717,193)
Income tax expense -- --
Loss before extraordinary item (444,288) (717,193)
Extraordinary item - gain from
extinguishment of debt 173,893 --
---------- --------
NET LOSS (270,395) (717,193)
Weighted average shares 7,002,964 6,960,714
outstanding
LOSS PER COMMON SHARE
Loss per share before $(.06) $(.10)
extraordinary item
Extraordinary item .02 --
---------- ----------
LOSS PER SHARE $(.04) $(.10)
See notes to financial statements.
</TABLE>
CHASE PACKAGING CORPORATION
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note A)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
1997 1996
Increase (decrease) in cash
Cash flows from operating activities
Net Loss $ (270,395) (717,193)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Depreciation and amortization 96,287 159,778
Gain on disposal of property
and equipment (71,241) --
Gain from extinguishment of debt (173,893) --
Noncash expenses 62,428 --
Change in assets and liabilities
Accounts receivable 347,782 236,768
Inventories 296,512 499,807
Prepaid expenses 23,847 43,005
Accounts payable (304,596) 78,634
Accrued liabilities 16,788 16,748
Accrued billings 6,647 (91,777)
--------- --------
Net cash provided by
operating activities 30,166 225,770
Cash flows from investing activities
Capital expenditures (43,876) (77,539)
Proceeds from sale of property
and equipment 886,250 --
Other assets 500 --
------- ---------
Net cash provided by (used in)
investing activities 842,874 (77,539)
Cash flows from financing activities
Principal payments of debt obligations (350,000) (93,334)
Net payments on line of credit (535,310) (413,429)
Receivable from/payable to parent -- 333,409
Capital contributed 9,318 --
--------- --------
Net cash used in
financing activities (875,992) (173,354)
NET DECREASE IN CASH (2,952) (25,123)
Cash at beginning of period 21,378 25,123
Cash at end of period $ 18,426 $ --
Supplemental cash flow information
Cash paid during the year for
Interest $ 48,831 $ 82,605
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the 1997 first quarter, Chase incurred rent expense of
$55,427 for use of the manufacturing facility owned by TGC. TGC
converted the rent receivable to equity in Chase.
On March 18, 1997 TGC sold the Portland, Oregon facility occupied
by Chase. Proceeds of $1,780,000 were applied against Chase's
outstanding mortgage indebtedness to Union Camp. Proceeds of
$284,500 were placed into escrow for future repairs and rental
payments and recorded as a prepaid expense. Proceeds of $22,000
were utilized to prepay Chase's rent on the Portland
facility from the date of closing through April 30, 1997 and
proceeds of $133,129 were applied against property taxes on the
Portland facility.
See notes to financial statements.
CHASE PACKAGING CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with the instructions to Form 10-QSB and therefore do
not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
As previously disclosed, in May 1996 a formal plan was adopted to
reorganize TGC Industries, Inc. (TGC) and Chase. Pursuant to the
plan, the following actions were taken:
1. TGC liquidated Chase (Old Chase) with TGC receiving all of Old
Chase's assets and liabilities in cancellation of the Old Chase
stock held by TGC. TGC formed a new wholly-owned subsidiary,
New Chase, and transferred to it all of the assets and
liabilities received in the liquidation of Old Chase, except
TGC retained the manufacturing facility located in Portland,
Oregon and canceled Old Chase's net payable to TGC.
2. TGC contributed $2,716,403 as additional capital to New Chase.
3. Effective July 31, 1996, TGC spun-off New Chase by a dividend
distribution to the stockholders of record of TGC common and
preferred stock. At the same time, the name was changed from
New Chase to Chase Packaging Corporation (Chase).
The financial statements are presented on the basis that the
principal operations of Old Chase continued with the formation of
New Chase, therefore the statements of operations and cash flows
for the three months ended March 31, 1996 consist of three months
operations of Old Chase as a wholly-owned subsidiary of TGC.
NOTE B -- MANAGEMENT PRESENTATION
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of
financial position, results of operations, and changes in financial
position have been included. The results of the interim periods
are not necessarily indicative of results to be expected for the
entire year. For further information, refer to the financial
statements and the footnotes thereto included in the Company's
Annual Report for the year ended December 31, 1996 filed on Form
10-KSB.
NOTE C -- LOSS PER COMMON SHARE
Loss per common share before and after extraordinary gain was
calculated by dividing net loss for the period by the weighted
average number of shares outstanding. Loss per common share for
the quarter ended March 31, 1996 was based on the assumption that
the 6,960,714 shares of common stock issued under the
reorganization plan were issued at the beginning of the period.
NOTE D -- EXTRAORDINARY ITEM - GAIN FROM EXTINGUISHMENT OF DEBT
On March 18, 1997 TGC sold the Portland, Oregon facility for
$2,430,000 with $1,780,000 of the proceeds applied against Chase's
outstanding mortgage indebtedness to Union Camp with respect to
such facility. The $1,780,000 payment to Union Camp, when
combined with a principal payment of $350,000 made to Union
Camp on January 7, 1997 from the sale proceeds of Chase's
polypropylene weaving equipment, resulted in the Union Camp
note being declared paid in full as of March 19, 1997. A gain
from debt extinguishment of $173,893 was recognized in the 1997
first quarter as a result of these payments. The gain consisted
of $4,383 in principal and $169,510 in interest forgiven by Union
Camp. Due to the Company's net operating loss position there is no
income tax applicable to the gain.
NOTE E -- LOAN DEFAULTS
As a result of the March 18, 1997 sale of the Portland facility
by TGC and subsequent payment made to Union Camp, the Company
cured its default condition under terms of the Union Camp
Promissory Note. The Company also cured its cross-default
condition with the bank as a result of the payment to Union Camp.
In addition, the Company cured the violation of the tangible
net worth covenant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Revenues were $2,167,355 for the first quarter ended March 31,
1997 compared to revenues of $2,396,817 for the same period of
the prior year. Net loss was $270,395 for the first quarter
of 1997 as compared to net loss of $717,193 for the first
quarter of 1996. The 1997 first quarter net loss included
a $173,893 extraordinary gain from the extinguishment of debt
which was a result of the forgiveness by Union Camp of $4,383
in principal and $169,510 in interest. The 1997 first quarter
results also included a net gain from asset disposals of $71,241.
The 13% reduction in operating revenues (excluding gain from
asset disposals) when comparing the 1997 first quarter with
the same period of 1996 was primarily attributable to a $220,000
reduction in woven polypropylene fabric sales to other bag
converters. On January 6, 1997 Chase closed the sale of its
polypropylene weaving equipment (38 of 44 looms) for $550,000
with $350,000 of the proceeds applied to the Union Camp
Promissory Note and $200,000 retained by Chase for working
capital purposes. The sale of these looms resulted in the
curtailment of fabric sales during the 1997 first quarter
as Chase utilized its existing woven polypropylene fabric
inventory for internal bag production. Future fabric
requirements will be met with purchases from various outside
suppliers. Reduced sales of bulk burlap bags and woven
polypropylene onion bags manufactured by Chase were offset
by increased sales of cartons manufactured by an outside
supplier during the first three months of 1997.
The continuation in the 1997 first quarter of the low sales
volumes and neglible gross profit margins experienced by Chase
in 1996 was the result of several factors. Low market prices
for onions reduced demand for Chase's woven polypropylene bags
as grower/packers held onions in storage in early 1997 rather
than ship at a loss. Also, contributing to the reduced demand,
as well as contributing to lower selling prices, has been an
increase in the use of cheap import bags by many onion packers.
The reduced onion shipments and the competition from imports
reduced sales of onion bags by $157,000 when comparing the 1997
first quarter with the 1996 first quarter. Burlap bag sales
declined $160,000 in the 1997 first quarter from the same quarter
of the previous year as competitive pricing pressures made the
manufacture of such bags unattractive for Chase. Low market
prices for potatoes also depressed demand for Chase's
consumer-size mesh potato bags, reducing sales of such bags
by $95,000 for the first quarter of 1997 when compared to the
first quarter of 1996. Offsetting the continued sales decline
in these product lines, however, was a $413,000 increase in
sales of distributed products, primarily cartons for the
Idaho potato market.
The continued drop in demand for Chase's core products during
the 1997 first quarter required management to continue its
program of inventory reduction and low production levels
to balance plant operations with market demand.
Although variable, indirect and overhead expenses have been
reduced further during the quarter, the curtailment of printing
and sewing operations resulted in underabsorbed manufacturing
overhead which increased the cost of units produced. These
unfavorable manufacturing variances combined with downward
pressure on selling prices for Chase's products resulted in
negative margins for the woven polypropylene (onion/citrus),
burlap and circular polypropylene product lines and reduced
margins for the other product lines.
As previously disclosed, Chase has initiated a business
plan centered upon three objectives -- (1) expense/inventory
reduction, (2) debt reduction by disposition of under-utilized
assets (weaving equipment, extrusion line and Portland real
estate), and (3) repositioning the business to a conversion,
distribution, brokerage operation. Chase management will
continue its plan of lowering the operations' break-even
level by bringing manufacturing costs in line with the
level of sales being generated by current agricultural
markets. To compete with the inroads being made by imports,
Chase will continue its program of expense reduction and
efficiency improvement to become a lower-cost producer of
fabric and bags. Chase will actively pursue expansion of
sales efforts into other geographic markets, search for new
product opportunities, eliminate unprofitable product lines
and sell-off underperforming assets. The Company will
increase its focus on various distribution and brokerage
arrangements with other manufacturing concerns. Chase will
also expand efforts to become a supplier of import bags to
complement the Company's domestic production capabilities.
The business plan included the sale of the Portland real
estate retained by TGC after the spin-off of Chase and Chase's
polypropylene extrusion and weaving equipment. In December
1996, the Company discontinued its polypropylene extrusion
and weaving operations, and on January 6, 1997, the Company
closed the sale of its polypropylene weaving equipment (38
of 44 looms) for $550,000. A principal payment of $350,000
was made to Union Camp on January 7, 1997 with Chase retaining
$200,000 for working capital purposes. The Company retained
six looms for continuing the Company's paper mesh weaving for
industrial applications. On March 18, 1997 TGC sold the
facility located in Portland, Oregon for $2,430,000 with
$1,780,000 of the proceeds paid to Union Camp as a final
principal payment on the $3,761,537 Promissory Note.
Union Camp subsequently declared the note paid in full
and released its security interest in the remaining real
estate and machinery and equipment owned by Chase. Chase
Packaging executed an absolute net lease with the buyer
of the facility and will remain in 60,000 square feet of
the 87,000 square foot Portland facility as a tenant,
and, as such, the balance of real estate proceeds were
utilized as follows: (1) $280,000 was placed into escrow
and as long as Chase Packaging has not been in default
under terms of the lease, $4,667 per month will be paid
by the buyer of the property to TGC. TGC will forward the
escrow payments to Chase to reduce Chase's monthly rent expense;
(2) $65,000 was placed into escrow to cover potential reletting
expenses to the buyer for lost rent and other expenses related
to the 27,000 square feet of the Portland facility that Chase
is not leasing; (3) $133,000 of property taxes on the Portland
facility were paid; (4) $126,500 in real estate commissions were
paid; (5) $36,500 for prepaid rent and miscellaneous closing
expenses; and (6) approximately $9,000 was retained by TGC and
paid to Chase for working capital purposes. On March 25, 1997
Chase closed the sale of its polypropylene extrusion equipment
for $310,000. These proceeds were retained by Chase for
working capital purposes. Chase will continue to operate as a
producer of paper mesh fabric for industrial and environmental
applications and as a converter and distributor of agricultural
bags and other specialty packaging. Accounts payable status will
be monitored closely with vendor communication a high priority to
ensure that plant production continues at the most efficient level
possible. Due to competitive pressures from within and outside
the U.S. and the uncertain nature of predicting agricultural
crops and their impact on Chase's products, no assurance can be
given that Chase's business plan will achieve the intended result.
Financial Condition
Cash of $30,166 was provided by operations for the three months
ended March 31, 1997 as compared to cash provided by operations
of $225,770 for the same period of the prior year. The 1997
first quarter net loss before extraordinary gain from debt
extinguishment was primarily offset by non-cash depreciation,
amortization and rental expenses of $158,715 and an inventory
reduction during the quarter of $296,512. Cash generated by
a decrease in accounts receivable during the 1997 first quarter
was $347,782 while cash used to reduce accounts payable during
this same period was $304,596. Cash provided by investing
activities was primarily the result of $886,250 in proceeds
received from the sale of the polypropylene weaving and
extrusion equipment. Cash used in financing activities
consisted of a $350,000 principal payment to Union Camp
and net payments on Chase's line of credit of $535,310.
The loan balance on the Company's line of credit was
$1,330,428 as of March 31, 1997.
As previously discussed, Chase sold its polypropylene
weaving equipment (38 of 44 looms) in January , 1997
for $550,000. Proceeds of $350,000 from the weaving
equipment sale were used to pay down the Union Camp
Note with the remaining $200,000 retained by Chase for
working capital purposes. Also, as disclosed previously,
TGC (the former parent) sold the Portland, Oregon facility
on March 18, 1997 for $2,430,000 with $1,780,000 of the
proceeds applied against the mortgage indebtedness of
Chase to Union Camp. Upon receipt of these funds, Union
Camp declared the $3,761,537 promissory note paid and
released its security interest in the remaining real
and personal property owned by Chase, thereby curing
all default conditions with Union Camp. Chase's primary
bank retained its position as a secured party in real and
personal property still owned by Chase. As a result of the
payment made by TGC to Chase of the proceeds of
the building sale in excess of the mortgage indebtedness, Chase was
in compliance with the tangible net worth covenant with the bank as
of March 31, 1997. On March 25, 1997 Chase closed the sale of its
extrusion line with the net proceeds of $310,000 retained by Chase
for working capital purposes. The Company's liquidity position
should benefit from the retirement of the Union Camp debt as cash
outlays of approximately $55,000 per month for principal and
interest on such debt will no longer be required.
As discussed earlier, fabric sales to other bag converters
decreased $220,000 during the 1997 first quarter when compared
to the same period of 1996 due to the discontinuance of the
Company's polypropylene extrusion and weaving operations.
Chase management anticipates lower sales in future periods
to be offset by a decrease in cash requirements for raw
materials, labor, repairs and equipment maintenance.
Although these lower cash requirements will be partially
offset by the purchase of fabric from outside suppliers,
the expected net reduction in cash outlays should improve
liquidity as a result of a decrease in unfavorable
manufacturing variances that have historically been
generated by the underutilization of the Company's
weaving capacity. The Company does not expect to fully
realize these savings until the 1997 third quarter,
however, as additional labor, modification and equipment
disposal expenses related to the realignment of the
Portland manufacturing facility will be incurred
through the second quarter of the year. These additional
cash requirements, when combined with seasonally low sales
for the Company's products, will place extreme pressure on
the Company's liquidity in the 1997 second quarter.
Chase management will continue to work very closely with
suppliers to ensure that any disruption in the flow of raw
materials and other key items is minimized. A clear line of
communication with vendors is a priority and, to date, Chase
has continued to meet the demands of its market. Chase will
continue its plan to diversify into additional geographical
markets, expand product offerings through broker/distributor
agreements, aggressively reduce inventory, cut expenses, reduce
trade payables, and improve supply terms with vendors. The
objective of this plan will be to bring manufacturing expenses
in line with projected levels of sales, thereby generating a
positive cash flow. However, due to competitive pressures and
the uncertain nature of predicting agricultural crops, no assurance
can be given that management's plan will achieve the intended
results.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
a. On March 7, 1997, the Chase Common Stock was
distributed to the shareholders of TGC as a stock
dividend pursuant to the spin-off by TGC of Chase
effective July 31, 1996.
b. Mr. Lewis W. Lovell resigned as President, Chief
Operating Officer and as a director of Chase Packaging
Corporation effective April 30, 1997 to devote his
attention to other interests. Mr. Lovell's
resignation was not due to any disagreement with the
Company on any matter relating to the Company's
operations, policies or practices.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits -- None.
b. Reports -- No reports on Form 8-K have been filed
during the quarter for which this report is filed.
SIGNATURES
In accordance with the requirements 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: May 12, 1997 /s/ Doug Kirkpatrick
______________________________
Doug Kirkpatrick,
President and Treasurer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
H:\DOCS3\C5541\001\65227.1
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,426
<SECURITIES> 0
<RECEIVABLES> 1,073,995
<ALLOWANCES> 91,853
<INVENTORY> 2,056,735
<CURRENT-ASSETS> 3,391,749
<PP&E> 2,629,651
<DEPRECIATION> 999,872
<TOTAL-ASSETS> 5,030,757
<CURRENT-LIABILITIES> 2,789,647
<BONDS> 0
<COMMON> 700,296
0
0
<OTHER-SE> 1,540,814
<TOTAL-LIABILITY-AND-EQUITY> 5,030,757
<SALES> 2,167,355
<TOTAL-REVENUES> 2,167,355
<CGS> 2,177,228
<TOTAL-COSTS> 2,177,228
<OTHER-EXPENSES> 359,574
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 68,841
<INCOME-PRETAX> (444,288)
<INCOME-TAX> 0
<INCOME-CONTINUING> (444,288)
<DISCONTINUED> 0
<EXTRAORDINARY> 173,893
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