The following discussion should be read in conjunction with the financial statements of the Company and notes thereto contained elsewhere in this report.
On March 31, 2006, Parafin Corporation acquired 100% of the proprietary technology of the Personal Computer Environment work station developed by PCE Computers, Inc. (PCE). This acquisition shall include all Patents, Patents Pending, internet web sites and e-Mail addresses,
Intellectual Properties and all Development Concepts owned by PCE. Parafin paid US$6,000,000 for 100% of the proprietary technology of the Personal Computer Environment work station developed by P--CE Computers, Inc. (PCE).
Oil and Gas Exploration
On December 6, 2004 the Company signed a Farmout Agreement potentially acquired an 80% interest in a license to explore the 2,456,452 hectares (approximately 5,986,000 acres) in the Alto Parana Block, Alto Parana Province, Paraguay. Details of the acquisition are contained in a Farmout Agreement as filed on Form 8-K with the SEC. The acquisition is pending approval of the Paraguay government. In connection with the acquisition the Company engaged a consultant who will be compensated in 5,000,000 shares of Company stock payable in installments as work proceeds.
The Alto Parana Block is an area in Paraguay that has a geology similar to some oil producing areas in other parts of South America. Paraguay has enacted a Hydrocarbon Law for the Aprospecting, exploration and exploitation of petroleum and other hydrocarbons@ in that country. The terms of this agreement are conditioned on the approval by the Government of Paraguay of the application by Guarani for a license under the Hydrocarbon Law in the Alto Parana Block. The President of Paraguay has signed the License and is awaiting the approval of the Congress. The Company continues to wait for the Congress of Paraguay to approve the Agreement.
Capital Expenditures.
On March 31, 2006, Parafin Corporation acquired 100% of the proprietary technology of the Personal Computer Environment work station developed by PCE Computers, Inc. (PCE). This acquisition shall include all Patents, Patents Pending, internet web sites and e-Mail addresses, Intellectual Properties and all Development Concepts owned by PCE. Parafin paid US$6,000,000 for 100% of the proprietary technology of the Personal Computer Environment (PCE) work
station developed by P--CE Computers, Inc. (PCE). The Company proposes budgeting $300,000 to complete the first stage of Production of the PCE.
Risk Factors Connected with Plan of Operation.
(a) Limited Prior Operations, History of Operating Losses, and Accumulated Deficit May Affect Ability of Company to Survive.
The Company has had limited prior operations to date. From its inception in 1978 until this year, the Company’s principal activities were limited to organizational activities, research and development, and prospect development. However, the Company has recently engaged in
petrochemical exploration, oil distribution and marketing, as well as the design, manufacturing
and distribution of a unique computer workstation. However, all of these operations are in a developmental stage and there is only a limited operating history upon which to base an assumption that the Company will be able to achieve its business plans.
As a result, there can be no assurance that the Company will generate significant revenues in the future and there can be no assurance that the Company will operate at a profitable level. If the Company is unable to obtain customers and generate sufficient revenues so that it can profitably operate, the Company’s business will not succeed. Accordingly, the Company’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered in connection with the entering a new line of business.
The Company has incurred losses from operations: $729,896 for the fiscal year ended September 30, 2004, $1,021,667 for the fiscal year ended September 30, 2005, $683,593 for the nine months ended June 30, 2006, and $32,487,664 for the period from inception (October 3, 1978) to June 30, 2006. At June 30, 2006, the Company had an accumulated deficit of $32,487,664. These factors raise substantial doubt about the Companys ability to continue as a going concern.
(b) | Uncertainty of ability to raise capital |
The Company does not anticipate, at the present time, needing to raise any additional capital in the next twelve months to implement its sales and marketing strategy and grow. The Company believes that it will generate sufficient revenues from its REBCO distribution activities to fund its anticipated operations, but no assurance is given that this will prove successful.
In the event that the Company’s plans change or its assumptions change (due to unanticipated expenses, technical difficulties, or otherwise), the Company would be required to seek additional financing sooner than currently anticipated or may be required to significantly curtail or cease its operations.
If funding is insufficient at any time in the future, the Company may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of its planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on the company’s financial condition, which could require the company to: curtail operations significantly; sell significant assets; seek arrangements with strategic
partners or other parties that may require the company to relinquish significant rights to products, technologies or markets; or explore other strategic alternatives including a merger or sale of the company.
To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt
could impose restrictions on the Company’s operations. Regardless of whether the Company’s access to financing proves to be inadequate to meet the company’s operational needs, the
Company may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders.
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(c) Independent Auditors Have Expressed Substantial Doubt of the Ability to Continue as a Going Concern.
In his report dated November 28, 2005, Company’s independent auditor stated that the financial statements for the year ended September 30, 2005 were prepared assuming that the company would continue as a going concern. The Company’s ability to continue as a going concern is an issue raised as a result of cash flow constraint, an accumulated deficit, and recurring losses from operations. The Company continues to experience net losses. The Company’s ability to continue as a going concern is subject to the ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of the company’s securities, increasing sales or obtaining loans from various financial institutions where possible. The continued net losses and stockholders’ deficit increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
(d) | The Company has Commenced Operations in the Volatile Crude Oil Market. |
The Company has just recently entered the crude oil distribution market. This industry has recently been characterized by extremely volatile price levels which create added risk that even if the Company can obtain crude oil at favorable prices, it can not resell the same profitably.
(e) Non-Cumulative Voting May Affect Ability of Shareholders to Influence Company Decisions.
Holders of the shares are not entitled to accumulate their votes for the election of directors or otherwise. Accordingly, the holders of a majority of the shares present at a meeting of shareholders will be able to elect all of the directors of the Company, and the minority shareholders will not be able to elect a representative to the Company’s board of directors.
(f) | Absence of Cash Dividends May Affect Investment Value of Company’s Stock. |
The board of directors does not anticipate paying cash dividends on the shares for the foreseeable future and intends to retain any future earnings to finance the growth of the Company’s business. Payment of dividends, if any, will depend, among other factors, on earnings, capital requirements,
and the general operating and financial condition of the Company, and will be subject to legal limitations on the payment of dividends out of paid-in capital.
(g) No Assurance of Public Trading Market and Risk of Low Priced Securities May Affect Market Value of Company’s Stock.
The Securities and Exchange Commission (“SEC”) has adopted a number of rules to regulate “penny stocks.” Such rules include Rule 3a51-1 and Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934, as amended. Because the securities of the Company may
constitute “penny stocks” within the meaning of the rules (as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, largely traded in the Over the Counter Bulletin Board or the Pink Sheets), the rules would apply to the Company and to its securities.
The SEC has adopted Rule 15g-9 which established sales practice requirements for certain low price securities. Unless the transaction is exempt, it shall be unlawful for a broker or dealer to sell a penny stock to, or to effect the purchase of a penny stock by, any person unless prior to the transaction: (I) the broker or dealer has approved the person’s account for transactions in penny stock pursuant to this rule and (ii) the broker or dealer has received from the person a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stock, the broker or dealer must: (a) obtain from the person information concerning the person’s financial situation, investment experience, and investment objectives; (b) reasonably determine that transactions in penny stock are suitable for that person, and that the person has sufficient knowledge and experience in financial matters that the person reasonably may be expected to be capable of evaluating the risks of transactions in penny stock; 8 deliver to the person a written statement setting forth the basis on which the broker or dealer made the determination (I) stating in a highlighted format that it is unlawful for the broker or dealer to affect a transaction in penny stock unless the broker or dealer has received, prior to the transaction, a written agreement to the transaction from the person; and (ii) stating in a highlighted format immediately preceding the customer signature line that (iii) the broker or dealer is required to provide the person with the written statement; and (iv) the person should not sign and return the written statement to the broker or dealer if it does not accurately reflect the person’s financial situation, investment experience, and investment objectives; and (d) receive from the person a manually signed and dated copy of the written statement. It is also required that disclosure be made as to the risks of investing in penny stock and the commissions payable to the broker-dealer, as well as current price quotations and the remedies and rights available in cases of fraud in penny stock transactions. Statements, on a monthly basis, must be sent to the investor listing recent prices for the Penny Stock and information on the limited market.
There has been only a limited public market for the common stock of the Company. The common stock of the Company is currently traded on the Over the Counter Bulletin Board. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of the company’s securities. The regulations governing penny stocks, as set forth above, sometimes limit the ability of broker-dealers to sell the Company’s common stock and thus, ultimately, the ability of the investors to sell their securities in the secondary market.
Potential shareholders of the Company should also be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (I) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
(h) Failure to Remain Current in Reporting Requirements Could Result in Delisting from the OTC Bulletin Board.
Companies trading on the OTC Bulletin Board, such as the Company, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If the Company fails to remain current in its reporting requirements, the company could be removed from the OTC Bulletin Board. As a result, the market liquidity for the Company’s securities could be severely adversely affected by limiting the ability of broker-dealers to sell its securities and the ability of stockholders to sell their securities in the secondary market.
(i) | Effects of Failure to Maintain Market Makers. |
If the Company is unable to maintain a National Association of Securities Dealers, Inc. member broker/dealers as market makers, the liquidity of the common stock could be impaired, not only in the number of shares of common stock which could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for the common stock than might otherwise prevail. Furthermore, the lack of market makers could result in persons being unable to buy or sell shares of the common stock on any secondary market. There can be no assurance the Company will be able to maintain such market makers.
Off-Balance Sheet Arrangements.
The Company does not have any off-balance sheet arrangements.
Critical Accounting Policies.
The Securities and Exchange Commission (“SEC”) has issued Financial Reporting release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones
that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of
the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include: (a) use of estimates in the preparation of financial statements; and (b) impairment of long-lived assets. The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results the Company reports in its financial statements.
(a) | Use of Estimates in the Preparation of Financial Statements. |
The preparation of the financial statements contained in this report requires the company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Company bases its estimates on historical experience and on
various other assumptions that is believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
(b) | Impairment of Long-Lived Assets |
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount of fair value less costs to sell.
| Forward Looking Statements. |
Information in this Form 10-QSB contains “forward looking statements” within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended. When used in this Form 10-QSB, the words “expects,” “anticipates,” “believes,” “plans,” “will” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include, but are not limited to, statements regarding our adequacy of cash, expectations regarding net losses and cash flow, and our operating expenses.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those discussed above as well as the risks factors set forth above. These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to
ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected.
Changes in Disclosure Controls and Procedures.
There were no significant changes in the Company’s disclosure controls and procedures, or in factors that could significantly affect those controls and procedures, since their most recent evaluation.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, no such action by or against the Company has been threatened.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Reference is made to the Company’s Current Report on Form 8-K, dated January 13, 2006, which is incorporated by reference herein.
On June 19th, 2006, and approved by the Board of Directors on July 12th, 2006, the Company and International Project Finance and Investment Corporation (Bahamas) on behalf of Oy Coral Marine Management LTD
, the Purchaser, jointly agreed to terminate the Oil and Share Purchase Agreement executed on May 10th 2006.
On June 20th, 2006, and approved by the Board of Directors on July 12th, 2006, ParaFin Corporation (the Company) signed an Agreement directly with OY Coral Marine Management, Ltd. a company organized under the laws of Finland (“OY Coral (thePurchaser)). The Company executed an “Oil and Share Purchase Agreement” whereby ParaFin agreed to buy a 12.2 million metric ton (88,864,800 Bbls.) allotment of Russian Export Blend Crude Oil ("REBCO"). The Company will issue 88,865 SERIES “A” REDEEMABLE RETRACTABLE NON-VOTING PREFERRED SHARES priced at US$70,000 per share (US$6.22 Billion).
The Preferred Shares issued under the June 20th, 2006 Agrement pay no interest and do not have conversion features into common shares as were in the May 8th, 2006 Agreement. In consideration for dropping the 8% interest and the right to convert a portion of the Preferred into common stock, the Company will issue the Purchaser 500,000,000 bearer share purchase warrants. Each Warrant gives the holder the right to purchase one common share of the Company at $0.25 per share for a period of five years.
The June 20th, 2006 Agreement calls for the Company to immediately issue 88,865 Series “A” Redeemable, Retractible, Non-Voting Preferred shares at US$700,000 per share, the issue price (US$6.22 Billion), identified by CUSIP # 69912M301 and ISIN # US69912M3016.
Mr. A. F. Saez, Asset and Portfolio Manager, and a Consultant to ParaFin, negotiated the terms of the new Agreement between ParaFin and the Purchaser. The terms of the Agreement will allow Parafin to retract and redeem the Preferred shares at the price the REBCO was sold less $5 per barrel TO BE retained by the Company. The Company will pay the selling costs, when the Oil is sold.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits included or incorporated by reference herein are set forth in the attached Exhibit Index.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 9th, 2006 | By: /s/ Sidney B. Fowlds | |
| Sidney B. Fowlds, President |
| | | |
Dated: August 9th, 2006 | By: /s/ Anthony V. Feimann | |
| Anthony V. Feimann, |
| Secretary/Treasurer | |
| | | | |
EXHIBIT INDEX
2.1 Debenture issued by Xanthos Management Corporation (formerly known as Texas Petroleum Corporation) to the Company, dated October 31, 1992 (incorporated by reference to Exhibit 2.1 of the Form 10-KSB filed on January 17, 2001).
2.2 Agreement and Plan of Merger between eCom.com, Inc., a Colorado corporation, and eCom.com, Inc., a Nevada corporation, dated June 5, 2000 (incorporated by reference to Exhibit 2 to the Form 8-K filed on August 21, 2000).
3.1 Articles of Incorporation of the Company, dated May 30, 2000 (incorporated by reference to Exhibit 3.1 of the Form 10-QSB filed on August 21, 2000).
3.2 Certificate of Amendment of Articles of Incorporation of the Company, dated April 11, 2002 (incorporated by reference to Exhibit 3.2 of the Form 10-KSB filed on January 14, 2003).
3.3 Certificate of Amendment of Articles of Incorporation, dated October 7, 2004 (incorporated by reference to Exhibit 3 of the Form 8-K filed on January 18, 2005).
3.4 Bylaws of the Company, dated June 10, 2000 (incorporated by reference to Exhibit 3.2 of the Form 10-QSB filed on August 21, 2000).
4.2 Retainer Stock Plan for Non-Employee Directors and Consultants, dated June 1, 2000 (incorporated by reference to Exhibit 4.2 of the Form S-8 filed on June 2, 2000).
4.3 Amended and Restated Retainer Stock Plan for Non-Employee Directors and Consultants (Amendment No. 1), dated October 22, 2001 (incorporated by reference to Exhibit 4 of the Form S-8 filed on November 1, 2001).
4.4 Amended and Restated Stock Incentive Plan, dated January 18, 2002 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on February 6, 2002)
4.5 Amended and Restated Retainer Stock Plan for Non-Employee Directors and Consultants (Amendment No. 2), dated May 1, 2002 (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on May 7, 2002).
4.6 Amended and Restated Stock Incentive Plan (Amendment No. 2), dated May 1, 2002 (incorporated by reference to Exhibit 4.2 of the Form S-8 POS filed on May 7, 2002).
4.7 Amended and Restated Retainer Stock Plan for Non-Employee Directors and Consultants (Amendment No. 3), dated March 15, 2003 (incorporated by reference to Exhibit 4 of the Form S-8 POS filed on April 9, 2003).
4.8 Amended and Restated Retainer Stock Plan for Non-Employee Directors and Consultants (Amendment No. 4), dated October 15, 2004 (incorporated by reference to Exhibit 4.1 of the Form S-8 POS filed on October 27, 2004).
4.9 Amended and Restated Stock Incentive Plan (Amendment No. 3), dated October 15, 2004 (incorporated by reference to Exhibit 4.2 of the Form S-8 POS filed on October 27, 2004).
10.1 Farmout Agreement between the Company and Guarani Exploration and Development Corporation, dated December 6, 2004 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on January 18, 2005).
10.2 Consulting Agreement between the Company and Robert McGowan, dated November 19, 2004 (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on January 18, 2005).
10.3 | Oil and Securities Purchase Agreement (filed herewith) |
10.4 | Registration Rights Agreement (filed herewith) |
10.5 | Preferred Stock Agreement (filed herewith) |
23.1 Consent of Janet Loss, C.P.A., P.C. (incorporated by reference to Exhibit 23.1 of the Form 10-KSB filed on January 25, 2005).
23.2 Consent of George Brenner, C.P.A. (incorporated by reference to Exhibit 23.2 of the Form 10-KSB filed on January 25, 2005)
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Sidney B. Fowlds (filed herewith). |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Anthony V. Feimann (filed herewith). |
32 | Section 1350 Certification of Sidney B. Fowlds and Anthony V. Feimann (filed herewith). |
99 Press Release issued by the Company, dated December 6, 2004 (incorporated by reference to Exhibit 99 of the Form 8-K filed on January 18, 2005).
