**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**Form 10-QSB**

 

(Mark One)

**x   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

For the quarterly period ended: June 30, 2006

 

**o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE**

**EXCHANGE ACT**

 

For the transition period from _______ to _______

Commission file number 0-730

 

Penn-Pacific Corp.

(Exact name of small business issuer as

specified in its charter)

 

| Nevada                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   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|  

(State or other jurisdiction

 

(IRS Employer

of incorporation or organization)

 

Identification No.)

 

 

3325 Griffin Road, #200, Ft. Lauderdale, FL 33323

(Address of principal executive offices)

 

(866) 387-6583

Issuer's telephone number

 

(Former name, former address and former fiscal year, if changed since last report.)

 

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 o

 

Indicate by Check Mark Whether the Registrant is a Shell Company (as Defined by Rule 12B-2 of the Exchange Act). Yes x; No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date:  June 4, 2007  1,168,698

 

Transitional Small Business Disclosure Format (check one).

Yes o;  No x

 

**PART I**

 

**Item 1.  Financial Statements**

 

PENN-PACIFIC CORP.  

(A Development Stage Company)

BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

June 30,

 

September 30,

 

2006

 

2005

 

 

Assets:

$                   - 

 

$                   - 

 

 

 

 

 

 

Liabilities:

 

 

 

Accounts Payable

14,465 

 

12,525 

Advances from shareholder

33,048 

 

33,048 

 

 

Total Liabilities 

47,513 

 

45,573 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

Preferred Stock, Par value $.0001

 

 

 

Series A, Authorized 10,000,000 shares, None issued

-

 

-

Series B, authorized 9,990,000 shares, None issued

-

 

-

Series C, Authorized 10,000 shares, None issued

-

 

-

Common Stock, Par value $.00001 

 

 

 

Authorized 500,000,000 shares,

 

 

 

Issued 1,168,698 Shares at June 30, 2006 and

 

 

 

September 30, 2005

12 

 

12 

Paid-In Capital

35,811,071 

 

35,811,071 

Retained Deficit

(35,735,362)

 

(35,735,362)

Deficit Accumulated During the

 

 

 

Development Stage

(123,234)

 

(121,294)

 

 

Total Stockholders' Equity

(47,513)

 

(45,573)

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

$                   - 

 

$                   - 

 

 

 

 

 

 

 

 

See accompanying notes

 

PENN-PACIFIC CORP.  

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

 

 

 

since

 

 

 

 

 

 

 

 

 

January 13,

 

 

 

 

 

 

 

 

 

1997

 

For the three months ended

 

For the nine months ended

 

inception of

 

June 30,

 

June 30,

 

development

 

 

 

 

 

2006

 

2005

 

2006

 

2005

 

stage

 

 

 

 

 

Revenues:

$                   - 

 

$                   - 

 

$                   - 

 

$                   - 

 

$                   - 

 

 

 

 

 

 

 

 

 

 

Expenses:

440 

 

$                   - 

 

1,940 

 

$                   - 

 

123,234 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

$             (440)

 

$                   - 

 

$          (1,940)

 

$                   - 

 

$      (123,234)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic &

 

 

 

 

 

 

 

 

 

Diluted loss

 

 

 

 

 

 

 

 

 

per share

$                   - 

 

$                   - 

 

$                   - 

 

$                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes

 

PENN-PACIFIC CORP.  

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

Cumulative

 

 

 

 

 

 

since January 13, 1997

 

 

For the nine months ended

 

Inception of

 

 

June 30,

 

Development

 

 

 

 

 

 

2006

 

2005

 

Stage

 

 

 

CASH FLOWS FROM OPERATING

 

 

 

 

 

 

ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$          (1,940)

 

$                    -

 

$      (123,234)

Increase (Decrease) in Accounts Payable

 

1,940 

 

-

 

(29,224)

Increase (Decrease) in Advances

 

 

 

 

 

 

from shareholder

 

- 

 

 

 

33,048 

Increase (Decrease) in Accrued Expenses

 

- 

 

-

 

97,693 

 

 

 

 

Net Cash Used in operating activities

 

- 

 

-

 

(21,717)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING

 

 

 

 

 

 

ACTIVITIES:

 

 

 

 

 

 

Net cash provided by investing activities

 

- 

 

-

 

- 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING

 

 

 

 

 

 

ACTIVITIES:

 

 

 

 

 

 

Common Stock issued for expenses

 

- 

 

-

 

21,717 

 

 

 

 

Net Cash Provided by

 

 

 

 

 

 

Financing Activities

 

- 

 

-

 

21,717 

 

 

 

 

 

 

 

 

 

 

 

Net (Decrease) Increase in 

 

 

 

 

 

 

Cash and Cash Equivalents

 

- 

 

-

 

- 

Cash and Cash Equivalents 

 

 

 

 

 

 

at Beginning of Period

 

- 

 

-

 

- 

 

 

 

 

Cash and Cash Equivalents 

 

 

 

 

 

 

at End of Period

 

$                   - 

 

$                    -

 

$                   - 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$                   - 

 

$                    -

 

$                   - 

Franchise and income taxes

 

$                   - 

 

$                    -

 

$                   - 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCINGACTIVITIES: None

 

 

 

 

See accompanying notes

 

PENN-PACIFIC CORP.  

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005

(Unaudited)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

This summary of accounting policies for Penn-Pacific Corp.  (a development stage company) is presented to assist in understanding the Company's financial statements.  The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplates the Company as a going concern. However, the Company has sustained substantial operating losses in recent years and has used substantial amounts of working capital in its operations.  Realization of the assets reflected on the  accompanying balance sheet is dependent upon continued operations of the Company which, in turn, is  dependent upon the Company's ability to meet its financing requirements and succeed in its future operations.  Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide them with the opportunity for the Company to continue as a going concern. 

 

Interim Reporting

 

The unaudited financial statements as of June 30, 2006 and for the nine month period then ended reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the nine months.  Operating results for interim periods are not necessarily indicative of the results which can be expected for full years.

 

Organization and Basis of Presentation

 

The Company was incorporated under the laws of the state of Delaware on May 18, 1971.  On April 8, 2005 the Company redomiciled and is currently incorporated under the laws of the state of Nevada.  From 1979 to 1991 the primary business of Penn Pacific and its subsidiaries was the acquisition, exploration, development, production and operation of oil and gas properties.  Penn Pacific has been inactive since 1991.  The Company filed a voluntary petition of reorganization under Chapter 11 of the United States Bankruptcy Code on January 27, 1994.  On January 13, 1997, the Company emerged from bankruptcy pursuant to a final decree of the United States Bankruptcy Court for the Northern District of Oklahoma.  The Company is in the development stage since January 13, 1997 and has not commenced planned principal operations.

 

PENN-PACIFIC CORP.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)

(Unaudited)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Nature of Business

 

The Company has no products or services as of June 30, 2006.  The Company was organized as a vehicle to seek merger or acquisition candidates.  The Company intends to acquire interests in various business opportunities, which in the opinion of management will provide a profit to the Company.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. 

 

Loss per Share

 

The reconciliations of the numerators and denominators of the basic loss per share computations are as follows:

 

 

Income

 

Shares

 

Per-Share

 

(Numerator)

 

(Denominator)

 

Amount

 

 

 

 

 

 

For the three months ended June 30, 2006

**Basic Loss per Share**

 

 

 

 

 

Loss to common shareholders

$                   - 

 

1,168,698

 

$                   - 

 

 

 

 

For the three months ended June 30, 2005

**Basic Loss per Share**

 

 

 

 

 

Loss to common shareholders

$                   - 

 

1,168,698

 

$                   - 

 

 

 

 

For the nine months ended June 30, 2006

**Basic Loss per Share**

 

 

 

 

 

Loss to common shareholders

$          (1,940)

 

1,168,698

 

$                   - 

 

 

 

 

For the nine months ended June 30, 2005

**Basic Loss per Share**

 

 

 

 

 

Loss to common shareholders

$                   - 

 

1,168,698

 

$                   - 

 

 

 

 

The effect of outstanding common stock equivalents would be anti-dilutive for June 30, 2006 and 2005 and are thus not considered.  There are no common stock equivalents outstanding  at June 30, 2006 and 2005.

 

PENN-PACIFIC CORP.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)

(Unaudited)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recent Accounting Standards

 

In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value Measurements." SFAS No. 157 defines fair value, and establishes a framework for measuring fair value in generally accepted accounting principles and expandsdisclosure about fair value measurements. SFAS No. 157 is effective for the Company for financial statements issued subsequent to November 15, 2007. The Company does not expect the new standard to have any material impact on the financial position and results of operations.

 

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. The FASB has indicated it believes that SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.  SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS 159 is effective for the Company as of the beginning of fiscal year 2009. The adoption of this pronouncement is not expected to have an impact on the Company's financial position, results of operations or cash flows.

 

Pervasiveness of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles required 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.

 

PENN-PACIFIC CORP.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)

(Unaudited)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Concentration of Credit Risk

 

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. 

 

NOTE 2 - INCOME TAXES

 

As of December 31, 2005, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $123,000 that may be offset against future taxable income through 2025.  Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs.  Therefore, the amount available to offset future taxable income may be limited.  No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused.  Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. 

 

NOTE 3 - DEVELOPMENT STAGE COMPANY

 

The Company has not begun principal operations and as is common with a development stage company, the Company has had recurring losses during its development stage.  The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal 

course of business.  However, the Company does not have significant  cash or other material assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern.  In the interim, shareholders of the Company have committed to meeting its minimal operating expenses.

 

NOTE 4 - COMMITMENTS

 

As of December 31, 2005 all activities of the Company have been conducted by corporate officers from either their homes or business offices.  Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities.

 

 

PENN-PACIFIC CORP.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)

(Unaudited)

 

NOTE 5 - SUBSEQUENT EVENTS

 

Merger

 

On April 8, 2005 a Plan and Articles of Merger between Penn-Pacific Corp. (Delaware) and Penn-Pacific Corp. (Nevada) was filed in the State of Nevada whereby the Company was redomiciled in the State of Nevada.  As part of the merger, the Company changed the authorized stock to 500,000,000 Common shares, par value $.00001 and 20,000,000 Preferred shares, par value $.0001.  The common and the preferred stock are entitled to all the same rights and privileges except for the voting restrictions for Series C Preferred shares which are entitled to 50% of the stockholders’ voting rights.  Changes in par value have been retroactively restated.

 

**Item 2.  Management’s Discussion and Analysis or Plan of Operation**

 

This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby.  Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to continue its expansion strategy, changes in costs of raw materials, labor, and employee benefits, as well as general market conditions, competition and pricing.  Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate.In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a presentation by the Company or any other person that the objectives and plans of the Company will be achieved.

 

As used herein the term “Company” refers to Penn-Pacific Corp., a Nevada corporation and its predecessors, unless the context indicates otherwise.  The Company is currently a shell company whose purpose is to acquire operations through an acquisition or merger or to begin its own start-up business.

 

The Company is in the process of attempting to identify and acquire a favorable business opportunity.  The Company has reviewed and evaluated a number of business ventures for possible acquisition or participation by the Company.  The Company has not entered into any agreement, nor does it have any commitment or understanding to enter into or become engaged in a transaction as of the date of this filing.  The Company continues to investigate, review, and evaluate business opportunities as they become available and will seek to acquire or become engaged in business opportunities at such time as specific opportunities warrant.

 

**Plan of Operations**

 

The Company has no products or services as of June 30, 2006.  The Company was organized as a vehicle to seek merger or acquisition candidates.  The Company intends to acquire interests in various business opportunities, which in the opinion of management will provide a profit to the Company.

 

The Company had no sales or sales revenues for the three and nine months ended June 30, 2006  or 2005 because it is a shell company that has not had any business operations for the past four years.

 

The Company had no costs of sales for the three and nine months ended June 30, 2006 or 2005 because it is a shell company that has not had any business operations for the past four years.  The Company had general and administrative expenses of $1,940 for the nine month period ended June 30, 2006 and $0 for the same period in 2005.

 

**Capital Resources and Liquidity**

 

At June 30, 2006, the Company had total current assets of $0 and total assets of $0 as compared to $0 current assets and $0 total assets at September 30, 2005.  The Company had a net capital deficit of $123,234 at June 30, 2006 and $121,294 at September 30, 2005.

 

Net stockholders’ deficit in the Company was $47,513 as of June 30, 2006 and $45,573 at September 30, 2005.

 

**Government Regulations -**The Company is subject to all pertinent Federal, State, and Local laws governing its business.  The Company  is subject to licensing and regulation by a number of authorities in its State or municipality.  These may include health, safety, and fire regulations.  The Company's operations are also subject to Federal and State minimum wage laws governing such matters as working conditions, overtime and tip credits.

 

**Critical Accounting Policies** -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 the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, contingencies and taxes.  Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of theConsolidated Financial Statements. 

 

We are subject to various loss contingencies arising in the ordinary course of business.  We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies.  An estimated loss contingency is accrued when management concludes that it is probable that an 

 

asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.  We regularly evaluate current information available to us to determine whether such accruals should be adjusted. 

 

We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.  Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized. 

 

**Recently Enacted and Proposed Regulatory Changes** - Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and NASDAQ could cause us to incur increased costs as we evaluate the implications of new rules and respond to new requirements. The new rules could make it more difficult for us to obtain certain types of insurance, including directors and officers liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on the Company's board of directors, or as executive officers. We are presently evaluating and monitoring developments with respectto these new and proposed rules, and we cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs. 

 

In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value Measurements." SFAS No. 157 defines fair value, and establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 is effective for the Company for financial statements issued subsequent to November 15, 2007. The Company does not expect the new standard to have any material impact on the financial position and results of operations.

 

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. The FASB has indicated it believes that SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.  SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157 and SFAS No. 107, 

 

"Disclosures about Fair Value of Financial Instruments." SFAS 159 is effective for the Company as of the beginning of fiscal year 2009. The adoption of this pronouncement is not expected to have an impact on the Company's financial position, results of operations or cash flows.

 

**Item 3.  Controls and Procedures**

 

The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company. 

 

(a)

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon the evaluation, the Company's President concluded that, as of the end of the period, the Company's disclosure controls and procedures were effective in timely alerting him to material information relating to the Company required to be included in the reports that the Company files and submits pursuant to the Exchange Act. 

 

(b)

Changes in Internal Controls 

 

Based on this evaluation as of June 30, 2006, there were no significant changes in the Company's internal controls over financial reporting or in any other areas that could significantly affect the Company's internal controls subsequent to the date of his most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 

 

**PART II - OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

None.

 

**ITEM 2.  CHANGES IN SECURITIES**

 

None.

 

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

 

None/Not Applicable.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS**

 

None/Not Applicable.

 

**ITEM 5.  OTHER INFORMATION**

 

None.

 

**ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)

EXHIBITS

 

The following documents are filed herewith or have been included as exhibits to previous filings with the Commission and are incorporated herein by this reference:

 

 

Exhibit No.

Exhibit

 

 

 

 

 

3

Articles of Incorporation (1)

 

3.2

Bylaws (1)

 

3.1

Amended Articles of Incorporation (1)

 

31

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(b)

Reports on Form 8-K.  No reports on Form 8-K were filed during the period covered by this Form 10-QSB.

 
 
(1)

Incorporated herein by reference.
 
 

 

**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.

 

Penn-Pacific Corp.

 

 

/s/ Rose Fischer  

Rose Fischer

President

(Principal Executive & Accounting Officer)

 

June 4, 2007

 

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