U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 033-08732-D
PACIFIC ALLIANCE CORPORATION
----------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
Delaware 87-044584-9
------------------------------- --------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization identification No.)
1661 Lakeview Circle, Ogden, UT 84403
(Address of principal executive offices)
Registrant's telephone no., including area code: (801) 399-3632
N/A
Former name, former address, and former fiscal year,
if changed since last report.
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Common Stock outstanding at June 13, 2005 - 14,907,300 shares of $.001 par value
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
PACIFIC ALLIANCE CORPORATION.
For the Quarter ended March 31, 2005
The following financial statements and schedules of the registrant are
submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-QSB
-----------
Item 1. Financial Statements:
Balance Sheets.......................................................... 3
Statement of Operations................................................. 4
Statement of Stockholders' Deficit...................................... 5
Statements of Cash Flows................................................ 7
Notes to Financial Statements........................................... 9 - 12
Item 2. Management's Discussion and Analysis of Financial Condition..... 14
Item 3. Controls and Procedures......................................... 18
PART II - OTHER INFORMATION
Page
----
Item 1. Legal Proceedings............................................. 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... 18
Item 3. Defaults Upon Senior Securities............................... 18
Item 4. Results of Votes of Security Holders.......................... 18
Item 5. Other Information............................................. 18
Item 6. Exhibits...................................................... 19
-2-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETs
ASSETS
March 31, December 31,
2005 2004
----------- ------------
(unaudited)
CURRENT ASSETS
Cash $ 973 $ --
----------- -----------
TOTAL ASSETS $ 973 $ --
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Overdraft $ -- $ 12
Accrued interest 43,668 39,464
Other accrued expenses 18,457 23,106
Advance from officer, note 6 234,388 224,836
Current portion of tax liabilities, note 2 92,398 92,398
Note payable, note 4 20,000 20,000
Notes payable-related parties, note 4 100,757 89,986
----------- -----------
TOTAL CURRENT LIABILITIES 509,668 489,802
LONG TERM LIABILITIES
Tax liabilities, note 2 59,621 59,621
----------- -----------
TOTAL LIABILITIES 569,289 549,423
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, par value $.001,
30,000,000 shares authorized, 14,907,300 and
14,802,300 shares issued and outstanding 14,907 14,802
Additional paid in capital 3,136,514 3,126,119
Accumulated deficit prior to the development stage (2,632,447) (2,632,447)
Accumulated deficit during the development stage (1,087,290) (1,057,897)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (568,316) (549,423)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 973 $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(unaudited)
From Inception
of the
Development
Three Three Stage,
Months Months December 21,
ended ended 1995, Through
March 31, 2005 March 31, 2004 March 31, 2005
------------ ------------ ------------
SALES $ -- $ -- $ --
GROSS MARGIN -- -- --
OPERATING EXPENSES
Professional fees (1,387) (5,000) (358,825)
Management compensation,
note 5 (10,500) (7,500) (281,660)
Office expenses, note 6 (1,500) (1,500) (48,400)
Other expenses (5,260) (11,779) (114,711)
Taxes -- -- (26,000)
Interest expense (10,746) (12,783) (235,623)
Loss on investments -- -- (6,844)
Reorganization fees -- -- (84,302)
------------ ------------ ------------
LOSS BEFORE
EXTRAORDINARY ITEM (29,393) (38,562) (1,156,365)
EXTRAORDINARY ITEM
Gain on forgiveness of tax debt, note 7 -- -- 69,075
------------ ------------ ------------
NET LOSS $ (29,393) $ (38,562) $ (1,087,290)
============ ============ ============
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.00) $ (0.00)
============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES 14,803,467 13,287,308
============ ============
The accompanying notes are an integral part of these financial statements.
-4-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Accumulated Accumulated
Shares of Additional Deficit Prior Deficit After
Common Paid-in to December 21, December 21,
Stock Amount Capital 1995 1995
----------- ----------- ----------- ----------- -----------
Balance at
December 21, 1995 2,099,125 $ 2,099 $ 884,901 $(2,632,447) $ --
Conversion of trade accounts
payable, note 5 1,458,005 1,458 1,456,547 -- --
Issuance of common stock for
cash, note 5 5,000,000 5,000 20,000 -- --
Issuance of
common stock for services,
note 5 216,000 216 864 -- --
Conversion of debt, note 5 300,000 300 14,700 -- --
Issuance of common stock for IRS
claim reduction, note 5 80,078 80 79,998 -- --
Issuance of
common stock, note 5 1,250,000 1,250 248,621 -- --
Conversion of
Management compensation
liability, note 5 1,854,292 1,854 183,575 -- --
Issuance of common
stock for consulting
services, note 5 337,500 338 33,412 -- --
Activity from
December 21, 1995 through
December 31, 2002 -- -- -- -- (675,396)
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 2002 12,595,000 12,595 2,922,618 (2,632,447) (675,396)
Net loss for the year ended
December 31, 2003 -- -- -- -- (144,588)
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 2003 12,595,000 12,595 2,922,618 (2,632,447) (819,984)
The accompanying notes are an integral part of these financial statements.
-5-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Accumulated Accumulated
Shares of Additional Deficit Prior Deficit After
Common Paid-in to December 21, December 21,
Stock Amount Capital 1995 1995
----------- ----------- ----------- ----------- -----------
Issuance of common
stock for consulting
services, note 5 1,250,000 1,250 98,750 -- --
Issuance of stock for
cash, note 5 100,000 100 19,878 -- --
Issuance of Common
stock for management
compensation expense,
note 5 857,300 857 84,873 -- --
Net loss for the year ended
December 31, 2004 -- -- -- -- (237,913)
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 2004 14,802,300 14,802 3,126,119 (2,632,447) (1,057,897)
Issuance of Common
stock for management
compensation expense,
note 5 (unaudited) 105,000 105 10,395 -- --
Net loss for the three months
Ended March 31, 2005
(uaudited) -- -- -- -- (29,393)
----------- ----------- ----------- ----------- -----------
Balance at
March 31, 2005 (unaudited) 14,907,300 $ 14,907 $ 3,136,514 $(2,632,447) $(1,087,290)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-6-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(unaudited)
From Inception
of the
Development
Stage,
Three months Three months December 21,
Ended ended 1995, Through
March 31, 2005 March 31, 2004 March 31, 2005
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (29,393) $ (38,562) $(1,087,290)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on investments -- -- 6,844
Stock issued for services 10,500 -- 196,230
(69,075)
Gain on forgiveness on tax debt -- --
Change in assets and liabilities
(Increase) decrease in prepaid expense -- (500) (500)
Decrease in accounts receivable -- -- 95,841
Increase (decrease) in accrued expense (446) 16,283 122,721
Increase in management compensation liability -- 7,500 152,952
Decrease in tax liabilities -- -- (79,525)
----------- ----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES: (19,339) (15,279) (661,802)
----------- ----------- -----------
(continued)
-7-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (continued)
(unaudited)
From Inception
of the
Development
Stage,
Three months Three months December 21,
Ended ended 1995, Through
March 31, 2005 March 31, 2004 March 31, 2005
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments -- -- (30,180)
Proceeds from sale of investments -- -- 23,336
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES -- -- (6,844)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft (12) -- (2,586)
Proceeds from notes payable -- -- 169,986
Repayment of notes payable -- -- (50,000)
Proceeds from notes payable related party 10,772 -- 10,772
Repayment of notes payable related party -- -- --
Advance from officer 25,210 15,450 537,895
Repayment of advance to officer (15,658) -- (301,275)
Proceeds from issuance of common stock -- -- 44,978
Proceeds from common stock subscription -- -- 259,849
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 20,312 15,450 669,619
----------- ----------- -----------
NET INCREASE IN CASH 973 171 973
CASH AT BEGINNING OF PERIOD -- -- --
CASH AT END OF PERIOD $ 973 $ 171 $ 973
=========== =========== ===========
Supplementary disclosures:
Interest paid in cash $ 6,543 $ 500 $ 155,847
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-8-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Going Concern
------------------------------
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at March 31, 2005
and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 2004 audited financial statements. The results of
operations for the period ended March 31, 2005 are not necessarily
indicative of the operating results for the full year.
Pacific Alliance Corporation (the "Company"), whose name was changed from
Pacific Syndication, Inc. in 1997, was originally incorporated in December
1991 under the laws of the State of Delaware. It also became a California
corporation in 1991. Pacific Syndication, Inc. was engaged in the business
of videotape duplication, standard conversion and delivery of television
programming. In 1994, Pacific Syndication, Inc. merged with Kaiser
Research, Inc.
The Company filed a petition for Chapter 11 under the Bankruptcy Code in
June 1995. The debtor in possession kept operating until December 21, 1995,
when all assets, except cash and accounts receivable, were sold to a third
party, Starcom. The purchaser assumed all post-petition liabilities and all
obligations collateralized by the assets acquired.
In 1997, a reorganization plan was approved by the Bankruptcy Court, and
the remaining creditors of all liabilities subject to compromise, excluding
tax claims, were issued 1,458,005 shares of the Company's common stock in
March 1998, which corresponds to one share for every dollar of
indebtedness. Each share of common stock issued was also accompanied by an
A warrant and a B warrant (see note 5). The IRS portion of tax liabilities
was payable in cash by quarterly installments (see note 2). Repayment of
other taxes is still being negotiated.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realizations of assets and the satisfaction
of liabilities in the normal course of business. As shown in the March 31,
2005 financial statements, the Company did not generate any revenue, and
has a net capital deficiency. These factors among others may indicate that
the Company will be unable to continue as a going concern for a reasonable
period of time. For the three months ended March 31, 2005, the Company
funded its disbursements using loans from an officer.
The financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
-9-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company is no longer operating, and will attempt to locate a new
business (operating company), and offer itself as a merger vehicle for a
company that may desire to go public through a merger rather than through
its own public stock offering.
Cash Flows
----------
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with maturity of three months or less to be
cash equivalents.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results may differ from those estimates.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments approximate fair
value.
Earnings Per Share
------------------
The Company adopted Statement of Financial Standards ("SFAS") No. 128 for
the calculation of earnings per share. This SFAS was issued in February
1997, and supersedes APB Opinion No. 15 previously applied by the Company.
SFAS No. 128 dictates the calculation of basic earnings (loss) per share
and diluted earnings (loss) per share. The Company's diluted loss per share
is the same as the basic loss per share for the three months ended March
31, 2005 and 2004.
New Accounting Pronouncements
-----------------------------
During the year ended December 31, 2004, the Company adopted the following
accounting pronouncements which had no impact on the financial statements
or results of operations:
o SFAS No. 143, Accounting for Asset Retirement Obligations;
o SFAS No.145, Recision of FASB Statements 4, 44, and 64, amendment of
Statement 13, and Technical Corrections;
o SFAS No. 146, Accounting for Exit or Disposal Activities;
o SFAS No. 147, Acquisitions of certain Financial Institutions; and
o SFAS No. 148, Accounting for Stock Based Compensation.
o SFAS No.149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities;
o SFAS No.150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
In addition, during the year ended December 31, 2004, FASB Interpretations
No. 45 and No. 46, along with various Emerging Issues Task Force
Consensuses (EITF) were issued and adopted by the Company and had no impact
on its financial statements.
These newly issued accounting pronouncements had no effect on the Company's
current financial statements and did not impact the Company.
-10-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
2. TAX LIABILITIES
The Company owes back taxes to the IRS, California State Board of
Equalization and other tax authorities. The IRS portion of tax liabilities,
$92,398, bears interest at 9%, and was payable in quarterly installments of
$11,602, final payment due in January 2002. Several payments have not been
made and the Company is renegotiating the payment terms. In 2000, the
Company entered into a settlement agreement with California EDD, which
reduced their claim by $69,075, to $7,600, which was paid in 2001 (see note
7). Other tax claim repayment schedules have not yet been set.
3. INCOME TAXES
The Company has loss carryforwards available to offset future taxable
income. The total loss carryforwards at December 31, 2004 are estimated at
approximately $1,150,000 and expire between 2013 and 2024. Loss
carryforwards are limited in accordance with the rules of change in
ownership. A valuation allowance is recorded for the full amount of
deferred tax assets of approximately $391,000, which relates to these loss
carryforwards, since future profits are indeterminable. The valuation
allowance increased by $27,400 during the year ended December 31, 2004.
4. NOTES PAYABLE
During the year 2002, the Company obtained a loan of $20,000 from a third
party. The new loan bears interest at 10%, is due on demand, and was still
outstanding at March 31, 2005.
Notes payable to minority shareholders amounted to $100,757 at March 31,
2005 and $89,986 at December 31, 2004. These notes bear interest at 10% and
are due on demand.
5. COMMON STOCK AND WARRANTS
On May 28, 1997, a reorganization plan was approved by the Bankruptcy
Court. As a result, existing shares of the Company were reverse split
1-for-6 and pre-bankruptcy creditors were issued 1,458,005 shares of
Company's common stock. On November 13, 1997, an additional 5,000,000
shares of common stock were issued (after reverse split) to an officer of
the Company in return for proceeds of $25,000 ($.005 per share).
-11-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
5. COMMON STOCK AND WARRANTS (Continued)
In accordance with the reorganization plan, the pre-bankruptcy creditors
were also issued 1,458,005 class "A" warrants and 1,458,005 class "B"
warrants. The class "A" warrants allowed the purchase of a share of common
stock at an exercise price of $2.50 per share. The "A" warrants expired in
June 2000 and none were exercised. The class "B" warrants allowed the
purchase of a share of common stock at an exercise price of $5.00 per
share, and the warrants expired in June 2002, and none were exercised.
In May and June 1998, the Company issued 16,000 and 200,000 shares of
common stock respectively, for professional services received from
non-related individuals. These shares were valued at $0.005 per share.
In June 1998, the IRS applied a personal tax refund from a former officer
of the Company against the Company's tax liability, reducing it by $80,078.
In accordance with an agreement between the management and the former
officer, 80,078 shares of common stock were issued to the former officer in
exchange for the loss of his personal tax refund.
In February 2000, the Company issued 300,000 shares to an officer for
repayment of $15,000 in advances the officer loaned to the Company and
accrued interest.
In May 2000, the Company issued 150,000 shares for repayment of consulting
services rendered to the Company from a former officer. These shares were
valued at $0.10 per share.
Pursuant to the provisions of the modified joint plan of reorganization,
Pacific Alliance Corporation compensates its management on an hourly basis
at $75 per hour for the time actually devoted to the business of the
Company. Payment for services is made through issuance of shares of common
stock until such time as the Company's net worth reaches $350,000.
According to the modified joint plan of reorganization, the stock issued
for services shall be valued at $0.10 per share. During the year ended
December 31, 2000, the Company issued 1,666,801 shares of common stock for
accrued compensation, and in June 2002, the Company issued an additional
187,491 shares of common stock.
-12-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
5. COMMON STOCK AND WARRANTS (Continued)
In October 2001, the Company entered in to an agreement under which PIL
S.A., would make a capital infusion and bring in new majority shareholders.
At December 31, 2002, 1,250,000 shares of stock were issued to PIL S.A. for
the $249,871 that had been received from PIL S.A. in previous quarters as
subscription of shares of common stock. At June 30, 2004 50,000 shares for
an additional subscription of $9,978 received in previous quarters were
issued to PIL S.A. In June 2002, PIL S.A. elected to convert a loan with
balance of $10,000 into 50,000 shares of common stock. At June 30, 2004 the
50,000 shares were issued. The Company does not anticipate the transaction
with PIL S.A. will be completed according to the terms of the agreement.
In September 2002, the Company issued 187,500 shares of its common stock
for consulting services received from a non-related individual. The shares
were valued at $0.10 per share.
At December 31, 2003, the Company had $50,000 of management compensation
accrued. The corresponding 500,000 shares of common stock were issued at
December 31, 2004. In December 2003 the Company also accrued $12,500 of
consulting fees, which was paid with 1,250,000 shares of common stock by
December 2004.
6. RELATED PARTY TRANSACTIONS
An officer of the Company advanced $25,210 to the Company during the three
months ended March 31, 2005. The Company repaid $15,658 during the three
months ended March 31, 2005. These advances bear interest at 10% and have
no maturity date. The balance of advances was $234,388 at March 31, 2005.
During the quarter ended March 31, 2002, the Company passed a resolution to
pay rent, office and secretarial services to a stockholder of the Company
at a rate of $500 per month. These charges were retroactive to July 1997,
subsequent to the date of approval of the reorganization plan by the
Bankruptcy court. As such, $1,500 was recorded as expense during the
periods ended March 31, 2005 and 2004.
In accordance with the modified joint plan of reorganization, management is
compensated on an hourly basis at a rate of $75 per hour. Such compensation
is made through issuance of common stock (see note 5). Management
compensation amounted to $10,500 for the three months ended March 31, 2005.
There was an accrued balance of $50,000 at December 31, 2003 with respect
to management compensation. The corresponding 500,000 shares of common
stock were issued at December 31, 2004.
7. EXTRAORDINARY ITEM
On December 19, 2000, the Employment Development Department of California
(EDD) accepted an "Offer in Compromise" in the amount of $7,600 to satisfy
in full, all outstanding liabilities due to the EDD by Pacific Alliance
Corporation. The balance of the liabilities was $76,675 and an
extraordinary gain of $69,075 was recognized. The settlement amount was
paid in January 2001.
-13-
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Pacific Alliance Corporation (the "Company") is a Delaware corporation
which is currently inactive. The Company was previously engaged in the business
of distributing television programming. On September 23, 1995, the Company filed
for protection under Chapter 11 of the United States Bankruptcy Code (Case No.
BK. No. SV 95-14737 KL). On May 28, 1997 (the "Confirmation Date"), the United
States Bankruptcy Court for the Central District of California Confirmed the
Company's Modified Plan of Reorganization (the "Plan") and First Amended
Disclosure Statement (the "Disclosure Statement"). The Effective Date of the
Plan was September 8, 1997. On February 23, 2000, United States Bankruptcy Judge
entered a "Final Decree Order Pursuant to Bankruptcy Code Section 350", and
thereby issued a final decree closing the bankruptcy case. The claim by the
Internal Revenue Service was not discharged by the Final Decree Order.
History
The Company was organized on April 22, 1986 under the laws of the State of
Utah under the name of Kaiser Research, Inc. On December 2, 1994, the Company
changed its domicile from the State of Utah to the State of Delaware through a
reincorporation merger. In order to effect the reincorporation merger, the
Company formed a wholly-owned subsidiary under Delaware law under the name of
PACSYND, Inc. After the change of the Company's domicile, it acquired a
privately held corporation ("Private PSI") in a merger transaction, and in
connection therewith, the Company's name was changed to Pacific Syndication,
Inc.
After the acquisition of Private PSI in December 1994, and prior to its
filing of a Petition under Chapter 11, the Company was engaged in the business
of transmitting television programming to television stations and others via
satellite or land deliveries on behalf of production companies, syndicators and
other distributors of television programming. Although the Private PSI was not
the survivor of the Merger, and did not exist after the Merger, pursuant to the
accounting requirements of the Securities and Exchange Commission the Merger was
treated as a "reverse merger" and, solely for accounting purposes, Private PSI
was deemed to be the survivor.
Private PSI was formed under the laws of the State of Delaware in November
1991. Private PSI was formed to engage in the business of providing a variety of
television industry related services to its clients. Such services included, but
were not limited to, video tape duplication, standards conversion and delivery
of television programming by way of conventional carriers (such as UPS, Airborne
and Federal Express) and by satellite or fiber optic transmission.
Private PSI provided its clients (primarily television producers,
programmers and syndicators) with several related but different services,
including distribution of syndicated programming to television stations, program
mastering and standards conversion, infomercial customization and delivery,
master tape and film storage, library distribution services and video
integration and delivery services. Private PSI developed its own tape tracking
and vault library management system and a system for infomercial customization
and voice-over integration.
From its inception, Private PSI was undercapitalized. It funded its initial
operations through the factoring of its accounts receivable. The Company was
unable to commence operations in the television programming services business
and ultimately, substantially all of its assets were sold and it discontinued
its operations.
-14-
Chapter 11 Plan of Reorganization
On September 23, 1995, the Company filed a Petition under Chapter 11 of the
U.S. Bankruptcy Code. As of December 1995, the Company had sold most of its
assets, reduced its debt and terminated its operations. By that date, there was
no trading market in the Company's securities. In 1996, Troika Capital, Inc.
("Troika"), a Utah corporation, agreed to assist the Company in developing a
Plan of Reorganization which would provide the Company, its shareholders and
creditors with at least a possibility of recouping all or some of their
investment in the Company or the debts owed to them by the Company. Troika is a
privately-owned Utah corporation which has been involved in various company
formations, mergers and financings.
Mark A. Scharmann, the President of Troika, and now the President of the
Company, and his affiliates, were shareholders of the Company and creditors of
the Company at the time the Company commenced its bankruptcy proceeding. Mr.
Scharmann was a founder of the Company in 1986 and was an original shareholder
of the Company. At the time the Company acquired Private PSI, he resigned as an
officer and director of the Company but remained a shareholder and later became
a creditor of the Company. Many of the investors in the Company are friends and
acquaintances of Mr. Scharmann. The Company believed that if it were to
liquidate, there would be a total loss to creditors and shareholders. Because of
his own equity and debt investment in the Company, and his relationship with
other shareholders and creditors of the Company, Mr. Scharmann agreed, through
Troika, to develop a business plan for the Company and to attempt to assist the
Company in carrying out such plan.
The Plan of Reorganization developed for the Company by Troika was
essentially as follows:
1. Eliminate all non-tax liabilities of the Company through the
conversion of debt into equity.
2. Replace the current officers and directors of the Company with new
management. The new management includes the following: Mark Scharmann, Dan
Price and David Knudson.
3. File all required Securities and Exchange Commission reports which
may be necessary to bring the Debtor current in its filing requirements
under Section 15(d) of the 1934 Act. File all SEC reports which become due
in the future.
4. File any tax returns which are in arrears and file all required tax
returns and reports which become due in the future.
5. Use existing cash of the Company to pay quarterly tax payments and
for working capital.
6. Prepare and bring current, the financial statements of the Company
7. Attempt to raise additional cash to be used to fund quarterly tax
payments and for working capital.
8. Locate a private-company which is seeking to become a public
company by merging with the Company.
9. Assist the Company in completing any merger which is located and
which the Board of Directors deems appropriate.
-15-
10. Assist the post-merged company with shareholder relations,
financial public relations and with attempts to interest a broker-dealer in
developing a public market for the Company's common stock so that the
Company's shareholders (including creditors whose debt was converted into
shares of the Company's common stock) may ultimately have an opportunity to
liquidate their shares for value in market or in privately negotiated
transactions.
The Plan and Disclosure Statement was confirmed by the Bankruptcy Court on
May 28, 1997. The Effective Date of the Plan was September 8, 1997. Subsequent
to the Effective Date of the Plan, the Company filed monthly "Debtor in
Possession Interim Statements" and "Debtor in Possession Operating Reports" with
the Office of the United States Trustee. On February 23, 2000, the Bankruptcy
Court Judge entered a Final Decree Order closing the Bankruptcy case of the
Company.
Post Confirmation Date Activities
Since the Confirmation of the Plan of Reorganization the following have
occurred:
1. Pre-Confirmation Date non-tax debt in the amount of approximately
$1,458,000 was converted into 1,458,005 shares of the Company common stock.
2. The Company completed its audited financial statements for the
years ended December 31, 1996 through 2004.
3. Tax liabilities to the Internal Revenue Service of approximately
$269,093 had been reduced to $92,398 as of March 31, 2005.
4. Liabilities with respect to other tax authorities amounted to
approximately $59,621 as of March 31, 2005.
5. The Company effected a 1-for-6 reverse split of its issued and
outstanding common stock in order to establish a more desirable capital
structure for potential merger partners.
6. The Company changed its name to Pacific Alliance Corporation.
7. The Company obtained the preliminary agreement of a
registered-broker to make a market in the Company's common stock.
8. The Company filed an application for approval of secondary trading
in its common stock with the Division of Securities of the State of Utah.
An Order Granting such application was issued by the Utah Division of
Securities.
9. The Company prepared and filed a Form 10-KSB for the years ended
December 31, 1997 through December 2004, and all required Forms 10-QSB.
Financial Condition
Total assets at March 31, 2005 were $973. As of December 31, 2004, the
Company had no assets and liabilities $549,423.
The Company's total liabilities as of March 31, 2005 were $569,289. The
Company's liabilities include, but are not limited to, $234,388 loans from
officers, $43,668 accrued interest, $152,019 attributed to tax liabilities, and
$120,757 loans payable.
-16-
It is likely that the Company will be required to raise additional capital
in order to attract any potential acquisition partner but there can be no
assurance that the Company will be able to raise any additional capital. It is
also likely that any future acquisition will be made through the issuance of
shares of the Company's common stock which will result in the dilution of the
percentage ownership of the current shareholders.
Results of Operations
The Company has generated no revenues since the Confirmation Date of its
Bankruptcy Reorganization. The Company will not generate any revenues, if ever,
until and unless it merges with an operating company or raises additional
capital for its own operations. There can be no assurance that either of such
events will happen.
The Company had a net loss of $29,393 for the three months ended March 31,
2005. This compares to a net loss of $38,562 for the three months ended March
31, 2004. The Company's expenses for the quarter ended March 31, 2005 consisted
of management compensation, professional fees, interest and other expenses.
Plan of Operation
The Company's current business plan is to serve as a vehicle for the
acquisition of, or the merger or consolidation with another company (a "Target
Business"). The Company intends to utilize its limited current assets, equity
securities, debt securities, borrowings or a combination thereof in effecting a
Business Combination with a Target Business which the Company believes has
significant growth potential. The Company's efforts in identifying a prospective
Target Business are expected to emphasize businesses primarily located in the
United States; however, the Company reserves the right to acquire a Target
Business located primarily elsewhere. While the Company may, under certain
circumstances, seek to effect Business Combinations with more than one Target
Business, as a result of its limited resources the Company will, in all
likelihood, have the ability to effect only a single Business Combination.
The Company may effect a Business Combination with a Target Business which
may be financially unstable or in its early stages of development or growth. To
the extent the Company effects a Business Combination with a financially
unstable company or an entity in its early stage of development or growth
(including entities without established records of revenue or income), the
Company will become subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, to the extent that the Company effects a Business
Combination with an entity in an industry characterized by a high level of risk,
the Company will become subject to the currently unascertainable risks of that
industry. An extremely high level of risk frequently characterizes certain
industries which experience rapid growth. Although management will endeavor to
evaluate the risks inherent in a particular industry or Target Business, there
can be no assurance that the Company will properly ascertain or assess all
risks.
Other Matters
In October, 2001, the Company entered into an agreement with PIL S.A., a
Switzerland Corporation, under which PIL S.A. would move to increase the
company's capital and bring in new majority shareholders. At December 31, 2002,
the Company issued 1,250,000 shares of common stock to PIL S.A. for $249,871
that had been previously deposited by PIL S.A. with the Company. In September
2002, PIL S.A. elected to convert a $10,000 loan into 50,000 shares of the
Company's common stock. Another subscription of 50,000 shares for $9,978 was
also made by PIL S.A. These shares were issued during the quarter ended June 30,
2004. The Company does not anticipate the transaction with PIL S.A. will be
completed according to the terms of the agreement.
-17-
The Company will not effect any merger unless it first obtains approval
from its shareholders. In connection with obtaining shareholder approval of a
proposed merger, the Company will distribute a Proxy, Notice of Meeting of
Stockholders and Proxy Statement which contains information about the proposed
acquisition transaction. Such information will likely include audited financial
statements and other financial information about the acquisition target which
meets the requirements of Form 8-K as promulgated under the Securities Exchange
of 1934, as amended, resumes of potential new management, description of
potential risk factors which shareholders should consider in connection with
their voting on the proposed acquisition and a description of the business
operations of the acquisition target.
Troika and its affiliate will vote all of their shares of the Company's
common stock for or against any merger proposal in the same ratio which the
shares owned by other shareholders are voted. This will permit other
shareholders to be able to effectively determine whether the Company acquires
any particular Operating Company. The merger will be effected only if a majority
of the other shareholders attending the meeting of shareholders in person and/or
by proxy, vote in favor of such proposed merger. The shares of Troika and its
affiliates will be included for purposes of determining whether a quorum of
shareholders is present at the meeting.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluations as of March 31, 2005, the principal executive
officer and principal financial officer of the Company have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act) are effective to ensure that
information required to be disclosed by the Company in reports that the Company
files or submits under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC.
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls over
financial reporting or in other factors that could significantly affect these
internal controls subsequent to the date of their most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults by the Company on its Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
No matter was submitted to a vote of the Company's security
holders for the quarter ended March 31, 2005.
Item 5. Other Information.
-18-
Item 6. Exhibits.
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes Oxley Act of 2002.
SIGNATURE
In accordance with the requirements of the Exchange Act, the Company
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Dated: June 13, 2005 PACIFIC ALLIANCE CORPORATION
By /s/ Mark A. Scharmann
-------------------------------------
President/Principal Executive Officer
By /s/ David Knudson
-------------------------------------
Principal Financial Officer
-19-