U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year
ended December 31, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-51777
PACIFIC ALLIANCE CORPORATION
(Name of Small Business Issuer as specified in its charter)
Delaware 87-044584-9
-------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification No.)
1661 Lakeview Circle
Ogden, UT 84403
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(Address of principal executive offices)
Issuer's telephone number, including area code: (801) 399-3632
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act :
$.001 Par Value Common Stock
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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The Issuer's revenues for the fiscal year ended December 31, 2006 were
-0-.
As of April 12, 2007, 36,147,050 shares of the Issuer's common stock
were issued and outstanding of which 8,183,671 were held by non-affiliates. As
of April 12, 2007, there was no active market in the Issuers securities.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation
16
Item 7. Financial Statements 24
Item 8. Changes and Disagreements with Accountants on Accounting
and Financial Disclosure
40
Item 8A. Controls and Procedures 41
Item 8B. Other Information 42
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 42
Item 10. Executive Compensation 44
Item 11. Security Ownership of Certain Beneficial Owners and Management 46
Item 12. Certain Relationships and Related Party Transactions 47
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8 K 48
Item 14. Principal Accounting Fees and Services 49
PART I
Disclosure Regarding Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information in this Form 10-KSB
include information that is forward looking, such as the Company's opportunities
to tax obligations, its anticipated liquidity and capital requirements and the
results of legal proceedings. The matters referred to in forward looking
statements could be affected by the risks and uncertainties involved in the
Company's business. These risks and uncertainties include, but are not limited
to, certain other risks described in Item 1 and in Item 7 of this Form10-KSB.
Subsequent written and oral forward looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph and elsewhere in this
Form 10-KSB.
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ITEM 1. DESCRIPTION OF BUSINESS
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 June 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 June 8, 1997. The Company's current business plan calls for it to
locate and acquire an operating company. Currently, we are a "shell" company
conducting virtually no business operation, other than our efforts to seek
merger partners or acquisition candidates. We have no full time employees and
own no real estate.
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
December 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.
-3-
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.
Chapter 11 Plan of Reorganization
On June 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.
-4-
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.
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 a
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 June 8, 1997.
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, 1995 through 2006.
3. Tax liabilities to the Internal Revenue Service of
approximately $269,093 had been reduced to $268,897 as of
December 31, 2006.
-5-
4. The Company effected a 1-for-6 reverse split of its issued
an outstanding common stock in order to establish a more
desirable capital structure for potential merger partners.
5. The Company changed its name to Pacific Alliance
Corporation.
6. The Company obtained the preliminary agreement of a
registered-broker to make a market in the Company's common
stock.
7. 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 which was
effective through March 31, 1999.
8. The Company prepared and filed Form 10-KSB's for the years
ended December 31, 1996 - 2005 and with this Form 10-KSB,
for the year ended December 31, 2006.
9. Effective February 22, 2000 - the Bankruptcy Court entered
an Order of Final Decree closing the Bankruptcy Case.
Business Plan
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.
-6-
Probable Lack of Business Diversification. As a result of the limited
resources of the Company, the Company, in all likelihood, will have the ability
to effect only a single Business Combination. Accordingly, the prospects for the
Company's success will be entirely dependent upon the future performance of a
single business. Unlike certain entities that have the resources to consummate
several Business Combinations or entities operating in multiple industries or
multiple segments of a single industry, it is highly likely that the Company
will not have the resources to diversify its operations or benefit from the
possible spreading of risks or offsetting of losses. The Company's probable lack
of diversification may subject the Company to numerous economic, competitive and
regulatory developments, any or all of which may have a material adverse impact
upon the particular industry in which the Company may operate subsequent to
consummation of a Business Combination. The prospects for the Company's success
may become dependent upon the development or market acceptance of a single or
limited number of products, processes or services. Accordingly, notwithstanding
the possibility of capital investment in and management assistance to the Target
Business by the Company, there can be no assurance that the Target Business will
prove to be commercially viable.
No Independent Appraisal of Potential Acquisition Candidates. The
Company does not anticipate that it will obtain an independent appraisal or
valuation of a Target Business. Thus, stockholders of the Company will need to
rely primarily upon management to evaluate a prospective Business Combination.
However, a Business Combination will not be consummated unless it is approved by
the stockholders of the Company.
Limited Ability to Evaluate Management of a Target Business. The role
of the present management of the Company, following a Business Combination,
cannot be stated with any certainty. Although the Company intends to scrutinize
closely the management of a prospective Target Business in connection with its
evaluation of the desirability of effecting a Business Combination with such
Target Business, there can be no assurance that the Company's assessment of such
management will prove to be correct. While it is possible that certain of the
Company's directors or its executive officers will remain associated in some
capacities with the Company following consummation of a Business Combination, it
is unlikely that any of them will devote a substantial portion of their time to
the affairs of the Company subsequent thereto. Moreover, there can be no
assurance that such personnel will have significant experience or knowledge
relating to the operations of the particular Target Business. The Company also
may seek to recruit additional personnel to supplement the incumbent management
of the Target Business. There can be no assurance that the Company will have the
ability to recruit additional personnel or that such additional personnel will
have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management. In addition, there can be no assurance that
the future management of the Company will have the necessary skills,
qualifications or abilities to manage a public company intending to embark on a
program of business development.
Selection of a Target Business and Structuring of a Business
Combination. Management of the Company will have substantial flexibility in
identifying and selecting a prospective Target Business within the specified
businesses. In evaluating a prospective Target Business, management will
consider, among other factors, the following: (i) costs associated with
effecting the Business Combination; (ii) equity interest in and opportunity for
control of the Target Business; (iii) growth potential of the Target Business;
(iv) experience and skill of management and availability of additional personnel
of the Target Business; (v) capital requirements of the Target Business; (vi)
-7-
competitive position of the Target Business; (vii) stage of development of the
Target Business; (viii) degree of current or potential market acceptance of the
Target Business; (ix) proprietary features and degree of intellectual property
or other protection of the Target Business; (x) the financial statements of the
Target Business; and (xi) the regulatory environment in which the Target
Business operates.
The foregoing criteria are not intended to be exhaustive and any
evaluation relating to the merits of a particular Target Business will be based,
to the extent relevant, on the above factors as well as other considerations
deemed relevant by management in connection with effecting a Business
Combination consistent with the Company's business objectives. In connection
with its evaluation of a prospective Target Business, management anticipates
that it will conduct a due diligence review which will encompass, among other
things, meeting with incumbent management and inspection of facilities, as well
as a review of financial, legal and other information which will be made
available to the Company.
The time and costs required to select and evaluate a Target Business
(including conducting a due diligence review) and to structure and consummate
the Business Combination (including negotiating relevant agreements and
preparing requisite documents for filing pursuant to applicable securities laws
and state "blue sky" and corporation laws) cannot presently be ascertained with
any degree of certainty. The Company's current executive officers and directors
intend to devote only a small portion of their time to the affairs of the
Company and, accordingly, consummation of a Business Combination may require a
greater period of time than if the Company's management devoted their full time
to the Company's affairs. However, each officer and director of the Company will
devote such time as they deem reasonably necessary to carry out the business and
affairs of the Company, including the evaluation of potential Target Businesses
and the negotiation of a Business Combination and, as a result, the amount of
time devoted to the business and affairs of the Company may vary significantly
depending upon, among other things, whether the Company has identified a Target
Business or is engaged in active negotiation of a Business Combination. Any
costs incurred in connection with the identification and evaluation of a
prospective Target Business with which a Business Combination is not ultimately
consummated will result in a loss to the Company and reduce the amount of
capital available to otherwise complete a Business Combination or for the
resulting entity to utilize.
The Company anticipates that various prospective Target Businesses will
be brought to its attention from various non-affiliated sources, including
securities broker-dealers, investment bankers, venture capitalists, bankers,
other members of the financial community and affiliated sources, including,
possibly, the Company's executive officer, directors and their affiliates. While
the Company has not yet ascertained how, if at all, it will advertise and
promote itself, it may elect to publish advertisements in financial or trade
publications seeking potential business acquisitions. While the Company does not
presently anticipate engaging the services of professional firms that specialize
in finding business acquisitions on any formal basis (other than the independent
investment banker), the Company may engage such firms in the future, in which
event the Company may pay a finder's fee or other compensation.
-8-
As a general rule, Federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. The Company
will evaluate the possible tax consequences of any prospective Business
Combination and will endeavor to structure a Business Combination so as to
achieve the most favorable tax treatment to the Company, the Target Business and
their respective stockholders. There can be no assurance that the Internal
Revenue Service or relevant state tax authorities will ultimately assent to the
Company's tax treatment of a particular consummated Business Combination. To the
extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in recharacterizing the tax treatment of a Business
Combination, there may be adverse tax consequences to the Company, the Target
Business and their respective stockholders. Tax considerations as well as other
relevant factors will be evaluated in determining the precise structure of a
particular Business Combination, which could be effected through various forms
of a merger, consolidation or stock or asset acquisition.
There currently are no limitations on the Company's ability to borrow
funds to effect a Business Combination. However, the Company's limited resources
and lack of operating history may make it difficult to borrow funds. The amount
and nature of any borrowings by the Company will depend on numerous
considerations, including the Company's capital requirements, potential lenders'
evaluation of the Company's ability to meet debt service on borrowings and the
then prevailing conditions in the financial markets, as well as general economic
conditions. The Company does not have any arrangements with any bank or
financial institution to secure additional financing and there can be no
assurance that such arrangements if required or otherwise sought, would be
available on terms commercially acceptable or otherwise in the best interests of
the Company. The inability of the Company to borrow funds required to effect or
facilitate a Business Combination, or to provide funds for an additional
infusion of capital into a Target Business, may have a material adverse effect
on the Company's financial condition and future prospects, including the ability
to effect a Business Combination. To the extent that debt financing ultimately
proves to be available, any borrowings may subject the Company to various risks
traditionally associated with indebtedness, including the risks of interest rate
fluctuations and insufficiency of cash flow to pay principal and interest.
Furthermore, a Target Business may have already incurred debt financing and,
therefore, all the risks inherent thereto.
Competition
The Company expects to encounter intense competition from other
entities having business objectives similar to that of the Company. Many of
these entities are well established and have extensive experience in connection
with identifying and effecting business combinations directly or through
affiliates. Many of these competitors possess greater financial, technical,
human and other resources than the Company and there can be no assurance that
the Company will have the ability to compete successfully. The Company's
financial resources will be limited in comparison to those of many of its
competitors. Further, such competitors will generally not be required to seek
the prior approval of their own stockholders, which may enable them to close a
Business Combination more quickly than the Company. This inherent competitive
limitation may compel the Company to select certain less attractive Business
Combination prospects. There can be no assurance that such prospects will permit
the Company to satisfy its stated business objectives.
-9-
Uncertainty of Competitive Environment of Target Business
In the event that the Company succeeds in effecting a Business
Combination, the Company will, in all likelihood, become subject to intense
competition from competitors of the Target Business. In particular, certain
industries which experience rapid growth frequently attract an increasingly
large number of competitors including competitors with increasingly greater
financial, marketing, technical, human and other resources than the initial
competitors in the industry. The degree of competition characterizing the
industry of any prospective Target Business cannot presently be ascertained.
There can be no assurance that, subsequent to a Business Combination, the
Company will have the resources to compete effectively, especially to the extent
that the Target Business is in a high-growth industry.
Certain Securities Laws Considerations
Under the Federal securities laws, public companies must furnish
stockholders certain information about significant acquisitions, which
information may require audited financial statements for an acquired company
with respect to one or more fiscal years, depending upon the relative size of
the acquisition. Consequently, the Company will only be able to effect a
Business Combination with a prospective Target Business that has available
audited financial statements or has financial statements which can be audited.
Shareholder Approval
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.
Employees
As of the date of this Prospectus, the Company has no full time
employees.
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ITEM 2. PROPERTIES
The Company's offices are located at 1661 Lakeview Circle, Ogden, UT
84403. The Company, pursuant to an oral agreement, utilizes an office at the
residence of Mark A. Scharmann, a stockholder of the Company and the Company's
President.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were presented to the Company's Shareholders for a vote
during the last quarter of 2006.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There is no active market for the Company's common stock. The Company's
common stock is sporadically traded on a workout basis in the over-the-counter
market.
Shares Issued in Unregistered Transactions in 2006
We issued shares of our common stock in unregistered transactions
during 2006. All of the following shares of common stock issued were issued in
non registered transactions in reliance on Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"). The shares of common stock issued were
as follows:
------------------------------- ----------------- -------------- --------------------------------
Number of
Issued To Shares Date Consideration
=============================== ================= ============== ================================
Mark A. Scharmann 78,750 3/31/06 Compensation valued at $7,875
------------------------------- ----------------- -------------- --------------------------------
David Knudson 144,450 3/31/06 Compensation valued at $14,445
------------------------------- ----------------- -------------- --------------------------------
Mark A. Scharmann 54,000 6/30/06 Compensation valued at $5,400
------------------------------- ----------------- -------------- --------------------------------
Dan Price 22,500 6/30/06 Compensation valued at $2,250
------------------------------- ----------------- -------------- --------------------------------
David Knudson 141,450 6/30/06 Compensation valued at $14,145
------------------------------- ----------------- -------------- --------------------------------
Mark A. Scharmann 26,250 9/30/06 Compensation valued at $2,625
------------------------------- ----------------- -------------- --------------------------------
David Knudson 49,050 9/30/06 Compensation valued at $4,905
------------------------------- ----------------- -------------- --------------------------------
Mark A. Scharmann 20,000,000 12/19/06 $100,000 of outstanding notes
------------------------------- ----------------- -------------- --------------------------------
Mark A. Scharmann 20,250 12/31/06 Compensation valued at $2,025
------------------------------- ----------------- -------------- --------------------------------
Dan Price 9,000 12/31/06 Compensation valued at $900
------------------------------- ----------------- -------------- --------------------------------
David Knudson 57,150 12/31/06 Compensation valued at $5,715
=============================== ================= ============== ================================
Total: 20,602,850
------------------------------- ----------------- -------------- --------------------------------
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Shares Issued in Unregistered Transactions Prior to 2005
Shares Issued Prior to Confirmation Date
----------------------------------------
Immediately prior to the confirmation of the Company's Plan of
Reorganization by the Bankruptcy Court on May 28, 1997, there were a total of
12,594,422 shares of the Company's common stock issued and outstanding. The Plan
of Reorganization, called for a 1-for-6 reverse split of the issued and
outstanding shares which reduced the 12,594,422 shares to 2,099,125 shares.
Shares Issued to Troika
-----------------------
Pursuant to the Plan of Reorganization, 5,000,000 shares of the
Company's common stock, calculated after the reverse stock split, were issued to
Troika Capital Investment. The shares issued to Troika were issued pursuant to
Section 4(2) of the Securities Act of 1993, as amended (the "Securities Act").
Shares Issued to Creditors
--------------------------
A total 1,458,005 shares of the Company's common stock (calculated
after the 1-for-6 reverse stock split) were issued to creditors pursuant to the
Plan of Reorganization. In exchange for every $1.00 of Allowed Unsecured Claims
(as defined in the Plan of Reorganization) a creditor was issued one share of
common stock, one Class A Warrant and One Class B Warrant. Each Class A Warrant
entitles the holder to purchase one share of the Company's common stock at $2.50
per share for a period of three years commencing on the Effective Date of the
Plan. Class A Warrants expired in 2000 and none were exercised. Each Class B
Warrant entitles the holder to purchase one share of the Company's common stock
at $5.00 per share for a period of five years commencing on the Effective Date
of the Plan. The Effective Date of the Plan was June 8, 1997. The 1,458,005
shares and the Class A and Class B Warrants issued to claim holders, were issued
under Section 1145 of the United States Bankruptcy Code (the "Code"). Section
1145 provides that the securities registration requirements of federal, state
and local laws do not apply to the offer or sale of securities issued by a
debtor (or its successor) if (i) the offer or sale occurs under a plan of
reorganization and (ii) the securities are transferred in exchange (or
principally in exchange) for a claim against or interest in the debtor.
Accordingly, under Section 1145 of the Code, the issuance of common stock in
exchange for a Claim against the Company was exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and from the registration requirements of any state securities laws.
Approximately 86 creditors were issued shares in exchange for claims against the
Company.
Resales or Transfers of Plan Securities. Any person who is not an
"underwriter" under Section 1145 of the Code or a "dealer" under the 1933 Act
and who transfers shares received under the Plan ("Plan Securities") need not
comply with the registration requirements of the 1933 Act or of any state
securities laws. The term "underwriter", as used in Section 1145, includes four
categories of persons, which are referred to in this Disclosure Statement as
"Controlling Persons", "Accumulators", "Distributors" and "Syndicators".
"Dealers" and the four types of underwriters are discussed below.
-12-
a. Controlling Persons. "Controlling Persons" are persons who,
after the Effective Date, have the power, whether direct or indirect
and whether formal or informal, to control the management and policies
of the reorganized debtor. Whether a person has such power depends on a
number of factors, including the person's equity in the reorganized
debtor relative to other equity holders, and whether the person, acting
alone or in concert with others, has a contractual or other
relationship giving that person power over management policies and
decisions. In order to transfer the Plan Securities without
registration, a Controlling Person would be required to comply with the
restrictions set forth in SEC Rule 144, other than the holding period
requirement set forth in that Rule. The restrictions of Rule 144 are
complicated. In general, in order for the resale of Plan Securities by
a Controlling Person to be permissible under Rule 144, the Controlling
Person must not sell during any three-month period, more than one
percent of the Company's common stock (or, if greater, the average
weekly report volume of trading in such securities).
b. Accumulators and Distributors. "Accumulators" are persons
who purchase a Claim against or Interest in the Company with a view to
distribution of any Plan Securities to be received under the Plan in
exchange for such Claim or Interest. "Distributors" are persons who
offer to sell Plan Securities for the holders of those securities. In a
1986 SEC No- Action Letter (Manville Corp.), the SEC staff took the
position that resales by Accumulators and Distributors of securities
distributed under a plan are exempt from the registration requirements
of the 1933 Act if made in "ordinary trading transactions". The SEC
staff took the position that a transaction is an ordinary trading
transaction if it is made on an exchange or in the over-the-counter
market at a time when the issuer is a reporting company under the 1934
Act and does not involve any of the following factors:
(i) concerted action by recipients of Plan Securities
in connection with the sale of such securities, concerted
action by distributors on behalf of one or more such
recipients in connection with such sales, or both;
(ii) informational documents concerning the offering
of the securities prepared or used to assist in the resale of
such securities other than this Disclosure Statement and any
supplements hereto and documents filed with the SEC by the
issuer pursuant to the 1934 Act; or
(iii) special compensation to brokers and dealers in
connection with the sale of such securities designed as a
special incentive to resell such securities, other than
compensation that would be paid pursuant to arm's length
negotiations between a seller and a broker or dealer, each
acting unilaterally, and not greater than the compensation
that would be paid for a routine similar-sized sale of a
similar issue.
c. Syndicators. "Syndicators" are persons who offer to buy
Plan Securities from the holders with a view to distribution, under an
agreement made in connection with the Plan, with consummation of the
Plan or with the offer or sale of securities under the Plan.
-13-
d. Dealers. "Dealers" are persons who engage either for all or
part of their time, directly or indirectly, as agent, broker, or
principal, in the business of offering, buying, selling, or otherwise
dealing or trading in securities. Section 4(3) of the 1933 Act exempts
transactions in the Plan Securities by dealers taking place more than
40 days after the Effective Date. Within the 40-day period after the
Effective Date, transactions by dealers who are stockbrokers are exempt
from the 1933 Act pursuant to Section 1145 (a) (4) of the Code, as long
as the stockbrokers deliver a copy of this Disclosure Statement (and
periodic supplements hereto, if any, as ordered by the Court) at or
before the time of delivery of Plan Securities to their customers. This
requirement specifically applies to trading and other after-market
transactions in such securities. In this regard, however, in the 1986
SEC No-Action Letter (Manville Corp.), the staff of the SEC took the
position that it would not recommend action if stockbrokers did not
comply with the Disclosure Statement delivery requirements of Section
1145 (a) (4) as long as the issuer of the securities was a reporting
person under the 1934 Act and was current and timely in its reporting
obligations.
Shares Issued Subsequent to Confirmation Date
As part of the Plan, the Company issued 5,000,000 shares to Troika
Capital for $25,000. Subsequent to the Confirmation Date, the Company issued its
securities in non-registered transactions pursuant to the exemption provided by
Section 4(2) of the Securities Act. The Company did not pay a commission or any
finders fees in connection with such transactions. In addition to the following
transactions, we issued shares to management for services (See Item 12 of this
Form 10-KSB). The securities issued in such transactions were as follows:
---------------------------------- ------------------ -------------- -----------------------------------------------
Number of
Issued To Shares Date Consideration
================================== ================== ============== ===============================================
Harold Spector 16,000 5/28/98 Consulting services valued at $80
---------------------------------- ------------------ -------------- -----------------------------------------------
Workout Specialists, Inc. 200,000 6/29/98 Consulting services valued at $1,000
---------------------------------- ------------------ -------------- -----------------------------------------------
William M. Hynes, II 80,078 9/30/98 These shares were issued to Mr. Hynes as
payment in full for $80,077.57 in IRS tax
credits transferred to the Company by
Mr. Hynes.
---------------------------------- ------------------ -------------- -----------------------------------------------
Mark Scharmann 300,000 2/29/00 Repayment of $15,000 loan from Mark Scharmann
---------------------------------- ------------------ -------------- -----------------------------------------------
William M. Hynes, II 150,000 5/20/00 Consulting Services valued at $15,000
---------------------------------- ------------------ -------------- -----------------------------------------------
Michael Harrop 187,500 8/7/02 Consulting Services valued at $18,750
---------------------------------- ------------------ -------------- -----------------------------------------------
PIL S.A. 1,250,000 6/28/02 $249,871
---------------------------------- ------------------ -------------- -----------------------------------------------
Northcliffe Consulting 1,000,000 2/24/04 Consulting Services value at $10,000
---------------------------------- ------------------ -------------- -----------------------------------------------
William M. Hynes, II 250,000 2/24/04 Consulting Services valued at $2,500
---------------------------------- ------------------ -------------- -----------------------------------------------
PIL S.A. 100,000 5/14/04 $19,978
---------------------------------- ------------------ -------------- -----------------------------------------------
Mark Scharmann 20,000,000 12/19/06 Repayment of $100,000 of notes owed Mark
Scharmann
================================== ================== ============== ===============================================
Total: 23,533,578
---------------------------------- ------------------ -------------- -----------------------------------------------
-14-
Shares Issued for Services from 1997 to December 31, 2006
---------------------------------------------------------
Those persons who have been serving as the Company's officers and
directors since 1996 have been issued shares of common stock for services
rendered in lieu of cash compensation. Total compensation shares issued to each
of the Company's officers and directors is as follows:
Mark A. Scharmann 1,785,026
---------------
Dan Price 68,775
---------------
David Knudson 2,678,941
---------------
Holders
As of April 12, 2007, there were 36,147,050 shares of common stock
outstanding and approximately 148 stockholders of record of common stock.
Purchases of Equity Securities by the Small Business Issuer and Affiliated
Purchasers
None
Limitation on Directors' Liability, Charter Provisions and Other Matters
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware law, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission. Our Certificate of Incorporation
limits the liability of our directors to us or to our stockholders (in their
capacity as directors but not in their capacity as officers) to the fullest
extent permitted by Delaware law.
The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders.
Our Bylaws provide indemnification to our officers and directors and
certain other persons with respect to certain matters. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
our directors and officers, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
-15-
Transfer Agent and Registrar
Our transfer agent is Fidelity Transfer Company, 1800 South West
Temple, Suite 301, Salt Lake City, UT 84115; telephone (801) 484-7222.
Dividends
The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying dividends in the foreseeable future. It is the
present intention of management to utilize all available funds for the
development of the Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Overview
The Company is currently inactive. Our current business plan calls for
us to locate and acquire an operating company. Currently, we are a "shell"
company conducting virtually no business operation, other than our efforts to
seek merger partners or acquisition candidates. We have no full time employees
and own no real estate.
We were 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 June 8, 1997. On
February 23, 2000, United States Bankruptcy Judge Kathleen T. Lax 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.
Our Plan of Operation is further described in Item 1 of this Form
10-KSB.
Liquidity and Capital Resources
As of December 31, 2006, we had no assets. Therefore, we are dependent
upon loans and advances from our management and affiliates to fund our expenses
pending the completion of a merger or acquisition. As of December 31, 2006, we
had total liabilities of $808,592 of which $322,554 was for tax liabilities. At
December 31, 2006, a total of $408,800 of our liabilities was for funds loaned
to us by management and other stockholders compared to $415,389 in such loans as
of December 31, 2005. At December 31, 2006, a total of $-0- of our liabilities
was for accrued compensation expenses for our officers and directors.
-16-
In the last quarter of 2006, we issued 20,000,000 shares of our common
stock to our president Mark Scharmann as payment for $100,000 of notes we owed
Mr. Scharmann.
In the event we are able to locate an acquisition candidate, we
anticipate that some or all our debt to management and others will be converted
into additional shares of common stock. The conversion price, if a conversion of
debt was to occur, of which there can be no assurance, has not been established.
We intend to pay for various filing fees and professional fees relating
to our reporting obligations and to fund the costs which may arise from seeking
new business opportunities.
It is likely that we will be required to raise additional capital in
order to attract and potential acquisition partner but there can be no assurance
that we 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 our common
stock which will result in the dilution of the percentage ownership of the
current shareholders.
The auditors' report on our December 31, 2005 financial statements
contains a going concern qualification, which provides that our ability to
continue as a going concern is dependent upon it raising additional capital. We
will continue to be an inactive company unless and until we raise additional
capital and acquire an operating company. There can be no assurance that either
will occur.
Results of Operations
We have not conducted any active operations since our Confirmation Date
and generated no revenue for the year ended December 31, 2006 or the year ended
December 31, 2005. We anticipate that we will not generate any revenues until we
acquire or merge with another company.
Our total expenses of $195,514 for the year ended December 31, 2006
compared to $291,770 for the year ended December 31, 2005. Our total cost of
compensation for the year ended December 21, 2006 was $60,285 compared to
$67,830 for the year ended December 31, 2005. Our total interest costs were
$46,863 for the year ended December 31, 2006 compared to $38,032 for year ended
December 31, 2005.
Critical Accounting Policies
This Management's Discussion and Analysis of Financial Condition and
Results of Operations discuss the Company's Financial Statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. We have terminated our previous operations and such operations
are treated as discontinued operations for financial statement purposes.
-17-
We anticipate that in the future, the preparation of our financial
statements will require management to make estimates and assumptions that will
affect reported amounts of assets and liabilities and the 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. On an
ongoing basis, management will evaluate its estimates and assumptions, including
those related to inventory, income taxes, revenue recognition and restructuring
initiatives. We anticipate that management will base its estimates and judgments
on historical experience of the operations we may acquire and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, will affect its more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements following the completion of
an acquisition:
Inventory. The Company will be required to reduce the stated value of
its inventory for obsolescence or impairment in an amount equal to the
difference between the cost of the inventory and the estimated market value,
based upon assumptions about future demand and market conditions. If actual
future demand or market conditions are less favorable than those projected by
management, additional reductions in stated value may be required.
Income Taxes. In determining the carrying value of the Company's net
deferred tax assets, the Company will be required to assess the likelihood of
sufficient future taxable income in certain tax jurisdictions, based on
estimates and assumptions, to realize the benefit of these assets. If these
estimates and assumptions change in the future, the Company may record a
reduction in the valuation allowance, resulting in an income tax benefit in the
Company's Statements of Operations. Management will be required to evaluate the
realizability of the deferred tax assets and assesses the valuation allowance
quarterly.
Goodwill and Other Long-Lived Asset Valuations. In June 2001, the FASB
issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15, 2001
with early adoption permitted for companies with fiscal years beginning after
March 15, 2001. We currently have no intangible assets. At such time as we have
intangible assets, we will adopt the new rules on accounting for goodwill and
other intangible assets, Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the statements. Other intangible
assets will continue to be amortized over their useful lives.
Revenue Recognition. At such time as we have revenues from operations,
we will adopt revenue recognitions policies consistent with generally acceptable
accounting standards.
-18-
Stock-Based Compensation. In December 2002, the FASB issued SFAS 148,
"Accounting for Stock-Based Compensation" -- Transition and Disclosure, which
amends SFAS 123. SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also requires prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. As permitted by SFAS 123, we have elected to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations including Financial Accounting Standards
Board ("FASB") Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation -- an Interpretation of APB Opinion No. 25," and
have adopted the disclosure-only provisions of SFAS 123. Accordingly, for
financial reporting purposes, compensation cost for stock options granted to
employees is measured as the excess, if any, of the estimated fair market value
of our stock at the date of the grant over the amount an employee must pay to
acquire the stock. Equity instruments issued to nonemployees are accounted for
in accordance with FAS 123 and Emerging Issues Task Force ("EITF") Abstract No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services."
Interest Rate Risk
We currently have debt and will undoubtedly incur debt to finance our
operations. We anticipate that a substantial amount of our future debt and the
associated interest expense will be subject to changes in the level of interest
rates. Increases in interest rates would result in incremental interest expense.
Plan of Operation
The Company's current plan of operation is to acquire another operating
company. (See "Item 1 - Description of Business - Current Business Plan.")
It is likely that any acquisition will be a "reverse merger"
acquisition whereby the Company acquires a larger company by issuing shares of
the Company's common stock to the shareholders of the larger company. Although
the Company would be the surviving or parent company from a corporate law
standpoint, the shareholders of the larger company would be the controlling
shareholders of the Company and the larger company would be treated as the
survivor or parent company from an accounting point of view. It can be expected
that any company which may desire to be acquired by the Company will do so as
method of potentially becoming a public company more quickly and less
expensively than if such company undertook its own public offering. Even if the
Company is able to acquire another company, there can be no assurance that the
Company will ever operate at a profit.
-19-
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
Contractual Obligations and Commitments
Except for the payment of accrued management compensation, accrued
taxes, rent and other payables, all of which are described in the financial
statements attached hereto, we have no contractual commitments or obligations.
Inflation
The Company does not believe that inflation will negatively impact its
business plans.
Forward Outlook and Risks
This Form 10-KSB contains and incorporates by reference certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act with respect to results of our
operations and businesses. All statements, other than statements of historical
facts, included in this Form 10-KSB, including those regarding market trends,
our financial position, business strategy, projected costs, and plans and
objectives of management for future operations, are forward-looking statements.
In general, such statements are identified by the use of forward- looking words
or phrases including, but not limited to, "intended," "will," "should," "may,"
"expects," "expected," "anticipates," and "anticipated" or the negative thereof
or variations thereon or similar terminology. These forward-looking statements
are based on our current expectations. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because
forward-looking statements involve risks and uncertainties, our actual results
could differ materially. Important factors that could cause actual results to
differ materially from our expectations are disclosed hereunder and elsewhere in
this Form 10-KSB. These forward-looking statements represent our judgment as of
the date of this Form 10-KSB. All subsequent written and oral forward-looking
statements attributable to Pacific Alliance are expressly qualified in their
entirety by the Cautionary Statements. we disclaim, however, any intent or
obligation to update our forward-looking statements.
Operating History; No Assets; No Present Source of Revenues. We have
been inactive since 1995. We intend to attempt to commence active operations in
the future by acquiring a Target Business. Potential investors should be aware
that there is only a limited basis upon which to evaluate our prospects for
achieving our intended business objectives. We have no resources and have had no
revenues since 1995. In addition, we will not generate any revenues (other than
investment income) until, at the earliest, the consummation of a Business
Combination. Moreover, there can be no assurance that any Target Business will
derive any material revenues from its operations or operate on a profitable
basis.
-20-
Possibility of Total Loss of Investment. An investment in the Company,
is an extremely high risk investment, and should not be made unless the investor
has no need for current income from the invested funds and unless the investor
can afford a total loss of his or her investment.
Absence of Substantive Disclosure Relating to Prospective Business
Combinations; Investment in the Company Versus Investment in a Target Business.
We have not yet identified a prospective Target Business. Accordingly, investors
will have no substantive information concerning consummation of any specific
Business Combination in considering a purchase of the Preferred Shares in this
offering.
Seeking to Achieve Public Trading Market through Business Combination.
While a prospective Target Business may deem a consummation of a Business
Combination with the Company desirable for various reasons, a Business
Combination may involve the acquisition of, merger or consolidation with, a
company which does not need substantial additional capital, but which desires to
establish a public trading market for its shares, while avoiding what it may
deem to be adverse consequences of undertaking a public offering itself,
including time delays, significant expense, loss of voting control and the time
and expense incurred to comply with various Federal and state securities laws
that regulate initial public offerings. Nonetheless, there can be no assurance
that there will be an active trading market for the Company's securities
following the completion of a Business Combination or, if a market does develop,
as to the market price for the Company's securities.
Uncertain Structure of Business Combination. The structure of a future
transaction with a Target Business cannot be determined at the present time and
may take, for example, the form of a merger, an exchange of stock or an asset
acquisition. We may form one or more subsidiary entities to complete a Business
Combination and may, under certain circumstances, distribute the securities of
subsidiaries to our stockholders. There can be no assurance that a market would
develop for the securities of any subsidiary distributed to stockholders or, if
it did, any assurance as to the prices at which such securities might trade. The
structure of a Business Combination or the distribution of securities to
stockholders may result in taxation of the Company, the Target Business or
stockholders.
Unspecified Target Business; Unascertainable Risks. We have not
selected an acquisition or other Business Combination as of the date of this
Form 10-KSB. Accordingly, there is no basis for prospective investors to
evaluate the possible merits or risks of the Target Business or the particular
sector of the technology industries in which the Company may ultimately operate.
To the extent we effect 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 revenues or income), we will become
subject to numerous risks inherent in the business and operations of financially
unstable and early stage or potential emerging growth companies. Although
management will endeavor to evaluate the risks inherent in a particular Target
Business or industry, there can be no assurance that we will properly ascertain
or assess all such risks.
-21-
Probable Lack of Business Diversification. As a result of our limited
resources, in all likelihood, we will have the ability to complete only a single
Business Combination. Accordingly, our prospects for success will be entirely
dependent upon the future performance of a single business. Unlike certain
entities which have the resources to consummate several Business Combinations or
entities operating in multiple industries or multiple segments of a single
industry, it is highly likely that the we will not have the resources to
diversify our operations or benefit from the possible spreading of risks or
offsetting of losses. Our probable lack of diversification may subject us to
numerous economic, competitive and regulatory developments, any or all of which
may have a material adverse impact upon the particular industry in which we may
operate subsequent to a consummation of a Business Combination. There can be no
assurance that the Target Business will prove to be commercially viable.
Conflicts of Interest; Absence of Independent Directors. None of the
Company's directors or executive officers are required to commit their full time
to the affairs of the Company and it is likely that such persons will not devote
a substantial amount of time to the affairs of the Company. Such personnel will
have conflicts of interest in allocating management time among various business
activities. As a result, the consummation of a Business Combination may require
a greater period of time than if the Company's management devoted their full
time to the Company's affairs.
Limited Ability to Evaluate Target Business Management; Possibility
That Management Will Change. The role of the present management in the
operations of a Target Business of the Company following a Business Combination
cannot be stated with certainty. Although we intend to scrutinize closely the
management of a prospective Target Business in connection with our evaluation of
the desirability of effecting a Business Combination with such Target Business,
there can be no assurance that our assessment of such management will prove to
be correct, especially in light of the possible inexperience of current key
personnel of the Company in evaluating certain types of businesses. While it is
possible that certain of our directors or executive officers will remain
associated in some capacities with the Company following a consummation of a
Business Combination, it is unlikely that any of them will devote a substantial
portion of their time to the affairs of the Company subsequent thereto.
Moreover, there can be no assurance that such personnel will have significant
experience or knowledge relating to the operations of the Target Business
acquired by the Company. We may also seek to recruit additional personnel to
supplement the incumbent management of the Target Business. There can be no
assurance that we will successfully recruit additional personnel or that the
additional personnel will have the requisite skills, knowledge or experience
necessary or desirable to enhance the incumbent management. In addition, there
can be no assurance that our future management will have the necessary skills,
qualifications or abilities to manage a public company embarking on a program of
business development.
-22-
Competition. We expect to encounter intense competition from other
entities having business objectives similar to our business objectives. Many of
these entities, including venture capital partnerships and corporations, shell
companies, large industrial and financial institutions, small business
investment companies and wealthy individuals, are well-established and have
extensive experience in connection with identifying and effecting Business
Combinations directly or through affiliates. Many of these competitors possess
greater financial, technical, human and other resources than the Company and
there can be no assurance that the Company will have the ability to compete
successfully. The Company's financial resources will be limited in comparison to
those of many of its competitors. Further, such competitors will generally not
be required to seek the prior approval of their own stockholders, which may
enable them to close a Business Combination more quickly than we can. This
inherent competitive limitation may compel us to select certain less attractive
Business Combination prospects. There can be no assurance that such prospects
will permit us to achieve our business objectives.
Uncertainty of Competitive Environment of Target Business. In the event
that we succeed in effecting a Business Combination, we will, in all likelihood,
become subject to intense competition from competitors of the Target Business.
In particular, certain industries which experience rapid growth frequently
attract an increasingly larger number of competitors, including competitors with
greater financial, marketing, technical, human and other resources than the
initial competitors in the industry. The degree of competition characterizing
the industry of any prospective Target Business cannot presently be ascertained.
There can be no assurance that, subsequent to a consummation of a Business
Combination, we will have the resources to compete in the industry of the Target
Business effectively, especially to the extent that the Target Business is in a
high-growth industry.
Additional Financing Requirements. We will not generate any revenues
until, at the earliest, the consummation of a Business Combination. We cannot
ascertain the capital requirements for any particular Business Combination we
may consider. We will likely be required to seek additional financing. There can
be no assurance that such financing will be available on acceptable terms, or at
all. To the extent that additional financing proves to be unavailable when
needed to consummate a particular Business Combination, we would, in all
likelihood, be compelled to restructure the transaction or abandon that
particular Business Combination and seek an alternative Target Business
candidate, if possible. In addition, in the event of the consummation of a
Business Combination, we may require additional financing to fund the operations
or growth of the Target Business. Our failure to secure additional financing
could have a material adverse effect on the continued development or growth of
the Target Business. We do not have any arrangements with any bank or financial
institution to secure additional financing and there can be no assurance that
any such arrangement, if required or otherwise sought, would be available on
terms deemed to be commercially acceptable and in our best interests.
No Appraisal of Potential Business Combination. We do not anticipate
that we will obtain an independent appraisal or valuation of a Target Business.
Accordingly, our stockholders will need to rely primarily upon management to
evaluate a prospective Business Combination.
-23-
No Public Market for Securities. Currently, there is no public market
for our common stock and no assurance can be given that an active market will
develop or if developed, that it will be sustained. It is unlikely that any
market will develop prior to the consummation of a Business Combination. Even if
a Business Consummation is completed, there can be no assurance that a trading
market for our securities will ever develop.
Risk of Application of Penny Stock Rules. Our common stock is subject
to the penny stock rules as adopted by the Securities and Exchange Commission
(the "Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If our common stock remains subject to the penny stock rules,
investors in the Offering may find it more difficult to sell their shares.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Pacific Alliance Corporation Financial Statements Page
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firms 25
Balance Sheet 26
Statements of Operations 27
Statements of Changes in Stockholders' Deficit 28
Statements of Cash Flows 29
Notes to Financial Statements 30
-24-
Microsoft Word 11.0.6568;
1
SPECTOR & WONG, LLP
HAROLD Y. SPECTOR, CPA Certified Public Accountants 80 SOUTH LAKE AVENUE
CAROL S. WONG, CPA (888) 584-5577 SUITE 723
FAX (626) 584-6447 PASADENA, CA 91101
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Pacific Alliance Corporation
We have audited the accompanying balance sheet of Pacific Alliance Corporation
(a development stage company) as of December 31, 2006, and the related
statements of operations, stockholders' deficit, and cash flows for the years
ended December 31, 2006, and 2005, and from the inception of the development
stage on December 21, 1995 to December 31, 2006. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on out audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific Alliance Corporation (a
development stage company) as of December 31, 2006, and the results of its
operations and its cash flows for the years ended December 31, 2006 and 2005,
and for the periods from inception of the development stage on December 21, 1995
to December 31, 2006 in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company did not generate revenue and has a net capital
deficiency and minimal working capital. Those conditions raise substantial doubt
about its ability to continue as going concern. Management's plans regarding
those matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Spector & Wong, LLP
Pasadena, California
April 10, 2007
-25-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
--------------------------------------------------------------------------------
As of
December 31,
2006
-------------------
ASSETS
Current Assets
Cash $ --
-----------
TOTAL ASSETS $ --
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Overdraft $ 6
Accrued Interest 29,247
Other Accrued Expenses 47,985
Notes payable 120,000
Advances from Officer 144,507
Tax Liabilities 322,554
Notes payable to Related Parties 144,293
-----------
Total current liabilities 808,592
-----------
Stockholders' Deficit
Common Stock, par value $0.001, authorized 100,000,000 shares; and
36,083,450 shares issued and outstanding 36,083
Paid-in Capital 3,332,953
Accumulated deficit prior to the developmental stage (2,632,447)
Accumulated deficit during the developmental stage (1,545,181)
-----------
Total Stockholders Deficit (808,592)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ --
===========
See notes to financial statements
-26-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
From Inception of
the Developmental
Stage,
For the years ended December 21, 1995
December 31, Through
2006 2005 December 31, 2006
----------------------------------------------------------
Operating Expenses:
Selling, General and Administrative Expenses $ 128,620 $ 139,687 $ 1,163,559
Tax Penalty and Interest Expense 20,031 114,051 134,081
Loss on Investment - - 6,844
Interest Expense 46,863 38,032 309,772
----------------------------------------------------------
Net Loss before Extraordinary Item (195,514) (291,770) (1,614,256)
Extraordinary Item, Gain on Forgiveness of Tax debt -- -- 69,075
----------------------------------------------------------
Net Loss $ (195,514) $ (291,770) $ (1,545,181)
==========================================================
Net Loss per share, Basic and Diluted $ (0.01) $ (0.02)
===================================
Weighted Average Number of Shares 17,492,704 15,067,600
===================================
See notes to financial statements
-27-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Common Stock Additional Accumulated Accumulated
------------------------- Paid-in Deficit Prior to Deficit After
Shares Amount Capital December 21,1995 December 21,1995 Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 21, 1995 2,099,125 $ 2,099 $ 884,901 $ (2,632,447) -- $ (1,745,447)
Conversion of Trade Accounts Payable 1,458,005 1,458 1,456,547 -- 1,458,005
Issuance of Common Stock --
for Cash 5,000,000 5,000 20,000 -- 25,000
Issuance of Common Stock --
for Services 216,000 216 864 -- -- 1,080
Conversion of Debt 300,000 300 14,700 -- 15,000
Issuance of Common Stock for IRS --
Claim Reduction 80,078 80 79,998 -- -- 80,078
Issuance of Common Stock 1,250,000 1,250 248,621 -- 249,871
Conversion of Management --
Compensation Liability 1,854,292 1,854 183,575 -- 185,429
Issuance of Common Stock for --
Consulting Services 337,500 338 33,412 -- 33,750
Activity from December 21, 1995 --
Through December 31, 2002 -- -- -- -- (675,396) (675,396)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 12,595,000 12,595 2,922,618 (2,632,447) (675,396) (372,630)
---------------------------------------------------------------------------------------------------------------------------------
Net Loss for the Year Ended
December 31, 2003 -- -- -- -- (144,588) (144,588)
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 12,595,000 12,595 2,922,618 (2,632,447) (819,984) (517,218)
---------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock for
Consulting Services 1,250,000 1,250 98,750 -- -- 100,000
Issuance of Common Stock
for Stock Subscription 100,000 100 19,878 -- -- 19,978
Issuance of Common Stock for
Management Compensation Expense 857,300 857 84,873 -- -- 85,730
Net Loss for the Year Ended
December 31, 2004 -- -- -- -- (237,913) (237,913)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004 14,802,300 14,802 3,126,119 (2,632,447) (1,057,897) (549,423)
----------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock for
Management Compensation 678,300 679 67,152 -- -- 67,831
Net Loss for the Year Ended
December 31, 2005 -- -- -- -- (291,770) (291,770)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005 15,480,600 15,481 3,193,271 (2,632,447) (1,349,667) (773,362)
----------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock for
Management Compensation 602,850 602 59,682 -- -- 60,284
Conversion of related party debt to
common stock 20,000,000 20,000 80,000 -- -- 100,000
Net Loss for the Year Ended
December 31, 2006 -- -- -- -- (195,514) (195,514)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2006 36,083,450 $ 36,083 $ 3,332,953 $ (2,632,447) $ (1,545,181) $ (808,592)
----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements
-28-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
From Inception of
the Developmental
Stage,
For the years ended December 21, 1995
December 31, Through
2006 2005 December 31, 2006
------------------------------------------------------------------------------------------------------------------------------------
Cash Flow from Operating Activities:
Net Loss $ (195,514) $ (291,770) $ (1,545,181)
Adjustments to Reconcile Net Loss to Net Cash Used in Operations:
Loss on investments -- -- 6,844
Gain on forgiveness on tax debt -- -- (69,075)
Stock issued for services 60,284 67,831 534,105
(Increase) Decrease in:
Accounts receivable -- -- 95,841
Increase (Decrease) in:
Accrued expenses 25,141 133,815 234,293
Tax liabilities 20,031 6,211 (53,283)
----------------------------------------------------
Net Cash Used in Operating Activities (90,058) (83,913) (796,456)
----------------------------------------------------
Cash Flow from Investing Activities
Purchase of investments -- -- (30,180)
Proceeds from sale of investments -- -- 23,336
----------------------------------------------------
Net Cash Used In Investing Activities -- -- (6,844)
----------------------------------------------------
Cash Flow from Financing Activities:
Bank overdraft (3,354) 3,347 (2,581)
Proceeds from notes payable 1,500 35,000 206,486
Payments of note payable (1,277) -- (51,277)
Net Proceeds from notes payable to related parties 65,000 54,084 119,084
Advance from officer 184,100 90,961 787,746
Repayment of advance from officer (155,911) (99,479) (541,007)
Proceeds from issuance of common stock -- -- 25,000
Proceeds from common stock subscription -- -- 259,849
----------------------------------------------------
Net Cash Flow Provided by Financing Activities 90,058 83,913 803,300
----------------------------------------------------
Net Increase in Cash -- -- --
Cash Balance at Beginning of Period -- -- --
----------------------------------------------------
Cash Balance at End of Period $ -- $ -- $ --
====================================================
Supplemental Disclosures of Cash Flow Information
Interest paid $ 23,538 $ 28,819
Noncash Investing and Financiang:
Conversion of debt to common stock $ 100,000 $ --
See notes to financial statements
-29-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS
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 9). The IRS portion of tax liabilities was payable in cash by
quarterly installments (see note 5). Repayment of other taxes is still being
negotiated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP).
Reclassification: Certain reclassifications have been made to the 2005 financial
statements to conform with the 2006 financial statements presentation. Such
reclassification had no effect on net losses previously reported.
Use of estimates The preparation of the accompanying financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.
Revenue Recognition The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations begin.
Cash Equivalents For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Property and Equipment As of December 31, 2006, the Company did not maintain or
control any fixed assets.
Income Taxes Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Net Loss Per Share Net Loss Per Share Basic net loss per share includes no
dilution and is computed by dividing net loss available to common stockholders
by the weighted average number of common stock outstanding for the period.
Diluted net loss per share does not differ from basic net loss per share as the
Company did not have dilutive items during the audit period.
-30-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Non-employees Equity Transactions The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 123 and the Emerging Issues Task Force
(EITF) Issue No. 00-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. SFAS No. 123 states that equity instruments that are issued in
exchange for the receipt of goods or services should be measured at the fair
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. Under the guidance in Issue
00-18, the measurement date occurs as of the earlier of (a) the date at which a
performance commitment is reached or (b) absent a performance commitment, the
date at which the performance necessary to earn the equity instruments is
complete (that is, the vesting date).
New Accounting Pronouncements In June 2006, the Financial Accounting Standards
Board ("FASB") issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, ("FIN 48"). This Interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes. This
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company does not expect the adoption of
FIN 48 to have a material impact on its financial statements.
In September 2006, the FASB issued Financial Accounting Standards ("FAS") No.
157, Fair Value Measurements. FAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement addresses
how to calculate fair value measurements required or permitted under other
accounting pronouncements. Accordingly, this statement does not require any new
fair value measurements. However, for some entities, the application of the
statement will change current practice. FAS No. 157 is effective for the Company
beginning January 1, 2008. The Company is currently evaluating the impact of
this standard.
In September 2006, the Securities and Exchange Commission ("SEC") staff issued
Staff Accounting Bulletin No. 108 ("SAB 108"), Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. The stated purpose of SAB 108 is to provide consistency between how
registrants quantify financial statement misstatements.
Prior to the issuance of SAB 108, there have been two widely-used methods, known
as the "roll-over" and "iron curtain" methods, of quantifying the effects of
financial statement misstatements. The roll-over method quantifies the amount by
which the current year income statement is misstated while the iron curtain
method quantifies the error as the cumulative amount by which the current year
balance sheet is misstated. Neither of these methods considers the impact of
misstatements on the financial statements as a whole.
SAB 108 established an approach that requires quantification of financial
statement misstatements based on the effects of the misstatement on each of the
Company's financial statements and the related financial statement disclosures.
This approach is referred to as the "dual approach" as it requires
quantification of errors under both the roll-over and iron curtain methods.
SAB 108 allows registrants to initially apply the dual approach by either
retroactively adjusting prior financial statements as if the dual approach had
always been used, or by recording the cumulative effect of initially applying
the dual approach as adjustments to the carrying values of assets and
liabilities as of January 1, 2006 with an offsetting adjustment recorded to the
opening balance of retained earnings.
-31-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company will initially apply SAB 108 using the cumulative effect transition
method in connection with the preparation of the annual financial statements for
the year ending December 31, 2006. The Company does not believe the adoption of
SAB 108 will have a significant effect on its financial statements.
The FASB has also issued FAS 155, Accounting for Certain Hybrid Financial
Instruments-an amendment of FASB Statements No. 133 and 140, FAS 156, Accounting
for Servicing of Financial Assets-an amendment of FASB Statement No. 140, and
FAS 158, Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans, but they will not be applicable to the current operations
of the Company. Therefore a description and the impact on the Company's
operations and financial position for each of the pronouncements above have not
been disclosed.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplated the realizations of assets and the satisfaction of
liabilities in the normal course of business. As shown in the December 31, 2006
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 year ended, December 31, 2006 the Company funded its disbursements using
loans from an officer and other related parties.
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.
The Company is no longer operating, and is attempting 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.
NOTE 4- OTHER ACCRUED EXPENSES
Other accrued expenses at December 31, 2006 consist of:
Accrued Professional Fees $ 33,952
Other Accrued Expenses 14,033
-----------------
Total $ 47,985
=================
-32-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 5- TAX LIABILITIES
The Company owes back taxes to the IRS, California Franchise Tax Board,
California State Board of Equalization, and County of Los Angeles, before the
bankruptcy. The Company is attempting to negotiate settlements and the final
amount may differ from the amount recorded on the balance sheets.
The IRS portion of tax liabilities was payable in quarterly installments of $
11,602, and the final payment was due in January 2002. However, no payments have
been made since April 2000. As of December 31, 2006, the Company owes $268,897
to the IRS. The taxes owed to IRS are delinquent and accruing interest at 9% per
annum.
As of December 31, 2006, the Company owes $5,454 to California Franchise Tax
Board. No payments have been made and the taxes owed to California Franchise Tax
Board are delinquent. No interest is being accrued; however, a protection lien
is being filed.
As of December 31, 2006, the Company owes $41,096 to California State Board of
Equalization. No payments have been made and the taxes owed to California State
Board of Equalization are delinquent and accruing an interest at 9% per annum.
As of December 31, 2006, the Company owes $7,107 to the County of Los Angeles.
No payments have been made and the taxes owed to the County of Los Angeles are
delinquent and accruing an interest at 9% per annum.
NOTE 6 - SHORT TERM NOTE PAYABLE
During 2006, the Company obtained additional notes payable of $65,000, from
third parties. The notes payable bear interest at 10% per annum and are due on
demand. As of December 31, 2006, the balance was $120,000.
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES
Notes payable to minority shareholders amounted to $144,293 at December 31,
2006. These notes bear interest at 10% to 12%, and are due on demand.
NOTE 8 - INCOME TAXES
The Company has loss carryforwards available to offset future taxable income.
The total loss carryforwards at December 31, 2006 are estimated at approximately
$1,590,000 and expire between 2015 and 2026. 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 $540,000,
which relates to these loss carryforwards, since future profits are
indeterminable. The valuation allowance increased by $47,000 during the year
ended December 31, 2006. As of the audit report date, the Company did not file
its corporate income tax returns for the year ended December 31, 2006.
-33-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - 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).
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.
In October 2001, the Company entered into an agreement under which PIL S.A.
would make a capital infusion and bring in new majority shareholders. Total
capital to be brought to the Company was to be $500,000 by October 31, 2001, and
an additional $500,000 by December 31, 2001, at a rate of $0.20 per share. The
right to cancel any subscription under the agreement and have the consideration
refunded would have required a breach of the agreement, termination of the
agreement by mutual consent, or termination of the agreement by its own terms.
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. In May 2004, 50,000 shares for an
additional subscription of $9,978 received in 2002 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.
Both the $10,000 and $9,978 were classified as common stock subscription deposit
as of December 31, 2002. The agreement with PIL S.A. has been terminated.
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.
-34-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - COMMON STOCK AND WARRANTS (continued)
In 2004, the Company issued 857,300 shares of common stock for management
services of $85,730, of which $50,000 was accrued at December 31, 2003. The
shares were valued at $0.10 per share pursuant to the Modified Joint Plan of
Reorganization approved by U.S. Bankruptcy Court.
The Company also issued 1,250,000 shares of common stock in 2004 for consulting
fees of $ 100,000, of which $12,500 was accrued at December 31, 2003. The shares
were valued at $0.08, the closing market price on the Board's authorization
date.
In 2005, the Company issued 678,300 shares of common stock for management
services of $67,830, pursuant to the provisions of the Modified Plan of
Reorganization approved by the U.S. Bankruptcy Court. Pursuant to the Modified
Joint Plan of Reorganization, the stock issued for services was valued at $0.10
per share.
In 2006, the Company issued 602,850 shares of common stock for management
services of $60,284, pursuant to the provisions of the Modified Plan of
Reorganization approved by the U.S. Bankruptcy Court. Pursuant to the Modified
Joint Plan of Reorganization, the stock issued for services was valued at $0.10
per share.
In 2006, the Company issued 20,000,000 shares of restricted common stock to Mr.
Scharmann, the CEO of the Company, as payment of $100,000 of debt owed by the
Company to him as advances from officer.
NOTE 10 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
--------------------------------
For the years ended December 31,
--------------------------------
2006 2005
---------------------------------
Numerator:
Net Loss $ (195,514) $ (291,770)
---------- ----------
Denominator:
Weighted Average Number of Shares 17,492,704 15,067,600
---------- ----------
Net Loss per share-Basic and Diluted $ (0.01) $ (0.02)
========== ==========
NOTE 11 - RELATED PARTY TRANSACTIONS
An officer of the Company, the CEO, advanced $184,100 for the year ended
December 31, 2006. The Company repaid $155,911 for the year ended December 31,
2006. These advances bear interest at 10% and have no maturity date. The balance
of advances was $144,507 at December 31, 2006.
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, $6,000 was recorded as expense during the years ended December 31, 2006
and 2005.
-35-
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - EXTRAORDINARY ITEM
On December 19, 2000, the Employment Development Department (EDD) accepted an
"Offer in Compromise" in the amount of $7,600 to satisfy in full, all
outstanding liabilities of $76,675 due to the EDD by Pacific Alliance
Corporation. The settlement amount was paid in January 2001, and an
extraordinary gain of $69,075 was recognized.
-36-
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On August 2, 2005, Pacific Alliance Corporation (the "Registrant")
dismissed HJ & Associates, LLC ("HJ") as its principal accountant to audit its
financial statements. HJ audited the Registrant's financial statements for the
year ended December 31, 2004, but did not audit the Registrant's financial
statements for any other period. HJ's report on the financial statements of the
Registrant for the past year did not contain an adverse opinion or a disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. The opinion of HJ on the Auditor's financial statement
did contain a going concern qualification.
During the most recent fiscal year ended December 31, 2006 and the
subsequent period to and including April 12, 2007, there have been no
disagreements between HJ and the Registrant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of HJ, would have caused it
to make a reference to the subject matter of any such disagreement with its
report.
On July 27, 2005, the Registrant engaged Spector & Wong, LLP
("Spector") as its principal accountant to audit the Registrant's financial
statements. Prior to the engagement of Spector, Harold Spector sold his 16,000
shares of common stock, his whole holdings in the Company. During the two most
recent fiscal years ended December 31, 2006 and the subsequent period to and
including April 12, 2007, the Registrant has not consulted with Spector
regarding any of the following: (1) the application of accounting principles to
a specified transaction, either completed or proposed; (2) the type of audit
opinion that might be rendered on the Registrant's respective financial
statements, and neither a written report nor oral advice was provided to the
Registrant that Spector concluded was an important factor considered by the
Registrant in reaching a decision as to the accounting, auditing or financial
reporting issue, or (3) any other matter.
On March 2, 2005 Rose, Snyder & Jacobs resigned as our Independent
Accountant effective March 2, 2005. On April 13, 2005, we appointed HJ &
Associates, LLC as our independent accountants for the year ending December 31,
2004. Prior to appointing HJ & Associates, LLC as our independent accountant we
have not consulted with HJ & Associates, LLC regarding: (i) either the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements; or (ii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-B)
or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-B).
-37-
The reports of Rose, Snyder & Jacobs on our financial statements for
the fiscal years ended December 31, 2003 and 2002 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except for Rose, Snyder &
Jacobs issuance of going concern opinions on the financial statements for the
fiscal years ending December 31, 2003 and 2002. During the period it served as
our independent accountant, there were no disagreements between us and Rose,
Snyder & Jacobs on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Rose, Snyder & Jacobs would have caused it to
make a reference to the subject matter of the disagreement in connection with
its audit report.
ITEM 8A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our President/Principal Executive Officer and Chief Financial Officer,
we evaluated the effectiveness of the design and operations of our disclosure
controls and procedures, as defined in Rule13a-15(e) under the Securities
Exchange Act of 1934. Based on this evaluation, our Princial Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures are adequately
designed to ensure that information required to be disclosed in the reports
submitted under the Securities and Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission ("SEC") rules and forms.
The Sarbanes-Oxley Act of 2002 (the "Act") imposed many requirements
regarding corporate governance and financial reporting. One requirement under
section 404 of the Act, beginning with our annual report for the year ended
December 31, 2007, is for management to report on the Company's internal
controls over financial reporting and for our independent registered public
accountants to attest to this report for the year ended December 31, 2008.
ITEM 8B. OTHER INFORMATION
We must disclose under this item any information required to be
disclosed in a report on Form 8-K during the fourth quarter of the year covered
by this Form 10-KSB, but not reported, whether or not otherwise required by this
Form 10-KSB. If disclosure of such information is made under this item, it need
not be repeated in a report on Form 8-K which would otherwise be required to be
filed with respect to such information or in a subsequent report on Form 10-KSB.
No additional disclosure is required under this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
A. Identification of Directors and Executive Officers. The current
directors and officers of the Company, who will serve until the next annual
meeting of shareholders or until their successors are elected or appointed and
qualified, are set forth below:
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Name Age Position
--------------------------------- --------------- ------------------------------
Mark Scharmann 48 President/Director
Dan Price 52 Vice President/Director
David Knudson 47 Secretary/Treasurer/Director
Mark Scharmann. Mr. Scharmann has been a private investor and business
consultant since 1981. Mr. Scharmann became involved in the consulting business
following his compilation and editing in 1980 of a publication called Digest of
Stocks Listed on the Intermountain Stock Exchange. In 1981 he compiled and
edited an 800 page publication called the OTC Penny Stock Digest. Mr. Scharmann
has rendered consulting services to public and private companies regarding
reverse acquisition transactions and other matters. Mr. Scharmann was vice
president of OTC Communications, Inc. from March 1984 to January 1987. From 1982
to 1996, he was the president of Royal Oak Resources Corporation. In 1996, Royal
Oak Resources completed and acquisition and in connection therewith changed its
name to Hitcom Corporation. Mr. Scharmann was the President of Norvex, Inc., a
blank check company which completed an acquisition and in connection therewith,
changed its name to Capital Title. Mr. Scharmann is a promoter of Nightingale,
Inc., a publicly-held corporation blank check company. He has also been an
officer and director of several other blind pool companies.
Dan O. Price. Since February 2001, Mr. Price has been working as an
Enrollment Counselor for the University of Phoenix. From 1998 to October 2000,
Mr. Price worked as an evaluator at Learning Technics, Kirkland, WA and Salt
Lake City, UT. From 1993 to 1998, Mr. Price served as Vice-President of
Corporate Development for Troika Capital Investment. Prior to that, Mr. Price
worked for seven (7) years as the National Sales Director for a business
providing electronic bankcard processing and other merchant services. For four
(4) years he worked as an Organizational Manager involved in direct sales of
educational material, with 50 sales people in the western states under his
management. Mr. Price has been in sales and marketing for twenty (20) years and
sales management and business management for fifteen (15) years. Mr. Price
received his B.A. from Weber State College in 1983. He has served as an officer
and director on two (2) small publicly traded companies.
David Knudson. Mr. Knudson has worked as a business consultant since
1985. He earned his B.S. Degree in Finance from Weber State College in 1984 and
a B.S. Degree in Information Systems and Technologies at Weber State University
in 1996. He has been an officer and director of several small publicly-held
"blind-pool" companies. Mr. Knudson was also employed as an adjunct professor
and from 1992 to 1996 was employed as a computer information systems consultant
at Weber State University. Mr. Knudson is an officer and director of
Nightingale, Inc., an inactive publicly-held corporation.
B. Significant Employees. None
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C. Family Relationships. There are no family relationships among the
Company's officers and directors.
D. Other Involvement in Certain Legal Proceedings. There have been no
events under any bankruptcy act, no criminal proceedings and no judgments or
injunctions material to the evaluation of the ability and integrity of any
director or executive officer during the last five years.
E. Compliance With Section 16(a). No disclosure is required here.
Code of Ethics
We have not yet adopted a code of ethics that applies to all executive
officers, directors and employees of the Company. We intend to do so within the
next fiscal year.
Audit Committee Financial Expert
We have not established an audit committee or designated any person as
our financial expert. We anticipate that we will not establish an audit
committee or designate a financial expert until such time as we complete an
acquisition.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to the Company's most highly compensated executive
officers other than the CEO, whose annual salary and bonus exceeded $100,000:
---------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------
Annual Compensation
---------------------------------------------------------------------------------------------------------------------
Commissions Restricted
and Other Annual Stock Options/
Name and Principal Position Bonuses Compensation Awards SAR's
Year Salary ($) ($) ($) (#)
------------------------------- ------- --------- ------------------ ------------------- --------------- ------------
Mark Scharmann (1) 2006 -0- -0- -0- $ 17,925 -0-
President 2005 -0- -0- -0- $ 17,775 -0-
2004 -0- -0- -0- $ 13,425 -0-
------------------------------- ------- --------- ------------------ ------------------- --------------- ------------
(1) Mr. Scharmann's compensation is paid in shares of Restricted Stock
priced at $.10 per share.
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Stock Options
-------------
The following table sets forth certain information concerning stock
options granted during fiscal 2006 to the named executive officers.
Options Grants in the Year Ended December 31, 2006
======================================================================================================================
Percentage
of Total
Number of Options Granted to Exercise or
Securities Employees in Base Price
Underlying Fiscal Year Per Share Expiration
Name Options Granted (#) ($) Date
----------------------------------------------------------------------------------------------------------------------
Mark Scharmann -0- -0- N/A N/A
======================================================================================================================
The following table sets forth information concerning the number and
value of options held at December 31, 2005 by each of the named executive
officers. No options held by such executive officers were exercised during 2005.
Option Values at December 31, 2006
================================ ========================================= ===========================================
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 2006 (#) At December 31, 2006($)
-------------------------------- ----------------------------------------- -------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
-------------------------------- ------------------- --------------------- --------------------- ---------------------
Mark Scharmann -0- -0- N/A N/A
================================ =================== ===================== ===================== =====================
Compensation of Directors
The Company does not currently compensate its directors for director
services to the Company.
Employment Agreements
The Company is currently not a party to any employment agreement. The
Plan of Reorganization provides that the Company's officers will be compensated
at the rate of $75.00 per hour for services rendered to the Company. Until such
time as the Company's shareholder's equity reaches $350,000, the Company's
officers shall be issued shares of its common stock for services rendered. Such
shares shall be valued at $.10 per share. At such time as the Company effects an
acquisition or merger, the Board of Directors, as then constituted, shall set
the compensation of officers, directors and employees.
-41-
For the year ended December 31, 2006 the Company compensated its
officers as follows:
Name Compensation Shares Issued
---------------------- --------------- ------------------------
Mark Scharmann $ 17,925 179,250
Dan Price $ 3,150 31,500
David Knudson $ 39,210 392,100
The Company's Bankruptcy Plan of Reorganization also provides that upon
the completion of an acquisition or merger, the Company's management group will
be issued shares of the Company's common stock which amount to 1% of the total
shares issued in connection with such acquisition or merger.
Equity Compensation Plan
We are not a party to any equity compensation plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth information regarding shares of the
Company's common stock beneficially owned as of April 12, 2007 by: (i) each
officer and director of the Company; (including and (ii) each person known by
the Company to beneficially own 5 percent or more of the outstanding shares of
the Company's common stock.
------------------------------ ------------------------- ----------------------
Name Amount and Nature of
and Address Beneficial Ownership Percent of Class(1)
of Beneficial Ownership
Owner
------------------------------ ------------------------- ----------------------
Mark Scharmann(1) 25,439,896 70.4%
1661 Lakeview Circle
Ogden, UT 84403
Dan Price(1) 69,775 0.2%
1661 Lakeview Circle
Ogden, UT 84403
David Knudson(1) 2,453,708 6.8%
1661 Lakeview Circle
Ogden, UT 84403
All Officers and Directors 27,963,379 77.4%
as a Group (3 Persons)
------------------------------ ------------------------- ----------------------
Total Shares Issued 36,147,050 100%
------------------------------ ------------------------- ----------------------
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(1)These individuals are the officers and directors of the Company.
Unless otherwise indicated in the footnotes below, the Company has been
advised that each person above has sole voting power over the shares indicated
above. All of the individuals listed above are officers and directors of the
Company.
Security Ownership of Management
See Item 4(a) above.
Changes in Control
We currently have no proposed change of control transaction. We are
continuing to discuss business combinations with Target Businesses. If, and when
we complete a Business Combination, it will likely result in a change of
control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As part of its Plan of Reorganization, the Company issued 5,000,000
shares of its common stock to Troika Capital in consideration of $25,000 and
Troika's agreement to provide an additional $75,000 in equity or debt funding to
pay the Company's tax obligations.
During 1998, Troika Capital loaned $50,263 to the Company. Such loan
is due on demand and bears interest at the rate of 10% per annum.
During 1999, Troika Capital loaned $56,250 to the Company. The Company
repaid $2,000 during 1999. Such loan is due on demand and bears interest at the
rate of 10% per annum.
During 2000, Troika Capital loaned $154,030 to the Company. The
Company repaid $90,335 during 2000. Such loan is due on demand and bears
interest at the rate of 10% per annum.
During 2001, Troika Capital loaned $89,250 to the Company. The Company
repaid $127,971. Such loan is due on demand and bears interest at the rate of
10% per annum
During 2002, Troika Capital loaned $28,215 to the Company. The Company
repaid $57,890 in 2002. Such loan is due on demand and bears interest at the
rate of 10% per annum.
-43-
During 2003, Troika Capital loaned $85,550 to the Company. Such loan
is due on demand and bears interest at 10% per annum.
During 2004, Troika Capital loaned $36,206 to the Company. Such loan
is due on demand and bears interest at 10% per annum.
During 2005, The Company repaid $8,517 to Troika Capital. Such loan is
due on demand and bears interest at 10% per annum.
During 2006, Troika Capital loaned $27,923 to the Company. Such loan
is due on demand and bears interest at 10% per annum.
During 2006, the Company issued 20,000,000 shares of its common stock
to Mark Scharmann, the Company's president as payment of $100,000 of outstanding
notes.
-44-
The Company's officers and directors were issued shares of the
Company's common stock for services rendered during the last three years in the
following amounts:
Shares Issued
Year Officer or Accrued Value of Services
---- ------- -------------- -----------------
2006 Mark Scharmann 179,250 $ 17,925
2006 Dan Price 31,500 $ 3,150
2006 David Knudson 392,100 $ 39,210
2005 Mark Scharmann 177,750 $ 17,775
2005 Dan Price -0- $ -0-
2005 David Knudson 500,550 $ 50,055
2004 Mark Scharmann 134,250 $ 13,425.00
2004 Dan Price -0- $ -0-
2004 David Knudson 223,050 $ 22,305.00
2003 Mark Scharmann 84,460 $ 8,446.00
2003 Dan Price -0- $ -0-
2003 David Knudson 266,815 $ 26,681.50
Parents of Company
The only parents of the Company, as defined in Rule 12b-2 of the
Exchange Act, are the officers and directors of the Company. For information
regarding the share holdings of the Company's officers and directors, see Item
11.
ITEM 13. EXHIBITS
Exhibit
Number Exhibit
------------ -----------------------------------------------------
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (1)
21.1 Subsidiaries of Registrant (None)
31.1 Certification of Chief Executive Officer in
accordance with 18 U.S.C. Section 1350, as adopted by
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer in
accordance with 18 U.S.C. Section 1350, as adopted by
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer in
accordance with 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer in
accordance with 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002
-45-
(1) Previously Filed
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
2006
Independent Auditors
On July 27, 2005, we appointed Spector & Wong, LLP to audit the
consolidated financial statements of the Company for the year ending December
31, 2005 and to report the results of their audit to our Board of Directors.
Spector & Wong, LLP was also appointed as the Company's auditor for the year
ended December 31, 2006. As an inactive Company our Board of Directors serves as
our audit committee.
Fees billed to the Company by Spector & Wong, LLP
2006 2005
--------------- -------------
(1) Audit Fees $ 18,500 $ 14,500
(2) Tax Fees $ -0- $ -0-
(3) Other Fees $ -0- $ -0-
(1) Audit fees billed to the Company by Spector & Wong, LLP were
for all professional services performed in connection with the
audit of the Company's annual financial statements and review
of those financial statements, reviews of our quarterly
reports on Form 10-QSB. Audit fees during 2006 and 20055 also
included audit services related to our compliance with Section
404 of the Sarbanes-Oxley Act regarding our internal controls
over financial reporting.
(2) Tax services generally include fees for services performed
related to tax compliance, consulting services.
(3) Spector & Wong, LLP did not bill the Company for other
services during 2006 or 2005.
All audit and non-audit services and fees are pre-approved by the Audit
Committee or by the Chairman of the Audit Committee pursuant to delegated
authority.
Effective May 6, 2003, the Securities and Exchange Commission adopted
rules that require that before Spector & Wong, LLP was engaged by us to render
any auditing or permitted non-audit related service, the engagement be:
o approved by our Audit Committee; or
o entered into pursuant to pre-approval policies and procedures
established by the Audit Committee, provided the policies and
procedures are detailed as to the particular service, the Audit
-46-
Committee is informed of each service, and such policies and procedures
do not include delegation of the Audit Committee's responsibilities to
management.
All of the above services and fees were reviewed and approved by our
entire Board of Directors either before or after the respective services were
rendered. Our Board of Directors has considered the nature and amount of fees
billed by Spector & Wong, LLP and believes that the provision of services for
activities unrelated to the audit is compatible with maintaining Spector & Wong,
LLP independence.
-47-
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Pacific Alliance Corporation
Date: April 12, 2007 By: /s/ Mark A. Scharmann
---------------------------------------
President/Principal Executive Officer
Date: April 12, 2007 By: /s/ David Knudson
---------------------------------------
Secretary/Treasurer
Principal Financial Officer
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
Signature Capacity Date
---------------------------- ------------------------------------------------- ----------------------
/s/ Mark A. Scharmann President/Principal Executive Officer/Director April 12, 2007
/s/ Dan Price Vice President/Director April 12, 2007
/s/ David Knudson Secretary/Treasurer/Principal Accounting April 12, 2007
Officer/Director
-48-