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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-78910 -C
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
(Zip Code)
84403
(Address of principal executive offices)
Issuer's telephone number, including area code: (801) 399-3632
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act :None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes No x/
.
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.
The Issuer's revenues for the fiscal year ended December 31, 1997 were
- -0-.
As of November 30, 1998, 8,853,208 shares of the Issuer's common stock
were issued and outstanding of which 2,595,394 were held by non-affiliates. As
of November 30, 1998, there was no active market in the Issuers securities.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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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.............................................15
Item 7. Financial Statements............................................18
Item 8. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................26
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................26
Item 10. Executive Compensation...........................................27
Item 11. Security Ownership of Certain Beneficial Owners and Management...29
Item 12. Certain Relationships and Related Party Transactions.............30
Item 13. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.........................................................31
Index to Exhibits...........................................31
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 under "and in Item 3 in "Legal
Proceedings" and in Item 7 in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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, 1998. Although the Company's Chapter 11 Plan of Reorganization
has been confirmed by the Bankruptcy Court, the Company continues to operate
under the jurisdiction of the Court. The Company's current business plan calls
for it to locate and acquire an operating company.
History
The Company was organized on April 22, 1986 under the laws of the State of
Utah under the name of Kaiser Research, Inc. On December 2, 1994, the Company
changed its domicile from the State of Utah to the State of Delaware through a
reincorporation merger. In order to effect the reincorporation merger, the
Company formed a wholly-owned subsidiary under Delaware law under the name of
PACSYND, Inc. After the change of the Company's domicile, it acquired a
privately held corporation ("Private PSI") in a merger transaction, and in
connection therewith, the Company's name was changed to Pacific Syndication,
Inc.
After the acquisition of Private PSI in December 1994, and prior to its
filing of a Petition under Chapter 11, the Company was engaged in the business
of transmitting television programming to television stations and others via
satellite or land deliveries on behalf of production companies, syndicators and
other distributors of television programming. Although the Private PSI was not
the survivor of the Merger, and did not exist after the Merger, pursuant to the
accounting requirements of the Securities and Exchange Commission the Merger was
treated as a "reverse merger" and, solely for accounting purposes, Private PSI
was deemed to be the survivor.
Private PSI was formed under the laws of the State of Delaware in November
1991. Private PSI was formed to engage in the business of providing a variety of
television industry related services to its clients. Such services included, but
were not limited to, video tape duplication, standards conversion and delivery
of television programming by way of conventional carriers (such as UPS, Airborne
and Federal Express) and by satellite or fiber optic transmission.
Private PSI provided its clients (primarily television producers,
programmers and syndicators) with several related but different services,
including distribution of syndicated programming to television stations, program
mastering and standards conversion, infomercial customization and delivery,
master tape and film storage, library distribution services and video
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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.
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.
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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. The Company
continues to file monthly "Debtor in Possession Interim Statements" and "Debtor
in Possession Operating Reports" with the the Office of the United States
Trustee.
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, 1996 and 1997.
3. Tax liabilities to the Internal Revenue Service of approximately
$269,093 had been reduced to $137,717 as September 30, 1998.
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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.
8. The Company prepared and filed this Form 10-KSB.
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.
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
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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
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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) 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
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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.
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
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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.
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.
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Employees
As of the date of this Prospectus, the Company has no full time employees.
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. Until the acquisition of a Target Business, the Company will pay Mr.
Scharmann $ 500 per month for rent, office and secretarial services.
ITEM 3. LEGAL PROCEEDINGS
Except for the continued jurisdiction of the U.S. Bankruptcy Court, and
the matter described below, the Company is not party to any legal actions as of
the date of this Form 10-KSB.
In 1995, the Company filed a lawsuit against Donald Palmer alleging breach
of contract and other claims. The case was filed in Los Angeles County,
California. The Company sought damages in the approximate amount of $1,000,000.
The defendant filed a counter claim against the Company for breach of contract,
for past due rent and for other damages. As of December 31, 1997, past due rent
claimed by the defendant was approximately $150,000. The defendant also seeks
damages in the amount of $75,000 pursuant to a stock purchase agreement. The
Company is unable to predict the outcome of this litigation. The Company has
assigned its position in this matter to another entity. The Company does not
believe this litigation will have any material impact on its future operations
or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a vote during
the last quarter of the year ended December 31, 1997.
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.
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Shares Issued in Unregistered Transactions
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. 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",
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"Accumulators", "Distributors" and " Syndicators". "Dealers" and the four
types of underwriters are discussed below.
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.
13
<PAGE>
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.
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 aftermarket 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. The securities issued in such
transactions were as follows:
<TABLE>
<CAPTION>
Number of
Issued To Shares Date Consideration
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
Total: 296,078
</TABLE>
14
<PAGE>
Holders
As of November 30, 1998, there were 8,853,208 shares of common stock
outstanding and approximately 152 stockholders of record of common stock.
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
The Company has had no operations during the last three years. During
this period, the Company has been involved in a Chapter 11 Proceeding under the
Unites States Bankruptcy Code. In May 1997, the Company's Plan or Reorganization
was confirmed by the U.S. Bankruptcy Court. The Company intends to attempt to
commence operations in an active business by acquiring or merging with an
operating company. No potential merger target has been identified as of this
date.
The Plan of Operation of the Company is further described in Item 1 of
this Form 10-KSB.
Liquidity and Capital Resources
Presently, the Company's assets consist solely of a minimal amount of
cash. As of December 31, 1997, the Company had total assets of $7,992.
Therefore, the Company had essentially no usable cash as of December 31, 1997
and is dependent upon loans and advances from its management and affiliates to
fund its expenses pending the completion of an merger or acquisition. As of
December 31, 1997, the Company had total liabilities of $374,467 of which
$357,357 were tax liabilities.
The Company intends to use such cash to pay for various filing fees and
professional fees relating to its reporting obligations and to fund the costs
which may arise from seeking new business opportunities.
It is likely that the Company will be required to raise additional
capital in order to attract and potential acquisition partner but there can be
no assurance that the Company will be able to raise any additional capital. It
is also likely that any future acquisition will be made through the issuance of
shares of the Company's common stock which will result in the dilution of the
percentage ownership of the current shareholders.
The auditors' report on the Company's December 31, 1997 financial
statements contains a going concern qualification, which provides that the
Company's ability to continue as a going concern is dependent upon it raising
additional capital. The Company will continue to be an inactive
15
<PAGE>
company unless and until it raises additional capital and acquires an operating
company. There can be no assurance that either will occur.
Results of Operations
The Company has not commenced any active operations since its
Conformation Date and generated no revenue for the year ended December 31, 1997
or the year ended December 31, 1996. The Company had total expenses of $46,068
for the year ended December 31, 1997 including $26,336 related to Bankruptcy
administration and legal expenses. Also included in the Company's expenses was
$11,884 as interest expense and $7,848 as a loss on investment. For the year
ended December 31, 1996, the Company had no revenue and expenses of $57,965, all
of which was attributed to Bankruptcy administration and legal fees. The Company
anticipates that it will not generate any revenues until, it acquires or merges
with another company.
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.
Inflation
The Company does not believe that inflation will negatively impact its
business plans.
Impact of Year 2000 Issue
An issue exists for all companies that rely on computers as the year 2000
approaches. The "Year 2000" problem is the result of the past practice in the
computer industry of using two digits rather than four to identify the
applicable year. This practice will result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. Currently, the Company has no active operations and will not
have active operations until and unless it acquires another company. As part of
its consideration of the merits of acquiring another company, the Company will
consider the effects of the ear 2000 problem on such other
16
<PAGE>
company and the actions taken by such other company be ready for Year 2000. In
assessing the level of readiness any potential acquisition target, the Company
considered the following to be the most important factors: (i) the level of
compliance of the such company's central computer systems; (ii) the level of
compliance of the software used in such company's ongoing operations; and (iii)
the level of readiness of such company's largest vendors.
There can be no assurances that either any company acquired by the Company
or any customers and suppliers of such acquired company, will be Year 2000
compliant.. In the event that the any company or acquired by the Company or any
of such company's customers or suppliers do not install Year 2000 compliant
systems, following such acquisition the Company may need additional clerical
staff to perform certain tasks, such as order entry and cash posting, and to
provide the information currently provided to customers electronically. There
can be no assurance that the Company will not have to bear additional costs and
expenses in the future related to the Year 2000 problem.
Forward-looking Statements
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act, which reflect Management's current
views with respect to future events and financial performance. Such forward
looking statements may be deemed to include, among other things, statements
relating to the Company's plan of operation. These forward-looking statements
are subject to certain risks and uncertainties, including, but not limited to,
future financial performance and future events, competitive pricing for
services, costs of obtaining capital as well as national, regional and local
economic conditions. Actual results could differ materially from those addressed
in the forward looking statements. Due to such uncertainties and risks, readers
are cautioned not to place undue reliance on such forward-looking statement,
which speak only as of the date whereof.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Pacific Alliance Corporation Financial Statements Page
Report of Independent Accountants ....................................19
Balance Sheet.........................................................20
December 31, 1997
Statements of Operations..............................................21
Years ended December 31, 1997 and 1996
Statements of Stockholders' Deficit...................................22
Years ended December 31, 1997 and December 31, 1996
Statements of Cash Flows..............................................23
Years ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements............................24
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Pacific Alliance Corporation
We have audited the accompanying balance sheet of Pacific Alliance
Corporation (a Delaware corporation in the Development Stage), as of December
31, 1997, and the related statements of operations, stockholders' deficit, and
cash flows for the years ended December 31, 1997 and 1996 and the period from
inception of the development stage (December 21, 1995) through December 31,
1997. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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, 1997 and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 and
the period from inception of the development stage (December 21, 1995) through
December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company does not generate revenue and has a net
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants
Encino, California
June 12, 1998
19
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash $ 180
Investments 7,812
---------------
TOTAL CURRENT ASSETS 7,992
TOTAL ASSETS $ 7,992
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued expenses $ 11,610
Advance from officer, note 6 5,500
Current portion of tax liabilities 49,915
--------------
TOTAL CURRENT LIABILITIES 67,025
LONG TERM LIABILITIES
Tax liabilities, note 2 307,442
--------------
TOTAL LIABILITIES 374,467
COMMITMENTS & CONTINGENCIES, note 5
STOCKHOLDERS' DEFICIT, note 4
Common stock, par value $.001,
30,000,000 shares authorized,
8,557,130 shares issued and outstanding 421,958
Additional paid in capital 1,948,047
Accumulated deficit prior to the development stage (2,632,447)
Accumulated deficit during the development stage (104,033)
TOTAL STOCKHOLDERS' DEFICIT (366,475)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 7,992
================
See Independent auditors' report and notes to financial
statements.
20
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
From Inception of the
Development Stage,
December 21, 1995,
through
1997 1996 December 31, 1997
----------- ------------ ----------------------
<S> <C> <C> <C>
SALES $ - $ - $ -
GROSS MARGIN - - -
OPERATING EXPENSES - - -
OTHER EXPENSES
Interest expense 11,884 - 11,884
Loss on investments 7,848 - 7,848
----------------------------------------------------
LOSS BEFORE REORGANIZATION ITEMS (19,732) - (19,732)
REORGANIZATION ITEMS
Administration and legal fees 26,336 57,965 84,301
----------------------------------------------------
NET LOSS $(46,068) $ (57,965) $ (104,033)
====================================================
BASIC LOSS PER SHARE
Loss before reorganization
items (0.00) (0.00)
Reorganization items (0.01) (0.03)
NET LOSS $ (0.01) (0.03)
============ =============
WEIGHTED AVERAGE NUMBER OF SHARES $3,661,139 $ 2,099,070
============ =============
</TABLE>
See independent auditors' report and notes to financial
statements.
21
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated Accumulated
Shares of Deficit Before Deficit After
Common Common Paid-in December December
Stock Stock Capital 21, 1995 21, 1995 Total
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 21, 1995 12,594,422 $415,500 $471,500 $2,632,447 $ - $(1,745,447)
Activity from
December 21, 1995
through December - - - - - -
December 31, 1995 ------------------------------------------------------------------------------
Balance at
December 31, 1995 12,594,422 415,500 471,500 2,632,447 - (1,745,447)
Net loss - - - - (57,965) (57,965)
-----------------------------------------------------------------------------
Balance at
December 31, 1996 12,594,422 415,500 471,500 (2,632,447) (57,965) (1,803,412)
-----------------------------------------------------------------------------
Reverse split 1-for-6,
note 4 (10,495,297) - - - - -
Conversion of accounts
accounts payable
trade,
note 4 1,458,005 1,458 1,456,547 - - 1,458,005
Issuance of
common stock, note 4 5,000,000 5,000 20,000 - - 25,000
Net loss - - - - (46,068) (46,068)
-----------------------------------------------------------------------------
Balance at
December 31, 1997 8,557,130 $421,958 $1,948,047 $ (2,632,447) $(104,033) $(366,475)
=============================================================================
</TABLE>
See independent auditors' report and notes to
financial statements.
22
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
From Inception of the
Development Stage,
December 21, 1995, through
1997 1996 December 31, 1997
------------- ------------- --------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ (46,068) $ (57,965) $ (104,033)
Net loss
Adjustments to reconcile net loss to net cash
provided (used)in operating activities:
Loss on investments 7,848 - 7,848
Change in assets and liabilities
Decrease in accounts receivable 35,167 60,674 95,841
Increase in accrued expenses 11,610 - 11,610
Decrease in tax liabilities (23,340) - (23,340)
------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (14,78 2,709 (12,074)
------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (30,180) - (30,180)
Proceeds from sale of investments 14,520 - 14,520
-----------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (15,660) - (15,660)
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft - (2,586) (2,586)
Advance from officer 5,500 - 5,500
Proceeds from issuance of common stock 25,000 - 25,000
-----------------------------------------------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 30,500 (2,586) 27,914
-----------------------------------------------------
NET INCREASE IN CASH 57 123 180
CASH AT BEGINNING OF YEAR 123 - -
----------------------------------------------------
CASH AT END OF YEAR $ 180 $ 123 $ 180
=====================================================
Supplementary disclosures:
Interest paid $11,884 $ - 11,884
====================================================
Income taxes paid $ - $ - $ - -
====================================================
</TABLE>
See independent auditors' report and notes to financial
statements.
23
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Going Concern
Pacific Alliance Corporation (the "Company") was formerly Pacific
Syndication, Inc. Pacific Syndication, Inc. 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 the 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 (see note 6).
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 on March 28,
1998, which corresponds to one share for every dollar of indebtedness. The IRS
portion of tax liabilities is payable in cash by quarterly installments of
$17,612 (note 2). Repayment of other taxes is still being negotiated.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the year ended December 31, 1997, 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 period January 1, 1998 through the date of
the attached independent auditors' report, the Company funded its disbursements
by loans from individuals.
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 will attempt to locate a new
business (operating company), and offer itself as a merger vehicle for a company
that may desire to go public through a merger rather than through its own public
stock offering.
Investments
Investments are comprised of shares in common stock of a public held
company, and are considered trading securities. Trading securities are defined
as securities that are bought and held for the purpose of selling them in the
near future. Trading securities are recorded at the quoted market value, with
unrealized gains and losses included in income. Realized gains and losses are
determined by specific identification and are charged or credited to current
earnings. The net unrealized loss increased by $2,248 for the year ended
December 31, 1997, and the Company also recorded a realized loss of $5,600 for
the same period.
Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results may differ from those estimates.
Statement of Financial Accounting Standards No. 128
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128 for the calculation of earnings per share.
See independent auditors' report.
24
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
This SFAS was issued in February 1997, and supersedes APB Opinion No. 15
previously applied by the Company. SFAS No. 128 dictates the calculation of
basic earnings (loss) per share and diluted earnings (loss) per share. The
Company's diluted loss per share is the same as the basic loss per share for the
years ending December 31, 1997 and 1996.
2. TAX LIABILITIES
The Company owes back taxes to the IRS, EDD, State Board of Equalization
and other agencies. The IRS portion of tax liabilities ($246,522) bears interest
at 9%, and is payable quarterly in payments of $17,612, maturing in January
2002. Other tax claim repayment schedules have not yet been set.
Scheduled maturities of the IRS liability are as follows:
Years Ending:
---------------
1998 $ 49,915
1999 54,561
2000 59,640
2001 65,191
2002 17,215
-------------
$ 246,522
=============
Interest during the year ended December 31, 1997 and 1996 on the IRS
liability totaled $11,884 and $0, respectively.
3. INCOME TAXES
The Company loss carry forwards available to offset future taxable income
are estimated at 0 due to limitations in accordance with the rules of change in
ownership.
4. COMMON STOCK AND WARRANTS
On May 28, 1997, the reorganization plan was approved by the Bankruptcy
Court, the 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
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 1,485,005 class "B" warrants.
A class "A" warrant allows the purchase of a share of common stock at an
exercise price of $2.50 per share, and the warrant must be exercised before June
8, 2000. A class "B" warrant allows the purchase of a share of common stock at
an exercise price of $5.00 per share, and the warrant must be exercised before
June 8, 2002.
The reverse, split 1-for-6, was applied to the number of shares outstanding
at December 31, 1996 and for the calculation of the weighted average number of
common shares which is used for determination of loss per common share.
5. COMMITMENTS & CONTINGENCIES
In 1995, the Company filed a lawsuit against Donald Palmer alleging breach
of contract and other claims. The case was filed in Los Angeles County,
California. The Company sought damages in the approximate amount of $1,000,000.
The defendant filed a counter claim against the Company for breach of contract
and is seeking past due rent and other damages. As of June 30, 1998, past due
rent claimed by the defendant was approximately $150,000. The defendant also
seeks damages in the amount of $75,000 pursuant to a stock purchase agreement.
The Company is unable to predict the outcome of this litigation. The Company has
assigned its position in this matter to another entity. The Company does not
believe this litigation will have any material impact on its future operations
or financial position.
6. RELATED PARTY
An officer of the Company advanced $5,500 to the Company during 1997. This
advance bears interest at 10% and has no maturity date.
25
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Until the completion of the audited financial statements for inclusion
in this filing, the Company last audit was for the year ended December 31, 1993.
During the period from the time the petition for bankruptcy protection was filed
and the date of the Confirmation of the Plan, no firm acted as the Company's
certifying accountant. On August 31, 1997, the new Board of Directors of the
Company appointed Rose, Snyder & Jacobs as the Company's certifying accountant.
To the best knowledge of the new Board, there was no dispute as to accounting
principles or any other matter between the Company and its previous accountants.
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:
Name Age Position
Mark Scharmann 40 President/Director
Dan Price 44 Vice President/Director
David Knudson 39 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. Mr. Price has worked for five (5) years 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
26
<PAGE>
PACIFIC ALLIANCE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
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). The Company is not a reporting company
under either Section 12(b) or Section 12(g) of the Securities Exchange Act of
1934 and accordingly, is not subject to Section 16(a) of such Act.
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 $100,000:
27
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Commissions Restrict
and Other Annual Stock Options/
Bonuses Compensation Awards SAR's
Name and Principal Positition Year Salary ($) ($) ($) (#)
- ----------------------------- ------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark Scharmann (1) 1997 -0- -0- -0- -0- -0-
President
</TABLE>
(1) Mr. Scharmann was appointed President of the Company on the date of
the Conformation of the Plan, June 8, 1997.
Stock Options
The following table sets forth certain information concerning stock
options granted during fiscal 1997 to the named executive officers.
<TABLE>
<CAPTION>
Options Grants in the Year Ended December 31, 1997
Percentage
Number of of Total Exercise or
Securities Options Granted to Base Price
Underlying Employees in Per Share Expiration
Name Options Granted (#) Fiscal Year ($) Date
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Scharmann -0- -0- N/A N/A
</TABLE>
The following table sets forth information concerning the number and value
of options held at December 31, 1997 by each of the named executive officers. No
options held by such executive officers were exercised during 1997.
Option Values at December 31, 1997
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1997(#) At(December 31, 1997($)
-------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Mark Scharmann -0- -0- N/A N/A
28
<PAGE>
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.
For the year ended December 31, 1997 the Company compensated its officers
as follows:
Name Compensation Shares Issued
Mark Scharmann -0- -0-
Dan Price -0- -0-
David Knudson -0- -0-
The Company's 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.
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 November 30, 1998 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.
29
<PAGE>
Name Amount and
and Address Nature of Percent of
of Beneficial Beneficial Class(1)
Owner Ownership Ownership
- --------------------------------------------- ------------------ ---------------
Mark Scharmann(1) 5,134,037 57.99%
1661 Lakeview Circle
Ogden, UT 84403
Dan Price(1) 1,000 .01%
1661 Lakeview Circle
Ogden, UT 84403
David Knudson(1) 3,667 .04%
1661 Lakeview Circle
Ogden, UT 84403
William M. Hynes, II 1,119,115 12.64%
11112 Ventura Boulevard
Studio City, CA 91602
All Officers and Directors 5,138,699 58.04%
as a Group (3 Persons)
- --------------------------------------------- ------------------ ---------------
(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
No changes in control of the Company are currently contemplated until and
unless the Company acquires or mergers with an operating company.
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.
30
<PAGE>
During 1997, Troika Capital loaned $5,500 to the Company. Such loan is
due on demand and bears interest at the rats of 10% per annum.
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, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. The Exhibits which are filed with this Report or which are incorporated
herein by reference are set forth in the Exhibits Index which appears on
page 36.
B. The Company filed no Form 8-K during the fiscal year ended December 31,
1997.
Exhibits to Form 10-KSB
Sequentially
Exhibit Numbered
Number Exhibit Page
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (1)
21.1 Subsidiaries of Registrant None
(1) Previously Filed
31
<PAGE>
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: December 18, 1998 By/s/ Mark A. Scharmann
---------------------------------------
Mark A. Scharmann
President/Principal Executive Officer
Date: December 18, 1998 By/s/ David Knudson
----------------------------------------
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/Director December 18, 1998
- ----------------------------
Mark A. Scharmann
/s/ Dan Price Vice President/Director December 18, 1998
- ----------------------------
Dan Price
/s/ David Knudson Secretary/Treasurer December 18, 1998
- ----------------------------
David Knudson Director
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTS FROM
PACIFIC ALLIANCE CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIRIFED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 180
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 180
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,992
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,992
<CURRENT-LIABILITIES> 67,025
<BONDS> 0
0
0
<COMMON> 421,958
<OTHER-SE> (366,475)
<TOTAL-LIABILITY-AND-EQUITY> 7,992
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,884
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
