10QSB 1 ab10q-301.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-QSB ------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2001 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 84403 (Address of principal executive offices) Registrant's telephone no., including area code: (801) 399-3632 N/A Former name, former address, and former fiscal year, if changed since last report. Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: None Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X. Common Stock outstanding at May 15, 2001 - 10,970,009 shares of $.001 par value Common Stock. DOCUMENTS INCORPORATED BY REFERENCE: NONE FORM 10-QSB FINANCIAL STATEMENTS AND SCHEDULES PACIFIC ALLIANCE CORPORATION. For the Quarter ended March 31, 2001 The following financial statements and schedules of the registrant are submitted herewith: PART I - FINANCIAL INFORMATION Page of Form 10-QSB Item 1. Financial Statements: Balance Sheet--March 31, 2001 and December 31, 2000 3 Statements of Operations--for the three months ended March 31, 2001 and March 31, 2000 4 Statements of Cash Flows--for the three months ended March 31, 2001 and March 31, 2000 5 Statement of Stockholders Deficit 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION Page Item 1. Legal Proceedings 19 Item 2. Changes in the Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Results of Votes of Security Holders 19 Item 5. Other Information 19 Item 6(a). Exhibits 19 Item 6(b). Reports on Form 8-K 19 2 INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Stockholders of Pacific Alliance Corporation We have reviewed the accompanying balance sheets of Pacific Alliance Corporation (a Delaware corporation in the Development Stage) as of March 31, 2001 and December 31, 2000, and the statements of operations for the three months ended March 31, 2001 and 2000 and the period from inception of the development stage (December 21, 1995) through March 31, 2001, the statements of cash flows for the three months ended March 31, 2001 and 2000, and the statements of stockholder's deficit for the period from inception of the development stage (December 21, 1995) through March 31, 2001. These financial statements are the responsibility of the management of Pacific Alliance Corporation. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. As discussed in note 1, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments to the financial statements that might be necessary should the Company be unable to continue as a going concern. Rose, Snyder & Jacobs A Corporation of Certified Public Accountants Encino, California May 10, 2001 3 PACIFIC ALLIANCE CORPORATION (A Development Stage Company) BALANCE SHEETS ASSETS March 31, December 31, 2001 2000 ------ ------ CURRENT ASSETS Cash $ - $ 86 ------------ --------------- TOTAL ASSETS $ - $ 86 ============ =============== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Bank overdraft $ 6,199 $ - Accrued interest 21,929 18,503 Other accrued expenses 22,400 18,640 Advance from officer, note 7 182,176 171,476 Current portion of tax liabilities, note 2 92,398 88,655 Note payable, note 4 50,000 50,000 ------------ --------------- TOTAL CURRENT LIABILITIES 375,102 347,274 LONG TERM LIABILITIES Tax liabilities, note 2 59,756 71,099 Notes payable, note 4 30,000 30,000 ------------ --------------- TOTAL LIABILITIES 464,858 448,373 ------------ --------------- COMMITMENTS AND CONTINGENCIES, note 6 STOCKHOLDERS' DEFICIT Common stock, par value $.001, 30,000,000 shares authorized, 10,970,009 shares issued and outstanding, note 5 424,371 424,371 Additional paid in capital 2,223,472 2,223,472 Accumulated deficit prior to the development stage (2,632,447) (2,632,447) Accumulated deficit during the development stage (480,254) (463,683) ------------- -------------- TOTAL STOCKHOLDERS' DEFICIT (464,858) (448,287) ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ - $ 86 ============ ============== Prepared without audit. See Independent Accountants' Review Report and Notes to Financial Statements. 4 PACIFIC ALLIANCE CORPORATION (A Development Stage Company) STATEMENTS OF OPERATIONS From Inception of the Development Three Three Stage, Months Months December 21, ended ended 1995, Through March 31, 2001 March 31, 2000 March 31, 2001 -------------- -------------- ----------------- SALES $ - $ - $ - GROSS MARGIN - - - OPERATING EXPENSES - - - OTHER INCOME (EXPENSES) Professional fees (8,560) (9,585) (144,476) Management compensation, note 5 - (30,683) (166,679) Other expenses (85) (5,024) (13,354) Taxes - - (26,000) Interest expense (7,926) (5,502) (107,675) Gain (loss) on investments - (6,844) Reorganization fees - - (84,301) -------------- -------------- ----------------- LOSS BEFORE EXTRAORDINARY ITEM (16,571) (50,794) (549,329) EXTRAORDINARY ITEM Gain on forgiveness of tax debt, note 9 - - (69,075) -------------- -------------- ----------------- NET LOSS $ (16,571) $ (50,794) $ (480,254) ============== ============== ================= BASIC NET LOSS PER SHARE Loss before extraordinary item $ (0.00) $ (0.01) Extraordinary item (0.00) 0.00 -------------- -------------- NET LOSS $ (0.00) $ (0.01) ============== ============== WEIGHTED AVERAGE NUMBER OF SHARES 10,970,009 9,343,352 ============== ============== Prepared without audit See Independent Accountants' Review Report and Notes to Financial Statements. 5 PACIFIC ALLIANCE CORPORATION (A Development Stage Company) STATEMENT OF STOCKHOLDERS DEFICIT Accumulated Accumulated Shares of Additional Deficit Prior Deficit After Common Common Paid-in to December December Stock Stock Capital 21, 1995 21, 1995 Total --------- ------ ---------- ------------- ----------- --------- Balance at December 21, 1995 12,594,422 $ 415,500 $ 471,500 $(2,632,447) $ - $(1,745,447) Reverse split 1-for-6, note 5 (10,495,297) - - - - - Conversion of trade accounts payable, note 5 1,458,005 1,458 1,456,547 - - 1,458,005 Issuance of common stock, note 5 5,216,000 5,216 20,864 - - 26,080 Issuance of common stock for IRS claim reduction, note 5 80,078 80 79,998 - - 80,078 Activity from December 21, 1995 through December31, 1999 - - - - (358,594) (358,594) --------- ---------- --------- ------------ ---------- ---------- Balance at December 31, 1999 8,853,208 422,254 2,028,909 (2,632,447) (358,594) (539,878) Issuance of common stock, note 5 1,560,825 1,560 139,522 - - 141,082 Net loss - - - - (50,794) (50,794) --------- ---------- --------- ----------- ----------- ---------- Balance at March 31, 2000 10,414,033 423,814 2,168,431 (2,632,447) (409,388) (449,590) Issuance of commonstock, note 5 555,976 557 55,041 - - 55,598 Net loss - - - - (54,295) (54,295) ---------- ---------- --------- ----------- ----------- ---------- Balance at December 31, 2000 10,970,009 424,371 2,223,472 (2,632,447) (463,683) (448,287) Net loss - - - - (16,571) (16,571) ---------- ---------- --------- ----------- ----------- ---------- Balance at March 31, 2001 10,970,009 424,371 2,223,472 (2,632,447) (480,254) (464,858) ========== ========== ========= =========== =========== ========== Prepared without audit. See Independent Accountants' Review Report and Notes to Financial Statements. 6 PACIFIC ALLIANCE CORPORATION (A Development Stage Company) STATEMENTS OF CASH FLOWS From Inception of the Development Stage, Three months Three months December 21, ended ended 1995, Through March 31, 2001 March 31, 2000 March 31, 2001 -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (16,571) $ (50,794) $ (480,254) Adjustments to reconcile net loss to net cashused in operating activities: (Gain) loss on investments - - 6,844 Gain on forgiveness on tax debt - - (69,075) Change in assets and liabilities Decrease in accounts receivable - - 95,841 Increase (decrease) in accrued expenses 7,186 (2,901) 73,177 Increase in management compensation liability - 30,681 166,680 Decrease in tax liabilities (7,600) (402) (79,390) ------------- -------------- -------------- NET CASH USED IN OPERATING ACTIVITIES: (16,985) (23,416) (286,177) ------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments - - (30,180) Proceeds from sale of investments - - 23,336 ------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES - - (6,844) ------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 6,199 - 3,613 Proceeds from notes payable - - 80,000 Advance from officer 10,700 24,301 276,743 Repayment of advance to officer - - (92,335) Proceeds from issuance of common stock - - 25,000 ------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 16,899 24,301 293,021 ------------- -------------- -------------- NET INCREASE IN CASH (86) 885 - CASH AT BEGINNING OF PERIOD 86 2 - ------------- -------------- -------------- CASH AT END OF PERIOD $ - $ 887 $ - ============= ============== ============== Supplementary disclosures: Interest paid in cash $ 4,500 $ 4,598 $ 72,978 ============= ============== ============== Prepared without audit. See Independent Accountants' Review Report and Notes to Financial Statements. 7 PACIFIC ALLIANCE CORPORATION (A Development Stage Company) Notes to Financial Statements March 31, 2001 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Going Concern Pacific Alliance Corporation (the "Company"), whose name was changed from Pacific Syndication, Inc. in 1997, was originally incorporated in December1991 under the laws of the State of Delaware. It also became a Californiacorporation in 1991. Pacific Syndication, Inc. was engaged in the business of videotape duplication, standard conversion and delivery of television programming. In1994, Pacific Syndication, Inc. merged with Kaiser Research, Inc. In the opinion of management, all normal recurring adjustments considered necessary for fair presentation have been included. The Company filed a petition for Chapter 11 under the Bankruptcy Code in June, 1995. The debtor- in-possession kept operating until December 21, 1995, when all assets, except cash and accounts receivable, were sold to a third party, Starcom. The purchaser assumed all post-petition liabilities and all obligations collateralized by the assets acquired. In 1997, a reorganization plan was approved by the Bankruptcy Court, and the remaining creditors of all liabilities subject to compromise, excluding tax claims, were issued 1,458,005 shares of the Company's common stock in March, 1998, which corresponds to one share for every dollar of indebtedness. Each share of common stock issued was also accompanied by an A warrant and a B warrant (see note 5). The IRS portion of tax liabilities is payable in cash by quarterly installments of $11,602 (see note 2). Repayment of other taxes is still being negotiated. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realizations of assets and the satisfaction of liabilities in the normal course of business. As shown in the March 31, 2001 financial statements, the Company did not generate any revenue, and has a net capital deficiency. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. For the three months ended March 31, 2001, the Company funded its disbursements using loans from an officer. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is no longer operating, and will attempt to locate 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 (see note 8). Prepared without audit. See Independent Accountants' Review Report 8 PACIFIC ALLIANCE CORPORATION (A Development Stage Company) Notes to Financial Statements March 31, 2001 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Fair Value of Financial Instruments The carrying amount of the Company's financial instruments approximate fair value. Statement of Financial Accounting Standards No. 128 The Company adopted Statement of Financial Standards ("SFAS") No. 128 for the calculation of earnings per share. This SFAS was issued in February 1997, and supersedes APB Opinion No. 15 previously applied by the Company. SFAS No. 128 dictates the calculation of basic earnings (loss) per share and diluted earnings (loss) per share. The Company's diluted loss per share is the sameas the basic loss per share for the three months ended March 31, 2001 and 2000. 2. TAX LIABILITIES The Company owes back taxes to the IRS, California State Board of Equalization and other tax authorities. The IRS portion of tax liabilities, $92,398, bears interest at 9%, and is payable quarterly, maturing in January 2002. During the year ending December 31, 1998, the tax liabilities were reduced by $80,078 due to the transfer of a personal tax refund from a former officer of the Company (note 5). Other tax claim repayment schedules have not yet been set. Scheduled maturities of the IRS liability are $92,298 for the twelve months ending March 31, 2002. Interest paid during the three months ended March 31, 2001 and 2000 on the IRS liability totaled $0 and $4,598, respectively. 3. INCOME TAXES The Company has loss carryforwards available to offset future taxable income. The total loss carryforwards at March 31, 2001 are estimated at approximately $480,000 and expire between 2013 Prepared without audit. See Independent Accountants' Review Report 9 and 2016. Loss carryforwards are limited in accordance with the rules of change in ownership. No deferred tax benefit is recognized since future profits are indeterminable. 4. NOTES PAYABLE During the year ended December 31, 1998, the Company contracted notes payable with minority shareholders for a total of $30,000. These notes bear interest at 10% and have no maturity date. On June 14, 2000, the Company contracted a note payable with a minority shareholder for $50,000. The note bears interest at 1% per month. The Note matured on August 13, 2000 and is being renegotiated. Stock options were issued with respect to this note payable (see note 5). 5. COMMON STOCK AND WARRANTS On May 28, 1997, a reorganization plan was approved by the Bankruptcy Court. As a result, existing shares of the Company were reverse split 1-for-6 and pre-bankruptcy creditors were issued 1,458,005 shares of Company's common stock. On November 13, 1997, an additional 5,000,000 shares of common stock were issued (after reverse split) to an officer of the Company in return for proceeds of $25,000 ($.005 per share). 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" warrant allowed the purchase of a share of common stock at an exercise price of $2.50 per share, and expired June, 2000. The 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. 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. Options to purchase 35,000 shares of common stock of the Company have been issued to bearers of promissory notes as follows: Prepared without audit. See Independent Accountants' Review Report 10 Date of Issuance Number of Shares Expiration Date Price Per Share ---------------- ---------------- --------------- --------------- May 1, 1998 5,000 May 13, 2001 $ 2.50 May 5, 1998 5,000 May 4, 2001 $ 2.50 June 14, 2000 25,000 June 14, 2001 $ 0.50 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 of advances 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 compensated its management on an hourly basis at $75 per hour for the time actually devoted to the business of the Company. Payment for services was 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 was valued at $0.10 per share. During the three months ended March 31, 2000, the Company issued 1,260,825 shares of common stock for management compensation. During the nine months ended December 31, 2000, the Company issued 405,976 shares of common stock for management compensation. Starting January 1, 2001, the Company ceased compensating management to comply with the terms of the proposed merger with Ecomanagement S.A. (See note 8). 6. COMMITMENTS AND 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 was seeking past due rent and other damages. On May 5, 1999, the Court ruled in favor of the defendant, Donald Palmer and against Pacific Syndication, Inc. Donald Palmer was awarded approximately $200,000 for past due rent of the equipment, plus cost and attorney's fees. Palmer was also found owner of the equipment sold by Pacific Syndication, Inc. to Starcom Television Services. In the opinion of counsel, because Starcom Television Services assumed that debt when it purchased the assets of Pacific Syndication, Inc., Starcom Television Services, and its successor-in- interest, are responsible for that judgment. Therefore, no liability has been accrued in the financial statements at March 31, 2001. 7. RELATED PARTY An officer of the Company advanced $10,700 to the Company during the quarter ended March 31, 2001, and $24,301 during the quarter ended March 31, 2000. These advances bear interest at 10% and Prepared without audit. See Independent Accountants' Review Report 11 have no maturity date. The balance of advances was $182,176 at March 31, 2001 and $171,476 at December 31, 2000. 8. SUBSEQUENT EVENTS On December 29, 2000, the Company entered into a Letter of Intent ("LOI") with Ecomanagement S.A., a privately held Swiss corporation. The LOI provides for Pacific Alliance's acquisition of Ecomanagement S.A. in a transaction in which Pacific Alliance will issue common stock for all of the shares of Ecomanagement S.A. The proposed acquisition is subject to various conditions including, but not limited to, the execution of a definitive acquisition agreement, the execution of a reverse split of the Company's shares, and approval by the shareholders of both companies. There can be no assurance that the acquisition will occur or that it will occur on the exact terms, which are set forth in the LOI. 9. EXTRAORDINARY ITEM On December 19, 2000, the Employment Development Department of California (EDD) accepted an "Offer in Compromise" in the amount of $7,600 to satisfy in full, all outstanding liabilities due to the EDD by Pacific Alliance Corporation. The balance of the liabilities was $76,675 and an extraordinary gain of $69,075 was recognized. The settlement amount was paid in January, 2001. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Pacific Alliance Corporation (the "Company") is a Delaware corporation which is currently inactive. The Company was previously engaged in the business of distributing television programming. On 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. 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. 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 12 filing of a Petition under Chapter 11, the Company was engaged in the business of transmitting television programming to television stations and others via satellite or land deliveries on behalf of production companies, syndicators and other distributors of television programming. Although the Private PSI was not the survivor of the Merger, and did not exist after the Merger, pursuant to the accounting requirements of the Securities and Exchange Commission the Merger was treated as a "reverse merger" and, solely for accounting purposes, Private PSI was deemed to be the survivor. Private PSI was formed under the laws of the State of Delaware in November 1991. Private PSI was formed to engage in the business of providing a variety of television industry related services to its clients. Such services included, but were not limited to, video tape duplication, standards conversion and delivery of television programming by way of conventional carriers (such as UPS, Airborne and Federal Express) and by satellite or fiber optic transmission. Private PSI provided its clients (primarily television producers, programmers and syndicators) with several related but different services, including distribution of syndicated programming to television stations, program mastering and standards conversion, infomercial customization and delivery, master tape and film storage, library distribution services and video integration and delivery services. Private PSI developed its own tape tracking and vault library management system and a system for infomercial customization and voice-over integration. From its inception, Private PSI was undercapitalized. It funded its initial operations through the factoring of its accounts receivable. The Company was unable to commence operations in the television programming services business and ultimately, substantially all of its assets were sold and it discontinued its operations. 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 13 other shareholders and creditors of the Company, Mr. Scharmann agreed, through Troika, to develop a business plan for the Company and to attempt to assist the Company in carrying out such plan. The Plan of Reorganization developed for the Company by Troika was essentially as follows: 1. Eliminate all non-tax liabilities of the Company through the conversion of debt into equity. 2. Replace the current officers and directors of the Company with new management. The new management includes the following: Mark Scharmann, Dan Price and David Knudson. 3. File all required Securities and Exchange Commission reports which may be necessary to bring the Debtor current in its filing requirements under Section 15(d) of the 1934 Act. File all SEC reports which become due in the future. 4. File any tax returns which are in arrears and file all required tax returns and reports which become due in the future. 5. Use existing cash of the Company to pay quarterly tax payments and for working capital. 6. Prepare and bring current, the financial statements of the Company 7. Attempt to raise additional cash to be used to fund quarterly tax payments and for working capital. 8. Locate a private-company which is seeking to become a public company by merging with the Company. 9. Assist the Company in completing any merger which is located and which the Board of Directors deems appropriate. 10. Assist the post-merged company with shareholder relations, financial public relations and with attempts to interest a broker-dealer in developing a public market for the Company's common stock so that the Company's shareholders (including creditors whose debt was converted into shares of the Company's common stock) may ultimately have an opportunity to liquidate their shares for value in market or in privately negotiated transactions. The Plan and Disclosure Statement was confirmed by the Bankruptcy Court on May 28, 1997. The Effective Date of the Plan was June 8, 1997. Subsequent to the Effective Date of the Plan, the Company filed monthly "Debtor in Possession Interim Statements" and "Debtor in Possession Operating Reports" with the the Office of the United States Trustee. On February 23, 2000, the Bankruptcy Court Judge Kathleen T. Lax entered a Final Decree Order closing the Bankruptcy case of the Company. 14 Post Confirmation Date Activities Since the Confirmation of the Plan of Reorganization the following have occurred: 1. Pre-Confirmation Date non-tax debt in the amount of approximately $1,458,000 was converted into 1,458,005 shares of the Company common stock. 2. The Company completed its audited financial statements for the years ended December 31, 1996, 1997, 1998, 1999 and 2000. 3. Tax liabilities to the Internal Revenue Service of approximately $269,093 had been reduced to $92,398 as of March 31, 2001. 4. Liabilities with respect to other tax authorities amounted to approximately $59,756 as of March 31, 2001. 5. The Company effected a 1-for-6 reverse split of its issued and outstanding common stock in order to establish a more desirable capital structure for potential merger partners. 6. The Company changed its name to Pacific Alliance Corporation. 7. The Company obtained the preliminary agreement of a registered-broker to make a market in the Company's common stock. 8. The Company filed an application for approval of secondary trading in its common stock with the Division of Securities of the State of Utah. An Order Granting such application was issued by the Utah Division of Securities. 9. The Company prepared and filed a Form 10-KSB for the years ended December 31, 1997, 1998, 1999 and 2000 and all required Forms 10-QSB for 1999 and 2000 calendar year. Financial Condition Total assets at March 31, 2001 were -0-. As of December 31, 2000, the Company had assets of $86 and liabilities $448,373. The Company's total liabilities as of March 31, 2001 were $464,858 It is likely that the Company will be required to raise additional capital in order to attract any potential acquisition partner but there can be no assurance that the Company will be able to raise any additional capital. It is also likely that any future acquisition will be made through the issuance of shares of the Company's common stock which will result in the dilution of the percentage ownership of the current shareholders. 15 Results of Operations The Company has generated no revenues since the Confirmation Date of its Bankruptcy Reorganization. The Company will not generate any revenues, if ever, until and unless it merges with an operating company or raises additional capital for its own operations. There can be no assurance that either of such events will happen. The Company had a net loss of $16,571 for the three months ended March 31, 2001. This compares to a net loss of $50,794 for the three months ended March 31, 2000. Plan of Operation The Company's current business plan is to serve as a vehicle for the acquisition of, or the merger or consolidation with another company (a "Target Business"). The Company intends to utilize its limited current assets, equity securities, debt securities, borrowings or a combination thereof in effecting a Business Combination with a Target Business which the Company believes has significant growth potential. The Company's efforts in identifying a prospective Target Business are expected to emphasize businesses primarily located in the United States; however, the Company reserves the right to acquire a Target Business located primarily elsewhere. While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, as a result of its limited resources the Company will, in all likelihood, have the ability to effect only a single Business Combination. The Company may effect a Business Combination with a Target Business which may be financially unstable or in its early stages of development or growth. To the extent the Company effects a Business Combination with a financially unstable company or an entity in its early stage of development or growth (including entities without established records of revenue or income), the Company will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that the Company effects a Business Combination with an entity in an industry characterized by a high level of risk, the Company will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries which experience rapid growth. Although management will endeavor to evaluate the risks inherent in a particular industry or Target Business, there can be no assurance that the Company will properly ascertain or assess all risks. 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. 16 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. 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings. ----------------- Item 2. Changes in the Rights of the Company's Security Holders. None. ------------------------------------------------------- Item 3. Defaults by the Company on its Senior Securities. None. ------------------------------------------------ Item 4. Submission of Matters to Vote of Security Holders. No matter was ------------------------------------------------- submitted to a vote of the Company's security holders for the quarter ended March 31, 2001. Item 5. Other Information. ----------------- Item 6(a). Exhibits. Notice and Proxy Statement. -------- Item 6(b). Reports on Form 8-K. None. ------------------- 18 SIGNATURE In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 15, 2001 PACIFIC ALLIANCE CORPORATION . By /s/ Mark A. Scharmann ------------------------------------------- Mark A. Scharmann President/Principal Executive Officer By /s/ David Knudson ------------------------------------------- David Knudson Principal Financial Officer 19