-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R6gq+8TpCnlwWWrRFz5cs10+uuaPgdt4ebuei2F/gY2BUdrVuWD1gpWqOeIczuVe Bbb3f+zaKvxrM0Ws+lxKag== 0001016193-02-000033.txt : 20020416 0001016193-02-000033.hdr.sgml : 20020416 ACCESSION NUMBER: 0001016193-02-000033 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC ALLIANCE CORP /UT/ CENTRAL INDEX KEY: 0000801904 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 870445849 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-08732-D FILM NUMBER: 02611806 BUSINESS ADDRESS: STREET 1: 1661 LAKEVIEW CIRCLE CITY: OGDEN STATE: UT ZIP: 84403 BUSINESS PHONE: 8013993632 MAIL ADDRESS: STREET 1: 1661 LAKEVIEW CIRCLE CITY: OGDEN STATE: UT ZIP: 84403 FORMER COMPANY: FORMER CONFORMED NAME: KAISER RESEARCH INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC SYNDICATION INC DATE OF NAME CHANGE: 19941216 10KSB 1 tenk1201.txt 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, 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 (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 X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. The Issuer's revenues for the fiscal year ended December 31, 2001 were -0-. As of March 30, 2001, 10,970,009 shares of the Issuer's common stock were issued and outstanding of which 3,849,203 were held by non-affiliates. As of March 30, 2001, there was no active market in the Issuers securities. DOCUMENTS INCORPORATED BY REFERENCE: NONE TABLE OF CONTENTS Page PART I Item 1. Description of Business.......................................... 3 Item 2. Properties.......................................................11 Item 3. Legal Proceedings................................................11 Item 4. Submission of Matters to a Vote of Security Holders..............11 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...................................................11 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operation.............................................15 Item 7. Financial Statements.............................................17 Item 8. Changes and Disagreements with Accountants on Accounting and Financial Disclosure.............................................27 PART III Item 9 . Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act................27 Item 10. Executive Compensation...........................................28 Item 11. Security Ownership of Certain Beneficial Owners and Management...30 Item 12. Certain Relationships and Related Party Transactions.............32 Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K......................................................32 Index to Exhibits................................................33 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. 2 ITEM 1. DESCRIPTION OF BUSINESS General Pacific Alliance Corporation (the "Company") is a Delaware corporation which is currently inactive. The Company was previously engaged in the business of distributing television programming. On June 23, 1995, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code (Case No. BK. No. SV 95-14737 KL). On May 28, 1997 (the "Confirmation Date"), the United States Bankruptcy Court for the Central District of California Confirmed the Company's Modified Plan of Reorganization (the "Plan") and First Amended Disclosure Statement (the "Disclosure Statement"). The Effective Date of the Plan was June 8, 1997. The Company's current business plan calls for it to locate and acquire an operating company. History The Company was organized on April 22, 1986 under the laws of the State of Utah under the name of Kaiser Research, Inc. On December 2, 1994, the Company changed its domicile from the State of Utah to the State of Delaware through a reincorporation merger. In order to effect the reincorporation merger, the Company formed a wholly-owned subsidiary under Delaware law under the name of PACSYND, Inc. After the change of the Company's domicile, it acquired a privately held corporation ("Private PSI") in a merger transaction, and in connection therewith, the Company's name was changed to Pacific Syndication, Inc. After the acquisition of Private PSI in December 1994, and prior to its filing of a Petition under Chapter 11, the Company was engaged in the business of transmitting television programming to television stations and others via satellite or land deliveries on behalf of production companies, syndicators and other distributors of television programming. Although the Private PSI was not the survivor of the Merger, and did not exist after the Merger, pursuant to the accounting requirements of the Securities and Exchange Commission the Merger was treated as a "reverse merger" and, solely for accounting purposes, Private PSI was deemed to be the survivor. Private PSI was formed under the laws of the State of Delaware in December 1991. Private PSI was formed to engage in the business of providing a variety of television industry related services to its clients. Such services included, but were not limited to, video tape duplication, standards conversion and delivery of television programming by way of conventional carriers (such as UPS, Airborne and Federal Express) and by satellite or fiber optic transmission. 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. 3 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. 4. File any tax returns which are in arrears and file all required tax returns and reports which become due in the future. 4 5. Use existing cash of the Company to pay quarterly tax payments and for working capital. 6. Prepare and bring current, the financial statements of the Company 7. Attempt to raise additional cash to be used to fund quarterly tax payments and for working capital. 8. Locate a private-company which is seeking to become a public company by merging with the Company. 9. Assist the Company in completing any merger which is located and which the Board of Directors deems appropriate. 10. Assist the post-merged company with shareholder relations, financial public relations and with attempts to interest a broker-dealer in developing a public market for the Company's common stock so that the Company's shareholders (including creditors whose' debt was converted into shares of the Company's common stock) may ultimately have a opportunity to liquidate their shares for value in market or in privately negotiated transactions. The Plan and Disclosure Statement was confirmed by the Bankruptcy Court on May 28, 1997. The Effective Date of the Plan was June 8, 1997. Post Confirmation Date Activities Since the Confirmation of the Plan of Reorganization the following have occurred: 1. Pre-Confirmation Date non-tax debt in the amount of approximately $1,458,000 was converted into 1,458,005 shares of the Company common stock. 2. The Company completed its audited financial statements for the years ended December 31, 1995, 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 December 31, 2001. 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. 5 6. The Company obtained the preliminary agreement of a registered-broker to make a market in the Company's common stock. 7. The Company filed an application for approval of secondary trading in its common stock with the Division of Securities of the State of Utah. An Order Granting such application was issued by the Utah Division of Securities which was effective through March 31, 1999. 8. The Company prepared and filed Form 10-KSB's for the years ended December 31, 1996 -2000 and with this Form 10-KSB, for the year ended December 31, 2001. 9. Effective February 22, 2000 - the Bankruptcy Court entered an Order of Final Decree closing the Bankruptcy Case. Business Plan The Company's current business plan is to serve as a vehicle for the acquisition of, or the merger or consolidation with another company (a "Target Business"). The Company intends to utilize its limited current assets, equity securities, debt securities, borrowings or a combination thereof in effecting a Business Combination with a Target Business which the Company believes has significant growth potential. The Company's efforts in identifying a prospective Target Business are expected to emphasize businesses primarily located in the United States; however, the Company reserves the right to acquire a Target Business located primarily elsewhere. While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, as a result of its limited resources the Company will, in all likelihood, have the ability to effect only a single Business Combination. The Company may effect a Business Combination with a Target Business which may be financially unstable or in its early stages of development or growth. To the extent the Company effects a Business Combination with a financially unstable company or an entity in its early stage of development or growth (including entities without established records of revenue or income), the Company will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that the Company effects a Business Combination with an entity in an industry characterized by a high level of risk, the Company will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries which experience rapid growth. Although management will endeavor to evaluate the risks inherent in a particular industry or Target Business, there can be no assurance that the Company will properly ascertain or assess all risks. Probable Lack of Business Diversification. As a result of the limited resources of the Company, the Company, in all likelihood, will have the ability to effect only a single Business Combination. Accordingly, the prospects for the Company's success will be entirely dependent upon the future performance of a single business. Unlike certain entities that have the resources to consummate 6 several Business Combinations or entities operating in multiple industries or multiple segments of a single industry, it is highly likely that the Company will not have the resources to diversify its operations or benefit from the possible spreading of risks or offsetting of losses. The Company's probable lack of diversification may subject the Company to numerous economic, competitive and regulatory developments, any or all of which may have a material adverse impact upon the particular industry in which the Company may operate subsequent to consummation of a Business Combination. The prospects for the Company's success may become dependent upon the development or market acceptance of a single or limited number of products, processes or services. Accordingly, notwithstanding the possibility of capital investment in and management assistance to the Target Business by the Company, there can be no assurance that the Target Business will prove to be commercially viable. No Independent Appraisal of Potential Acquisition Candidates. The Company does not anticipate that it will obtain an independent appraisal or valuation of a Target Business. Thus, stockholders of the Company will need to rely primarily upon management to evaluate a prospective Business Combination. However, a Business Combination will not be consummated unless it is approved by the stockholders of the Company Limited Ability to Evaluate Management of a Target Business. The role of the present management of the Company, following a Business Combination, cannot be stated with any certainty. Although the Company intends to scrutinize closely the management of a prospective Target Business in connection with its evaluation of the desirability of effecting a Business Combination with such Target Business, there can be no assurance that the Company's assessment of such management will prove to be correct. While it is possible that certain of the Company's directors or its executive officers will remain associated in some capacities with the Company following consummation of a Business Combination, it is unlikely that any of them will devote a substantial portion of their time to the affairs of the Company subsequent thereto. Moreover, there can be no assurance that such personnel will have significant experience or knowledge relating to the operations of the particular Target Business. The Company also may seek to recruit additional personnel to supplement the incumbent management of the Target Business. There can be no assurance that the Company will have the ability to recruit additional personnel or that such additional personnel will have the requisite skills, knowledge or experience necessary or desirable to enhance the incumbent management. In addition, there can be no assurance that the future management of the Company will have the necessary skills, qualifications or abilities to manage a public company intending to embark on a program of business development. Selection of a Target Business and Structuring of a Business Combination. Management of the Company will have substantial flexibility in identifying and selecting a prospective Target Business within the specified businesses. In evaluating a prospective Target Business, management will consider, among other factors, the following: (i) costs associated with effecting the Business Combination; (ii) equity interest in and opportunity for control of the Target Business; (iii) growth potential of the Target Business; (iv) experience and skill of management and availability of additional personnel of the Target Business; (v) capital requirements of the Target Business; (vi) competitive 7 position of the Target Business; (vii) stage of development of the Target Business; (viii) degree of current or potential market acceptance of the Target Business; (ix) proprietary features and degree of intellectual property or other protection of the Target Business; (x) the financial statements of the Target Business; and (xi) the regulatory environment in which the Target Business operates. The foregoing criteria are not intended to be exhaustive and any evaluation relating to the merits of a particular Target Business will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by management in connection with effecting a Business Combination consistent with the Company's business objectives. In connection with its evaluation of a prospective Target Business, management anticipates that it will conduct a due diligence review which will encompass, among other things, meeting with incumbent management and inspection of facilities, as well as a review of financial, legal and other information which will be made available to the Company. The time and costs required to select and evaluate a Target Business (including conducting a due diligence review) and to structure and consummate the Business Combination (including negotiating relevant agreements and preparing requisite documents for filing pursuant to applicable securities laws and state "blue sky" and corporation laws) cannot presently be ascertained with any degree of certainty. The Company's current executive officers and directors intend to devote only a small portion of their time to the affairs of the Company and, accordingly, consummation of a Business Combination may require a greater period of time than if the Company's management devoted their full time to the Company's affairs. However, each officer and director of the Company will devote such time as they deem reasonably necessary to carry out the business and affairs of the Company, including the evaluation of potential Target Businesses and the negotiation of a Business Combination and, as a result, the amount of time devoted to the business and affairs of the Company may vary significantly depending upon, among other things, whether the Company has identified a Target Business or is engaged in active negotiation of a Business Combination. Any costs incurred in connection with the identification and evaluation of a prospective Target Business with which a Business Combination is not ultimately consummated will result in a loss to the Company and reduce the amount of capital available to otherwise complete a Business Combination or for the resulting entity to utilize. The Company anticipates that various prospective Target Businesses will be brought to its attention from various non-affiliated sources, including securities broker-dealers, investment bankers, venture capitalists, bankers, other members of the financial community and affiliated sources, including, possibly, the Company's executive officer, directors and their affiliates. While the Company has not yet ascertained how, if at all, it will advertise and promote itself, it may elect to publish advertisements in financial or trade publications seeking potential business acquisitions. While the Company does not presently anticipate engaging the services of professional firms that specialize in finding business acquisitions on any formal basis (other than the independent investment banker), the Company may engage such firms in the future, in which event the Company may pay a finder's fee or other compensation. 8 As a general rule, Federal and state tax laws and regulations have a significant impact upon the structuring of business combinations. The Company will evaluate the possible tax consequences of any prospective Business Combination and will endeavor to structure a Business Combination so as to achieve the most favorable tax treatment to the Company, the Target Business and their respective stockholders. There can be no assurance that the Internal Revenue Service or relevant state tax authorities will ultimately assent to the Company's tax treatment of a particular consummated Business Combination. To the extent the Internal Revenue Service or any relevant state tax authorities ultimately prevail in recharacterizing the tax treatment of a Business Combination, there may be adverse tax consequences to the Company, the Target Business and their respective stockholders. Tax considerations as well as other relevant factors will be evaluated in determining the precise structure of a particular Business Combination, which could be effected through various forms of a merger, consolidation or stock or asset acquisition. There currently are no limitations on the Company's ability to borrow funds to effect a Business Combination. However, the Company's limited resources and lack of operating history may make it difficult to borrow funds. The amount and nature of any borrowings by the Company will depend on numerous considerations, including the Company's capital requirements, potential lenders' evaluation of the Company's ability to meet debt service on borrowings and the then prevailing conditions in the financial markets, as well as general economic conditions. The Company does not have any arrangements with any bank or financial institution to secure additional financing and there can be no assurance that such arrangements if required or otherwise sought, would be available on terms commercially acceptable or otherwise in the best interests of the Company. The inability of the Company to borrow funds required to effect or facilitate a Business Combination, or to provide funds for an additional infusion of capital into a Target Business, may have a material adverse effect on the Company's financial condition and future prospects, including the ability to effect a Business Combination. To the extent that debt financing ultimately proves to be available, any borrowings may subject the Company to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest. Furthermore, a Target Business may have already incurred debt financing and, therefore, all the risks inherent thereto. Proposed Change of Control In October, 2001, the Company entered into an agreement with PIL S.A., a Switzerland Corporation, under which PIL S.A. would move to increase the company's capital and bring in new majority shareholders. Total capital to be brought to the Company was to be $500,000 by October 31, 2001, and an additional $500,000 by December 31, 2001, at a rate of $0.20 per share. The various transactions scheduled for completion during the fourth quarter of 2001 have not yet been completed. The Company received $149,898 between October and December 2001. The agreement has not been terminated by either party, and new terms are still being negotiated. 9 Competition The Company expects to encounter intense competition from other entities having business objectives similar to that of the Company. Many of these entities are well established and have extensive experience in connection with identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater financial, technical, human and other resources than the Company and there can be no assurance that the Company will have the ability to compete successfully. The Company's financial resources will be limited in comparison to those of many of its competitors. Further, such competitors will generally not be required to seek the prior approval of their own stockholders, which may enable them to close a Business Combination more quickly than the Company. This inherent competitive limitation may compel the Company to select certain less attractive Business Combination prospects. There can be no assurance that such prospects will permit the Company to satisfy its stated business objectives. 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 10 potential risk factors which shareholders should consider in connection with their voting on the proposed acquisition and a description of the business operations of the acquisition target. Troika and its affiliate will vote all of their shares of the Company's common stock for or against any merger proposal in the same ratio which the shares owned by other shareholders are voted. This will permit other shareholders to be able to effectively determine whether the Company acquires any particular Operating Company. The merger will be effected only if a majority of the other shareholders attending the meeting of shareholders in person and/or by proxy, vote in favor of such proposed merger. The shares of Troika and its affiliates will be included for purposes of determining whether a quorum of shareholders is present at the meeting. Employees As of the date of this Prospectus, the Company has no full time employees. ITEM 2. PROPERTIES The Company's offices are located at 1661 Lakeview Circle, Ogden, UT 84403. The Company, pursuant to an oral agreement, utilizes an office at the residence of Mark A. Scharmann, a stockholder of the Company and the Company's President. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were presented to the Company's Shareholders for a vote during the last quarter of 2001. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS There is no active market for the Company's common stock. The Company's common stock is sporadically traded on a workout basis in the over-the-counter market. Shares Issued in Unregistered Transactions 11 Shares Issued Prior to Confirmation Date Immediately prior to the confirmation of the Company's Plan of Reorganization by the Bankruptcy Court on May 28, 1997, there were a total of 12,594,422 shares of the Company's common stock issued and outstanding. The Plan of Reorganization, called for a 1-for-6 reverse split of the issued and outstanding shares which reduced the 12,594,422 shares to 2,099,125 shares. Shares Issued to Troika Pursuant to the Plan of Reorganization, 5,000,000 shares of the Company's common stock, calculated after the reverse stock split, were issued to Troika Capital Investment. The shares issued to Troika were issued pursuant to Section 4(2) of the Securities Act of 1993, as amended (the "Securities Act"). Shares Issued to Creditors A total 1,458,005 shares of the Company's common stock (calculated after the 1-for-6 reverse stock split) were issued to creditors pursuant to the Plan of Reorganization. In exchange for every $1.00 of Allowed Unsecured Claims (as defined in the Plan of Reorganization) a creditor was issued one share of common stock, one Class A Warrant and One Class B Warrant. Each Class A Warrant entitles the holder to purchase one share of the Company's common stock at $2.50 per share for a period of three years commencing on the Effective Date of the Plan. Class A Warrants expired in 2000 and none were exercised. Each Class B Warrant entitles the holder to purchase one share of the Company's common stock at 5.00 per share for a period of five years commencing on the Effective Date of the Plan. The Effective Date of the Plan was June 8, 1997. The 1,458,005 shares and the Class A and Class B Warrants issued to claim holders, were issued under Section 1145 of the United States Bankruptcy Code (the "Code"). Section 1145 provides that the securities registration requirements of federal, state and local laws do not apply to the offer or sale of securities issued by a debtor (or its successor) if (i) the offer or sale occurs under a plan of reorganization and (ii) the securities are transferred in exchange (or principally in exchange) for a claim against or interest in the debtor. Accordingly, under Section 1145 of the Code, the issuance of common stock in exchange for a Claim against the Company was exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "1933 Act") and from the registration requirements of any state securities laws. Approximately 86 creditors were issued shares in exchange for claims against the Company. Resales or Transfers of Plan Securities. Any person who is not an "underwriter" under Section 1145 of the Code or a "dealer" under the 1933 Act and who transfers shares received under the Plan ("Plan Securities") need not comply with the registration requirements of the 1933 Act or of any state securities laws. The term "underwriter", as used in Section 1145, includes four categories of persons, which are referred to in this Disclosure Statement as "Controlling Persons", "Accumulators", "Distributors" and " Syndicators". "Dealers" and the four types of underwriters are discussed below. 12 a. Controlling Persons. "Controlling Persons" are persons who, after the Effective Date, have the power, whether direct or indirect and whether formal or informal, to control the management and policies of the reorganized debtor. Whether a person has such power depends on a number of factors, including the person's equity in the reorganized debtor relative to other equity holders, and whether the person, acting alone or in concert with others, has a contractual or other relationship giving that person power over management policies and decisions. In order to transfer the Plan Securities without registration, a Controlling Person would be required to comply with the restrictions set forth in SEC Rule 144, other than the holding period requirement set forth in that Rule. The restrictions of Rule 144 are complicated. In general, in order for the resale of Plan Securities by a Controlling Person to be permissible under Rule 144, the Controlling Person must not sell during any three-month period, more than one percent of the Company's common stock (or, if greater, the average weekly report volume of trading in such securities). b. Accumulators and Distributors. "Accumulators" are persons who purchase a Claim against or Interest in the Company with a view to distribution of any Plan Securities to be received under the Plan in exchange for such Claim or Interest. "Distributors" are persons who offer to sell Plan Securities for the holders of those securities. In a 1986 SEC No- Action Letter (Manville Corp.), the SEC staff took the position that resales by Accumulators and Distributors of securities distributed under a plan are exempt from the registration requirements of the 1933 Act if made in "ordinary trading transactions". The SEC staff took the position that a transaction is an ordinary trading transaction if it is made on an exchange or in the over-the-counter market at a time when the issuer is a reporting company under the 1934 Act and does not involve any of the following factors: (i) concerted action by recipients of Plan Securities in connection with the sale of such securities, concerted action by distributors on behalf of one or more such recipients in connection with such sales, or both; (ii) informational documents concerning the offering of the securities prepared or used to assist in the resale of such securities other than this Disclosure Statement and any supplements hereto and documents filed with the SEC by the issuer pursuant to the 1934 Act; or (iii) special compensation to brokers and dealers in connection with the sale of such securities designed as a special incentive to resell such securities, other than compensation that would be paid pursuant to arm's length negotiations between a seller and a broker or dealer, each acting unilaterally, and not greater than the compensation that would be paid for a routine similar-sized sale of a similar issue. c. Syndicators. "Syndicators" are persons who offer to buy Plan Securities from the holders with a view to distribution, under an agreement made in connection with the Plan, with consummation of the Plan or with the offer or sale of securities under the Plan. 13 d. Dealers. "Dealers" are persons who engage either for all or part of their time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities. Section 4(3) of the 1933 Act exempts transactions in the Plan Securities by dealers taking place more than 40 days after the Effective Date. Within the 40-day period after the Effective Date, transactions by dealers who are stockbrokers are exempt from the 1933 Act pursuant to Section 1145 (a) (4) of the Code, as long as the stockbrokers deliver a copy of this Disclosure Statement (and periodic supplements hereto, if any, as ordered by the Court) at or before the time of delivery of Plan Securities to their customers. This requirement specifically applies to trading and other after- market transactions in such securities. In this regard, however, in the 1986 SEC No-Action Letter (Manville Corp.), the staff of the SEC took the position that it would not recommend action if stockbrokers did not comply with the Disclosure Statement delivery requirements of Section 1145 (a) (4) as long as the issuer of the securities was a reporting person under the 1934 Act and was current and timely in its reporting obligations. Shares Issued Subsequent to Confirmation Date As part of the Plan, the Company issued 5,000,000 shares to Troika Capital for $25,000. Subsequent to the Confirmation Date, the Company issued its securities in non-registered transactions pursuant to the exemption provided by Section 4(2) of the Securities Act. The Company did not pay a commission or any finders fees in connection with such transactions. The securities issued in such transactions were as follows: Number of Issued To Shares Date Consideration --------- ------ ---- ------------- Harold Spector 16,000 5/28/98 Consulting services valued at $80 Workout Specialists, Inc. 200,000 6/29/98 Consulting services valued at $1,000 William M. Hynes, II 80,078 9/30/98 These shares were issued to Mr. Hynes as payment in full for $80,077.57 in IRS tax credits transferred to the Company by Mr. Hynes. Mark Scharmann 300,000 2/29/00 Repayment of $15,000 loan from Mark Scharmann William M. Hynes, II 150,000 5/20/00 Consulting Services valued at $15,000 Total: 746,078
14 Shares Issued for Services Those persons who have been serving as the Company's officers and directors since 1996 have been issued shares of common stock for services rendered in lieu of cash compensation. Total compensation shares issued to each of the Company's officers and directors is as follows: Mark A. Scharmann 601,000 Dan Price 32,250 David Knudson 1,033.551 Holders As of March 30, 2001, there were 10,970,009 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 is currently inactive. The Company was previously engaged in the business of distributing television programming. On September 23, 1995, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code (Case No. BK. No. SV 95-14737 KL). On May 28, 1997 (the "Confirmation Date"), the United States Bankruptcy Court for the Central District of California Confirmed the Company's Modified Plan of Reorganization (the "Plan") and First Amended Disclosure Statement (the "Disclosure Statement"). The Effective Date of the Plan was 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. The Plan of Operation of the Company is further described in Item 2 of this Form 10-KSB. Liquidity and Capital Resources As of December 31, 2001, the Company had total assets of $88. Therefore, the Company had no usable cash as of December 31, 2001 and is dependent upon loans and advances from its management and affiliates to fund its expenses 15 pending the completion of an merger or acquisition. As of December 31, 2001, the Company had total liabilities of $527,878 of which $152,154 was for tax liabilities and $149,898 was for a stock subscription received. The Company intends 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, 2001 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 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 Confirmation Date and generated no revenue for the year ended December 31, 2001 or the year ended December 31, 2000. The Company had total expenses of $79,503 for the year ended December 31, 2001. For the year ended December 31, 2000, the Company had no revenue and expenses of $174,164. 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. 16 Inflation The Company does not believe that inflation will negatively impact its business plans. 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. ITEM 7. FINANCIAL STATEMENTS Index to Financial Statements Pacific Alliance Corporation Financial Statements Page Report of Independent Accountants ....................................18 Balance Sheet.........................................................19 December 31, 2001 and 2000 Statements of Operations..............................................20 Years ended December 31, 2001 and 2000 Statements of Stockholders' Deficit...................................21 Years ended December 31, 2001 and December 31, 2000 Statements of Cash Flows..............................................22 Years ended December 31, 2001 and 2000 Notes to Financial Statements.........................................23 17 INDEPENDENT AUDITORS' REPORT To the Stockholders of Pacific Alliance Corporation We have audited the accompanying balance sheets of Pacific Alliance Corporation (a Delaware corporation in the Development Stage) as of December 31, 2001 and 2000, and the related statements of operations, stockholders' deficit, and cash flows for the years then ended and the period from inception of the development stage (December 21, 1995) through December 31, 2001. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pacific Alliance Corporation (a Development Stage Company) as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended and the period from inception of the development stage (December 21, 1995) through December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 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 March 25, 2002 18 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS December 31, 2001 AND 2000 ASSETS 2001 2000 --------- --------- CURRENT ASSETS Cash $ 88 $ 86 --------- --------- TOTAL ASSETS $ 88 $ 86 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accrued interest $ 20,533 $ 18,503 Other accrued expenses 6,538 18,640 Advance from officer, note 6 132,755 171,476 Current portion of tax liabilities, note 2 92,398 88,655 Notes payable, note 4 60,000 50,000 --------- --------- TOTAL CURRENT LIABILITIES 312,224 347,274 LONG TERM LIABILITIES Tax liabilities, note 2 59,756 71,099 Notes payable, note 4 - 30,000 Management compensation liability, note 5 6,000 - Common stock subscription deposit, note 5 149,898 - ---------- --------- TOTAL LIABILITIES 527,878 448,373 ---------- --------- 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 (543,186) (463,683) ----------- --------- TOTAL STOCKHOLDERS' DEFICIT (527,790) (448,287) ----------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 88 $ 86 =========== ========= See independent auditors' report and notes to financial statements. 19 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 From Inception of the Development Stage, December 21, 1995, Through 2001 2000 December 31, 2001 -------------------------------------------- SALES $ - $ - $ - - GROSS MARGIN - - - OPERATING EXPENSES - - - OTHER INCOME (EXPENSES) Professional fees (24,763) (70,312) (160,679) Management compensation, note 5 (6,000) (67,597) (172,679) Other expenses (12,164) (7,538) (25,433) Taxes - - (26,000) Interest expense (36,576) (28,717) (136,325) Loss on investments in securities - - (6,844) Reorganization fees - - (84,301) -------- --------- ---------------- LOSS BEFORE EXTRAORDINARY ITEM (79,503) (174,164) (612,261) EXTRAORDINARY ITEM Gain on forgiveness of tax debt, Note 7 - 69,075 69,075 --------- --------- ---------------- NET LOSS $ (79,503) $(105,089) $ (543,186) ========= ========= ================ BASIC NET LOSS PER SHARE Loss before extraordinary item $ (0.01) $ (0.02) Extraordinary item - 0.01 --------- --------- NET LOSS $ (0.01) $ ( 0.01) ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES 10,735,368 10,325,467 ========= ========= See independent auditors' report and notes to financial statements. 20 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 Accumulated Accumulated Deficit Deficit Shares of Additional Prior After Common Common Paid-in to December December Stock Stock Capital 21, 1995 21, 1995 Total ------------ --------- ----------- ------------ ---------- ------------ Balance at December 21, 1996 12,594,422 $415,500 $ 471,500 $(2,632,447) $ (57,965) $(1,803,412) 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 5,000,000 5,000 20,000 - - 25,000 Issuance of common stock, note 5 216,000 216 864 - - 1,080 Issuance of common stock for IRS claim reduction, note 5 80,078 80 79,998 - - 80,078 Net loss - - - - (300,629) (300,629) ------------ --------- ----------- ------------ ---------- ------------ 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 2,116,801 2,117 194,563 - - 196,680 Net loss - - - - (105,089) (105,089) ------------- --------- ----------- ------------ ---------- ------------ Balance at December 31, 2000 10,970,009 424,371 2,223,472 (2,632,447) (463,683) (448,287) Net loss - - - - (79,503) (79,503) ------------- --------- ----------- ------------ ---------- ------------ Balance at December 31, 2001 10,970,009 $424,371 $2,223,472 $(2,632,447) $(543,186) $ (527,790) ============= ========= =========== ============ ========== ============
See independent auditors' report and notes to financial statements. 21 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED December 31, 2001 AND 2000 From Inception of the Development Stage, December 21, 1995, Through 2001 2000 Dec. 31, 2001 --------- ---------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(79,503) $(105,089) $ (543,186) Adjustment to reconcile net loss to net cash used in operating activities: Loss on investments in securities - - 6,844 Gain on forgiveness of tax debt - (69,075) (69,075) Change in assets and liabilities Decrease in accounts receivable - - 95,841 Increase (decrease) in accrued expenses (10,072) 16,217 55,919 Increase in management compensation liability 6,000 67,597 172,680 Decrease in tax liabilities (7,600) (23,261) (79,390) --------- ---------- ----------------- NET CASH USED IN OPERATING ACTIVITIES (91,175) (113,611) (360,367) --------- ---------- ----------------- 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 - - (2,586) Proceeds from notes payable 10,000 50,000 90,000 Repayment of notes payable (30,000) - (30,000) Advance from officer 89,250 154,030 355,293 Repayment of advance from officer (127,971) (90,335) (220,306) Proceeds from issuance of common stock - - 25,000 Proceeds from common stock subscription 149,898 - 149,898 --------- ---------- ----------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 91,177 113,695 367,299 --------- ---------- ----------------- NET INCREASE IN CASH 2 84 88 CASH AT BEGINNING OF PERIOD 86 2 - --------- ---------- ----------------- CASH AT END OF PERIOD $ 88 $ 86 $ 88 ========= ========== ================= Supplementary disclosures: Interest paid in cash $ 34,546 $ 24,260 $ 103,024 ========= ========== =================
See independent auditors' report and notes to financial statements. 22 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS December 31, 2001 AND 2000 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 December 1991 under the laws of the State of Delaware. It also became a California corporation in 1991. Pacific Syndication, Inc. was engaged in the business of videotape duplication, standard conversion and delivery of television programming. In 1994, Pacific Syndication, Inc. merged with Kaiser Research, Inc. The Company filed a petition for Chapter 11 under the Bankruptcy Code in June 1995. The debtor in possession kept operating until December 21, 1995, when all assets, except cash and accounts receivable, were sold to a third party, Starcom. The purchaser assumed all post-petition liabilities and all obligations collateralized by the assets acquired. In 1997, a reorganization plan was approved by the Bankruptcy Court, and the remaining creditors of all liabilities subject to compromise, excluding tax claims, were issued 1,458,005 shares of the Company's common stock in March 1998, which corresponds to one share for every dollar of indebtedness. Each share of common stock issued was also accompanied by an A warrant and a B warrant (see note 5). The IRS portion of tax liabilities was payable in cash by quarterly installments (see note 2). Repayment of other taxes is still being negotiated. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realizations of assets and the satisfaction of liabilities in the normal course of business. As shown in the December 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 year ended December 31, 2001, the Company funded its disbursements using loans from an officer and proceeds from common stock subscription (see note 5). 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). 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. See independent auditors' report. 23 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS December 31, 2001 AND 2000 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 same as the basic loss per share for the year ended December 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 was payable in quarterly installments of $11,602, final payment due in January 2002. Several payments have not been made and the Company is renegotiating the payment terms. In 2000, the Company entered into a settlement agreement with California EDD which reduced their claim by $69,075, to $7,600, which was paid in 2001 (see note 7). Other tax claim repayment schedules have not yet been set. Interest paid during the year ended December 31, 2001 and 2000 on the IRS liability totaled $0 and $14,641, respectively. 3. INCOME TAXES The Company has loss carryforwards available to offset future taxable income. The total loss carryforwards at December 31, 2001 are estimated at approximately $830,000 and expire between 2013 and 2021. Loss carryforwards are limited in accordance with the rules of change in ownership. A valuation allowance is recorded for the full amount of deferred tax assets of approximately $285,000, which relates to these loss carryforwards, since future profits are indeterminable. The valuation allowance increased by $25,000 during the year ended December 31, 2001. 4. NOTES PAYABLE During the year ended December 31, 2001, the Company collected $10,000 from PIL S.A. (see note 8) under a note payable bearing interest at 10%, with no maturity date. During the year 2001, the Company also repaid $30,000 under a note payable to a minority shareholder. Notes payable to minority shareholders amounted to $50,000 and $80,000 at December 31, 2001 and 2000, respectively. $50,000 of these notes payable was contracted in 2000. These notes bear interest at 10% and are due on demand. Stock options were issued with respect to some of these notes. The stock options matured in 2001, and none were exercised. See independent auditors' report. 24 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS December 31, 2001 AND 2000 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" warrants allowed the purchase of a share of common stock at an exercise price of $2.50 per share. The "A" warrants expired in June 2000 and none were exercised. The class "B" warrants allow the purchase of a share of common stock at an exercise price of $5.00 per share, and the warrants 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. In June 1998, the IRS applied a personal tax refund from a former officer of the Company against the Company's tax liability, reducing it by $80,078. In accordance with an agreement between the management and the former officer, 80,078 shares of common stock were issued to the former officer in exchange for the loss of his personal tax refund. In February 2000, the Company issued 300,000 shares to an officer for repayment of $15,000 in advances the officer loaned to the Company and accrued interest. In May 2000, the Company issued 150,000 shares for repayment of consulting services rendered to the Company from a former officer. These shares were valued at $0.10 per share. Pursuant to the provisions of the modified joint plan of reorganization, Pacific Alliance Corporation compensates its management on an hourly basis at $75 per hour for the time actually devoted to the business of the Company. Payment for services is made through issuance of shares of common stock until such time as the Company's net worth reaches $350,000. According to the modified joint plan of reorganization, the stock issued for services shall be valued at $0.10 per share. During the year ended December 31, 2000, the Company issued 1,666,801 shares of common stock for compensation expense that had been accrued up to December 31, 2000. In 2001, the Company accrued $6,000 of management compensation. Corresponding shares of common stock were not yet issued at December 31, 2001. In October 2001, the Company entered into an agreement under which PIL S.A., would make a capital infusion and bring in new majority shareholders. At December 31, 2001, $149,898 had been received from PIL S.A. as subscription of shares of common stock. The related 750,000 shares were not yet issued at December 31, 2001, but are included in the computation of weighted average number of shares for the purpose of the basic loss per share for the year ended December 31, 2001. See independent auditors' report. 25 PACIFIC ALLIANCE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS December 31, 2001 AND 2000 6. RELATED PARTY An officer of the Company advanced $89,250 to the Company during the year ended December 31, 2001 and $154,030 during the year ended December 31, 2000. The Company repaid $127,971 and $90,335 during the years ended December 31, 2001 and 2000, respectively. Shares of common stock were issued to this officer in 2000 for partial repayment of advances (see note 5). These advances bear interest at 10% and have no maturity date. The balance of advances is $132,755 and $171,476 at December 31, 2001 and 2000, respectively. 7. EXTRAORDINARY ITEM On December 19, 2000, the Employment Development Department of California (EDD) accepted an "Offer in Compromise" in the amount of $7,600 to satisfy in full, all outstanding liabilities due to the EDD by Pacific Alliance Corporation. The balance of the liabilities was $76,675 and an extraordinary gain of $69,075 was recognized. The settlement amount was paid in January 2001. 8. PROPOSED ACQUISITION In October, 2001, the Company entered into an agreement with PIL S.A., a Switzerland Corporation, under which PIL S.A. would move to increase the Company's capital and bring in new majority shareholders. Total capital to be brought to the Company amounted to $500,000 by October 31, 2001, and an additional $500,000 by December 31, 2001, at a rate of $0.20 per share. The various transactions scheduled for completion during the fourth quarter of 2001 have not yet been completed. The Company received $149,898 between October and December 2001. The agreement has not been terminated by either party, and new terms are still being negotiated. See independent auditors' report. 26 ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 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 43 President/Director Dan Price 47 Vice President/Director David Knudson 42 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 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. 27 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 $100,000: 28 SUMMARY COMPENSATION TABLE Annual Compensation ------------------- Commissions Restrict and Other Annual Stock Options/ Name and Principal Bonuses Compensation Awards SAR's Position Year Salary ($) ($) ($) (#) - ------------------------ ---- ------ ----------- ----------- -------- -------- Mark Scharmann (1) 2001 -0- -0- -0- $899 -0- President 2000 -0- -0- -0- $22,450 -0- 1999 -0- -0- -0- $19,025 -0-
(1) Mr. Scharmann was appointed President of the Company on the date of the Conformation of the Plan, June 8, 1997. Stock Options The following table sets forth certain information concerning stock options granted during fiscal 2001 to the named executive officers. Options Grants in the Year Ended December 31, 2001 Percentage Number of of Total Exercise or Securities Options Granted to Base Price Underlying Employees in Per Share Expiration Name Options Granted (#) Fiscal Year ($) Date - ---- ------------------- ---------------- ----------- ---------- Mark Scharmann -0- -0- N/A N/A The following table sets forth information concerning the number and value of options held at December 31, 2001 by each of the named executive officers. No options held by such executive officers were exercised during 2001. Option Values at December 31, 2001 Number of Unexercised Value of Unexercised Options at In-the-Money Options December 31, 2001 (#) At(December 31, 2001($) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Mark Scharmann -0- -0- N/A N/A 29 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, 2001 the Company compensated its officers as follows: Name Compensation Shares to be Issued -------------- ------------ ------------------- Mark Scharmann -0- 8,991 Dan Price -0- -0- David Knudson -0- 51,000 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 March 31, 2002 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. 30 Name Amount and and Address Nature of Percent of of Beneficial Beneficial Class(1) Owner Ownership Ownership - --------------------------------------------- ------------------ --------------- Mark Scharmann(1) 6,050,338 55.15% 1661 Lakeview Circle Ogden, UT 84403 Dan Price(1) 33,250 0.30% 1661 Lakeview Circle Ogden, UT 84403 David Knudson(1) 1,037,218 9.46% 1661 Lakeview Circle Ogden, UT 84403 William M. Hynes, II 230,078 2.10% 11112 Ventura Boulevard Studio City, CA 91602 All Officers and Directors 7,120,806 64.91% as a Group (3 Persons) - --------------------------------------------- ------------------ --------------- Total Shares Issued 10,970,009 100% - --------------------------------------------- ------------------ --------------- (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 The Company will have a change of control of the transaction described in note 8 of the financial statements is completed. 31 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS As part of its Plan of Reorganization, the Company issued 5,000,000 shares of its common stock to Troika Capital in consideration of $25,000 and Troika's agreement to provide an additional $75,000 in equity or debt funding to pay the Company's tax obligations. During 1998, Troika Capital loaned $50,263 to the Company. Such loan is due on demand and bears interest at the rate of 10% per annum. During 1999, Troika Capital loaned $56,250 to the Company. The Company repaid $2,000 during 1999. Such loan is due on demand and bears interest at the rate of 10% per annum. During 2000, Troika Capital loaned $154,030 to the Company. The Company repaid $90,335 during 2000. Such loan is due on demand and bears interest at the rate of 10% per annum. During 2001, Troika Capital loaned $89,250 to the Company. The Company repaid $127,971. during 2001. Such loan is due on demand and bears interest at the rate of 10% per annum The Company's officers and directors were issued shares of the Company's common stock for services rendered during the last three years in the following amounts: Year Officer Shares Issued Value of Services - ---- ----------------- -------------- ----------------- 2001 Mark A. Scharmann -0- $ 899 2001 Dan Price -0- $ -0- 2001 David Knudson -0- $ 5,100 2000 Mark A. Scharmann 262,750 $ 26,275 2000 Dan Price -0- $ -0- 2000 David Knudson 413,226 $ 41,323 1999 Mark A. Scharmann 198,000 $ 19,800 1999 Dan Price -0- $ -0- 1999 David Knudson 447,000 $ 44,700 1998 Mark A. Scharmann 140,250 $ 14,025 1998 Dan Price 32,250 $ 3,250 1998 David Knudson 173,325 $ 17,333 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. 32 B. The Company filed no Form 8-K during the fourth quarter of the fiscal year ended December 31, 2001. 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 33 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Pacific Alliance Corporation Date: April 12, 2002 By: /s/ Mark A. Scharmann Mark A. Scharmann President/Principal Executive Officer Date: April 12, 2002 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 April 12, 2002 - --------------------- Mark A. Scharmann Vice President/Director ___________, 2002 - --------------------- Dan Price /s/ David Knudson Secretary/Treasurer April 12, 2002 - ----------------- Director David Knudson 34 -----END PRIVACY-ENHANCED MESSAGE-----