UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-K

 

| **(Mark One)**                                  |                                                                                         |
|-------------------------------------------------|----------------------------------------------------------------------------------------------|
| x                                               | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| **For the fiscal year ended December 31, 2008** |
| **OR**                                          |
| o                                               | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the transition period from to**           |

 

**Commission file number 000-51777**

 

**PACIFIC ALLIANCE CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**

(State or other jurisdiction of

incorporation or organization)                                                   | **87-0445849**

(I.R.S. Employer

Identification No.) |
|---------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
| **1661 Lakeview Circle**

**Ogden, UT 84403**

**(801) 399-3632**

(Address of principal executive office and telephone number) |

 

**Securities registered pursuant to Section** **12(b) of the Exchange Act: None**

 

**Securities registered pursuant to Section** **12(g) of the Exchange Act:**

 

| **Title of each class** | **Name of each exchange on which registered** |
|-------------------------|-----------------------------------------------|
| Common Stock            | OTCBB                                         |
|                    |                                          |

 

Indicate by check mark if the Registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES o NO x

 

Indicate by check mark whether the Registrant (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 o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

 

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| Large Accelerated Filer o                                        | Accelerated Filer o         |
|-----------------------------------------------------------------------|-----------------------------|
| Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller reporting company x |

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES x NO  o

 

On March 27, 2009, 37,250,450 shares of common stock of the Registrant were outstanding, and the market value of common stock held by non-affiliates was $409,184 (based upon the closing price of $.05 per share of common stock as quoted on the OTC Bulletin Board.

 

***Documents Incorporated by Reference: None***

 

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**PACIFIC ALLIANCE CORPORATION**

**2008 ANNUAL REPORT ON FORM 10-K**

**TABLE OF CONTENTS**

 

|          |                                                                                                         | **Page** |
|---------------|--------------------------------------------------------------------------------------------------------------|----------|
| PART I        |                                                                                                         |
| ITEM 1.       | BUSINESS                                                                                                     | 1        |
| ITEM 1A.      | RISK FACTORS                                                                                                 | 7        |
| ITEM 1B.      | UNRESOLVED STAFF COMMENTS                                                                                    | 7        |
| ITEM 2.  | PROPERTIES                                                                                                   | 7        |
| ITEM 3.  | LEGAL PROCEEDINGS                                                                                            | 7        |
| ITEM 4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          | 7        |
| PART II       |                                                                                                         |
| ITEM 5.  | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 8        |
| ITEM 6.  | SELECTED FINANCIAL DATA                                                                                      | 12       |
| ITEM 7.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        | 16       |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   | 16       |
| ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  | 16       |
| ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         | 16       |
| ITEM 9A. | CONTROLS AND PROCEDURES                                                                                      | 17       |
| ITEM 9B. | OTHER INFORMATION                                                                                            | 18       |
| PART III      |                                                                                                         |
| ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                           | 19       |
| ITEM 11. | EXECUTIVE COMPENSATION                                                                                       | 20       |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               | 21       |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    | 22       |
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       | 24       |
| PART IV       |                                                                                                         |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   | 25       |

 

 

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**PACIFIC ALLIANCE CORPORATION**

**2008 ANNUAL REPORT ON FORM 10-K**

 

This report contains "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. In some            cases, forward-looking statements can be identified by terminology such as "believes," "expects," "may," "will," "should," "anticipates," or "intends" or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.

 

All forward-looking statements, including without limitation, management's examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but, there can be no assurance that management's expectations, beliefs and projections will            result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

 

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report.

 

This report may include information with respect to market share, industry conditions and forecasts that we obtained from internal industry research, publicly available information (including industry publications and surveys), and surveys and market research provided by consultants. The publicly available information and the reports, forecasts and other research provided by consultants generally            state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, our internal research and forecasts are based upon our management's understanding of industry conditions, and such information has            not been verified by any independent sources.

 

For convenience in this report, the terms “Pacific,” “Company,” “our,” “us” or “we” may be used to refer to Pacific Alliance Corporation.

 

**PART I**

 

**ITEM 1. BUSINESS**

 

**General**

 

Pacific Alliance Corporation (the “Company”) is a Delaware corporation which is currently inactive. The Company was previously engaged in the business of distributing television programming. On June 23, 1995, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code (Case No. BK. No. SV 95-14737 KL). On May 28, 1997 (the “Confirmation Date”), the            United States Bankruptcy Court for the Central District of California Confirmed the Company’s Modified Plan of Reorganization (the “Plan”) and First Amended Disclosure Statement (the “Disclosure Statement”). The Effective Date of the Plan was June 8, 1997. The Company’s current business plan calls for it to locate and acquire an operating company. Currently, we are a "shell" company conducting virtually no business operation, other than our            efforts to seek merger partners or acquisition candidates. We have no full time employees and own no real estate.

 

 

1

 

 

 

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**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.

 

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. |
|--------|--------|----------------------------------------------------------------------------------------------|
|   |   |                                                                                         |

 

 

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|   | 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 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 has audited financial statements for the years ended December 31, 1995 through 2008.                                                                               |
|   |   |                                                                                                                                                                           |
|   | 3.     | Tax liabilities to the Internal Revenue Service are approximately $293,448 as of December 31, 2008.                                                                            |
|   |   |                                                                                                                                                                           |
|   | 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.                                                                                                                  |
|   |   |                                                                                                                                                                           |

 

 

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|   | 6.     | The Company’s common stock is now quoted on the OTC Bulletin Board under the trading symbol PALC.                                                                                                                                                                   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                      |
|   | 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 has prepared and filed its quarterly and annual reports for the years ended December 31, 1996 through 2008.                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                      |
|   | 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 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.

 

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*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 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.

 

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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.

 

As a general rule, Federal and state tax laws and regulations have a significant impact upon the structuring of business combinations. The Company will evaluate the possible tax consequences of any prospective Business Combination and will endeavor to structure a Business Combination so as to achieve the most favorable tax treatment to the Company, the Target Business and their respective            stockholders. There can be no assurance that the Internal Revenue Service or relevant state tax authorities will ultimately assent to the Company’s tax treatment of a particular consummated Business Combination. To the extent the Internal Revenue Service or any relevant state tax authorities ultimately prevail in recharacterizing the tax treatment of a Business Combination, there may be adverse tax consequences to the Company, the Target Business and their respective            stockholders. Tax considerations as well as other relevant factors will be evaluated in determining the precise structure of a particular Business Combination, which could be effected through various forms of a merger, consolidation or stock or asset acquisition.

 

There currently are no limitations on the Company’s ability to borrow funds to effect a Business Combination. However, the Company’s limited resources and lack of operating history may make it difficult to borrow funds. The amount and nature of any borrowings by the Company will depend on numerous considerations, including the Company’s capital requirements, potential            lenders’ evaluation of the Company’s ability to meet debt service on borrowings and the then prevailing conditions in the financial markets, as well as general economic conditions. The Company does not have any arrangements with any bank or financial institution to secure additional financing and there can be no assurance that such arrangements if required or otherwise sought, would be available on terms commercially acceptable or otherwise in the best interests of the            Company. The inability of the Company to borrow funds required to effect or facilitate a Business Combination, or to provide funds for an additional infusion of capital into a Target Business, may have a material adverse effect on the Company’s financial condition and future prospects, including the ability to effect a Business Combination. To the extent that debt financing ultimately proves to be available, any borrowings may subject the Company to various risks traditionally            associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest. Furthermore, a Target Business may have already incurred debt financing and, therefore, all the risks inherent thereto.

 

**Competition**

 

The Company expects to encounter intense competition from other entities having business objectives similar to that of the Company. Many of these entities are well established and have extensive experience in connection with identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater financial, technical, human and other resources than            the Company and there can be no assurance that the Company will have the ability to compete successfully. The Company’s financial resources will be limited in comparison to those of many of its competitors. Further, such competitors will generally not be required to seek the prior approval of their own stockholders, which may enable them to close a Business Combination more quickly than the Company. This inherent competitive limitation may compel the Company to select certain            less attractive Business Combination prospects. There can be no assurance that such prospects will permit the Company to satisfy its stated business objectives.

 

**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.

 

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**Certain Securities Laws Considerations**

 

Under the Federal securities laws, public companies must furnish stockholders certain information about significant acquisitions, which information may require audited financial statements for an acquired company with respect to one or more fiscal years, depending upon the relative size of the acquisition. Consequently, the Company will only be able to effect a Business Combination with a            prospective Target Business that has available audited financial statements or has financial statements which can be audited.

 

**Shareholder Approval**

 

The Company will not effect any merger unless it first obtains approval from its shareholders. In connection with obtaining shareholder approval of a proposed merger, the Company will distribute a Proxy, Notice of Meeting of Stockholders and Proxy Statement which contains information about the proposed acquisition transaction. Such information will likely include audited financial statements and            other financial information about the acquisition target which meets the requirements of Form 8-K as promulgated under the Securities Exchange of 1934, as amended, resumes of potential new management, description of potential risk factors which shareholders should consider in connection with their voting on the proposed acquisition and a description of the business operations of the acquisition target.

 

Troika and its affiliate will vote all of their shares of the Company’s common stock for or against any merger proposal in the same ratio which the shares owned by other shareholders are voted. This will permit other shareholders to be able to effectively determine whether the Company acquires any particular Operating Company. The merger will be effected only if a majority of the other            shareholders attending the meeting of shareholders in person and/or by proxy, vote in favor of such proposed merger. The shares of Troika and its affiliates will be included for purposes of determining whether a quorum of shareholders is present at the meeting.

 

**Employees**

 

|   | As of the date of this filing, the Company has no full time employees. |
|--------|------------------------------------------------------------------------|

 

**ITEM 1A. RISK FACTORS**

|   | We are a smaller reporting company and not required to provide the information required by this item. |
|--------|-------------------------------------------------------------------------------------------------------|

 

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

As of December 31, 2008, we did not have any unresolved comments with the staff of the Securities and Exchange Commission.

**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**

As of December 31, 2008, we were not involved in any legal proceedings.

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

No matters were submitted to a vote of stockholders of the Company during the fourth quarter of the fiscal year ended December 31, 2008.

 

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**PART II**

**ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

The Company’s common stock is quoted on the OTC Bulletin Board under the trading symbol PALC. There currently is no active market for the Company’s common stock. Trading in the Company’s common stock is sporadically and trades are made on a workout basis with the market maker.

 

| **Fiscal year ended December 31,** | **High** |   | **Low** |
|------------------------------------|----------|--------|---------|
|                               |     |   |
| **2008**                           |     |   |
| Fourth Quarter                     | $0.20    | $0.07  |
| Third Quarter                      | $0.10    | $0.10  |
| Second Quarter                     | $0.10    | $0.06  |
| First Quarter                      | $0.06    | $0.03  |
|                               |     |   |
| **2007**                           |     |   |
| Fourth Quarter                     | $0.07    | $0.03  |
| Third Quarter                      | $0.09    | $0.09  |
| Second Quarter                     | ND*      | $ND*   |
| First Quarter                      | $0.09    | $0.07  |
|                               |     |   |
| **2006**                           |     |   |
| Fourth Quarter                     | $0.08    | $0.07  |
| Third Quarter                      | $0.09    | $0.09  |
| Second Quarter                     | ND*      | ND*    |
| First Quarter                      | $0.09    | $0.08  |

 

* No trading activity during period

 

The closing price of our common stock on the OTCBB on March 27, 2009 was $0.05 per share. As of March 27, 2009, there were approximately 149 holders of record of our common stock and 37,250,450 shares of common stock outstanding based on information provided by our transfer agent, Fidelity Transfer Company, 8915 S. 700 E. Suite 102, Sandy UT 84070.

**Dividends**

We have not paid any dividends on our common stock since our inception and do not anticipate paying any dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements,            business prospects and other factors our Board of Directors deems relevant.

 

8

 

 

 

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**Shares Issued in Unregistered Transactions in 2008, 2007 and 2006**

 

We issued shares of our common stock periodically to our officers and directors in unregistered transactions during 2008, 2007 and 2006. All of the following shares of common stock issued were issued in non registered transactions in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). The shares of common stock issued were as follows:

 

|  

**Issued To** | **Number of**

**Shares** |  

**Date** |  

**Consideration**      |
|-----------------------|---------------------------|------------------|--------------------------------|
| Mark A. Scharmann     | 97,500                    | 3/31/08          | Compensation valued at $9,750  |
| Dan Price             | 7,500                     | 3/31/08          | Compensation valued at $750    |
| David Knudson         | 61,500                    | 3/31/08          | Compensation valued at $6,150  |
| Mark A. Scharmann     | 82,500                    | 6/30/08          | Compensation valued at $8,250  |
| Dan Price             | 4,500                     | 6/30/08          | Compensation valued at $450    |
| David Knudson         | 67,500                    | 6/30/08          | Compensation valued at $6,750  |
| Mark A. Scharmann     | 54,000                    | 9/30/08          | Compensation valued at $5,400  |
| David Knudson         | 57,750                    | 9/30/08          | Compensation valued at $5,775  |
| Mark A. Scharmann     | 87,750                    | 12/31/08         | Compensation valued at $8,775  |
| Dan Price             | 5,250                     | 12/31/08         | Compensation valued at $525    |
| David Knudson         | 62,700                    | 12/31/08         | Compensation valued at $6,270  |
| Mark A. Scharmann     | 22,500                    | 3/31/07          | Compensation valued at $2,250  |
| David Knudson         | 41,100                    | 3/31/07          | Compensation valued at $4,110  |
| Mark A. Scharmann     | 25,500                    | 6/30/07          | Compensation valued at $2,550  |
| Dan Price             | 95,250                    | 6/30/07          | Compensation valued at $9,525  |
| David Knudson         | 6,000                     | 6/30/07          | Compensation valued at $600    |
| Mark A. Scharmann     | 28,500                    | 9/30/07          | Compensation valued at $2,850  |
| David Knudson         | 47,700                    | 9/30/07          | Compensation valued at $4,770  |
| Mark A. Scharmann     | 115,500                   | 12/31/07         | Compensation valued at $11,550 |
| Dan Price             | 174,000                   | 12/31/07         | Compensation valued at $17,400 |
| David Knudson         | 22,500                    | 12/31/07         | Compensation valued at $2,250  |
| Mark A. Scharmann     | 78,750                    | 3/31/06          | Compensation valued at $7,875  |
| David Knudson         | 144,450                   | 3/31/06          | Compensation valued at $14,445 |
| Mark A. Scharmann     | 54,000                    | 6/30/06          | Compensation valued at $5,400  |
| Dan Price             | 22,500                    | 6/30/06          | Compensation valued at $2,250  |
| David Knudson         | 141,450                   | 6/30/06          | Compensation valued at $14,145 |
| Mark A. Scharmann     | 26,250                    | 9/30/06          | Compensation valued at $2,625  |
| David Knudson         | 49,050                    | 9/30/06          | Compensation valued at $4,905  |
| Mark A. Scharmann     | 20,000,000                | 12/19/06         | $100,000 of outstanding notes  |
| Mark A. Scharmann     | 20,250                    | 12/31/06         | Compensation valued at $2,025  |
| Dan Price             | 9,000                     | 12/31/06         | Compensation valued at $900    |
| David Knudson         | 57,150                    | 12/31/06         | Compensation valued at $5,715  |
| TOTAL                 |                      |             |                           |

 

**Shares Issued in Unregistered Transactions Prior to 2006**

 

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.

 

9

 

 

 

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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.

 

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:

 

10

 

 

 

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(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.

 

d.         *Dealers*. “Dealers” are persons who engage either for all or part of their time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities. Section 4(3) of the 1933 Act exempts            transactions in the Plan Securities by dealers taking place more than 40 days after the Effective Date. Within the 40-day period after the Effective Date, transactions by dealers who are stockbrokers are exempt from the 1933 Act pursuant to Section 1145 (a) (4) of the Code, as long as the stockbrokers deliver a copy of this Disclosure Statement (and periodic supplements hereto, if any, as ordered by the Court) at or before the time of delivery of Plan Securities to their customers.            This requirement specifically applies to trading and other after-market transactions in such securities. In this regard, however, in the 1986 SEC No-Action Letter (Manville Corp.), the staff of the SEC took the position that it would not recommend action if stockbrokers did not comply with the Disclosure Statement delivery requirements of Section 1145 (a) (4) as long as the issuer of the securities was a reporting person under the 1934 Act and was current and timely in its reporting            obligations.

 

Shares Issued Subsequent to Confirmation Date

 

As part of the Plan, the Company issued 5,000,000 shares to Troika Capital for $25,000. Subsequent to the Confirmation Date, the Company issued its securities in non-registered transactions pursuant to the exemption provided by Section 4(2) of the Securities Act. The Company did not pay a commission or any finders fees in connection with such transactions. In addition to the following            transactions, we issued shares to management for services (See Item 12 of this Form 10-KSB). The securities issued in such transactions were as follows:

 

|  

**Issued To**     | **Number of**

**Shares** |  

**Date** |  

**Consideration**                                                                                                           |
|---------------------------|---------------------------|------------------|-------------------------------------------------------------------------------------------------------------------------------------|
| Harold Spector            | 16,000                    | 5/28/98          | Consulting services valued at $80                                                                                                   |
| Workout Specialists, Inc. | 200,000                   | 6/29/98          | Consulting services valued at $1,000                                                                                                |
| William M. Hynes, II      | 80,078                    | 9/30/98          | These shares were issued to Mr. Hynes as payment in full for $80,077.57 in IRS tax credits transferred to the Company by Mr. Hynes. |
| Mark Scharmann            | 300,000                   | 2/29/00          | Repayment of $15,000 loan from Mark Scharmann                                                                                       |
| William M. Hynes, II      | 150,000                   | 5/20/00          | Consulting Services valued at $15,000                                                                                               |
| Michael Harrop            | 187,500                   | 8/7/02           | Consulting Services valued at $18,750                                                                                               |
| PIL S.A.                  | 1,250,000                 | 6/28/02          | $249,871                                                                                                                            |
| Northcliffe Consulting    | 1,000,000                 | 2/24/04          | Consulting Services value at $10,000                                                                                                |

 

 

11

 

 

 

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| William M. Hynes, II | 250,000    | 2/24/04  | Consulting Services valued at $2,500               |
|----------------------|------------|----------|----------------------------------------------------|
| PIL S.A.             | 100,000    | 5/14/04  | $19,978                                            |
| Mark Scharmann       | 20,000,000 | 12/19/06 | Repayment of $100,000 of notes owed Mark Scharmann |
| Total:               | 23,533,578 |     |                                               |

 

Shares Issued for Services from 1997 to December 31, 2008

 

Those persons who have been serving as the Company’s officers and directors since 1996 have periodically been issued shares of common stock for services rendered in lieu of cash compensation. Aggregate compensation shares issued to each of the Company’s officers and directors over the term of the period specified above are as            follows:         

 

|   | Mark A. Scharmann | 1,758,776 |
|--------|-------------------|-----------|
|   | Dan Price         | 114,525   |
|   | David Knudson     | 3,286,441 |

 

**Limitation on Directors’ Liability, Charter Provisions and Other Matters**

Delaware law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors’ fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors must exercise an informed business judgment based on all material information reasonably available to            them. Absent the limitations authorized by Delaware law, directors are accountable to corporations and their stockholders for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. Delaware law enables corporations to limit available relief to equitable remedies such as injunction or rescission. Our Certificate of Incorporation limits the liability of our directors to us or to our stockholders (in their capacity as directors but not in            their capacity as officers) to the fullest extent permitted by Delaware law.

The inclusion of this provision in the Certificate of Incorporation may have the effect of reducing the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited the Company and its stockholders.

Our Bylaws provide indemnification to our officers and directors and certain other persons with respect to certain matters. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to our directors and officers, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act            and is, therefore, unenforceable.

**ITEM 6. SELECTED FINANCIAL DATA**

The Company is a “Smaller Reporting Company” as defined under §229.10(f)(1) of Regulation S-K and is not required to provide the information required by this Item.

**ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Overview**

 

The Company is currently inactive. Our current business plan calls for us to locate and acquire an operating company. Currently, we are a "shell" company conducting virtually no business operation, other than our efforts to seek merger partners or acquisition candidates. We have no full time employees and own no real estate.

 

We were previously engaged in the business of distributing television programming. On September 23, 1995, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code (Case No. BK. No. SV 95-14737 KL). On May 28, 1997 (the “Confirmation Date”), the United States Bankruptcy Court for the Central District of California Confirmed the Company’s Modified            Plan of Reorganization (the “Plan”) and First Amended Disclosure Statement (the “Disclosure Statement”). The Effective Date of the Plan was June 8, 1997. On February 23, 2000, United States Bankruptcy Judge Kathleen T. Lax entered a “Final Decree Order Pursuant to Bankruptcy Code Section 350”, and thereby issued a final decree closing the bankruptcy case. The claim by the Internal Revenue Service was not discharged by the Final Decree Order.

 

 

12

 

 

 

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Our Plan of Operation is further described in Item 1 of this Form 10-K.

 

***Forward Outlook and Risks***

 

This periodic report contains and incorporates by reference certain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to results of our operations and businesses. All statements, other than statements of historical facts, included in this periodic report, including those regarding market trends, our            financial position, business strategy, projected costs, and plans and objectives of management for future operations, are forward-looking statements. In general, such statements are identified by the use of forward- looking words or phrases including, but not limited to, “intended,” “will,” “should,” “may,” “expects,” “expected,” “anticipates,” and “anticipated” or the negative thereof or            variations thereon or similar terminology. These forward-looking statements are based on our current expectations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, our actual results could differ materially. Important factors that could cause actual results to differ materially from our            expectations are disclosed hereunder and elsewhere in this Form 10-K. These forward-looking statements represent our judgment as of the date of this Form 10-K. All subsequent written and oral forward-looking statements attributable to Pacific Alliance are expressly qualified in their entirety by the Cautionary Statements. We disclaim, however, any intent or obligation to update our forward-looking statements.

 

***Plan of Operation***

 

Our current plan of operation is to acquire another operating company. It is likely that any acquisition will be a “reverse merger” acquisition whereby we acquire a larger company by issuing shares of our common stock to the shareholders of the larger company. Although we would be the surviving or parent company from a corporate law standpoint, the shareholders of the larger company            would be our controlling shareholders 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 us 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 we are able to acquire another company, there can be no assurance that we will ever operate at a            profit.

 

***Results of Operations***

 

We have not conducted any active operations since our Confirmation Date and generated no revenue during the fiscal year ended December 31, 2008. We anticipate that we will not generate any revenues until we acquire or merge with another company.

 

We had selling general and administrative (“SG&A) expenses of $166,682 for the year ended December 31, 2008 compared to $124,921 for the year ended December 31, 2007, an increase of $41,761 . Our SG&A expenses consist of mainly of management compensation ($58,845) taken in the form of restricted common stock valued at $0.10 per share; professional fees expenses ($73,164) associated            with legal and accounting necessary to meet our public company disclosure obligations; rent ($6,000) and travel expenses ($19,783) associated with our search for a potential acquisition partner. We had tax penalty and interest expense associated liability prior to the Plan of $14,576 for both the years ended December 31, 2008 and 2007. Our total interest expense associated with money we have borrowed from affiliates to finance our operations was $56,534 for the year ended December            31, 2008 compared to $46,477 for the year ended December 31, 2007. As a result, our total operating expenses were $237,792 and $185,974 for the years ended December 31, 2008 and 2007, respective.

 

***Liquidity and Capital Resources***

 

As of December 31, 2008, our total assets consisted of $143 in cash. Because we have limited cash, we are dependent upon additional loans and advances from our management and others to fund our operating expenses pending the completion of a merger or acquisition. As of December 31, 2008, we had total liabilities of $1,115,801 of which $351,707 related to tax

 

13

 

 

 

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liabilities incurred in prior to the Chapter 11 Plan of Reorganization. At December 31, 2008, a total of $606,145 of our liabilities related to funds borrowed by us from our management and others. This number represents an increase of $105,117 since December 31, 2007.

 

In the event we are able to locate an acquisition candidate, we anticipate that some or all our debt to management and others will be converted into additional shares of common stock. The conversion price, if a conversion of debt was to occur, of which there can be no assurance, has not been established.

 

We intend to continue paying for various filing fees and professional fees relating to our reporting obligations and to fund the costs which may arise from seeking new business opportunities by borrowing funds from our management and others.

 

Because all business operations have been terminated, we have taken steps to minimize our operational expenses. We have no source of revenue and it is likely that we will be required to raise additional capital in order to attract a potential acquisition partner. We do not know how much additional capital will be required and if our capital requirements will exceed the financial resources of our            management or others that have advanced funds for our operations. We may seek alternatives sources for financing. In either case, we can give no assurance that we will be able to raise sufficient additional capital to continue as a shell company. It is also likely that any future acquisition will be made through the issuance of shares of our common stock which will result in the dilution of the percentage ownership of the current shareholders.

 

The auditors’ report included with our Annual Report on Form 10-K for the year ended December 31, 2008 contains a going concern qualification, which provides that our ability to continue as a going concern is dependent upon it raising additional capital. We will continue to be an inactive company unless and until we raise additional capital and acquire an operating company. There can be no            assurance that either will occur.

 

***Critical Accounting Policies***

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the Company’s Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. We have terminated our previous operations and such operations are treated as discontinued operations for financial statement purposes.

 

We anticipate that in the future, the preparation of our financial statements will require management to make estimates and assumptions that will affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,            management will evaluate its estimates and assumptions, including those related to inventory, income taxes, revenue recognition and restructuring initiatives. We anticipate that management will base its estimates and judgments on historical experience of the operations we may acquire and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that            are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Management believes the following critical accounting policies, among others, will affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements following the completion of an acquisition:

 

Inventory. The Company will be required to reduce the stated value of its inventory for obsolescence or impairment in an amount equal to the difference between the cost of the inventory and the estimated market value, based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional            reductions in stated value may be required.

 

Income Taxes. In determining the carrying value of the Company’s net deferred tax assets, the Company will be required to assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the            valuation allowance, resulting in an income tax benefit in the Company’s Statements of Operations. Management will be required to evaluate the realizability of the deferred tax assets and assesses the valuation allowance quarterly.

 

14

 

 

 

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Goodwill and Other Long-Lived Asset Valuations. In June 2001, the FASB issued SFAS 141, “Business Combinations”, and SFAS 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001 with early adoption permitted for companies with fiscal years beginning after March 15, 2001. We currently have no intangible assets. At such            time as we have intangible assets, we will adopt the new rules on accounting for goodwill and other intangible assets, Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives.

 

Revenue Recognition. At such time as we have revenues from operations, we will adopt revenue recognitions policies consistent with generally acceptable accounting standards.

 

Stock-Based Compensation. Equity securities issued for services rendered have been accounted for at the fair market value of the securities on the date of authorization. On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense based on estimated fair values            for all share-based payments to employees and Directors, including employee stock options and stock purchases related to our employee stock option and award plans. SFAS 123(R) supersedes our previous accounting under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in the fiscal year ended December 31, 2006. In March 2005, the SEC issued Staff Accounting Bulletin No.            107 (“SAB 107”) relating to SFAS 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R). We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our fiscal year ended December 31, 2006. SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The            value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Statement of Operations. Under SFAS 123(R), stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At December 31, 2008, we have no outstanding options or warrants, nor were any options or warrants granted during the            fiscal year then ended. Therefore we did not recognize any stock-based compensation expense under SFAS 123(R) for the reporting period.

 

***Interest Rate Risk***

 

We currently have debt and will undoubtedly incur debt to finance our operations. We anticipate that a substantial amount of our future debt and the associated interest expense will be subject to changes in the level of interest rates. Increases in interest rates would result in incremental interest expense.

 

***Off-Balance Sheet Arrangements***

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

***Contractual Obligations and Commitments***

 

Except for the payment of accrued management compensation, accrued taxes, rent and other payables, all of which are described in the financial statements attached hereto, we have no contractual commitments or obligations.

 

***Inflation***

 

|   | The Company does not believe that inflation will negatively impact its business plans. |
|--------|----------------------------------------------------------------------------------------|

 

 

 

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**Recent Accounting Pronouncements**

In December 2007, the FASB issued SFAS 141(R), *Business Combinations*, an amendment of SFAS 141, which provides additional guidance on business combinations including defining the acquirer, recognizing and measuring the identifiable assets acquired and the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS Nos. 141(R) is scheduled to become effective for us for            financial statements issued for fiscal year 2009. We are currently evaluating the effects, if any, that this statement will have on our future financial position, results of operations and operating cash flows.

 

In December 2007, the FASB issued SFAS 160, *Noncontrolling Interests in Consolidated Financial Statements*, which amended ARB 51, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is scheduled to become effective for us for financial statements issued for fiscal year 2009. We are currently            evaluating the effects, if any, that this statement will have on our future financial position, results of operations and operating cash flows.

 

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity            uses derivative instruments, how the instruments are accounted for under SFAS No. 133 and its related interpretations, and how the instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (fiscal year 2009 for the Company). The Company is currently evaluating the potential            impact of the adoption of SFAS No. 161 on its disclosures in the Company's financial statements.

 

In May of 2008, the FASB issued Statement No. 162, *“The Hierarchy of Generally Accepted Accounting Principles.”*  This statement identifies literature established by the FASB as the source for accounting principles to be applied by entities which prepare financial statements presented in conformity with generally accepted accounting principles (GAAP) in the United States.             This statement is effective 60 days following approval by the SEC of the Public Company Accounting Oversight Board amendments to AU Section 411, *“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”*  This statement will require no changes in the Company’s financial reporting practices.

 

In May of 2008 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 163, *“Accounting for Financial Guarantee Insurance – an interpretation of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises”.*  This statement requires that an insurance enterprise recognize a claim liability prior to an            event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation.  This statement also clarifies how Statement 60 applies to financial guarantee insurance contracts.  This statement is effective for fiscal years beginning after December 15, 2008.  This statement has no effect on the Company’s financial reporting at this time.

 

**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

The Company is a “Smaller Reporting Company” as defined under §229.10(f)(1) of Regulation S-K and is not required to provide this Item.

 

**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

Our financial statements required by this item are included on the pages immediately following the Index to Financial Statements appearing on page F-1

 

**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

There have been no changes in our independent accountants, Spector, Wong & Davidian, LLP, or disagreements with them on matters of accounting or financial disclosure.

 

16

 

 

 

----

**ITEM 9A. CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our            management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the            cost-benefit relationship of possible controls and procedures.

 

As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the            end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and our principal financial officer, concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable assurance level.

 

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

17

 

 

 

----

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

We are responsible for the preparation and integrity of our published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include amounts based on judgments and estimates made by our management. We also prepared the other information included in the annual report and are            responsible for its accuracy and consistency with the financial statements.

 

We are responsible for establishing and maintaining a system of internal control over financial reporting, which is intended to provide reasonable assurance to our management and Board of Directors regarding the reliability of our financial statements. The system includes but is not limited to:

 

|   | **•** | a documented organizational structure and division of responsibility; |
|--------|------------|-----------------------------------------------------------------------|

 

|   | **•** | established policies and procedures, including a code of conduct to foster a strong ethical climate which is communicated throughout the company; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | regular reviews of our financial statements by qualified individuals; and |
|--------|------------|---------------------------------------------------------------------------|

 

|   | **•** | the careful selection, training and development of our people. |
|--------|------------|----------------------------------------------------------------|

 

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Also, the effectiveness of an internal control system may change over time. We have implemented a system of internal control that was designed to provide reasonable assurance regarding the reliability of financial reporting            and the preparation of financial statements in accordance with generally accepted accounting principles.

 

We have assessed our internal control system in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based upon these criteria, we believe that, as of December 31, 2008, our system of internal control over financial reporting            was effective.

 

***Attestation Report of the Registered Public Accounting Firm***

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only            management’s report in this annual report.

 

**ITEM 9B. OTHER INFORMATION**

 

|   | None. |
|--------|-------|

 

 

18

 

 

 

----

**PART** **III**

**Item 10. Directors, Executive Officers and Corporate Governance**

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 | 50     | President/Director           |
| Dan Price      | 54     | Vice President/Director      |
| David Knudson  | 49     | Secretary/Treasurer/Director |

 

 

Mark Scharmann. Mr. Scharmann has been a private investor and business consultant since 1981. Mr. Scharmann became involved in the consulting business following his compilation and editing in 1980 of a publication called Digest of Stocks Listed on the Intermountain Stock Exchange. In 1981 he compiled and edited an 800 page publication called the OTC Penny Stock Digest. Mr.            Scharmann has rendered consulting services to public and private companies regarding reverse acquisition transactions and other matters. Mr. Scharmann was vice president of OTC Communications, Inc. from March 1984 to January 1987. From 1982 to 1996, he was the president of Royal Oak Resources Corporation. In 1996, Royal Oak Resources completed and acquisition and in connection therewith changed its name to Hitcom Corporation. Mr. Scharmann was the President of Norvex, Inc., a blank            check company which completed an acquisition and in connection therewith, changed its name to Capital Title. Mr. Scharmann is a promoter of Nightingale, Inc., a publicly-held corporation blank check company. He has also been an officer and director of several other blind pool companies.

 

Dan O. Price. Since February 2001, Mr. Price has been working as an Enrollment Counselor for the University of Phoenix. From 1998 to October 2000, Mr. Price worked as an evaluator at Learning Technics, Kirkland, WA and Salt Lake City, UT. From 1993 to 1998, Mr. Price served as Vice-President of Corporate Development for Troika Capital Investment. Prior to that, Mr. Price worked for seven            (7) years as the National Sales Director for a business providing electronic bankcard processing and other merchant services. For four (4) years he worked as an Organizational Manager involved in direct sales of educational material, with 50 sales people in the western states under his management. Mr. Price has been in sales and marketing for twenty (20) years and sales management and business management for fifteen (15) years. Mr. Price received his B.A. from Weber State College in            1983. He has served as an officer and director on two (2) small publicly traded companies.

 

           David Knudson. Mr. Knudson has worked as a business consultant since 1985. He earned his B.S. Degree in Finance from Weber State College in 1984 and a B.S. Degree in Information Systems and Technologies at Weber State University in 1996. He has been an officer and director of several small publicly-held “blind-pool” companies. Mr. Knudson            was also employed as an adjunct professor and from 1992 to 1996 was employed as a computer information systems consultant at Weber State University. Mr. Knudson is an officer and director of Nightingale, Inc., an inactive publicly-held corporation.

 

Significant Employees. None.

 

Family Relationships. There are no family relationships among the Company’s officers and directors.

 

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.

 

19

 

 

 

----

***Corporate Governance***

The Board of Directors is elected by and is accountable to the shareholders of the Company.  The Board establishes policy and provides strategic direction, oversight, and control of the Company.  The Board met one time during the year ended December 31, 2008.  All directors attended 100% of the meetings of the Board. The Board has no separate audit, compensation, nominating or other            committees.\

**Code of Ethics**

 

We have not yet adopted a code of ethics that applies to all executive officers, directors and employees of the Company, but will do so prior to commencing business operations.

 

**Audit Committee Financial Expert**

 

   Our audit committee consists of Mark A. Scharmann and David Knudson. David Knudson, our secretary/treasurer and principal accounting officer has been designated as our financial expert. We anticipate that we will add additional independent members to our audit committee and designate an independent financial expert at such time as we complete an acquisition.

 

**Item 11. Executive Compensation**

The following Summary Compensation Table shows compensation paid to our Chief Executive Officer for each of the past three years.

 

**Summary Compensation Table**

 

|  

**Current**

**Officers**

**Name &****Principal Position** |   | **Year** |   | **Salary****($)** |   | **Bonus****($)** |   | **Stock****($)(1)** |   | **Option Awards****($)** |   | **Non-Equity****Incentive Plan****Compensation****($)** |   | **Nonqualified Deferred****Compensation****Earnings ($)** |   | **All Other****Compensation ($)** |   | **Total****($)** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------------|--------|------------------|--------|---------------------|--------|--------------------------|--------|---------------------------------------------------------|--------|-----------------------------------------------------------|--------|-----------------------------------|--------|------------------|

 

 

| M. Scharmann

CEO, Pres. |   |   | 2008   |   |   | 0      |   |   |   | 0      |   |   |   | 32,175 |   |   |   | 0      |   |   |   |   | 0      |   |   |   | 0      |   |   | 0      |   |   |   | 32,175 |   |   |
|--------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                     |   | 2007   |   |   | 0      |   |   |   | 0      |   |   |   | 19,200 |   |   |   | 0      |   |   |   |   | 0      |   |   |   | 0      |   |   | 0      |   |   |   | 19,200 |   |   |
|                     |   | 2006   |   |   | 0      |   |   |   | 0      |   |   |   | 17,925 |   |   |   | 0      |   |   |   |   | 0      |   |   |   | 0      |   |   | 0      |   |   |   | 17,925 |   |   |
|                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| D. Knudson, Sec/Treas    |   |   | 2008   |   |   | 0      |   |   |   | 0      |   |   |   | 24,945 |   |   |   | 0      |   |   |   |   | 0      |   |   |   | 0      |   |   | 0      |   |   |   | 24,945 |   |   |
|                     |   | 2007   |   |   | 0      |   |   |   | 0      |   |   |   | 35,805 |   |   |   | 0      |   |   |   |   | 0      |   |   |   | 0      |   |   | 0      |   |   |   | 35,805 |   |   |
|                     |   | 2006   |   |   | 0      |   |   |   | 0      |   |   |   | 39,210 |   |   |   | 0      |   |   |   |   | 0      |   |   |   | 0      |   |   | 0      |   |   |   | 39,210 |   |   |

 

(1) Stock compensation is paid in shares of Restricted Stock priced at $.10 per share.

The following table sets forth information regarding outstanding equity awards at December 31, 2008 held by our named executive officers.

 

20

 

 

 

----

 

***Outstanding Equity Awards at Fiscal Year-End Table***

 

| **Name**                                                                   | **Option awards**                                                                     | **Stock awards**                                                                                                           |
|----------------------------------------------------------------------------|---------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|
| **Number of securities underlying unexercised options****(#) exercisable** | **Number of securities****underlying****unexercised****options****(#) unexercisable** | **Equity****incentive****plan awards: Number of****securities****underlying****unexercised****unearned****options****(#)** | **Option****exercise price****($)** | **Option expiration date** | **Number of shares or units of stock that have not vested****(#)** | **Market value of shares of units of stock that have not vested****($)** | **Equity****incentive****plan awards: Number of****unearned****shares, units or other rights that have not vested****(#)** | **Equity****incentive****plan awards: Market or payout value of****unearned****shares, units or other rights that have not vested****($)** |
| **(a)**                                                                    | **(b)**                                                                               | **(c)**                                                                                                                    | **(d)** | **(e)** | **(f)** | **(g)** | **(h)** | **(i)** | **(j)** |
| None.

                                                               |                                                                                  |                                                                                                                       |   |   |   |   |   |   |   |
|                                                                       |                                                                                  |                                                                                                                       |   |   |   |   |   |   |   |

 

**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.

**Item 12.**  **Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**

***Equity Compensation Plan Information***

We are not a party to any equity compensation plan.

***Security Ownership of Certain Beneficial Owners***

As of March 27, 2009, the Company was not aware of any beneficial owners of more than five percent of its 37,250,450 shares of outstanding common stock other than shareholders who are also officers or directors of the Company whose beneficial holdings of our common stock are described below.

 

21

 

 

 

----

***Security Ownership of Management***

The following table sets forth information as of March 27, 2009, as to our common stock beneficially owned by our directors, principal executive officer, principal financial officer, principal accounting officer and other executive officers or persons performing similar functions for the Company (collectively the “named executive officers”) and by all directors and named executive            officers as a group:

 

|  

**Title of class** |  

**Name and address of beneficial owner**                 | **Amount and nature**

**of beneficial ownership** | **Percent**

**of class** |
|----------------------------|------------------------------------------------------------------|----------------------------------------------------|---------------------------|
| Common Stock               | Mark Scharmann(1)

1661 Lakeview Circle

Ogden, UT 84403

  | 25,931,146

                                  | 69.6                      |
| Common Stock               | Dan Price(1)

1661 Lakeview Circle

Ogden, UT 84403

       | 115,525

                                     | 0.3                       |
| Common Stock               | David Knudson(1)

1661 Lakeview Circle

Ogden, UT 84403

   | 3,020,108

                                   | 8.1                       |
| Common Stock               | All Officers and Directors

As a Group (3 persons)               | 29,066,779

                                  | 78.0                      |
|                       |                                                             |                                               |                      |

 

(1) Unless otherwise indicated, 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.

 

**Changes in Control**

 

We currently have no proposed change of control transaction. We are continuing to discuss business combinations with Target Businesses. If, and when we complete a Business Combination, it will likely result in a change of control.

**Item 13. Certain Relationships and Related Transactions, and Director Independence**

As part of its Plan of Reorganization, the Company issued 5,000,000 shares of its common stock to Troika Capital in consideration of $25,000 and Troika’s agreement to provide an additional $75,000 in equity or debt funding to pay the Company’s tax obligations.

 

During 1998, Troika Capital loaned $50,263 to the Company. Such loan is due on demand and bears interest at the rate of 10% per annum.

 

During 1999, Troika Capital loaned $56,250 to the Company. The Company repaid $2,000 during 1999. Such loan is due on demand and bears interest at the rate of 10% per annum.

 

During 2000, Troika Capital loaned $154,030 to the Company. The Company repaid $90,335 during 2000. Such loan is due on demand and bears interest at the rate of 10% per annum.

 

During 2001, Troika Capital loaned $89,250 to the Company. The Company repaid $127,971. Such loan is due on demand and bears interest at the rate of 10% per annum

 

During 2002, Troika Capital loaned $28,215 to the Company. The Company repaid $57,890 in 2002. Such loan is due on demand and bears interest at the rate of 10% per annum.

 

22

 

 

 

----

During 2003, Troika Capital loaned $85,550 to the Company. Such loan is due on demand and bears interest at 10% per annum.

 

During 2004, Troika Capital loaned $36,206 to the Company. Such loan is due on demand and bears interest at 10% per annum.

 

During 2005, The Company repaid $8,517 to Troika Capital. Such loan is due on demand and bears interest at 10% per annum.

 

During 2006, Troika Capital loaned $27,923 to the Company. Such loan is due on demand and bears interest at 10% per annum.

 

During 2006, the Company issued 20,000,000 shares of its common stock to Mark Scharmann, the Company’s president as payment of $100,000 of outstanding notes.

 

During 2007, Mark Scharmann, the Company’s president, loaned $87,228 to the Company. Such loan is due on demand and bears interest at 10% per annum.

 

During 2008, Mark Scharmann, the Company’s president, loaned $84,018 to the Company. Such loan is due on demand and bears interest at 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:

|  

 

  |           | Shares Issued |   |   |              |
|------------------------|----------------|---------------|--------|--------|-------------------|
| Year                   | Officer        | or Accrued    |   |   | Value of Services |
|                   |           |          |   |   |              |
| 2008                   | Mark Scharmann | 321,750       |   | $      | 32,175            |
| 2008                   | Dan Price      | 17,250        |   | $      | 1,725             |
| 2008                   | David Knudson  | 249,450       |   | $      | 24,945            |
| 2007                   | Mark Scharmann | 192,000       |   | $      | 19,200            |
| 2007                   | Dan Price      | 28,500        |   | $      | 2,850             |
| 2007                   | David Knudson  | 358,050       |   | $      | 35,805            |
| 2006                   | Mark Scharmann | 179,250       |   | $      | 17,925            |
| 2006                   | Dan Price      | 31,500        |   | $      | 3,150             |
| 2006                   | David Knudson  | 392,100       |   | $      | 39,210            |

 

**Director Independence**

 

|   | None of the Company’s directors are deemed to be independent. |
|--------|---------------------------------------------------------------------|

 

 

23

 

 

 

----

**Item 14.**    **Principal Accounting Fees and Services**

 

Spector, Wong & Davidian, LLP was appointed as the Company’s auditor for the years ended December 31, 2008 and December 31, 2007. As an inactive Company our Board of Directors serves as our audit committee.

 

**Fees billed to the Company by Spector, Wong & Davidian, LLP**

 

|                   |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | **2008** |   |   | **2007** |
|------------------------|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|
|                   | (1)         | Audit Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $      | 18,500   |   | $      | 18,500   |
|                   | (2)         | Tax Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $      | -0-      |   | $      | -0-      |
|                   | (3)         | Other Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $      | -0-      |   | $      | -0-      |
|                   |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |     |   |   |     |
|  

 

  | (1)         | Audit fees billed to the Company by Spector, Wong & Davidian, LLP were for all professional services performed in connection with the audit of the Company's annual financial statements and review of those financial statements, and reviews of our quarterly reports. Audit fees during 2008 and 2007 also included audit services related to our compliance with                            Section 404 of the Sarbanes-Oxley Act regarding our internal controls over financial reporting. |
|  

          |  

(2) |  

Tax services generally include fees for services performed related to tax compliance, consulting services.                                                                                                                                                                                                                                                                                                                                                                                       |
|  

          | (3)         | Spector, Wong & Davidian, LLP did not bill the Company for other services during 2008 or 2007.                                                                                                                                                                                                                                                                                                                                                                                                       |
|                        |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |          |        |        |          |  |  |

 

All audit and non-audit services and fees are pre-approved by our Audit Committee.

 

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Spector, Wong & Davidian, LLP was engaged by us to render any auditing or permitted non-audit related service, the engagement be:

 

|  

  | **•** | approved by our Audit Committee; or                                                                                                                                                                                                                                                                                                                          |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           | **•** | entered into pursuant to pre-approval policies and procedures established by the Audit Committee, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service, and such policies and procedures do not include delegation of the Audit Committee’s responsibilities to management. |

 

All of the above services and fees were reviewed and approved by our entire Board of Directors either before or after the respective services were rendered. Our Board of Directors has considered the nature and amount of fees billed by Spector, Wong & Davidian, LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Spector, Wong            & Davidian, LLP independence.

 

24

 

 

 

----

**PART IV**

 

**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

| (a) | Documents filed with this report. |
|-----|-----------------------------------|

 

| 1. | Financial Statements: |
|----|-----------------------|

|   | See Index to Financial Statements on page F-1 |
|--------|-----------------------------------------------|

 

| 2. | Financial Statement Schedules: |
|----|--------------------------------|

Financial statement schedules are omitted because they are not required or are not applicable or the required information is shown in the financial statements or notes thereto.

 

| 3. | Exhibits: |
|----|-----------|

|   | The exhibits to this report are listed on the Exhibit Index below. |
|--------|--------------------------------------------------------------------|

|   | (b) | Description of exhibits |
|--------|-----|-------------------------|

 

 

| Exhibit

Number | Description                                                                                                                                         |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             | Amended and Restated Articles of Incorporation (1)                                                                                                  |
| 3.2             | Bylaws (1)                                                                                                                                          |
| 21.1            | Subsidiaries of Registrant (None)                                                                                                                   |
| 31.1            | Certification of Chief Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002     |
| 31.2            | Certification of Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1            | Certification of Chief Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002     |
| 32.2            | Certification of Chief Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002     |

 

(1) Previously filed

 

25

 

 

 

----

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: April 14, 2009

 

|   | PACIFIC ALLIANCE CORPORATION                                                         |
|--------|--------------------------------------------------------------------------------------|
|   |                                                                                 |
|   | By: /s/ Mark A. Scharmann

Mark A. Scharmann

President, Principal Executive Officer |

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 14th day of April, 2009.

 

| /s/Mark A. Scharmann

Mark A. Scharmann

President, Principal Executive Officer, Director   |
|---------------------------------------------------------------------------------------------|
|                                                                                        |
| /s/Dan Price

Dan Price

Vice President and Director                                        |
|                                                                                        |
| /s/David Knudson

David Knudson

Secretary/Treasurer, Principal Financial Officer, Director |

 

 

26

 

 

 

----

 

**FINANCIAL STATEMENTS**

 

Index to Financial Statements

 

 

| Pacific Alliance Corporation Financial Statements | Page                                                    |
|---------------------------------------------------|---------------------------------------------------------|
|                                              |                                                    |   |
|                                              | Report of Independent Registered Public Accounting Firm | F-1 |
|                                              |                                                    |   |
|                                              | Balance Sheet                                           | F-2 |
|                                              |                                                    |   |
|                                              | Statements of Operations                                | F-3 |
|                                              |                                                    |   |
|                                              | Statement of Changes in Stockholders’ Deficit     | F-4 |
|                                              |                                                    |   |
|                                              | Statements of Cash Flows                                | F-5 |
|                                              |                                                    |   |
|                                              | Notes to Audited Financial Statements                   | F-6

 

 

  |
|  

                                     |  

 

 

 

 

 

   |  

 

  |

 

 

27

----

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Pacific Alliance Corporation

We have audited the accompanying balance sheet of Pacific Alliance Corporation (a development stage company) as of December 31, 2008, and the related statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2008, and 2007, and from the inception of the development stage on December 21, 1995 to December 31, 2008. These financial statements are the            responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on out audits.

 

We conduct our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial            reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 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, 2008, and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007, and for the periods from inception of the development stage on December 21, 1995 to December            31, 2008 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 3to the financial statements, the Company did not generate revenue and has a net capital deficiency and minimal working capital. Those conditions raise substantial doubt about its ability to continue as going concern. Management’s plans regarding those matters            are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Spector, Wong & Davidian, LLP

Pasadena, California

April 10, 2009

 

 

 

 

 

F-1

----

 

 

 

****PACIFIC ALLIANCE CORPORATION                (A DEVELOPMENT STAGE COMPANY)                 ****

**BALANCE SHEET**

 

 
|                                                                                                                       | As of                         |   |
|----------------------------------------------------------------------------------------------------------------------------|-------------------------------|--------|
|                                                                                                                       | **December 31,**              |   |
|                                                                                                                       | **2008**                      |   |
| ASSETS                                                                                                                     |                          |   |
| Current Assets                                                                                                             |                          |   |
| Cash                                                                                                                       | $     143 |   |
| TOTAL ASSETS                                                                                                               | $     143 |   |
|                                                                                                                       |                          |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                      |                          |   |
| Current Liabilities                                                                                                        |                          |   |
| Accrued Interest                                                                                                      | **$ 77,921**                  |   |
| Other Accrued Expenses                                                                                                     | **80,028**                    |   |
| Notes payable                                                                                                              | **137,100**                   |   |
| Advances from Officer                                                                                                      | **315,752**                   |   |
| Tax Liabilities                                                                                                            | **351,707**                   |   |
| Notes payable to Related Parties                                                                                           | **153,293**                   |   |
| Total current liabilities                                                                                                  | **1,115,801**                 |   |
|                                                                                                                       |                          |   |
| Stockholders' Deficit                                                                                                      |                          |   |
| Common Stock, par value $0.001, authorized 100,000,000 shares; and 37,250,450 and 36,662,000 shares issued and outstanding | **37,250**                    |   |
| Paid-in Capital                                                                                                            | **3,448,486**                 |   |
| Accumulated deficit prior to the developmental stage                                                                       | **(2,632,447)**               |   |
| Accumulated deficit during the developmental stage                                                                         | **(1,968,947)**               |   |
| Total Stockholders Deficit                                                                                                 | **(1,115,658)**               |   |
|                                                                                                                       |                          |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                | $ 143                         |   |
|                                                                                                                       |                          |   |
|                                                                                                                       |                          |   |
|   The accompanying notes are an integral part of these financial statements.                                     |                          |

 

 

F-2

----

 

 

 

****PACIFIC ALLIANCE CORPORATION****

**(A DEVELOPMENT STAGE COMPANY)                                  STATEMENTS OF OPERATIONS**

 
|                                                                                                                         |                    |            | **From Inception of** |
|------------------------------------------------------------------------------------------------------------------------------|-------------------------|-----------------|-----------------------|
|                                                                                                                         |                    |            | **the Developmental** |
|                                                                                                                         |                    |            | **Stage,**            |
|                                                                                                                         | **For the years ended** |            | **December 21, 1995** |
|                                                                                                                         | **December 31,**        |            | **Through**           |
|                                                                                                                         | **2008**                | **2007**        | **December 31, 2008** |
| Operating Expenses:                                                                                                          |                    |            |                  |
| Selling, General and Administrative Expenses                                                                                 | **$ 166,682**           | **$ 124,921**   | **$ 1,455,162**       |
| Tax Penalty and Interest Expense                                                                                             | **14,576**              | **14,576**      | **163,233**           |
| Loss on Investment                                                                                                           | **-**                   | **-**           | **6,844**             |
| Interest Expense                                                                                                             | **56,534**              | **46,477**      | **412,783**           |
|                                                                                                                         |                    |            |                  |
| Net Loss before Extraordinary Item                                                                                           | **(237,792)**           | **(185,974)**   | **(2,038,022)**       |
|                                                                                                                         |                    |            |                  |
| Extraordinary Item, Gain on Forgiveness              of Tax debt | **-**                   | **-**           | **69,075**            |
|                                                                                                                         |                    |            |                  |
| Net Loss                                                                                                                     | **$ (237,792)**         | **$ (185,974)** | **$ (1,968,947)**     |
|                                                                                                                         |                    |            |                  |
| Net Loss per share, Basic and Diluted                                                                                        | **$ (0.01)**            | **$ (0.01)**    |                  |
|                                                                                                                         |                    |            |                  |
| Weighted Average Number of Shares                                                                                            | **36,941,100**          | **36,261,788**  |                  |
|                                                                                                                         |                    |            |                  |
|                                                                                                                         |                    |            |                  |
|     The accompanying notes are an integral part of these financial statements.                           |

 

F-3

----

 

 

****PACIFIC ALLIANCE CORPORATION****

****(A DEVELOPMENT STAGE COMPANY)****

**STATEMENT OF CHANGES IN STOCKHOLDERS’  DEFICIT                                                                   **

 

|                                                                                                                 |         |     | Additional       | Accumulated      | Accumulated      |          |
|----------------------------------------------------------------------------------------------------------------------|--------------|----------|------------------|------------------|------------------|---------------|
|                                                                                                                 | Common Stock |     | Paid-in          | Deficit Prior to | Deficit After    |          |
|                                                                                                                 | Shares       | Amount   | Capital          | December 21,1995 | December 21,1995 | Total         |
| Balance at December 21, 1995                                                                                         | $ 2,099,125  | $ 2,099  | $ 884,901        | $ (2,632,447)    |             | $ (1,745,447) |
| Conversion of Trade Accounts Payable                                                                                 | 1,458,005    | 1,458    | 1,456,547        |             |             | 1,458,005     |
| Issuance of Common Stock                                                                                             |         |     |             |             |             |          |
|   for Cash                                                                                                      | 5,000,000    | 5,000    | 20,000           |             |             | 25,000        |
| Issuance of Common Stock                                                                                             |         |     |             |             |             |          |
|   for Services                                                                                                  | 216,000      | 216      | 864              |             |             | 1,080         |
| Conversion of Debt                                                                                                   | 300,000      | 300      | 14,700           |             |             | 15,000        |
| Issuance of Common Stock for IRS                                                                                     |         |     |             |             |             |          |
|   Claim Reduction                                                                                               | 80,078       | 80       | 79,998           |             |             | 80,078        |
| Issuance of Common Stock                                                                                             | 1,250,000    | 1,250    | 248,621          |             |             | 249,871       |
| Conversion of Management                                                                                             |         |     |             |             |             |          |
|   Compensation Liability                                                                                        | 1,854,292    | 1,854    | 183,575          |             |             | 185,429       |
| Issuance of Common Stock for                                                                                         |         |     |             |             |             |          |
|   Consulting Services                                                                                           | 337,500      | 338      | 33,412           |             |             | 33,750        |
| Activity from December 21, 1995                                                                                      |         |     |             |             |             |          |
|   Through December 31, 2002                                                                                     |         |     |             |             | (675,396)        | (675,396)     |
| Balance at December 31, 2002                                                                                         | 12,595,000   | 12,595   | 2,922,618        | (2,632,447)      | (675,396)        | (372,630)     |
| Net Loss for the Year Ended                                                                                          |         |     |             |             |             |          |
|   December 31, 2003                                                                                             | -            | -        | -                | -                | (144,588)        | (144,588)     |
| Balance at December 31, 2003                                                                                         | 12,595,000   | 12,595   | 2,922,618        | (2,632,447)      | (819,984)        | (517,218)     |
| Issuance of Common Stock for                                                                                         |         |     |             |             |             |          |
|   Consulting Services                                                                                           | 1,250,000    | 1,250    | 98,750           |             |             | 100,000       |
| Issuance of Common Stock                                                                                             |         |     |             |             |             |          |
|   for Stock Subscription                                                                                        | 100,000      | 100      | 19,878           |             |             | 19,978        |
| Issuance of Common Stock for                                                                                         |         |     |             |             |             |          |
| Management Compensation Expense                                                                                      | 857,300      | 857      | 84,873           |             |             | 85,730        |
| Net Loss for the Year Ended                                                                                          |         |     |             |             |             |          |
| December 31, 2004                                                                                                    |         |     |             |             | (237,913)        | (237,913)     |
| Balance at December 31, 2004                                                                                         | 14,802,300   | 14,802   | 3,126,119        | (2,632,447)      | (1,057,897)      | (549,423)     |
| Issuance of Common Stock for                                                                                         |         |     |             |             |             |          |
|   Management Compensation                                                                                       | 678,300      | 679      | 67,152           |             |             | 67,831        |
| Net Loss for the Year Ended                                                                                          |         |     |             |             |             |          |
|   December 31, 2005                                                                                             |         |     |             |             | (291,770)        | (291,770)     |
| Balance at December 31, 2005                                                                                         | 15,480,600   | $ 15,481 |  $3,193,271 | $ (2,632,447)    | $ (1,349,667)    | $ (773,362)   |
| Issuance of Common Stock for                                                                                         |         |     |             |             |             |          |
|   Management Compensation                                                                                       | 602,850      | 602      | 59,682           |             |             | 60,284        |
| Conversion of related party debt to                                                                                  |         |     |             |             |             |          |
|   common stock                                                                                                  | 20,000,000   | 20,000   | 80,000           |             |             | 100,000       |
| Net Loss for the Year Ended                                                                                          |         |     |             |             |             |          |
| December 31, 2006                                                                                                    |         |     |             |             | (195,514)        | (195,514)     |
| Balance at December 31, 2006                                                                                         | 36,083,450   | $ 36,083 | $ 3,332,953      | $ (2,632,447)    | $ (1,545,181)    | $ (808,592)   |
| Issuance of Common Stock for                                                                                         |         |     |             |             |             |          |
|   Management Compensation                                                                                       | 578,550      | 579      | 57,276           |             |             | 57,855        |
| Net Loss for the Year Ended                                                                                          |         |     |             |             |             |          |
|   December 31, 2007                                                                                             |         |     |             |             | (185,974)        | (185,974)     |
| Balance at December 31, 2007                                                                                         | 36,662,000   | $ 36,662 | $ 3,390,229      | $ (2,632,447)    | $ (1,731,155)    | $ (936,711)   |
|   Issuance of Common Stock for                                                                                  |         |     |             |             |             |          |
| Management Compensation                                                                                              | 588,450      | 588      | 58,257           |             |             | 58,845        |
| Net Loss for the Year Ended                                                                                          |         |     |             |             |             |          |
|   December 31, 2008                                                                                             |         |     |             |             | (237,792)        | (237,792)     |
| Balance at December 31, 2008                                                                                         | 37,250,450   | $ 37,250 | $ 3,448,486      | $ (2,632,447)    | $ (1,968,947)    | $ (1,115,658) |
|                                                                                                                 |         |     |             |             |             |          |
|                                                                                                                 |         |     |             |             |             |          |
|        The accompanying notes are an integral part of these financial statements. |
|                                                                                                                 |         |     |             |             |             |          |
|                                                                                                                 |         |     |             |             |             |          |

F-4

----

**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENT OF CASH                    FLOWS                                                                                                                        **

|                                                              |                    |            | **From Inception of** |
|-------------------------------------------------------------------|-------------------------|-----------------|-----------------------|
|                                                              |                    |            | **the Developmental** |
|                                                              |                    |            | **Stage,**            |
|                                                              | **For the years ended** |            | **December 21, 1995** |
|                                                              | **December 31,**        |            | **Through**           |
|                                                              | **2008**                | **2007**        | December 31, 2008     |
| **Cash Flow from Operating Activities:**                          |                    |            |                  |
| Net Loss                                                          | **$ (237,792)**         | **$ (185,974)** | **$(1,968,947)**      |
| Adjustments to Reconcile Net Loss to Net Cash Used in Operations: |                    |            |                  |
| Loss on investments                                               | **-**                   | **-**           | 6,844                 |
| Gain on forgiveness on tax debt                                   | **-**                   | **-**           | **(69,075)**          |
| Stock issued for services                                         | **58,845**              | **57,855**      | **650,805**           |
| (Increase) Decrease in:                                           |                    |            |                  |
| Accounts receivable                                               | **-**                   | **-**           | **95,841**            |
| Increase (Decrease) in:                                           |                    |            |                  |
| Accrued expenses                                                  | **59,367**              | **21,350**      | **315,010**           |
| Tax liabilities                                                   | **14,577**              | **14,576**      | **(24,130)**          |
| **Net Cash Used in Operating Activities**                         | **(105,003)**           | **(92,193)**    | **(993,652)**         |
|                                                              |                    |            |                  |
| **Cash Flow from Investing Activities**                           |                    |            |                  |
| Purchase of investments                                           | **-**                   | **-**           | (30,180)              |
| Proceeds from sale of investments                                 | **-**                   | **-**           | **23,336**            |
| **Net Cash Used In Investing Activities**                         | **-**                   | **-**           | **(6,844)**           |
|                                                              |                    |            |                  |
| **Cash Flow from Financing Activities:**                          |                    |            |                  |
| Bank overdraft                                                    | **-**                   | **(6)**         | **(2,587)**           |
| Proceeds from notes payable                                       | **12,100**              | **5,000**       | **223,586**           |
| Payments of note payable                                          | **-**                   | **-**           | **(51,277)**          |
| Net Proceeds from notes payable to related parties                | **9,000**               | **-**           | **128,084**           |
| Advance from officer                                              | **116,700**             | **139,710**     | **1,044,156**         |
| Repayment of advance from officer                                 | **(32,683)**            | **(52,482)**    | **(626,172)**         |
| Proceeds from issuance of common stock                            | **-**                   | **-**           | **25,000**            |
| Proceeds from common stock subscription                           | **-**                   | **-**           | **259,849**           |
| **Net Cash Flow Provided by Financing Activities**                | **105,117**             | **92,222**      | **1,000,639**         |
|                                                              |                    |            |                  |
| **Net Increase in Cash**                                          | **114**                 | **29**          | **143**               |
|                                                              |                    |            |                  |
| Cash Balance at Beginning of Period                               | **29**                  | **-**           | **-**                 |
|                                                              |                    |            |                  |
| **Cash Balance at End of Period**                                 | **$ 143**               | **$ 29**        | **$ 143**             |
|                                                              |                    |            |                  |
| Supplemental Disclosures of Cash Flow Information                 |                    |            |                  |
| Interest paid                                                     | **$ 28,045**            | **$ 18,518**    |                  |
|                                                              |                    |            |                  |

F-5

----

**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

**NOTE 1 – NATURE OF BUSINESS**

 

Pacific Alliance Corporation (the “Company”), whose name was changed from Pacific Syndication, Inc. in 1997, was originally incorporated in December 1991 under the laws of the State of Delaware. It also became a California corporation in 1991. Pacific Syndication, Inc. was engaged in the business of videotape duplication, standard                    conversion and delivery of television programming. In 1994, Pacific Syndication, Inc. merged with Kaiser Research, Inc.

 

The Company filed a petition for Chapter 11 under the Bankruptcy Code in June 1995. The debtor in possession kept operating until December 21, 1995, when all assets, except cash and accounts receivable, were sold to a third party, Starcom. The purchaser assumed all post-petition liabilities and all obligations collateralized by the assets                    acquired.

 

In 1997, a reorganization plan was approved by the Bankruptcy Court, and the remaining creditors of all liabilities subject to compromise, excluding tax claims, were issued 1,458,005 shares of the Company’s common stock in March 1998, which corresponds to one share for every dollar of indebtedness. Each share of common stock issued was                    also accompanied by an A warrant and a B warrant (see note 9). The IRS portion of tax liabilities was payable in cash by quarterly installments (see note 5). Repayment of other taxes is still being negotiated.

 

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). 

 

Reclassification:Certain reclassifications have been made to the 2007 financial statements to conform with the 2008 financial statements presentation. Such reclassification had no effect on net losses previously reported. 

 

Use of estimatesThe preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual                    results may differ from these estimates.

 

Revenue RecognitionThe Company currently has no source of revenues. Revenue recognition policies will be determined when principal operations begin.

 

Cash EquivalentsFor purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

 

Property and EquipmentAs of December 31, 2008, the Company did not maintain or control any fixed assets.

 

Income TaxesIncome tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.

 

Net Loss Per ShareNet Loss Per Share Basic net loss per share includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted net loss per share does not differ from basic net loss per share as the                    Company did not have dilutive items during the audit period. 

 

 

 

F-6

 

 

 

----

**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

 

Non-employees Equity TransactionsThe Company accounts for equity instruments issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 and the Emerging Issues Task Force (EITF) Issue No. 00-18, *Accounting for Equity Instruments                    That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.*SFAS No. 123 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Under the guidance in Issue 00-18, the measurement date occurs as of the earlier                    of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

 

In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations (revised 2007)” (“SFAS 141 (R)”). SFAS 141 (R) applies the acquisition method of accounting for business combinations established in SFAS 141 to all acquisitions where the acquirer gains a controlling interest, regardless of whether                    consideration was exchanged. Consistent with SFAS 141, SFAS 141 (R) requires the acquirer to fair value the assets and liabilities of the acquiree and record goodwill on bargain purchases, with the main difference the application to all acquisitions where control is achieved. SFAS 141 (R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not anticipate the adoption of SFAS 141 (R) will have a material impact on                    its financial statements.

 

In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 160, "Non-Controlling Interests in Consolidated Financial Statements-an Amendment of Accounting Research Bulletin ("ARB") No. 51". SFAS No. 160 requires companies with non-controlling interests to disclose such interests                    clearly as a portion of equity but separate from the parent's equity. The non-controlling interest's portion of net income must also be clearly presented on the Income Statement. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not anticipate the adoption of SFAS 160 will have a material impact on its financial condition or results of operations.

 

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities”, an amendment of SFAS No. 133. SFAS 161 applies to all derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and                    related hedged items accounted for under SFAS 133. SFAS 161 requires entities to provide greater transparency through additional disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. SFAS 161 is effective                    as of the beginning of an entity’s first fiscal year that begins after November 15, 2008. We do not expect that the adoption of SFAS 161 will have a material impact on our financial condition or results of operation. 

 

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting                    principles in the United States of America. SFAS No. 162 will be effective 60 days after the Securities and Exchange Commission approves the Public Company Accounting Oversight Board's amendments to AU Section 411. The Company does not anticipate the adoption of SFAS No. 162 will have an impact on its financial statements.

 

 

 

 

F-7

 

 

 

----

**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

 

In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60." SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial                    obligation. This Statement also clarifies how SFAS No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure                    requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS No. 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of SFAS No. 163 will have a material impact on its financial condition or results of operation.

 

In June 2008, the FASB issued FASB SP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." SP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings                    per share under the two-class method as described in SFAS No. 128, "Earnings per Share." SP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. The Company is required to adopt SP EITF 03-6-1 in the first quarter of 2009 and is currently evaluating the impact that SP EITF 03-6-1 will have on its financial statements.

 

**NOTE 3 – GOING CONCERN**

 

The accompanying financial statements have been prepared on a going concern basis, which contemplated the realizations of assets and the satisfaction of liabilities in the normal course of business. As shown in the December 31, 2008 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, 2008 the Company funded its disbursements using loans from an officer and other related parties.

 

The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company is no longer operating, and is attempting to locate a new business (operating company), and offer itself as a merger vehicle for a company that may desire to go public through a merger rather than through its own public stock offering.

 

**NOTE 4– OTHER ACCRUED EXPENSES**

 

Other accrued expenses at December 31, 2008 consist of:

 

|   | Accrued Professional Fees |   | $ 60,455 |   |
|--------|---------------------------|--------|----------|--------|
|   | Accrued Expenses          |   | 19,573   |   |
|   | Total                     |   | $ 80,028 |   |

 

 

 

F-8

 

 

 

----

**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

**NOTE 5– TAX LIABILITIES**

 

The Company owes back taxes to the IRS, California Franchise Tax Board, California State Board of Equalization, and County of Los Angeles, before the bankruptcy. The Company is attempting to negotiate settlements and the final amount may differ from the amount recorded on the balance sheets.

 

The IRS portion of tax liabilities was payable in quarterly installments of $ 11,602, and the final payment was due in January 2002. However, no payments have been made since April 2000. As of December 31, 2008, the Company owes $293,448 to the IRS. The taxes owed to IRS are delinquent and accruing interest at 9% per annum. 

 

As of December 31, 2008, the Company owes $5,455 to California Franchise Tax Board. No payments have been made and the taxes owed to California Franchise Tax Board are delinquent. No interest is being accrued; however, a protection lien is being filed. 

 

As of December 31, 2008, the Company owes $45,019 to California State Board of Equalization. No payments have been made and the taxes owed to California State Board of Equalization are delinquent and accruing an interest at 9% per annum. 

 

As of December 31, 2008, the Company owes $7,785 to the County of Los Angeles. No payments have been made and the taxes owed to the County of Los Angeles are delinquent and accruing an interest at 9% per annum. 

 

**NOTE 6– SHORT TERM NOTE PAYABLE**

 

During 2008, the Company obtained additional notes payable of $12,100, from third parties. The notes payable bear interest at 10% per annum and are due on demand. As of December 31, 2008, the balance was $137,100.

 

**NOTE 7 –NOTES PAYABLE TO RELATED PARTIES**

 

Notes payable to minority shareholders amounted to $153,293 at December 31, 2008. These notes bear interest at 10% to 12%, and are due on demand. 

 

**NOTE 8 – INCOME TAXES**

 

The Company has loss carryforwards available to offset future taxable income. The total loss carryforwards at December 31, 2008 are estimated at approximately $1,950,000 and expire between 2016 and 2028. 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 $663,000, which relates to these loss carryforwards, since future profits are indeterminable. The valuation allowance increased by $83,000 during the year ended December 31, 2008. As of the audit report date, the Company did not file its corporate income tax returns for the year ended December 31, 2008.

 

 

F-9

 

 

----

**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

**NOTE 9 – COMMON STOCK AND WARRANTS**

 

On May 28, 1997, a reorganization plan was approved by the Bankruptcy Court. As a result, existing shares of the Company were reverse split 1-for-6 and pre-bankruptcy creditors were issued 1,458,005 shares of Company’s common stock. On November 13, 1997, an additional 5,000,000 shares of common stock were issued (after reverse split) to                    an officer of the Company in return for proceeds of $25,000 ($.005 per share).

 

In accordance with the reorganization plan, the pre-bankruptcy creditors were also issued 1,458,005 class “A” warrants and 1,458,005 class “B” warrants. The class “A” warrants allowed the purchase of a share of common stock at an exercise price of $2.50 per share. The “A” warrants expired in                    June 2000 and none were exercised. The class “B” warrants allowed the purchase of a share of common stock at an exercise price of $5.00 per share, and the warrants expired in June 2002, and none were exercised.

 

In May and June 1998, the Company issued 16,000 and 200,000 shares of common stock respectively, for professional services received from non-related individuals. These shares were valued at $0.005 per share.

 

In June 1998, the IRS applied a personal tax refund from a former officer of the Company against the Company’s tax liability, reducing it by $80,078. In accordance with an agreement between the management and the former officer, 80,078 shares of common stock were issued to the former officer in exchange for the loss of his personal tax                    refund.

 

In February 2000, the Company issued 300,000 shares to an officer for repayment of $15,000 in advances the officer loaned to the Company and accrued interest.

 

In May 2000, the Company issued 150,000 shares for repayment of consulting services rendered to the Company from a former officer. These shares were valued at $0.10 per share.

 

Pursuant to the provisions of the modified joint plan of reorganization, Pacific Alliance Corporation compensates its management on an hourly basis at $75 per hour for the time actually devoted to the business of the Company. Payment for services is made through issuance of shares of common stock until such time as the Company’s net                    worth reaches $350,000. According to the modified joint plan of reorganization, the stock issued for services shall be valued at $0.10 per share. During the year ended December 31, 2000, the Company issued 1,666,801 shares of common stock for accrued compensation, and in June 2002, the company issued an additional 187, 491 shares of common stock.

 

In October 2001, the Company entered into an agreement under which PIL S.A. would make a capital infusion and bring in new majority shareholders. Total capital to be brought to the Company was to be $500,000 by October 31, 2001, and an additional $500,000 by December 31, 2001, at a rate of $0.20 per share. The right to cancel any subscription                    under the agreement and have the consideration refunded would have required a breach of the agreement, termination of the agreement by mutual consent, or termination of the agreement by its own terms. At December 31, 2002, 1,250,000 shares of stock were issued to PIL S.A. for the $249,871 that had been received from PIL S.A. in previous quarters as subscription of shares of common stock. In May 2004, 50,000 shares for an additional subscription of $9,978 received in 2002                    were issued to PIL S.A. In June 2002, PIL S.A. elected to convert a loan with balance of $10,000 into 50,000 shares of common stock. At June 30, 2004 the 50,000 shares were issued. Both the $10,000 and $9,978 were classified as common stock subscription deposit as of December 31, 2002. The agreement with PIL S.A. has been terminated.

 

In September 2002, the Company issued 187,500 shares of its common stock for consulting services received from a non-related individual. The shares were valued at $0.10 per share.

 

 

 

F-10

 

 

 

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**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

**NOTE 9 – COMMON STOCK AND WARRANTS (continued)**

 

In 2004, the Company issued 857,300 shares of common stock for management services of $85,730, of which $50,000 was accrued at December 31, 2003. The shares were valued at $0.10 per share pursuant to the Modified Joint Plan of Reorganization approved by U.S. Bankruptcy Court.

 

The Company also issued 1,250,000 shares of common stock in 2004 for consulting fees of $ 100,000, of which $12,500 was accrued at December 31, 2003. The shares were valued at $0.08, the closing market price on the Board’s authorization date.

 

In 2005, the Company issued 678,300 shares of common stock for management services of $67,830, pursuant to the provisions of the Modified Plan of Reorganization approved by the U.S. Bankruptcy Court. Pursuant to the Modified Joint Plan of Reorganization, the stock issued for services was valued at $0.10 per share.

 

In 2006, the Company issued 602,850 shares of common stock for management services of $60,284, pursuant to the provisions of the Modified Plan of Reorganization approved by the U.S. Bankruptcy Court. Pursuant to the Modified Joint Plan of Reorganization, the stock issued for services was valued at $0.10 per share.

 

In 2006, the Company issued 20,000,000 shares of restricted common stock to Mr. Scharmann, the CEO of the Company, as payment of $100,000 of debt owed by the Company to him as advances from officer. 

 

In 2007, the Company issued 578,550 shares of common stock for management services, pursuant to the provisions of the Modified Plan of Reorganization approved by the U.S. Bankruptcy Court in 1997. The stocks were valued $0.10 per share, or $57,855 of total.

 

In 2008, the Company issued 588,450 shares of common stock for management services, pursuant to the provisions of the Modified Plan of Reorganization approved by the U.S. Bankruptcy Court in 1997. The stocks were valued $0.10 per share, or $58,450 of total.

 

**NOTE 10 – NET LOSS PER SHARE**

 

The following table sets forth the computation of basic and diluted net loss per share:

 

|                                 | For the years ended December 31, |
|--------------------------------------|----------------------------------|
|                                 | 2008                             | 2007 |
| Numerator:                           |                             |   |
| Net Loss                             | $ (237,792)                      | $ (185,974) |
| Denominator:                         |                             |   |
| Weighted Average Number of Shares    | 36,941,100                       | 36,261,788 |
|                                 |                             |   |
| Net Loss per share-Basic and Diluted | $ (0.01)                         | $ (0.01) |

 

 

 

 

F-11

 

 

 

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**PACIFIC ALLIANCE CORPORATION**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO AUDITED FINANCIAL STATEMENTS**

 

 

**NOTE 11 – RELATED PARTY TRANSACTIONS**

 

An officer of the Company, the CEO, advanced $116,700 for the year ended December 31, 2008. The Company repaid $32,683 for the year ended December 31, 2008. These advances bear interest at 10% and have no maturity date. The balance of advances was $315,752 with accrued interest of $86 at December 31, 2008.

 

During the quarter ended March 31, 2002, the Company passed a resolution to pay rent, office and secretarial services to a stockholder of the Company at a rate of $500 per month. These charges were retroactive to July 1997, subsequent to the date of approval of the reorganization plan by the Bankruptcy court. As such, $6,000 was recorded as                    expense during the years ended December 31, 2008 and 2007.

 

**NOTE 12 – EXTRAORDINARY ITEM**

 

On December 19, 2000, the Employment Development Department (EDD) accepted an “Offer in Compromise” in the amount of $7,600 to satisfy in full, all outstanding liabilities of $76,675 due to the EDD by Pacific Alliance Corporation. The settlement amount was paid in January 2001, and an extraordinary gain of $69,075 was                    recognized.

 

 

 

 

 

 

 

 

 

F-12