**U.S.
SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **FORM
10-KSB**
 
 ý ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 For the
fiscal year ended December 31, 2004
 OR
  ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 Commission
file number 33-08732-D
 
 **PACIFIC
ALLIANCE CORPORATION**
 (Name of
Small Business Issuer as specified in its charter)
 
 Delaware
    
    87-044584-9(State
      or other jurisdiction of
    
    (I.R.S.
      employerincorporation
      or organization
    
    identification
      No.)
 1661
Lakeview Circle
 Ogden,
UT 84403
 (Address
of principal executive offices)
 
 Issuer’s
telephone number, including area code: **** (801)
399-3632
 
 Securities
registered pursuant to Section 12(b) of the Exchange Act: None
 
 Securities
registered pursuant to Section 12(g) of the Exchange Act : None
 
 Check
whether the Issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ý No.  ̈
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
 
 The
Issuer’s revenues for the fiscal year ended December 31, 2004 were
-0-.
 
 As of May
18, 2005, 14,802,300 shares of the Issuer’s common stock were issued and
outstanding of which 6,893,671 were held by non-affiliates. As of May 18, 2005,
there was no active market in the Issuers securities.
 
 
 DOCUMENTS
INCORPORATED BY REFERENCE: NONE
 
   **TABLE
OF CONTENTS**
 
 PagePART
      IItem 1.
    Description
      of Business
    3Item 2.
    Properties
    11Item 3.
    Legal
      Proceedings
    11Item 4.
    Submission
      of Matters to a Vote of Security Holders
    11PART
      IIItem 5.
    Market
      for the Registrant’s Common Stock and Related Security Holder
      Matters
    11Item 6.
    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
    16Item 7.
    Financial
      Statements
    25Item 8.
    Changes
      and Disagreements with Accountants on Accounting and Financial
      Disclosure
    39Item 8A.
    Controls
      and Procedures
    39Item 8B.
    Other
      Information
    40PART
      IIIItem 9.
    Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
    40Item 10.
    Executive
      Compensation
    42Item 11.
    Security
      Ownership of Certain Beneficial Owners and Management
    44Item 12.
    Certain
      Relationships and Related Party Transactions
    45Item 13.
    Exhibits,
      Financial Statements, Schedules and Reports on Form 8 K
    47Item 14.
    Principal
      Accounting Fees and Services
    47
 
 **PART
I**
 
 **Disclosure
Regarding Forward Looking Statements**
 
 The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward looking statements. Certain information in this Form 10-KSB include
information that is forward looking, such as the Company’s opportunities to tax
obligations, its anticipated liquidity and capital requirements and the results
of legal proceedings. The matters referred to in forward looking statements
could be affected by the risks and uncertainties involved in the Company’s
business. These risks and uncertainties include, but are not limited to, certain
other risks described in Item 1 and in Item 7 of this Form10-KSB. Subsequent
written and oral forward looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements in this paragraph and elsewhere in this Form
10-KSB.
  2
  **ITEM 1. DESCRIPTION OF BUSINESS**
 
 **General**
 
 Pacific
Alliance Corporation (the “Company”) is a Delaware corporation which is
currently inactive. The Company was previously engaged in the business of
distributing television programming. On June 23, 1995, the Company filed for
protection under Chapter 11 of the United States Bankruptcy Code (Case No. BK.
No. SV 95-14737 KL). On May 28, 1997 (the “Confirmation Date”), the United
States Bankruptcy Court for the Central District of California Confirmed the
Company’s Modified Plan of Reorganization (the “Plan”) and First Amended
Disclosure Statement (the “Disclosure Statement”). The Effective Date of the
Plan was June 8, 1997. The Company’s current business plan calls for it to
locate and acquire an operating company. Currently,
we are a "shell" company conducting virtually no business operation, other than
our efforts to seek merger partners or acquisition candidates. We have no full
time employees and own no real estate.
 
 **History**
 
 The
Company was organized on April 22, 1986 under the laws of the State of Utah
under the name of Kaiser Research, Inc. On December 2, 1994, the Company changed
its domicile from the State of Utah to the State of Delaware through a
reincorporation merger. In order to effect the reincorporation merger, the
Company formed a wholly-owned subsidiary under Delaware law under the name of
PACSYND, Inc. After the change of the Company’s domicile, it acquired a
privately held corporation (“Private PSI”) in a merger transaction, and in
connection therewith, the Company’s name was changed to Pacific Syndication,
Inc.
 
 After the
acquisition of Private PSI in December 1994, and prior to its filing of a
Petition under Chapter 11, the Company was engaged in the business of
transmitting television programming to television stations and others via
satellite or land deliveries on behalf of production companies, syndicators and
other distributors of television programming. Although the Private PSI was not
the survivor of the Merger, and did not exist after the Merger, pursuant to the
accounting requirements of the Securities and Exchange Commission the Merger was
treated as a “reverse merger” and, solely for accounting purposes, Private PSI
was deemed to be the survivor.
 
 Private
PSI was formed under the laws of the State of Delaware in December 1991. Private
PSI was formed to engage in the business of providing a variety of television
industry related services to its clients. Such services included, but were not
limited to, video tape duplication, standards conversion and delivery of
television programming by way of conventional carriers (such as UPS, Airborne
and Federal Express) and by satellite or fiber optic transmission.
 
  3
  Private
PSI provided its clients (primarily television producers, programmers and
syndicators) with several related but different services, including distribution
of syndicated programming to television stations, program mastering and
standards conversion, infomercial customization and delivery, master tape and
film storage, library distribution services and video integration and delivery
services. Private PSI developed its own tape tracking and vault library
management system and a system for infomercial customization and voice-over
integration.
 
 From its
inception, Private PSI was undercapitalized. It funded its initial operations
through the factoring of its accounts receivable. The Company was unable to
commence operations in the television programming services business and
ultimately, substantially all of its assets were sold and it discontinued its
operations.
 
 **Chapter
11 Plan of Reorganization**
 
 On June
23, 1995, the Company filed a Petition under Chapter 11 of the U.S. Bankruptcy
Code. As of December 1995, the Company had sold most of its assets, reduced its
debt and terminated its operations. By that date, there was no trading market in
the Company’s securities. In 1996, Troika Capital, Inc. (“Troika”), a Utah
corporation, agreed to assist the Company in developing a Plan of Reorganization
which would provide the Company, its shareholders and creditors with at least a
possibility of recouping all or some of their investment in the Company or the
debts owed to them by the Company. Troika is a privately-owned Utah corporation
which has been involved in various company formations, mergers and
financings.
 
 Mark A.
Scharmann, the President of Troika, and now the President of the Company, and
his affiliates, were shareholders of the Company and creditors of the Company at
the time the Company commenced its bankruptcy proceeding. Mr. Scharmann was a
founder of the Company in 1986 and was an original shareholder of the Company.
At the time the Company acquired Private PSI, he resigned as an officer and
director of the Company but remained a shareholder and later became a creditor
of the Company. Many of the investors in the Company are friends and
acquaintances of Mr. Scharmann. The Company believed that if it were to
liquidate, there would be a total loss to creditors and shareholders. Because of
his own equity and debt investment in the Company, and his relationship with
other shareholders and creditors of the Company, Mr. Scharmann agreed, through
Troika, to develop a business plan for the Company and to attempt to assist the
Company in carrying out such plan.
 
 The Plan
of Reorganization developed for the Company by Troika was essentially as
follows:
 
 1.
    Eliminate
      all non-tax liabilities of the Company through the conversion of debt into
      equity.2.
    Replace
      the current officers and directors of the Company with new management. The
      new management includes the following: Mark Scharmann, Dan Price and David
      Knudson.
  4
  
 3.
    File
      all required Securities and Exchange Commission reports which may be
      necessary to bring the Debtor current in its filing requirements under
      Section 15(d) of the 1934 Act. File all SEC reports which become due in
      the future.4.
    File
      any tax returns which are in arrears and file all required tax returns and
      reports which become due in the future.5.
    Use
      existing cash of the Company to pay quarterly tax payments and for working
      capital.6.
    Prepare
      and bring current, the financial statements of the
  Company7.
    Attempt
      to raise additional cash to be used to fund quarterly tax payments and for
      working capital.8.
    Locate
      a private-company which is seeking to become a public company by merging
      with the Company.9.
    Assist
      the Company in completing any merger which is located and which the Board
      of Directors deems appropriate.10.
    Assist
      the post-merged company with shareholder relations, financial public
      relations and with attempts to interest a broker-dealer in developing a
      public market for the Company’s common stock so that the Company’s
      shareholders (including creditors whose debt was converted into shares of
      the Company’s common stock) may ultimately have a opportunity to liquidate
      their shares for value in market or in privately negotiated
      transactions.
 
 The Plan
and Disclosure Statement was confirmed by the Bankruptcy Court on May 28, 1997.
The Effective Date of the Plan was June 8, 1997.
 
 **Post
Confirmation Date Activities**
 
 Since the
Confirmation of the Plan of Reorganization the following have
occurred:
 
 1.
    Pre-Confirmation
      Date non-tax debt in the amount of approximately $1,458,000 was converted
      into 1,458,005 shares of the Company common stock.2.
    The
      Company completed its audited financial statements for the years ended
      December 31, 1995 through 2004.3.
    Tax
      liabilities to the Internal Revenue Service of approximately $269,093 had
      been reduced to $92,398 as of December 31, 2004.
  5
  
 4.
    The
      Company effected a 1-for-6 reverse split of its issued an outstanding
      common stock in order to establish a more desirable capital structure for
      potential merger partners.5.
    The
      Company changed its name to Pacific Alliance
  Corporation.6.
    The
      Company obtained the preliminary agreement of a registered-broker to make
      a market in the Company’s common stock.7.
    The
      Company filed an application for approval of secondary trading in its
      common stock with the Division of Securities of the State of Utah. An
      Order Granting such application was issued by the Utah Division of
      Securities which was effective through March 31, 1999.8.
    The
      Company prepared and filed Form 10-KSB’s for the years ended December 31,
      1996 - 2003 and with this Form 10-KSB, for the year ended December 31,
      2004.9.
    Effective
      February 22, 2000 - the Bankruptcy Court entered an Order of Final Decree
      closing the Bankruptcy Case.
 
 **Business
Plan**
 
 The
Company’s current business plan is to serve as a vehicle for the acquisition of,
or the merger or consolidation with another company (a ‘Target Business”). The
Company intends to utilize its limited current assets, equity securities, debt
securities, borrowings or a combination thereof in effecting a Business
Combination with a Target Business which the Company believes has significant
growth potential. The Company’s efforts in identifying a prospective Target
Business are expected to emphasize businesses primarily located in the United
States; however, the Company reserves the right to acquire a Target Business
located primarily elsewhere. While the Company may, under certain circumstances,
seek to effect Business Combinations with more than one Target Business, as a
result of its limited resources the Company will, in all likelihood, have the
ability to effect only a single Business Combination.
 
 The
Company may effect a Business Combination with a Target Business which may be
financially unstable or in its early stages of development or growth. To the
extent the Company effects a Business Combination with a financially unstable
company or an entity in its early stage of development or growth (including
entities without established records of revenue or income), the Company will
become subject to numerous risks inherent in the business and operations of
financially unstable and early stage or potential emerging growth companies. In
addition, to the extent that the Company effects a Business Combination with an
entity in an industry characterized by a high level of risk, the Company will
become subject to the currently unascertainable risks of that industry. An
extremely high level of risk frequently characterizes certain industries which
experience rapid growth. Although management will endeavor to evaluate the risks
inherent in a particular industry or Target Business, there can be no assurance
that the Company will properly ascertain or assess all risks.
 
  6
  Probable
Lack of Business Diversification . As a
result of the limited resources of the Company, the Company, in all likelihood,
will have the ability to effect only a single Business Combination. Accordingly,
the prospects for the Company’s success will be entirely dependent upon the
future performance of a single business. Unlike certain entities that have the
resources to consummate several Business Combinations or entities operating in
multiple industries or multiple segments of a single industry, it is highly
likely that the Company will not have the resources to diversify its operations
or benefit from the possible spreading of risks or offsetting of losses. The
Company’s probable lack of diversification may subject the Company to numerous
economic, competitive and regulatory developments, any or all of which may have
a material adverse impact upon the particular industry in which the Company may
operate subsequent to consummation of a Business Combination. The prospects for
the Company’s success may become dependent upon the development or market
acceptance of a single or limited number of products, processes or services.
Accordingly, notwithstanding the possibility of capital investment in and
management assistance to the Target Business by the Company, there can be no
assurance that the Target Business will prove to be commercially
viable.
 
 No
Independent Appraisal of Potential Acquisition Candidates . The
Company does not anticipate that it will obtain an independent appraisal or
valuation of a Target Business. Thus, stockholders of the Company will need to
rely primarily upon management to evaluate a prospective Business Combination.
However, a Business Combination will not be consummated unless it is approved by
the stockholders of the Company.
 
 Limited
Ability to Evaluate Management of a Target Business . The
role of the present management of the Company, following a Business Combination,
cannot be stated with any certainty. Although the Company intends to scrutinize
closely the management of a prospective Target Business in connection with its
evaluation of the desirability of effecting a Business Combination with such
Target Business, there can be no assurance that the Company’s assessment of such
management will prove to be correct. While it is possible that certain of the
Company’s directors or its executive officers will remain associated in some
capacities with the Company following consummation of a Business Combination, it
is unlikely that any of them will devote a substantial portion of their time to
the affairs of the Company subsequent thereto. Moreover, there can be no
assurance that such personnel will have significant experience or knowledge
relating to the operations of the particular Target Business. The Company also
may seek to recruit additional personnel to supplement the incumbent management
of the Target Business. There can be no assurance that the Company will have the
ability to recruit additional personnel or that such additional personnel will
have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management. In addition, there can be no assurance that
the future management of the Company will have the necessary skills,
qualifications or abilities to manage a public company intending to embark on a
program of business development.
 
  7
  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.
 
  8
  The
Company anticipates that various prospective Target Businesses will be brought
to its attention from various non-affiliated sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community and affiliated sources, including, possibly, the
Company’s executive officer, directors and their affiliates. While the Company
has not yet ascertained how, if at all, it will advertise and promote itself, it
may elect to publish advertisements in financial or trade publications seeking
potential business acquisitions. While the Company does not presently anticipate
engaging the services of professional firms that specialize in finding business
acquisitions on any formal basis (other than the independent investment banker),
the Company may engage such firms in the future, in which event the Company may
pay a finder’s fee or other compensation.
 
 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.
 
  9
  **Competition**
 
 The
Company expects to encounter intense competition from other entities having
business objectives similar to that of the Company. Many of these entities are
well established and have extensive experience in connection with identifying
and effecting business combinations directly or through affiliates. Many of
these competitors possess greater financial, technical, human and other
resources than the Company and there can be no assurance that the Company will
have the ability to compete successfully. The Company’s financial resources will
be limited in comparison to those of many of its competitors. Further, such
competitors will generally not be required to seek the prior approval of their
own stockholders, which may enable them to close a Business Combination more
quickly than the Company. This inherent competitive limitation may compel the
Company to select certain less attractive Business Combination prospects. There
can be no assurance that such prospects will permit the Company to satisfy its
stated business objectives.
 
 **Uncertainty
of Competitive Environment of Target Business**
 
 In the
event that the Company succeeds in effecting a Business Combination, the Company
will, in all likelihood, become subject to intense competition from competitors
of the Target Business. In particular, certain industries which experience rapid
growth frequently attract an increasingly large number of competitors including
competitors with increasingly greater financial, marketing, technical, human and
other resources than the initial competitors in the industry. The degree of
competition characterizing the industry of any prospective Target Business
cannot presently be ascertained. There can be no assurance that, subsequent to a
Business Combination, the Company will have the resources to compete
effectively, especially to the extent that the Target Business is in a
high-growth industry.
 
 **Certain
Securities Laws Considerations**
 
 Under the
Federal securities laws, public companies must furnish stockholders certain
information about significant acquisitions, which information may require
audited financial statements for an acquired company with respect to one or more
fiscal years, depending upon the relative size of the acquisition. Consequently,
the Company will only be able to effect a Business Combination with a
prospective Target Business that has available audited financial statements or
has financial statements which can be audited.
 
 **Shareholder
Approval**
 
 The
Company will not effect any merger unless it first obtains approval from its
shareholders. In connection with obtaining shareholder approval of a proposed
merger, the Company will distribute a Proxy, Notice of Meeting of Stockholders
and Proxy Statement which contains information about the proposed acquisition
transaction. Such information will likely include audited financial statements
and other financial information about the acquisition target which meets the
requirements of Form 8-K as promulgated under the Securities Exchange of 1934,
as amended, resumes of potential new management, description of 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.
  10
  
 Troika
and its affiliate will vote all of their shares of the Company’s common stock
for or against any merger proposal in the same ratio which the shares owned by
other shareholders are voted. This will permit other shareholders to be able to
effectively determine whether the Company acquires any particular Operating
Company. The merger will be effected only if a majority of the other
shareholders attending the meeting of shareholders in person and/or by proxy,
vote in favor of such proposed merger. The shares of Troika and its affiliates
will be included for purposes of determining whether a quorum of shareholders is
present at the meeting.
 
 **Employees**
 
 As of the
date of this Prospectus, the Company has no full time employees.
 
 **ITEM 2. PROPERTIES**
 
 The
Company’s offices are located at 1661 Lakeview Circle, Ogden, UT 84403. The
Company, pursuant to an oral agreement, utilizes an office at the residence of
Mark A. Scharmann, a stockholder of the Company and the Company’s President.
 
 **ITEM 3. LEGAL PROCEEDINGS**
 
 None.
 
 **ITEM 4.**  **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 No
matters were presented to the Company’s Shareholders for a vote during the last
quarter of 2004.
 
 **PART
II**
 
 **ITEM 5.**  **MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS**
 
 There is
no active market for the Company’s common stock. The Company’s common stock is
sporadically traded on a workout basis in the over-the-counter
market.
 
 **Shares
Issued in Unregistered Transactions in 2004**
 
 We issued
shares of our common stock in unregistered transactions during 2004. 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:
  11
  
 **Issued
      To**
    **Number
      of**
      **Shares**
    **Date**
    **Consideration**Northcliffe
      Consulting
    1,000,000
    2/24/04
    Consulting
      Services valued at $10,000William
      M. Hynes, II
    250,000
    2/24/04
    Consulting
      Services valued at $2,500Mark
      A. Scharmann
    117,460
    2/24/04
    Compensation
      valued at $11,746David
      Knudson
    377,515
    2/24/04
    Compensation
      valued at $37,752Dan
      Price
    5,025
    2/24/04
    Compensation
      valued at $503Pil
      S.A.
    100,000
    5/14/04
    $19,978Mark
      A. Scharmann
    41,250
    5/14/04
    Compensation
      valued at $4,125David
      Knudson
    33,750
    5/14/04
    Compensation
      valued at $3,375Mark
      A. Scharmann
    93,000
    11/22/04
    Compensation
      valued at $9,300David
      Knudson
    189,300
    11/22/04
    Compensation
      valued at $18,930Total:
    2,207,300
 
 **Shares
Issued in Unregistered Transactions Prior to 2004**
 
 Shares
Issued Prior to Confirmation Date
 
 Immediately
prior to the confirmation of the Company’s Plan of Reorganization by the
Bankruptcy Court on May 28, 1997, there were a total of 12,594,422 shares of the
Company’s common stock issued and outstanding. The Plan of Reorganization,
called for a 1-for-6 reverse split of the issued and outstanding shares which
reduced the 12,594,422 shares to 2,099,125 shares.
 
 Shares
Issued to Troika
 
 Pursuant
to the Plan of Reorganization, 5,000,000 shares of the Company’s common stock,
calculated after the reverse stock split, were issued to Troika Capital
Investment. The shares issued to Troika were issued pursuant to Section 4(2) of
the Securities Act of 1993, as amended (the “Securities Act”).
 
  12
  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).
 
  13
  b.  *Accumulators
and Distributors* .
“Accumulators” are persons who purchase a Claim against or Interest in the
Company with a view to distribution of any Plan Securities to be received under
the Plan in exchange for such Claim or Interest. “Distributors” are persons who
offer to sell Plan Securities for the holders of those securities. In a 1986 SEC
No- Action Letter (Manville Corp.), the SEC staff took the position that resales
by Accumulators and Distributors of securities distributed under a plan are
exempt from the registration requirements of the 1933 Act if made in “ordinary
trading transactions”. The SEC staff took the position that a transaction is an
ordinary trading transaction if it is made on an exchange or in the
over-the-counter market at a time when the issuer is a reporting company under
the 1934 Act and does not involve any of the following factors:
 
 (i)  concerted
action by recipients of Plan Securities in connection with the sale of such
securities, concerted action by distributors on behalf of one or more such
recipients in connection with such sales, or both;
 (ii)  informational
documents concerning the offering of the securities prepared or used to assist
in the resale of such securities other than this Disclosure Statement and any
supplements hereto and documents filed with the SEC by the issuer pursuant to
the 1934 Act; or
 (iii)  special
compensation to brokers and dealers in connection with the sale of such
securities designed as a special incentive to resell such securities, other than
compensation that would be paid pursuant to arm’s length negotiations between a
seller and a broker or dealer, each acting unilaterally, and not greater than
the compensation that would be paid for a routine similar-sized sale of a
similar issue.
 
 c.  *Syndicators* .
“Syndicators” are persons who offer to buy Plan Securities from the holders with
a view to distribution, under an agreement made in connection with the Plan,
with consummation of the Plan or with the offer or sale of securities under the
Plan.
 
 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.
  14
  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 $80Workout
      Specialists, Inc.
    200,000
    6/29/98
    Consulting
      services valued at $1,000William
      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 ScharmannWilliam
      M. Hynes, II
    150,000
    5/20/00
    Consulting
      Services valued at $15,000Michael
      Harrop
    187,500
    8/7/02
    Consulting
      Services valued at $18,750PIL
      S.A.
    1,250,000
    6/28/02
    $249,871Total:
    2,183,578
 
 Shares
Issued for Services Prior to 2004
 
 Those
persons who have been serving as the Company’s officers and directors since 1996
have been issued shares of common stock for services rendered in lieu of cash
compensation. Total compensation shares issued to each of the Company’s officers
and directors is as follows:
 
 Mark
      A. Scharmann
    753,776Dan
      Price
    37,275David
      Knudson
    1,563,241
 
 **Holders**
 
 As of May
18, 2005, there were 14,802,300 shares of common stock outstanding and
approximately 150 stockholders of record of common stock.
 
 **Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers**
 
 None
  15
  **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.
 
 **Transfer
Agent and Registrar**
 
 Our
transfer agent is Fidelity Transfer Company, 1800 South West Temple, Suite 301,
Salt Lake City, UT 84115; telephone (801) 484-7222.
 
 **Dividends**
 
 The
Company has not paid any cash dividends to date and does not anticipate or
contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company’s business.
 
 **ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION**
 
 **Overview**
 
 The
Company is currently inactive. Our current business plan calls for us to locate
and acquire an operating company. Currently, we are a "shell" company conducting
virtually no business operation, other than our efforts to seek merger partners
or acquisition candidates. We have no full time employees and own no real
estate.
  16
  We were
previously engaged in the business of distributing television programming. On
September 23, 1995, the Company filed for protection under Chapter 11 of the
United States Bankruptcy Code (Case No. BK. No. SV 95-14737 KL). On May 28, 1997
(the “Confirmation Date”), the United States Bankruptcy Court for the Central
District of California Confirmed the Company’s Modified Plan of Reorganization
(the “Plan”) and First Amended Disclosure Statement (the “Disclosure
Statement”). The Effective Date of the Plan was June 8, 1997. On February 23,
2000, United States Bankruptcy Judge Kathleen T. Lax entered a “Final Decree
Order Pursuant to Bankruptcy Code Section 350”, and thereby issued a final
decree closing the bankruptcy case. The claim by the Internal Revenue Service
was not discharged by the Final Decree Order.
 
 Our Plan
of Operation is further described in Item 1 of this Form 10-KSB.
 
 **Liquidity
and Capital Resources**
 
 As of
December 31, 2004, we had no assets. Therefore, we are dependent upon loans and
advances from our management and affiliates to fund our expenses pending the
completion of a merger or acquisition. As of December 31, 2004, we had total
liabilities of $549,423 of which $152,019 was for tax liabilities. At December
31, 2004, a total of $334,822 of our liabilities was for funds loaned to us by
management and other stockholders compared to $238,630 in such loans as of
December 31, 2003. At December 31, 2004, a total of $28,230 of our liabilities
was for accrued compensation expenses for our officers and directors. Such
expenses will be paid by the issuance of shares of our common stock at a price
of $.10 per share
 
 In the
event we are able to locate an acquisition candidate, we anticipate that some or
all our debt to management and others will be converted into additional shares
of common stock. The conversion price, if a conversion of debt was to occur, of
which there can be no assurance, has not been established.
 
 We intend
to pay for various filing fees and professional fees relating to our reporting
obligations and to fund the costs which may arise from seeking new business
opportunities.
 
 It is
likely that we will be required to raise additional capital in order to attract
and potential acquisition partner but there can be no assurance that we will be
able to raise any additional capital. It is also likely that any future
acquisition will be made through the issuance of shares of our common stock
which will result in the dilution of the percentage ownership of the current
shareholders.
 
 The
auditors’ report on our December 31, 2004 financial statements contains a going
concern qualification, which provides that our ability to continue as a going
concern is dependent upon it raising additional capital. We will continue to be
an inactive company unless and until we raise additional capital and acquire an
operating company. There can be no assurance that either will
occur.
 
  17
  **Results
of Operations**
 
 We have
not conducted any active operations since our Confirmation Date and generated no
revenue for the year ended December 31, 2004 or the year ended December 31,
2003. We anticipate that we will not generate any revenues until we acquire or
merge with another company.
 
 Our total
expenses of $237,913 for the year ended December 31, 2004 compared to $144,588
for the year ended December 31, 2003. Our total cost of compensation for the
year ended December 21, 2004 was $35,730 compared to $35,128 for the year ended
December 31, 2003. Our total interest costs were $41,596 for the year ended
December 31, 2004 compared to $25,290 for year ended December 31,
2003.
 
 **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.
 
  18
  ***Income
Taxes.*** In
determining the carrying value of the Company’s net deferred tax assets, the
Company will be required to assess the likelihood of sufficient future taxable
income in certain tax jurisdictions, based on estimates and assumptions, to
realize the benefit of these assets. If these estimates and assumptions change
in the future, the Company may record a reduction in the valuation allowance,
resulting in an income tax benefit in the Company’s Statements of Operations.
Management will be required to evaluate the realizability of the deferred tax
assets and assesses the valuation allowance quarterly.
 
 ***Goodwill
and Other Long-Lived Asset Valuations.*** In June
2001, the FASB issued SFAS 141, “Business Combinations”, and SFAS 142, “Goodwill
and Other Intangible Assets”, effective for fiscal years beginning after
December 15, 2001 with early adoption permitted for companies with fiscal years
beginning after March 15, 2001. We currently have no intangible assets. At such
time as we have intangible assets, we will adopt the new rules on accounting for
goodwill and other intangible assets, Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
statements. Other intangible assets will continue to be amortized over their
useful lives.
 
 ***Revenue
Recognition*** . At such
time as we have revenues from operations, we will adopt revenue recognitions
policies consistent with generally acceptable accounting standards.
 
 ***Stock-Based
Compensation.*** In
December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based
Compensation” -- Transition and Disclosure, which amends SFAS 123. SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS 148
also requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. As permitted by SFAS 123,
we have elected to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations
including Financial Accounting Standards Board (“FASB”) Interpretation No. 44,
“Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB Opinion No. 25,” and have adopted the disclosure-only
provisions of SFAS 123. Accordingly, for financial reporting purposes,
compensation cost for stock options granted to employees is measured as the
excess, if any, of the estimated fair market value of our stock at the date of
the grant over the amount an employee must pay to acquire the stock. Equity
instruments issued to nonemployees are accounted for in accordance with FAS 123
and Emerging Issues Task Force (“EITF”) Abstract No. 96-18, “Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.”
 
 **Interest
Rate Risk**
 
 We
currently have debt and will undoubtedly incur debt to finance our operations.
We anticipate that a substantial amount of our future debt and the associated
interest expense will be subject to changes in the level of interest rates.
Increases in interest rates would result in incremental interest
expense.
 
 19
 **Plan
of Operation**
 
 The
Company’s current plan of operation is to acquire another operating company.
(See “Item 1 - Description of Business - Current Business Plan.”)
 
 It is
likely that any acquisition will be a “reverse merger” acquisition whereby the
Company acquires a larger company by issuing shares of the Company’s common
stock to the shareholders of the larger company. Although the Company would be
the surviving or parent company from a corporate law standpoint, the
shareholders of the larger company would be the controlling shareholders of the
Company and the larger company would be treated as the survivor or parent
company from an accounting point of view. It can be expected that any company
which may desire to be acquired by the Company will do so as method of
potentially becoming a public company more quickly and less expensively than if
such company undertook its own public offering. Even if the Company is able to
acquire another company, there can be no assurance that the Company will ever
operate at a profit.
 
 **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. ****
 
  20
  **Forward
Outlook and Risks**
 
 This Form
10-KSB contains and incorporates by reference certain “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act with respect to results of our operations and
businesses. All statements, other than statements of historical facts, included
in this Form 10-KSB, including those regarding market trends, our financial
position, business strategy, projected costs, and plans and objectives of
management for future operations, are forward-looking statements. In general,
such statements are identified by the use of forward- looking words or phrases
including, but not limited to, “intended,” “will,” “should,” “may,” “expects,”
“expected,” “anticipates,” and “anticipated” or the negative thereof or
variations thereon or similar terminology. These forward-looking statements are
based on our current expectations. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because
forward-looking statements involve risks and uncertainties, our actual results
could differ materially. Important factors that could cause actual results to
differ materially from our expectations are disclosed hereunder and elsewhere in
this Form 10-KSB. These forward-looking statements represent our judgment as of
the date of this Form 10-KSB. All subsequent written and oral forward-looking
statements attributable to Pacific Alliance are expressly qualified in their
entirety by the Cautionary Statements. we disclaim, however, any intent or
obligation to update our forward-looking statements.
 
 ***Operating
History; No Assets; No Present Source of Revenues*** . We have
been inactive since 1995. We intend to attempt to commence active operations in
the future by acquiring a Target Business. Potential investors should be aware
that there is only a limited basis upon which to evaluate our prospects for
achieving our intended business objectives. We have no resources and have had no
revenues since 1995. In addition, we will not generate any revenues (other than
investment income) until, at the earliest, the consummation of a Business
Combination. Moreover, there can be no assurance that any Target Business will
derive any material revenues from its operations or operate on a profitable
basis.
 
 ***Possibility
of Total Loss of Investment.*** An
investment in the Company, is an extremely high risk investment, and should not
be made unless the investor has no need for current income from the invested
funds and unless the investor can afford a total loss of his or her investment.
 
 ***Absence
of Substantive Disclosure Relating to Prospective Business Combinations;
Investment in the Company Versus Investment in a Target
Business*** . We have
not yet identified a prospective Target Business. Accordingly, investors will
have no substantive information concerning consummation of any specific Business
Combination in considering a purchase of the Preferred Shares in this offering.
 
  21
  ***Seeking
to Achieve Public Trading Market through Business
Combination.*** While a
prospective Target Business may deem a consummation of a Business Combination
with the Company desirable for various reasons, a Business Combination may
involve the acquisition of, merger or consolidation with, a company which does
not need substantial additional capital, but which desires to establish a public
trading market for its shares, while avoiding what it may deem to be adverse
consequences of undertaking a public offering itself, including time delays,
significant expense, loss of voting control and the time and expense incurred to
comply with various Federal and state securities laws that regulate initial
public offerings. Nonetheless, there can be no assurance that there will be an
active trading market for the Company’s securities following the completion of a
Business Combination or, if a market does develop, as to the market price for
the Company’s securities.
 
 ***Uncertain
Structure of Business Combination*** . The
structure of a future transaction with a Target Business cannot be determined at
the present time and may take, for example, the form of a merger, an exchange of
stock or an asset acquisition. We may form one or more subsidiary entities to
complete a Business Combination and may, under certain circumstances, distribute
the securities of subsidiaries to our stockholders. There can be no assurance
that a market would develop for the securities of any subsidiary distributed to
stockholders or, if it did, any assurance as to the prices at which such
securities might trade. The structure of a Business Combination or the
distribution of securities to stockholders may result in taxation of the
Company, the Target Business or stockholders.
 
 ***Unspecified
Target Business; Unascertainable Risks*** . We have
not selected an acquisition or other Business Combination as of the date of this
Form 10-KSB. Accordingly, there is no basis for prospective investors to
evaluate the possible merits or risks of the Target Business or the particular
sector of the technology industries in which the Company may ultimately operate.
To the extent we effect a Business Combination with a financially unstable
company or an entity in its early stage of development or growth (including
entities without established records of revenues or income), we will become
subject to numerous risks inherent in the business and operations of financially
unstable and early stage or potential emerging growth companies. Although
management will endeavor to evaluate the risks inherent in a particular Target
Business or industry, there can be no assurance that we will properly ascertain
or assess all such risks.
 
 ***Probable
Lack of Business Diversification*** . As a
result of our limited resources, in all likelihood, we will have the ability to
complete only a single Business Combination. Accordingly, our prospects for
success will be entirely dependent upon the future performance of a single
business. Unlike certain entities which have the resources to consummate several
Business Combinations or entities operating in multiple industries or multiple
segments of a single industry, it is highly likely that the we will not have the
resources to diversify our operations or benefit from the possible spreading of
risks or offsetting of losses. Our probable lack of diversification may subject
us to numerous economic, competitive and regulatory developments, any or all of
which may have a material adverse impact upon the particular industry in which
we may operate subsequent to a consummation of a Business Combination. There can
be no assurance that the Target Business will prove to be commercially viable.
  22
  ***Conflicts
of Interest; Absence of Independent Directors*** . None of
the Company’s directors or executive officers are required to commit their full
time to the affairs of the Company and it is likely that such persons will not
devote a substantial amount of time to the affairs of the Company. Such
personnel will have conflicts of interest in allocating management time among
various business activities. As a result, the consummation of a Business
Combination may require a greater period of time than if the Company’s
management devoted their full time to the Company’s affairs.
 
 ***Limited
Ability to Evaluate Target Business Management; Possibility That Management Will
Change*** . The
role of the present management in the operations of a Target Business of the
Company following a Business Combination cannot be stated with certainty.
Although we intend to scrutinize closely the management of a prospective Target
Business in connection with our evaluation of the desirability of effecting a
Business Combination with such Target Business, there can be no assurance that
our assessment of such management will prove to be correct, especially in light
of the possible inexperience of current key personnel of the Company in
evaluating certain types of businesses. While it is possible that certain of our
directors or executive officers will remain associated in some capacities with
the Company following a consummation of a Business Combination, it is unlikely
that any of them will devote a substantial portion of their time to the affairs
of the Company subsequent thereto. Moreover, there can be no assurance that such
personnel will have significant experience or knowledge relating to the
operations of the Target Business acquired by the Company. We may also seek to
recruit additional personnel to supplement the incumbent management of the
Target Business. There can be no assurance that we will successfully recruit
additional personnel or that the additional personnel will have the requisite
skills, knowledge or experience necessary or desirable to enhance the incumbent
management. In addition, there can be no assurance that our future management
will have the necessary skills, qualifications or abilities to manage a public
company embarking on a program of business development.
 
 ***Competition*** . We
expect to encounter intense competition from other entities having business
objectives similar to our business objectives. Many of these entities, including
venture capital partnerships and corporations, shell companies, large industrial
and financial institutions, small business investment companies and wealthy
individuals, are well-established and have extensive experience in connection
with identifying and effecting Business Combinations directly or through
affiliates. Many of these competitors possess greater financial, technical,
human and other resources than the Company and there can be no assurance that
the Company will have the ability to compete successfully. The Company’s
financial resources will be limited in comparison to those of many of its
competitors. Further, such competitors will generally not be required to seek
the prior approval of their own stockholders, which may enable them to close a
Business Combination more quickly than we can. This inherent competitive
limitation may compel us to select certain less attractive Business Combination
prospects. There can be no assurance that such prospects will permit us to
achieve our business objectives.
 
  23
  ***Uncertainty
of Competitive Environment of Target Business*** . In the
event that we succeed in effecting a Business Combination, we will, in all
likelihood, become subject to intense competition from competitors of the Target
Business. In particular, certain industries which experience rapid growth
frequently attract an increasingly larger number of competitors, including
competitors with greater financial, marketing, technical, human and other
resources than the initial competitors in the industry. The degree of
competition characterizing the industry of any prospective Target Business
cannot presently be ascertained. There can be no assurance that, subsequent to a
consummation of a Business Combination, we will have the resources to compete in
the industry of the Target Business effectively, especially to the extent that
the Target Business is in a high-growth industry.
 
 ***Additional
Financing Requirements*** . We will
not generate any revenues until, at the earliest, the consummation of a Business
Combination. We cannot ascertain the capital requirements for any particular
Business Combination we may consider. We will likely be required to seek
additional financing. There can be no assurance that such financing will be
available on acceptable terms, or at all. To the extent that additional
financing proves to be unavailable when needed to consummate a particular
Business Combination, we would, in all likelihood, be compelled to restructure
the transaction or abandon that particular Business Combination and seek an
alternative Target Business candidate, if possible. In addition, in the event of
the consummation of a Business Combination, we may require additional financing
to fund the operations or growth of the Target Business. Our failure to secure
additional financing could have a material adverse effect on the continued
development or growth of the Target Business. We do not have any arrangements
with any bank or financial institution to secure additional financing and there
can be no assurance that any such arrangement, if required or otherwise sought,
would be available on terms deemed to be commercially acceptable and in our best
interests.
 
 ***No
Appraisal of Potential Business Combination*** . We do
not anticipate that we will obtain an independent appraisal or valuation of a
Target Business. Accordingly, our stockholders will need to rely primarily upon
management to evaluate a prospective Business Combination.
 
 ***No
Public Market for Securities*** .
Currently, there is no public market for our common stock and no assurance can
be given that an active market will develop or if developed, that it will be
sustained. It is unlikely that any market will develop prior to the consummation
of a Business Combination. Even if a Business Consummation is completed, there
can be no assurance that a trading market for our securities will ever
develop.
 
  24
  ***Risk
of Application of Penny Stock Rules*** . Our
common stock is subject to the penny stock rules as adopted by the Securities
and Exchange Commission (the “Commission”). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
Commission that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer’s account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If our common stock remains
subject to the penny stock rules, investors in the Offering may find it more
difficult to sell their shares.
 
 **ITEM 7. FINANCIAL STATEMENTS**
 
 Index
to Financial Statements
 
 Pacific
      Alliance Corporation Financial Statements
    PageReport of Independent Registered Public Accounting
      Firm
    26Independent Auditors’ Report
    27Balance Sheet
    28Statements of Operations
    29Statements of Stockholders’ Deficit
    30Statements of Cash Flows
    32Notes to Financial Statements
    33
  25
  [LETTERHEAD]
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 
 Board of
Directors and Shareholders of
 Pacific
Alliance Corporation
 Ogden,
Utah
 
 We have
audited the accompanying balance sheet of Pacific Alliance Corporation as of
December 31, 2004, and the related statements of operations, stockholder’s
equity (deficit) and cash flows for the year ended December 31, 2004. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We
conducted our audit in accordance with 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pacific Alliance Corporation as of
December 31, 2004, and the results of its operations and its cash flows for the
year ended December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has no operations, has a stockholders deficit and
minimal working capital. Together these factors raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 
 
 /s/ HJ
& Associates, LLC
 Salt Lake
City, Utah
 May 23,
2005
 
 
 
  26
  [LETTERHEAD]
 
 INDEPENDENT AUDITORS’ REPORT
 
 
 To the
Stockholders of
 Pacific
Alliance Corporation
 
 
 We have
audited the accompanying balance sheets of Pacific Alliance Corporation (a
Delaware corporation in the Development Stage) as of December 31, 2003 and 2002,
and the statements of operations, stockholders’ deficit, and cash flows for the
years then ended and the period from inception of the development stage
(December 21, 1995) through December 31, 2003. These financial statements are
the responsibility of the Corporation’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Pacific Alliance Corporation (a
Development Stage Company) as of December 31, 2003 and 2002, and the results of
its operations and its cash flows for the years then ended and the period from
inception of the development stage (December 21, 1995) through December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company does not generate revenue and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 
 /s/ Rose,
Snyder & Jacobs
 A
Corporation of Certified Public Accountants
 
 Encino,
California
 
 March 26,
2004
 
 
   27
   PACIFIC
ALLIANCE CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 BALANCE SHEET
 
 ASSETSDecember
      31,2004CURRENT
      ASSETSCash
    
    
    -TOTAL
      ASSETS
    
    $
    -LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESOverdraft
    
    $
    12Accrued
      interest
    
    $
    39,464Other
      accrued expenses
    
    
    23,106Note
      payable, note 4
    
    
    20,000Notes
      payable - related parties, note 4
    
    
    89,986Advance
      from officer, note 6
    
    
    224,836Current
      portion of tax liabilities, note 2
    
    
    92,398TOTAL
      CURRENT LIABILITIES
    
    
    489,802LONG
      TERM LIABILITIESTax
      liabilities, note 2
    
    
    59,621TOTAL
      LIABILITIES
    
    
    549,423STOCKHOLDERS'
      DEFICITCommon
      stock, par value $.001,30,000,000
      shares authorized, 14,802,300shares
      issued and outstanding
    
    
    14,802Additional
      paid in capital
    
    
    3,126,119Accumulated
      deficit prior to the development stage
    
    
    (2,632,447
    )Accumulated
      deficit during the development stage
    
    
    (1,057,897
    )TOTAL
      STOCKHOLDERS' DEFICIT
    
    
    (549,423
    )TOTAL
      LIABILITIES ANDSTOCKHOLDERS'
      DEFICIT
    
    $
    -
 
 See
Independent Auditors’ Report
 The
accompanying notes are an integral part of these financial
statements.
  28
  PACIFIC
ALLIANCE CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 STATEMENTS OF OPERATIONS
 
 From
      Inceptionof
      theDevelopmentStage,December
      21,1995,
      ThroughDecember
      31, 2004
    
    December
      31, 2003
    
    December
      31, 2004SALES
    
    $
    -
    
    $
    -
    
    $
    -GROSS
      MARGIN
    
    
    -
    
    
    -
    
    
    -OPERATING
      EXPENSES
    
    
    -
    
    
    -
    
    
    -OTHER
      INCOME (EXPENSES)Professional
      fees
    
    
    (109,286
    )
    
    (50,415
    )
    
    (357,440
    )Management
      compensation,note
      5
    
    
    (35,730
    )
    
    (35,128
    )
    
    (271,160
    )Office
      expenses
    
    
    (6,000
    )
    
    (6,000
    )
    
    (46,900
    )Other
      expenses
    
    
    (45,301
    )
    
    (27,755
    )
    
    (109,451
    )Taxes
    
    
    -
    
    
    -
    
    
    (26,000
    )Interest
      expense
    
    
    (41,596
    )
    
    (25,290
    )
    
    (224,876
    )Gain
      (loss) on investments
    
    
    -
    
    
    
    
    
    (6,844
    )Reorganization
      fees
    
    
    -
    
    
    -
    
    
    (84,301
    )LOSS
      BEFOREEXTRAORDINARY
      ITEM
    
    
    (237,913
    )
    
    (144,588
    )
    
    (1,126,972
    )EXTRAORDINARY
      ITEMGain
      on forgiveness of taxdebt,
      note 7
    
    
    -
    
    
    -
    
    
    69,075NET
      LOSS
    
    $
    (237,913
    )
    $
    (144,588
    )
    $
    (1,057,897
    )BASIC
      AND DILUTED NETLOSS
      PER SHARES
    
    $
    (0.02
    )
    $
    (0.01
    )WEIGHTED
      AVERAGENUMBER
      OF SHARES
    
    
    13,913,621
    
    
    12,595,000
 
 See
Independent Auditors’ Report
 The
accompanying notes are an integral part of these financial
statements.
 
   29
   PACIFIC
ALLIANCE CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 STATEMENTS OF STOCKHOLDERS’ DEFICIT
 
 Accumulated
    
    AccumulatedShares
      of
    
    
    
    Additional
    
    Deficit
      Prior
    
    Deficit
      AfterCommon
    
    Common
    
    Paid-in
    
    to
      December
    
    DecemberStock
    
    Stock
    
    Capital
    
    21,
      1995
    
    21,
      1995Balance
      atDecember
      21, 1995
    
    
    2,099,125
    
    $
    2,099
    
    $
    884,901
    
    $
    (2,632,447
    )
    $
    -Conversion
      of trade accountspayable,
      note 5
    
    
    1,458,005
    
    
    1,458
    
    
    1,456,547
    
    
    -
    
    
    -Issuance
      of common stock forcash,
      note 5
    
    
    5,000,000
    
    
    5,000
    
    
    20,000
    
    
    -
    
    
    -Issuance
      ofcommon
      stock for services,note
      5
    
    
    216,000
    
    
    216
    
    
    864
    
    
    -
    
    
    -Conversion
      of debt, note 5
    
    
    300,000
    
    
    300
    
    
    14,700
    
    
    -
    
    
    -Issuance
      of common stock for IRSclaim
      reduction, note 5
    
    
    80,078
    
    
    80
    
    
    79,998
    
    
    -
    
    
    -Issuance
      ofcommon
      stock, note 5
    
    
    1,250,000
    
    
    1,250
    
    
    248,621
    
    
    -
    
    
    -Conversion
      ofManagement
      compensationliability,
      note 5
    
    
    1,854,292
    
    
    1,854
    
    
    183,575
    
    
    -
    
    
    -Issuance
      of commonstock
      for consulting
    
    
    
    
    
    
    
    
    
    
    
    -
    
    
    -services,
      note 5
    
    
    337,500
    
    
    338
    
    
    33,412
    
    
    -
    
    
    -Activity
      fromDecember
      21, 1995 throughDecember
      31, 2002
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (675,396
    )Balance
      atDecember
      31, 2002
    
    
    12,595,000
    
    
    12,595
    
    
    2,922,618
    
    
    (2,632,447
    )
    
    (675,396
    )Net
      loss for the year endedDecember
      31, 2003
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (144,588
    )Balance
      atDecember
      31, 2003
    
    
    12,595,000
    
    
    12,595
    
    
    2,922,618
    
    
    (2,632,447
    )
    
    (819,984
    )
 
 See
Independent Auditors’ Report
 The
accompanying notes are an integral part of these financial
statements.
 
   30
   
 PACIFIC
ALLIANCE CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 STATEMENTS
OF STOCKHOLDERS’ DEFICIT
 
 Accumulated
    
    AccumulatedShares
      of
    
    
    
    Additional
    
    Deficit
      Prior
    
    Deficit
      AfterCommon
    
    Common
    
    Paid-in
    
    to
      December
    
    DecemberStock
    
    Stock
    
    Capital
    
    21,
      1995
    
    21,
      1995Issuance
      of commonstock
      for consultingservices,
      note 5
    
    
    1,250,000
    
    
    1,250
    
    
    98,750
    
    
    -
    
    
    -Issuance
      of stock forcash,
      note 5
    
    
    100,000
    
    
    100
    
    
    19,878
    
    
    -
    
    
    -Issuance
      of Commonstock
      for managementcompensation
      expense,note
      5
    
    
    857,300
    
    
    857
    
    
    84,873
    
    
    -
    
    
    -Net
      loss for the year endedDecember
      31, 2004
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (237,913
    )Balance
      atDecember
      31, 2004
    
    
    14,802,300
    
    $
    14,802
    
    $
    3,126,119
    
    $
    (2,632,447
    )
    $
    (1,057,897
    )
 
 See
Independent Auditors’ Report
 The
accompanying notes are an integral part of these financial
statements.
 
 
 
   31
   PACIFIC
ALLIANCE CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 STATEMENTS OF CASH FLOWS
 From
      Inceptionof
      theDevelopmentStage,December
      21,1995,
      ThroughDecember
      31, 2004
    
    December
      31, 2003
    
    December
      31, 2004CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
    
    $
    (237,913
    )
    $
    (144,588
    )
    $
    (1,057,897
    )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Stock
      issued for services
    
    
    185,730
    
    
    -
    
    
    185,730(Gain)
      loss on investments
    
    
    -
    
    
    -
    
    
    6,844Gain
      on forgiveness on tax debt
    
    
    -
    
    
    -
    
    
    (69,075
    )Change
      in assets and liabilitiesDecrease
      in prepaid expenses
    
    
    -
    
    
    500
    
    
    -Decrease
      in accounts receivable
    
    
    -
    
    
    -
    
    
    95,841Increase
      (decrease) in accrued expenses
    
    
    18,479
    
    
    22,542
    
    
    122,667Increase
      (decrease) in management compensation payable
    
    
    (82,478
    )
    
    35,127
    
    
    152,952Decrease
      in tax liabilities
    
    
    -
    
    
    -
    
    
    (79,525
    )NET
      CASH USED IN OPERATING ACTIVITIES:
    
    
    (116,182
    )
    
    (86,419
    )
    
    (642,463
    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of investments
    
    
    -
    
    
    -
    
    
    (30,180
    )Proceeds
      from sale of investments
    
    
    -
    
    
    -
    
    
    23,336NET
      CASH USED ININVESTING
      ACTIVITIES
    
    
    -
    
    
    -
    
    
    (6,844
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Bank
      overdraft
    
    
    12
    
    
    -
    
    
    (2,574
    )Proceeds
      from notes payable
    
    
    59,986
    
    
    -
    
    
    169,986Repayment
      of note payable
    
    
    -
    
    
    -
    
    
    (50,000
    )Advance
      from officer
    
    
    43,627
    
    
    85,550
    
    
    512,685Repayment
      of advance to officer
    
    
    (7,421
    )
    
    -
    
    
    (285,617
    )Proceeds
      from issuance of common stock
    
    
    19,978
    
    
    -
    
    
    44,978Proceeds
      from common stock subscription
    
    
    -
    
    
    -
    
    
    259,849NET
      CASH PROVIDED BYFINANCING
      ACTIVITIES
    
    
    116,182
    
    
    85,550
    
    
    649,307NET
      INCREASE (DECREASE) IN CASH
    
    
    -
    
    
    (869
    )
    
    -CASH
      AT BEGINNING OF PERIOD
    
    
    -
    
    
    869
    
    
    -CASH
      AT END OF PERIOD
    
    $
    -
    
    $
    -
    
    $
    -Supplementary
      disclosures:Interest
      paid in cash
    
    $
    11,177
    
    $
    16,505
    
    $
    149,304
 
 See
Independent Auditors’ Report
 The
accompanying notes are an integral part of these financial
statements.
 
   32
   PACIFIC
ALLIANCE CORPORATION
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES TO FINANCIAL STATEMENTS
 DECEMBER
31, 2004 AND 2003
 
 1.
    ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
 
 Organization
and Going Concern
 
 Pacific
Alliance Corporation (the “Company”), whose name was changed from Pacific
Syndication, Inc. in 1997, was originally incorporated in December 1991 under
the laws of the State of Delaware. It also became a California corporation in
1991. Pacific Syndication, Inc. was engaged in the business of videotape
duplication, standard conversion and delivery of television programming. In
1994, Pacific Syndication, Inc. merged with Kaiser Research, Inc.
 
 The
Company filed a petition for Chapter 11 under the Bankruptcy Code in June 1995.
The debtor in possession kept operating until December 21, 1995, when all
assets, except cash and accounts receivable, were sold to a third party,
Starcom. The purchaser assumed all post-petition liabilities and all obligations
collateralized by the assets acquired.
 
 In 1997,
a reorganization plan was approved by the Bankruptcy Court, and the remaining
creditors of all liabilities subject to compromise, excluding tax claims, were
issued 1,458,005 shares of the Company’s common stock in March 1998, which
corresponds to one share for every dollar of indebtedness. Each share of common
stock issued was also accompanied by an A warrant and a B warrant (see note 5).
The IRS portion of tax liabilities was payable in cash by quarterly installments
(see note 2). Repayment of other taxes is still being negotiated.
 
 The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realizations of assets and the satisfaction of
liabilities in the normal course of business. As shown in the December 31, 2004
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, 2004, the Company funded its disbursements using
loans from an officer.
 
 The
financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
 
 The
Company is no longer operating, and will attempt to locate 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.
 
 See
Independent Auditors’ Report
 33
   PACIFIC
ALLIANCE CORPORATION(A DEVELOPMENT STAGE COMPANY)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2004 AND 2003
 
 
 1.
    ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
 
 Cash
Flows
 
 For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with maturity of three months or less to be cash
equivalents.
 
 Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results may
differ from those estimates.
 
 Fair
Value of Financial Instruments
 
 The
carrying amount of the Company’s financial instruments approximate fair
value.
 
 Earnings
Per Share
 
 The
Company adopted Statement of Financial Standards (“SFAS”) No. 128 for the
calculation of earnings per share. This SFAS was issued in February 1997, and
supersedes APB Opinion No. 15 previously applied by the Company. SFAS No. 128
dictates the calculation of basic earnings (loss) per share and diluted earnings
(loss) per share. The Company’s diluted loss per share is the same as the basic
loss per share for the years ended December 31, 2004 and 2003.
 
 New
Accounting Pronouncements
 
 During
the year ended December 31, 2004, the Company adopted the following accounting
pronouncements which had no impact on the financial statements or results of
operations:
 
 
 
 
 
 See
Independent Auditors’ Report
  34
   PACIFIC
ALLIANCE CORPORATION(A DEVELOPMENT STAGE COMPANY)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2004 AND 2003
 
 
 1.
    ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
 
 ·
    SFAS
      No. 143, Accounting for Asset Retirement
Obligations; ·
    SFAS
      No. 145, Recision of FASB Statements 4, 44, and 64, amendment of Statement
      13, and Technical Corrections; ·
    SFAS
      No. 146, Accounting for Exit or Disposal
Activities; ·
    SFAS
      No. 147, Acquisitions of certain Financial Institutions;
    and ·
    SFAS
      No. 148, Accounting for Stock Based Compensation; ·
    SFAS
      No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
      Activities; ·
    SFAS
      No. 150, Accounting for Certain Financial Instruments with Characteristics
      of both Liabilities and Equity. 
 In
addition, during the year ended December 31, 2004, FASB Interpretations No. 45
and No. 46, along with various Emerging Issues Task Force Consensuses (EITF)
were issued and adopted by the Company and had no impact on its financial
statements.
 
 These
newly issued accounting pronouncements had no effect on the Company’s current
financial statements and did not impact the Company.
 
 2.
    TAX
      LIABILITIES
 
 The
Company owes back taxes to the IRS, California State Board of Equalization and
other tax authorities. The IRS portion of tax liabilities, $92,398, bears
interest at 9%, and was payable in quarterly installments of $11,602, final
payment due in January 2002. Several payments have not been made and the Company
is renegotiating the payment terms. In 2000, the Company entered into a
settlement agreement with California EDD, which reduced their claim by $69,075,
to $7,600, which was paid in 2001 (see note 7). Other tax claim repayment
schedules have not yet been set.
 
 
 
 
 
 
 
 
 See
Independent Auditors’ Report
  35
   PACIFIC
ALLIANCE CORPORATION(A DEVELOPMENT STAGE COMPANY)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2004 AND 2003
 
 3.
    INCOME
      TAXES
 
 The
Company has loss carryforwards available to offset future taxable income. The
total loss carryforwards at December 31, 2004 are estimated at approximately
$1,150,000 and expire between 2013 and 2024. 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 $391,000,
which relates to these loss carryforwards, since future profits are
indeterminable. The valuation allowance increased by $27,400 during the year
ended December 31, 2004.
 
 4.
    NOTES
      PAYABLE
 
 During
the year 2002, the Company obtained a loan of $20,000 from a third party. The
new loan bears interest at 10%, is due on demand, and was still outstanding at
December 31, 2004.
 
 Notes
payable to minority shareholders amounted to $89,986 at December 31, 2004 and
$30,000 at December 31, 2003. These notes bear interest at 10% and are due on
demand.
  5.
    COMMON
      STOCK AND WARRANTS
 
 On May
28, 1997, a reorganization plan was approved by the Bankruptcy Court. As a
result, existing shares of the Company were reverse split 1-for-6 and
pre-bankruptcy creditors were issued 1,458,005 shares of Company’s common stock.
On November 13, 1997, an additional 5,000,000 shares of common stock were issued
(after reverse split) to an officer of the Company in return for proceeds of
$25,000 ($.005 per share).
 
 In
accordance with the reorganization plan, the pre-bankruptcy creditors were also
issued 1,458,005 class “A” warrants and 1,458,005 class “B” warrants. The class
“A” warrants allowed the purchase of a share of common stock at an exercise
price of $2.50 per share. The “A” warrants expired in June 2000 and none were
exercised. The class “B” warrants 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.
 
 
 See
Independent Auditors’ Report
 36
   PACIFIC
ALLIANCE CORPORATION(A DEVELOPMENT STAGE COMPANY)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2004 AND 2003
 
 5.
    COMMON
      STOCK AND WARRANTS (Continued)
 
 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 in to an agreement under which PIL S.A., would
make a capital infusion and bring in new majority shareholders. 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. At June 30, 2004 50,000 shares for an additional subscription
of $9,978 received in previous quarters 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. The Company does
not anticipate the transaction with PIL S.A. will be completed according to the
terms of the agreement.
 
 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.
 
 
 
 See
Independent Auditors’ Report
  37
   PACIFIC
ALLIANCE CORPORATION(A DEVELOPMENT STAGE COMPANY)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2004 AND 2003
 
 5.
    COMMON
      STOCK AND WARRANTS (Continued)
 
 At
December 31, 2003, the Company had $50,000 of management compensation accrued.
The corresponding 500,000 shares of common stock were issued at December 31,
2004. In December 2003 the Company also accrued $12,500 of consulting fees,
which was paid with 1,250,000 shares of common stock by December
2004.
 
 6.
    RELATED
      PARTY TRANSACTIONS
 
 An
officer of the Company advanced $43,627 to the Company during the year ended
December 31, 2004. The Company repaid $7,421 during the year ended December 31,
2004. These advances bear interest at 10% and have no maturity date. The balance
of advances was $224,836 at December 31, 2004.
 
 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, 2004 and
2003.
 
 In
accordance with the modified joint plan of reorganization, management is
compensated on an hourly basis at a rate of $75 per hour. Such compensation is
made through issuance of common stock (see note 5). Management compensation
amounted to $35,730 and $35,128 for the years ended December 31, 2004 and 2003,
respectively. There was an accrued balance of $50,000 at December 31, 2003 with
respect to management compensation. The corresponding 500,000 shares of common
stock were issued at December 31, 2004.
 
 7.
    EXTRAORDINARY
      ITEM
 
 On
December 19, 2000, the Employment Development Department of California (EDD)
accepted an "Offer in Compromise" in the amount of $7,600 to satisfy in full,
all outstanding liabilities due to the EDD by Pacific Alliance Corporation. The
balance of the liabilities was $76,675 and an extraordinary gain of $69,075 was
recognized. The settlement amount was paid in January 2001.
 
 
 
 
 See
Independent Auditors’ Report
 
   38
   **ITEM 8.**  **CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE**
 
 On March
2, 2005 Rose, Snyder & Jacobs resigned as our Independent Accountant
effective March 2, 2005. On April 13, 2005, we appointed HJ & Associates,
LLC as our independent accountants for the year ending December 31, 2004. Prior
to appointing HJ & Associates, LLC as our independent accountant we have not
consulted with HJ & Associates, LLC regarding: (i) either the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements; or (ii) any matter that was either the subject of a disagreement (as
defined in Item 304(a)(1)(iv) of Regulation S-B) or a reportable event (as
described in Item 304(a)(1)(v) of Regulation S-B).
 
 The
reports of Rose, Snyder & Jacobs on our financial statements for the fiscal
years ended December 31, 2003 and 2002 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles, except for Rose, Snyder & Jacobs
issuance of going concern opinions on the financial statements for the fiscal
years ending December 31, 2003 and 2002. During the period it served as our
independent accountant, there were no disagreements between us and Rose, Snyder
& Jacobs on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Rose, Snyder & Jacobs would have caused it
to make a reference to the subject matter of the disagreement in connection with
its audit report.
 
 **ITEM 8A.CONTROLS AND PROCEDURES**
 
 We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and
reported within the required time periods, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding disclosure.
 
 As
required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation,
with the participation of our Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures as of
December 31, 2004. The Public Company Accounting Oversight Board has defined a
material weakness as a “significant deficiency or combination of significant
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.”
 
  39
  The
deficiencies in our internal control related to revenue recognition, and the
disclosure controls deficiencies related to equity transactions, purchase
accounting, statements of cash flows, deferred revenue, short-term bank
borrowings, related party convertible notes payable, and operating leases. The
adjustment to revenue and the footnote disclosure deficiencies were detected in
the audit process and have been appropriately recorded and disclosed in this
Form 10-KSB. We are in the process of improving our internal control over
financial reporting in an effort to remediate these deficiencies through
improved supervision and training of our accounting staff. These deficiencies
have been disclosed to our Audit Committee. Additional effort is needed to fully
remedy these deficiencies and we are continuing our efforts to improve and
strengthen our control processes and procedures. Our management, audit
committee, and directors will continue to work with our auditors and other
outside advisors to ensure that our controls and procedures are adequate and
effective.
 
 There has
been no change in our internal control over financial reporting during the
fourth quarter ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. Since the most recent evaluation date, there have been no significant
changes in our internal control structure, policies, and procedures or in other
areas that could significantly affect our internal control over financial
reporting.
 
 ***The
Sarbanes-Oxley Act of 2002 (the “Act”)*** imposed
many requirements regarding corporate governance and financial reporting. One
requirement under section 404 of the Act, beginning with our annual report for
the year ended December 31, 2006, is for management to report on the Company’s
internal controls over financial reporting and for our independent registered
public accountants to attest to this report.
 
 **ITEM 8B.OTHER INFORMATION**
 
 We must
disclose under this item any information required to be disclosed in a report on
Form 8-K during the fourth quarter of the year covered by this Form 10-KSB, but
not reported, whether or not otherwise required by this Form 10-KSB. If
disclosure of such information is made under this item, it need not be repeated
in a report on Form 8-K which would otherwise be required to be filed with
respect to such information or in a subsequent report on Form 10-KSB. No
additional disclosure is required under this item.
 
 **PART
III**
 
 **ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.**
 
 A.  Identification
of Directors and Executive Officers . The
current directors and officers of the Company, who will serve until the next
annual meeting of shareholders or until their successors are elected or
appointed and qualified, are set forth below:
  40
  
 Name
    Age
    PositionMark
      Scharmann
    46
    President/DirectorDan
      Price
    50
    Vice
      President/DirectorDavid
      Knudson
    45
    Secretary/Treasurer/Director
 
 Mark
Scharmann. Mr.
Scharmann has been a private investor and business consultant since 1981. Mr.
Scharmann became involved in the consulting business following his compilation
and editing in 1980 of a publication called Digest
of Stocks Listed on the Intermountain Stock Exchange . In 1981
he compiled and edited an 800 page publication called the OTC
Penny Stock Digest . Mr.
Scharmann has rendered consulting services to public and private companies
regarding reverse acquisition transactions and other matters. Mr. Scharmann was
vice president of OTC Communications, Inc. from March 1984 to January 1987. From
1982 to 1996, he was the president of Royal Oak Resources Corporation. In 1996,
Royal Oak Resources completed and acquisition and in connection therewith
changed its name to Hitcom Corporation. Mr. Scharmann was the President of
Norvex, Inc., a blank check company which completed an acquisition and in
connection therewith, changed its name to Capital Title. Mr. Scharmann is a
promoter of Nightingale, Inc., a publicly-held corporation blank check company.
He has also been an officer and director of several other blind pool companies.
 
 Dan O.
Price . Since
February 2001, Mr. Price has been working as an Enrollment Counselor for the
University of Phoenix. From 1998 to October 2000, Mr. Price worked as an
evaluator at Learning Technics, Kirkland, WA and Salt Lake City, UT. From 1993
to 1998, Mr. Price served as Vice-President of Corporate Development for Troika
Capital Investment. Prior to that, Mr. Price worked for seven (7) years as the
National Sales Director for a business providing electronic bankcard processing
and other merchant services. For four (4) years he worked as an Organizational
Manager involved in direct sales of educational material, with 50 sales people
in the western states under his management. Mr. Price has been in sales and
marketing for twenty (20) years and sales management and business management for
fifteen (15) years. Mr. Price received his B.A. from Weber State College in
1983. He has served as an officer and director on two (2) small publicly traded
companies.
 
 David
Knudson . Mr.
Knudson has worked as a business consultant since 1985. He earned his B.S.
Degree in Finance from Weber State College in 1984 and a B.S. Degree in
Information Systems and Technologies at Weber State University in 1996. He has
been an officer and director of several small publicly-held “blind-pool”
companies. Mr. Knudson was also employed as an adjunct professor and from 1992
to 1996 was employed as a computer information systems consultant at Weber State
University. Mr. Knudson is an officer and director of Nightingale, Inc., an
inactive publicly-held corporation.
 
 B.  Significant
Employees .
None
 
 C.  Family
Relationships . There
are no family relationships among the Company’s officers and directors.
 
 
 41
 
 D.  Other
Involvement in Certain Legal Proceedings . There
have been no events under any bankruptcy act, no criminal proceedings and no
judgments or injunctions material to the evaluation of the ability and integrity
of any director or executive officer during the last five years.
 
 E.  Compliance
With Section 16(a) . The
Company is not a reporting company under either Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1934 and accordingly, is not subject to
Section 16(a) of such Act.
 
 **Code
of Ethics**
 
 We have
not yet adopted a code of ethics that applies to all executive officers,
directors and employees of the Company. We intend to do so within the next
fiscal year.
 
 **Audit
Committee Financial Expert**
 
 We have
not established an audit committee or designated any person as our financial
expert. We anticipate that we will not establish an audit committee or designate
a financial expert until such time as we complete an acquisition.
 
 **ITEM 10.**  **EXECUTIVE
COMPENSATION**
 
 The
following table sets forth the aggregate compensation paid by the Company for
services rendered during the last three years to the Company’s Chief Executive
Officer and to the Company’s most highly compensated executive officers other
than the CEO, whose annual salary and bonus exceeded $100,000:
 
 ****
      **SUMMARY
      COMPENSATION TABLE**Annual
      CompensationName
      and Principal
      Position
    Year
    Salary
    Commissions
      and
      Bonuses
      ($)
    Other
      Annual
      Compensation
      ($)
    Restricted
      Stock
      Awards
      ($)
    Options/
      SAR’s
      (#)Mark
      Scharmann (1)
      President
    2004
      2003
      2002
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    $13,425.00
      $
      8,446.00
      $
      5,932.50
    -0-
      -0-
      -0-
 
 (1) Mr.
Scharmann’s compensation is paid in shares of Restricted Stock priced at $.10
per share.
 
  42
  Stock
Options
 
 The
following table sets forth certain information concerning stock options granted
during fiscal 2004 to the named executive officers.
 
 **Options
Grants in the Year Ended December 31, 2004**
  
 Name
    Number
      of
      Securities
      Underlying
      Options
      Granted (#)
    Percentage
      of
      Total
      Options
      Granted to
      Employees
      in
      Fiscal
      Year
    Exercise
      orBase
      Price
      Per
      Share
      ($)
    Expiration
      DateMark
      Scharmann
    -0-
    -0-
    N/A
    N/A
 
 The
following table sets forth information concerning the number and value of
options held at December 31, 2004 by each of the named executive officers. No
options held by such executive officers were exercised during 2004.
 
 **Option
Values at December 31, 2004**
 Number
      of Unexercised
      Options
      at
      December
      31, 2004 (#)
    Value
      of Unexercised
      In-the-Money
      Options
      At
      December 31, 2004($)Name
    Exercisable
    Unexercisable
    Exercisable
    UnexercisableMark
      Scharmann
    -0-
    -0-
    N/A
    N/A
 
 **Compensation
of Directors**
 
 The
Company does not currently compensate its directors for director services to the
Company.
 
 **Employment
Agreements**
 
 The
Company is currently not a party to any employment agreement. The Plan of
Reorganization provides that the Company’s officers will be compensated at the
rate of $75.00 per hour for services rendered to the Company. Until such time as
the Company’s shareholder’s equity reaches $350,000, the Company’s officers
shall be issued shares of its common stock for services rendered. Such shares
shall be valued at $.10 per share. At such time as the Company effects an
acquisition or merger, the Board of Directors, as then constituted, shall set
the compensation of officers, directors and employees.
 
  43
  For the
year ended December 31, 2004 the Company compensated its officers as
follows:
 
 Name
    Compensation
    Shares
      Issued
    Shares
      to be IssuedMark
      Scharmann
    $
      13,425.00
    134,250
    93,000Dan
      Price
    $
      -0-
    -0-
    -0-David
      Knudson
    $
      22,305.00
    223,050
    189,300
 
 The
Company’s Bankruptcy Plan of Reorganization also provides that upon the
completion of an acquisition or merger, the Company’s management group will be
issued shares of the Company’s common stock which amount to 1% of the total
shares issued in connection with such acquisition or merger.
 
 **Equity
Compensation Plan**
 
 We are
not a party to any equity compensation plan.
 
 **ITEM 11.**  **SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
 
 **Security
Ownership of Certain Beneficial Owners**
 
 The
following table sets forth information regarding shares of the Company’s common
stock beneficially owned as of May 18, 2005 by: (i) each officer and director of
the Company; (including and (ii) each person known by the Company to
beneficially own 5 percent or more of the outstanding shares of the Company’s
common stock.
 
 Name
      and
      Address
      of
      Beneficial
      Owner
    Amount
      and Nature of Beneficial Ownership
    Percent
      of Class(1)OwnershipMark
      Scharmann(1)
      1661
      Lakeview Circle
      Ogden,
      UT 84403
    6,205,396
    41.92%Dan
      Price(1)
      1661
      Lakeview Circle
      Ogden,
      UT 84403
    38,275
    0.26%David
      Knudson(1)
      1661
      Lakeview Circle
      Ogden,
      UT 84403
    1,664,958
    11.25%
  44
  
 Name
      and
      Address
      of
      Beneficial
      Owner
    Amount
      and Nature of Beneficial Ownership
    Percent
      of Class(1)OwnershipNorthcliffe
      Consulting, LLC
      12144
      Mt. Shadow Road
      Sandy,
      UT 84092
    1,000,000
    6.76%All
      Officers and Directors
      as
      a Group (3 Persons)
    7,908,629
    53.43%Total
      Shares Issued
    14,802,300
    100%
 
 (1)These
individuals are the officers and directors of the Company.
 
 Unless
otherwise indicated in the footnotes below, the Company has been advised that
each person above has sole voting power over the shares indicated above. All of
the individuals listed above are officers and directors of the
Company.
 
 **Security
Ownership of Management**
 
 See Item
4(a) above.
 
 **Changes
in Control**
 
 We
currently have no proposed change of control transaction. We do not anticipate
that the transaction we contemplated with PIL SA will be completed. We are
continuing to discuss business combinations with other Target Businesses. If,
and when we complete a Business Combination, it will likely result in a change
of control.
 
 **ITEM 12.**  **CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS**
 
 As part
of its Plan of Reorganization, the Company issued 5,000,000 shares of its common
stock to Troika Capital in consideration of $25,000 and Troika’s agreement to
provide an additional $75,000 in equity or debt funding to pay the Company’s tax
obligations.
 
 During
1998, Troika Capital loaned $50,263 to the Company. Such loan is due on demand
and bears interest at the rate of 10% per annum.
 
 During
1999, Troika Capital loaned $56,250 to the Company. The Company repaid $2,000
during 1999. Such loan is due on demand and bears interest at the rate of 10%
per annum.
 
  45
  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.
 
 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.
 
 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
      IssuedYear
    Officer
    or
      Accrued
    
    Value
      of Services2004
    Mark
      A. Scharmann
    134,250
    
    $
    13,425.002004
    Dan
      Price
    -0-
    
    $
    -0-2004
    David
      Knudson
    223,050
    
    $
    22,305.002003
    Mark
      A. Scharmann
    84,460
    
    $
    8,446.002003
    Dan
      Price
    -0-
    
    $
    -0-2003
    David
      Knudson
    266,815
    
    $
    26,681.502002
    Mark
      A. Scharmann
    59,325
    
    $
    5,937.502002
    Dan
      Price
    5,025
    
    $
    502.502002
    David
      Knudson
    211,875
    
    $
    21,187.50
 
 **Parents
of Company**
 
 The only
parents of the Company, as defined in Rule 12b-2 of the Exchange Act, are the
officers and directors of the Company. For information regarding the share
holdings of the Company’s officers and directors, see Item 11.
 
  46
  **ITEM 13.**  **EXHIBITS**
 
 Exhibit
      Number
    Exhibit3.1
    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 200231.2
    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
200232.1
    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 200232.2
    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
 
 **ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES**
 
 **2004**
 
 **Independent
Auditors**
 
 On April
13, 2005, we appointed HJ & Associates, LLC to audit the consolidated
financial statements of the Company for the year ending December 31, 2004
and to report the results of their audit to our Board of Directors. As an
inactive Company our Board of Directors serves as our audit committee.
 
 **Fees
billed to the Company by HJ & Associates, LLC**
 **2005**(1)
    Audit
      Fees
    
    $
    4,500(2)
    Tax
      Fees
    
    $
    -0-(3)
    Other
      Fees
    
    $
    -0-
 
 47
 (1)
    Audit
      fees billed to the Company by HJ & Associates, LLC were for all
      professional services performed in connection with the audit of the
      Company's annual financial statements and review of those financial
      statements, reviews of our quarterly reports on Form 10-QSB. Audit
      fees during 2004 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)
    HJ
      & Associates, LLC did not bill the Company for other services during
      2004 and 2003.
 
  All audit
and non-audit services and fees are pre-approved by the Audit Committee or by
the Chairman of the Audit Committee pursuant to delegated authority.
  Effective
May 6, 2003, the Securities and Exchange Commission adopted rules that require
that before HJ & Associates, LLC 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 HJ
& Associates, LLC and believes that the provision of services for activities
unrelated to the audit is compatible with maintaining HJ & Associates, LLC
independence.
 
 **2004
and 2003**
 
 In 2004
our auditor was Rose, Snyder & Jacobs. Information about fees billed by Rose
Snyder & Jacobs in 2004 is as follows:
 
 ***Audit
Fees.*** The
aggregate fees billed by Rose Snyder & Jacobs for professional services
rendered for the audit of our annual financial statements included in our Annual
Report on Form 10-KSB for the fiscal years ended December 31, 2003 and December
31, 2002 and for the review of quarterly financial statements included in our
Quarterly Reports on Form 10-QSB for the quarters ending March 31, 2004, June
30, 2004, September 30, 2004, March 31, 2003, June 2003, September 30, 2003 were
$16,550.
 
 ***Audit
Related Fees.*** For the
fiscal year ended December 31, 2003, no fees were billed for assurance and
related services by Rose Snyder & Jacobs relating to the resolution of SEC
comments which are not reported under the caption “Audit Fees.”
 
 ***Tax
Fees*** *.* For the
fiscal year ended December 31, 2003, the aggregate fees billed by Rose Snyder
& Jacobs for other non-audit professional services, other than those
services listed above totaled $550.
  48
  We did
not use Rose Snyder & Jacobs for financial information system design and
implementation. These services, which include designing or implementing a system
that aggregates source data underlying the financial statements or generates
information that is significant to our financial statements, are provided
internally or by other service providers. We do not engage Rose Snyder &
Jacobs to provide compliance outsourcing services.
 
 Our
entire Board of Directors currently acts as our audit committee. Our Board of
Directors pre-approves all services provided by our independent auditors. The
pre-approval process has just been implemented in response to the new rules, and
therefore, the audit committee does not have records of what percentage of the
above fees were pre-approved. However, all of the above services and fees were
reviewed and approved by the audit committee either before or after the
respective services were rendered. The Board of Directors has considered the
nature and amount of fees billed by Rose Snyder & Jacobs and believes that
the provision of services for activities unrelated to the audit is compatible
with maintaining Rose Snyder & Jacobs independence.
 
 
 
  49
  SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
 Pacific
      Alliance CorporationDate:
      May 25, 2005
    By:/s/
      Mark A. Scharmann
      President/Principal
      Executive OfficerDate:
      May 25, 2005
    By:/s/
      David Knudson
      Secretary/Treasurer
      Principal
      Financial Officer
 
 In
accordance with the Securities Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
 
 Signature
    Capacity
    Date/s/
      Mark A. Scharmann
    President/Director
    May
      25, 2005/s/
      Dan Price
    Vice
      President/Director
    May
      25, 2005/s/
      David Knudson
    Secretary/Treasurer
      Director
    May
      25, 2005
 
  50