U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-QSB

 

( QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2007

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-51777

 

PACIFIC ALLIANCE CORPORATION

(Name of Small Business Issuer as specified in its charter)

 

 

1661 Lakeview Circle, Ogden, UT 84403

(Address of principal executive offices)

 

Registrant's telephone no., including area code: (801) 399-3632

 

N/A

Former name, former address, and former fiscal year, if changed

since last report.

 

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

 

Securities registered pursuant to Section 12(g) of the Exchange Act: $.001 par value Common Stock.

 

Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No o.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X]   No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes o No [X ]

 

Common Stock outstanding at December 14, 2007 – 36,350,000 shares of $.001 par value Common Stock.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

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FORM 10-QSB

 

FINANCIAL STATEMENTS AND SCHEDULES

PACIFIC ALLIANCE CORPORATION.

 

For the Quarter ended September 30, 2007

 

The following financial statements and schedules of the registrant are submitted herewith:

 

PART I - FINANCIAL INFORMATION

Page of

Form 10-QSB

 

                

 

 

PART II - OTHER INFORMATION

Page

 

 

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

BALANCE SHEETS

 

 

 

 

 

 

See Notes to Interim Unaudited Financial Statements

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

 

 

 

 

 

 

 

See Notes to Interim Unaudited Financial Statements

 

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

See Notes to Interim Unaudited Financial Statements

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Going Concern Pacific Alliance Corporation (the “Company”) is a development stage Company and attempts 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.

 

Pacific Alliance Corporation, 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 6). 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 contemplated the September 30, 2007 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 nine months ended September 30, 2007, the Company funded its disbursements using loans from an officer and other related parties.

 

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Presentation of Interim Information The financial information at September 30, 2007 and for the three and nine months ended September 30, 2007 and 2006 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the instructions to Form 10-QSB. Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information refer to the Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006.

 

The balance sheet as of December 31, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

 

The results for the three and nine months ended September 30, 2007 may not be indicative of results for the year ending December 31, 2007 or any future periods.

 

Use of estimates The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.

 

Income (Loss) Per Common Share The Company accounts for income (loss) per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share.” SFAS No. 128 requires that presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. Diluted net loss per common share does not differ from basic net loss per common share as the Company lacks of dilutive items.

 

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

New Accounting Pronouncements : In May 2007, the FASB issued FASB Staff Position No. FIN 48-1 (“FSP 48-1”), Definition of Settlement in FASB Interpretation No. 48.  FSP 48-1 amended FIN 48 to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits.  FSP 48-1 required application upon the initial adoption of FIN 48.  The adoption of FSP 48-1 did not affect the Company’s financial statements.

 

In February 2007, the Financial Accounting Standards Board (“FASB’) issued Financial Accounting Standards (“FAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS No.159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

 

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements. FAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of the statement will change current practice. FAS No. 157 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact of this standard.

 

In September 2006, the Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin No. 108 ("SAB 108"), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. The stated purpose of SAB 108 is to provide consistency between how registrants quantify financial statement misstatements.

 

Prior to the issuance of SAB 108, there have been two widely-used methods, known as the "roll-over" and "iron curtain" methods, of quantifying the effects of financial statement misstatements. The roll-over method quantifies the amount by which the current year income statement is misstated while the iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Neither of these methods considers the impact of misstatements on the financial statements as a whole.

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the Company's financial statements and the related financial statement disclosures. This approach is referred to as the "dual approach" as it requires quantification of errors under both the roll-over and iron curtain methods.

 

SAB 108 allows registrants to initially apply the dual approach by either retroactively adjusting prior financial statements as if the dual approach had always been used, or by recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.

 

The Company will initially apply SAB 108 using the cumulative effect transition method in connection with the preparation of the annual financial statements for the year ending December 31, 2006. The Company does not believe the adoption of SAB 108 will have a significant effect on its financial statements.

 

NOTE 2- TAX LIABILITIES

 

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

 

The IRS portion of tax liabilities was payable in quarterly installments of $ 11,602, and the final payment was due in January 2002. However, no payments have been made since April 2000. As of September 30, 2007, the Company owes $278,103 to the IRS. The taxes owed to IRS are delinquent and accruing interest at 9% per annum.

 

As of September 30, 2007, the Company owes $5,454 to California Franchise Tax Board. No payments have been made and the taxes owed to California Franchise Tax Board are delinquent. No interest is being accrued; however, a protection lien is being filed.

As of September 30, 2007, the Company owes $42,567 to California State Board of Equalization. No payments have been made and the taxes owed to California State Board of Equalization are delinquent and accruing an interest at 9% per annum.

 

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

 

NOTE 2- TAX LIABILITIES (continued)

 

As of September 30, 2007, the Company owes $7,362 to the County of Los Angeles. No payments have been made and the taxes owed to the County of Los Angeles are delinquent and accruing an interest at 9% per annum.

 

NOTE 3 – OTHER ACCRUED EXPENSES

 

Accrued expenses consist of:

 

 

NOTE 4- SHORT TERM NOTE PAYABLE

 

During the nine months ended September 30, 2007, the Company obtained loans for the total amount of $5,000 from third parties. The new loans bear interest at 10% and are due on demand.

 

The Company had notes payable for $125,000 and $120,000 as of September 30, 2007, and December 31, 2006, respectively. The related accrued interest was $15,584 and $9,471 as of September 30, 2007, and December 31, 2006, respectively.

 

NOTE 5- NOTES PAYABLE TO RELATED PARTIES

 

Notes payable to minority shareholders amounted to $144,293 at September 30, 2007 and at December 31, 2006. These notes bear interest at 10% to 12%, and are due on demand. The related accrued interest was $30,764 and $19,388 as of September 30, 2007, and December 31, 2006, respectively.

NOTE 6 – COMMON STOCK

 

During the first nine months of 2007, the Company issued 266,550 shares of common stock for management services, pursuant to the provisions of the Modified Plan of Reorganization approved by the U.S. Bankruptcy Court in 1997. The stocks were valued $0.10 per share, or $26,655 of total.

 

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PACIFIC ALLIANCE CORPORATION

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

 

NOTE 7 – NET LOSS PER SHARE

 

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

 

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

An officer of the Company advanced $99,009 to the Company during the nine months ended September 30, 2007. The Company repaid the officer $28,273 during the nine months ended September 30, 2007. These advances bear interest at 10% and have no maturity date. The balance of advances was $215,243 with the accrued interest of $1,113 at September 30, 2007.

 

During the quarter ended September 30, 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, $4,500 was recorded as expense during the nine months period ended September 30, 2007 and 2006.

 

In accordance with the modified joint plan or reorganization, management is compensated on an hourly basis at a rate of $75 per hour. Such compensation is made through issuance of common stock. Management compensation amounted to $26,655 for the nine months ended September 30, 2007 (see note 6).

 

NOTE 9- INCOME TAXES

 

The Company has loss carryforwards available to offset future taxable income. The total loss carryforwards at December 31, 2006 are estimated at approximately $1,590,000 and expire between 2015 and 2026. 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 $540,000, which relates to these loss carryforwards, since future profits are indeterminable. The valuation allowance increased by $47,000 during the year ended December 31, 2006.

 

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ITEM 2

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

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

 

History

 

The Company was organized on April 22, 1986 under the laws of the State of Utah under the name of Kaiser Research, Inc. On December 2, 1994, the Company changed its domicile from the State of Utah to the State of Delaware through a reincorporation merger. In order to effect the reincorporation merger, the Company formed a wholly-owned subsidiary under Delaware law under the name of PACSYND, Inc. After the change of the Company’s domicile, it acquired a privately held corporation (“Private PSI”) in a merger transaction, and in connection therewith, the Company’s name was changed to Pacific Syndication, Inc.

 

After the acquisition of Private PSI in December 1994, and prior to its filing of a Petition under Chapter 11, the Company was engaged in the business of transmitting television programming to television stations and others via satellite or land deliveries on behalf of production companies, syndicators and other distributors of television programming. Although the Private PSI was not the survivor of the Merger, and did not exist after the Merger, pursuant to the accounting requirements of the Securities and Exchange Commission the Merger was treated as a “reverse merger” and, solely for accounting purposes, Private PSI was deemed to be the survivor.

 

Private PSI was formed under the laws of the State of Delaware in November 1991. Private PSI was formed to engage in the business of providing a variety of television industry related services to its clients. Such services included, but were not limited to, video tape duplication, standards conversion and delivery of television programming by way of conventional carriers (such as UPS, Airborne and Federal Express) and by satellite or fiber optic transmission.

 

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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.

 

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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.

 

 

7.            Attempt to raise additional cash to be used to fund quarterly tax payments and for working capital.

 

8.            Locate a private-company which is seeking to become a public company by merging with the Company.

 

9.            Assist the Company in completing any merger which is located and which the Board of Directors deems appropriate.

 

10.          Assist the post-merged company with shareholder relations, financial public relations and with attempts to interest a broker-dealer in developing a public market for the Company’s common stock so that the Company’s shareholders (including creditors whose debt was converted into shares of the Company’s common stock) may ultimately have an opportunity to liquidate their shares for value in market or in privately negotiated transactions.

 

The Plan and Disclosure Statement was confirmed by the Bankruptcy Court on May 28, 1997. The Effective Date of the Plan was June 8, 1997. Subsequent to the Effective Date of the Plan, the Company filed monthly “Debtor in Possession Interim Statements” and “Debtor in Possession Operating Reports” with the Office of the United States Trustee. On February 23, 2000, the Bankruptcy Court Judge entered a Final Decree Order closing the Bankruptcy case of the Company.

 

Post Confirmation Date Activities

 

Since the Confirmation of the Plan of Reorganization the following have occurred:

 

1.            Pre-Confirmation Date non-tax debt in the amount of approximately $1,458,000 was converted into 1,458,005 shares of the Company common stock.

 

2.            The Company completed its audited financial statements for the years ended December 31, 1996 through 2006.

 

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3.            The Company effected a 1-for-6 reverse split of its issued and outstanding common stock in order to establish a more desirable capital structure for potential merger partners.

 

 

5.            The Company obtained the preliminary agreement of a registered-broker to make a market in the Company’s common stock.

 

6.            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.           

 

7.            The Company prepared and filed a Form 10-KSB for the years ended December 31, 1997 through December 2006, and all required Forms 10-QSB.

 

Financial Condition

 

Total assets at September 30, 2007 was $300. As of December 31, 2006, the Company had no assets and liabilities of $808,592.

 

The Company’s total liabilities as of September 30, 2007 were $903,863. The Company’s liabilities include, but are not limited to, $215,243 loans from officers, $47,461 accrued interest, $38,380 of accrued expenses, $333,486 attributed to tax liabilities, and $144,293 of notes payable to related parties.

 

It is likely that the Company will be required to raise additional capital in order to attract any potential acquisition partner but there can be no assurance that the Company will be able to raise any additional capital. It is also likely that any future acquisition will be made through the issuance of shares of the Company’s common stock which will result in the dilution of the percentage ownership of the current shareholders.

 

Results of Operations

 

The Company has generated no revenues since the Confirmation Date of its Bankruptcy Reorganization. The Company will not generate any revenues, if ever, until and unless it merges with an operating company or raises additional capital for its own operations. There can be no assurance that either of such events will happen.

 

The Company had a net loss of $42,146 for the three months ended September 30, 2007. This compares to a net loss of $39,324 for the three months ended September 30, 2006. The Company’s expenses for the three months ended September 30, 2007 consisted of management compensation, professional fees, interest and other expenses. The Company had a net loss of $121,626 for the nine months ended September 30, 2007. This compares to a net loss of $148,829 for the nine months ended September 30, 2006. The Company’s expenses for the nine months ended September 30, 2007

 

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consisted of management compensation, professional fees, interest and other expenses. We issued 266,550 shares of our common stock to officers for compensation during the nine months ended September 30, 2007. The shares were valued at $.10 per share.

 

Plan of Operation

 

The Company’s current business plan is to serve as a vehicle for the acquisition of, or the merger or consolidation with another company (a “Target Business”). The Company intends to utilize its limited current assets, equity securities, debt securities, borrowings or a combination thereof in effecting a Business Combination with a Target Business which the Company believes has significant growth potential. The Company's efforts in identifying a prospective Target Business are expected to emphasize businesses primarily located in the United States; however, the Company reserves the right to acquire a Target Business located primarily elsewhere. While the Company may, under certain circumstances, seek to effect Business Combinations with more than one Target Business, as a result of its limited resources the Company will, in all likelihood, have the ability to effect only a single Business Combination.

 

The Company may effect a Business Combination with a Target Business which may be financially unstable or in its early stages of development or growth. To the extent the Company effects a Business Combination with a financially unstable company or an entity in its early stage of development or growth (including entities without established records of revenue or income), the Company will become subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, to the extent that the Company effects a Business Combination with an entity in an industry characterized by a high level of risk, the Company will become subject to the currently unascertainable risks of that industry. An extremely high level of risk frequently characterizes certain industries which experience rapid growth. Although management will endeavor to evaluate the risks inherent in a particular industry or Target Business, there can be no assurance that the Company will properly ascertain or assess all risks.

 

The Company has no revenues and no operation. The Company will only be able to generate revenues in the future if it is able to acquire, in a reverse merger type transaction, another company that has revenues, of which there can be no assurance. The Company’s sole source of funds to fund its expenses has been, and is expected to be, loans from officers, directors and shareholders. There can be no assurance that the Company’s officers, directors or shareholders will continue to make loans to the Company in the future. If not, the Company will be unable to fund the costs of complying with the filing requirements of the Securities Exchange Act of 1934 as amended. In order to attract a private company for a reverse merger transaction, we anticipate that we must convert a substantial amount of our debt into shares of our common stock. However, no lender, including our officers and directors, has agreed to convert any loan into shares of common stock.

 

Other Matters

 

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

 

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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.

 

Risk Factors

 

During the quarter ended September 30, 2007, there were no material changes to the quantitative and qualitative disclosures of our Risk Factors previously reported in the Annual Report contained in the Company’s Form 10-KSB for the year ended December 31, 2006.

 

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.

 

ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

  (a) Evaluation of disclosure controls and procedures.

 

Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of September 30, 2007. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

 

The Company’s Chief Executive Officer and Chief Financial Officer have determined that

 

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there have been no changes, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

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SIGNATURE

 

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

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