UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________to_____________________
Commission file number: 000-50159
IRVINE PACIFIC CORPORATION
____________________________________________________________________
(Name of small business issuer in its charter)
COLORADO 84-1424696
________________________________ __________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1721 21st STREET, SANTA MONICA, CA 90404
__________________________________________________
(Address of principal executive offices)
(310) 453-4499
____________________________________________________________________
Issuer's Telephone Number
3851 South Eagle Point Drive, Salt Lake City, UT 84109
______________________________________________________________________
(Former address, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
As of November 10, 2003, the Registrant had 58,631,590 shares of common stock
outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS................................................3
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........15
ITEM 3: CONTROLS AND PROCEDURES ...........................................26
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS..................................................27
ITEM 2: CHANGES IN SECURITIES..............................................27
ITEM 3: DEFAULTS UPON SENIOR SECURITIES ...................................28
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............28
ITEM 5: OTHER INFORMATION .................................................28
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K ..................................28
SIGNATURES..................................................................29
CERTIFICATIONS..............................................................30
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
IRVINE PACIFIC CORPORATION
CONSOLIDATED BALANCE SHEET
September 30, 2003
=============================================================================
Sep 30,
2003
------------
ASSETS (unaudited)
CURRENT ASSETS
Cash $ 266,541
------------
Total current assets 266,541
------------
PROPERTY AND EQUIPMENT, NET 53,802
OTHER ASSETS 7,500
------------
Total Assets $ 327,843
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 76,241
Due to affiliate 20,246
Notes payable, related parties 7,500
------------
Total current liabilities 103,987
------------
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value, authorized
20,000,000 shares; none outstanding -
Common stock, $0.001 par value, authorized
500,000,000 shares; 55,885,436 issued and
outstanding 55,886
Subscription receivable (884,964)
Common stock committed, 737,490 shares 886,653
Capital in excess of par value 2,523,872
Accumulated deficit (2,357,591)
------------
Total shareholders' equity 223,856
------------
Total liabilities and shareholders' equity $ 327,843
============
The accompanying notes are an integral part of these financial statements.
3
IRVINE PACIFIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2003 and 2002
(unaudited)
==============================================================================
Three Months Ended Nine Months Ended
Sep 30, Sep 30, Sep 30, Sep 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 118,500 $ - $ 156,000 $ -
Cost of sales 145,558 - 177,969 -
------------ ------------ ------------ ------------
Gross loss (27,058) - (21,969) -
Operating expenses 916,048 - 1,483,927 -
Write-off of
receivable due from
affiliate - - 850,173 -
------------ ------------ ------------ ------------
Loss from operations (943,106) - (2,356,069) -
Interest expense 211 - 722 -
------------ ------------ ------------ ------------
Loss before provision
for income taxes (943,317) - (2,356,791) -
Provision for income taxes - - 800 -
------------ ------------ ------------ ------------
Net Loss $ (943,317) $ - $(2,357,591) $ -
============ ============ ============ ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.02) $ - $ (0.05) $ -
WEIGHTED AVERAGE COMMON
OUTSTANDING SHARES
Basic and diluted 55,905,748 - 55,905,748 -
The accompanying notes are an integral part of these financial statements.
4
IRVINE PACIFIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(unaudited)
==============================================================================
Sep 30, Sep 30,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,357,591) $ -
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 17,394 -
Write-off of receivable
due from affiliate 850,173 -
Non-cash stock compensation charge 37,500 -
Increase in accounts payable, accrued
expenses and due to affiliate 96,487 -
Increase in other assets (7,500) -
------------ ------------
Net cash used in operating activities (1,363,537) -
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (71,196) -
------------ ------------
Net cash used in investing activities (71,196) -
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable - related parties (325,000) -
Due from affiliate (460,173) -
Proceeds from notes payable - related parties 7,500 -
Offering costs (89,999) -
Proceeds from issuance of common stock 2,568,946 -
------------ ------------
Net cash provided by financing activities 1,701,274 -
------------ ------------
Net Change in Cash 266,541 -
Cash, beginning of Period - -
------------ ------------
Cash, end of Period $ 266,541 $ -
============ ============
Supplemental disclosures of cash flow information
Income taxes paid $ 800 $ -
============ ============
The accompanying notes are an integral part of these financial statements.
5
IRVINE PACIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
==============================================================================
1. ORGANIZATION
General
Irvine Pacific Corporation (the "Company") was incorporated under the laws of
the state of Colorado on June 10, 1987. The Company had been in the
development stage since inception and had been engaged in seeking business
opportunities.
On August 18, 2003, the Company entered into an Agreement and Plan of Merger,
(the "Merger Agreement"), by and among the Company, IPC Merger Sub, Inc., a
California corporation and wholly owned subsidiary of the Company ("Merger
Sub"), Kanona Moeai, Jr. and Hollywood Previews, Inc., a California
corporation ("HPI"). Pursuant to the Merger Agreement, on August 29, 2003 (the
"Closing Date"), Merger Sub merged with and into HPI with HPI as the surviving
company (the "Acquisition"). As consideration for the Acquisition, the
shareholders of HPI were issued 55,179,581 of the Company's common stock
representing 96.18% of the issued and outstanding common stock of the Company
(after giving effect to the conversion of all notes of the Registrant
outstanding immediately prior to the Acquisition). Although HPI became a
wholly-owned subsidiary following the Acquisition, because the transaction
resulted in a change of control, the transaction has been recorded as a
"reverse merger" whereby HPI is considered to be the accounting acquirer of
the Company.
Immediately prior to the Acquisition, the Company had only nominal assets and
liabilities and no current business operations. Therefore, no pro forma
information is presented. As a result of the Acquisition, the Registrant will
continue the business operations of HPI.
HPI was incorporated on July 22, 2002 in the state of California and is a
publisher of interactive, digital, multi-media publications on CD-ROM and DVD.
HPI distributes an entertainment magazine on CD-ROM and DVD that features
movie previews, video games, and television previews, plus interviews with
stars, behind the scenes videos, music soundtracks and music videos, Hollywood
fashion and style, and other entertainment news. The magazine is also
distributed through major Sunday newspapers. It is also targeted to specific
households and handed out at movie theater box offices on a national basis.
Revenues are generated from the sale of paid advertising sponsorships,
licensing, content placements, and e-commerce fees, plus the sale to
advertisers and content providers of the Company's proprietary Usage Report
that monitors the use of the disk by its audience.
On April 5, 2003, the following occurred:
.. An affiliated company of HPI, I-Publishing, Inc. ("I-Publishing") licensed
to HPI the exclusive rights to use I-Publishing's intellectual property. I-
Publishing is to receive annual royalties for each CD distributed.
.. HPI purchased property and equipment from I-Publishing that I-Publishing had
purchased from a shareholder/officer. The transaction has been accounted for
at the carry-over basis of the assets at which they were obtained by the
shareholder/officer of I-Publishing.
The consolidated financial statements of Irvine Pacific Corporation as of
September 30, 2003 include the accounts of the Company, its wholly owned
subsidiary HPI, and HPI's majority-owned subsidiary Las Vegas Previews LLC.
Las Vegas Previews LLC had no operations for the three and nine months ended
September 30, 2003.
6
Combined Financial Statements
HPI is a member of an affiliated group (the "affiliated group"), which
includes I-Publishing, MOD Studios, Inc. ("MOD Studios"), and The Modern
Company, LLC ("The Modern Company"). If the financial statements were
presented on a combined basis with the affiliated group, the unaudited, pro
forma impact on the financial condition and results of operations of HPI for
the nine months ended September 30, 2003 would be as follows:
Affiliated Combining Combined
As Reported Group Entries Basis
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Balance sheet
Current assets $ 266,541 $ 87,724 $ - $ 354,265
Property and equipment 53,802 71,196 (71,196) 53,802
Due from affiliate - 25,050 (25,050) -
Other assets 7,500 1,000 - 8,500
------------- ------------ ------------ ------------
Total assets $ 327,843 $ 184,970 $ (96,246) $ 416,567
============= ============ ============ ============
Current liabilities
Accounts payable and
accrued expenses $ 76,241 $ 160,498 $ - $ 236,739
Due to affiliate 20,246 76,000 (96,246) -
Notes payable - - - -
Current portion of
notes payable -
related parties 7,500 - - 7,500
------------- ------------ ------------ ------------
Total current liabilities 103,987 236,498 (96,246) 244,239
Notes payable - related
parties, net of current
portion - 44,760 - 44,760
------------- ------------ ------------ ------------
Total liabilities 103,987 281,258 (96,246) 288,999
Shareholders' and
members' equity
(deficit) 223,856 (96,288) - 127,568
------------- ------------ ------------ ------------
Total liabilities and
shareholders' and
members' equity $ 327,843 $ 184,970 $ (96,246) $ 416,567
============= ============ ============ ============
Affiliated Combining Combined
As Reported Group Entries Basis
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Results of operations
Net sales $ 156,000 $ 533,983 $ (176,331) $ 513,652
Expenses 2,512,069 (407,444) 176,331 1,928,294
------------- ------------ ------------ ------------
Income (loss) from
operations (2,356,069) 941,427 - (1,414,642)
Other expense 722 69,157 - 69,879
------------- ------------ ------------ ------------
7
Loss before provision
for income taxes (2,356,791) 872,270 - (1,484,521)
Provision for income
taxes 800 1,600 - 2,400
------------- ------------ ------------ ------------
Net loss $ (2,357,591) $ 870,670 $ - $(1,486,921)
============= ============ ============ ============
8
The unaudited, pro forma impact on the financial condition and results of
operations of HPI for the nine months ended September 30, 2002 would be as
follows:
Affiliated Combining Combined
As Reported Group Entries Basis
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Balance sheet
Current assets $ - $ 158,947 $ - $ 158,947
Property and equipment - 79,893 - 79,893
Other assets - 700 700
------------- ------------ ------------ ------------
Total assets $ - $ 239,540 $ $ 239,540
============= ============ ============ ============
Current liabilities
Book overdraft $ - $ 2,990 $ - $ 2,990
Accounts payable - 174,818 - 174,818
Deferred revenue - 1,600,000 - 1,600,000
Notes payable - 168,174 - 168,174
Current portion of
notes payable
related parties - 289,226 - 289,226
------------- ------------ ------------ ------------
Total current liabilities - 2,235,208 - 2,235,208
Notes payable - related
parties, net of current
portion - 50,000 - 50,000
------------- ------------ ------------ ------------
Total liabilities - 2,285,208 - 2,285,208
Shareholders' and
members' equity
(deficit) - (2,045,668) - (2,045,668)
------------- ------------ ------------ ------------
Total liabilities and
shareholders' and
members' equity $ - $ 239,540 $ - $ 239,540
============= ============ ============ ============
Affiliated Combining Combined
As Reported Group Entries Basis
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Results of operations
Net sales $ - $ 1,168,390 $ - $ 1,168,390
Expenses - 1,153,169 - 1,153,169
------------- ------------ ------------ ------------
Operating income - 15,221 - 15,221
Interest expense - 35,122 - 35,122
------------- ------------ ------------ ------------
Loss before provision
for income taxes - (19,901) - (19,901)
Provision for income
taxes - 800 - 800
------------- ------------ ------------ ------------
Net loss $ - $ (20,701) $ - $ (20,701)
============= ============ ============ ============
9
The unaudited, pro forma impact on the results of operations of HPI for the
three months ended September 30, 2003 would be as follows:
Affiliated Combining Combined
As Reported Group Entries Basis
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Results of operations
Net sales $ 118,500 $ 247,858 $ (176,331) $ 190,027
Expenses 1,061,606 (293,529) 176,331 591,746
------------- ------------ ------------ ------------
Income (loss) from
operations (943,106) 541,387 - (401,719)
Other expense 211 6,456 - 6,667
------------- ------------ ------------ ------------
Loss before provision
for income taxes (943,317) 534,931 - (408,386)
Provision for income
taxes - - - -
------------- ------------ ------------ ------------
Net loss $ (943,317) $ 534,931 $ - $ (408,386)
============= ============ ============ ============
The unaudited, pro forma impact on the results of operations of HPI for the
three months ended September 30, 2002 would be as follows:
Affiliated Combining Combined
As Reported Group Entries Basis
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Results of operations
Net sales $ - $ 946,238 $ - $ 946,238
Expenses - 163,327 (50,452) 213,779
------------- ------------ ------------ ------------
Income (loss) from
operations - 782,911 - 732,459
Other expense - 12,405 - 12,405
------------- ------------ ------------ ------------
Loss before provision
for income taxes - 770,506 - 720,054
Provision for income
taxes - - - -
------------- ------------ ------------ ------------
Net income $ - $ 770,506 $ - $ 720,054
============= ============ ============ ============
2. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company to date has not had
significant operations and is highly dependent on equity and debt financing.
These factors raise substantial doubt about its ability to continue as a going
concern.
10
Additional financing will be required in order for the Company to continue in
existence. Management believes it will be able to obtain such financing from
new investors through sales of equity through a private placement memorandum.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The consolidated financial information as of September 30, 2003, and for the
three and nine months then ended, is unaudited and reflects all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position, operating
results, and cash flows for such periods. The consolidated results of
operations for the three and nine months ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the twelve
months ended December 31, 2003, or for any future period.
Basis of Presentation
The consolidated financial statements of Irvine Pacific Corporation include
the accounts of the Company, its wholly owned subsidiary HPI, and HPI's
majority owned subsidiary Las Vegas Previews LLC. All significant
inter-company accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is generated mainly through the sale and licensing of interactive,
digital, multi-media publishing and is recognized when the product, usually
either a CD-ROM or DVD, is shipped to the customer or distributed to the
public, provided that the other conditions of sale as established by the
Securities and Exchange Commission's Staff Accounting Bulleting ("SAB") No.
101, are satisfied:
.. Persuasive evidence of an arrangement exists,
.. Delivery has occurred or services have been rendered,
.. The seller's price to the buyer is fixed or determinable, and
.. Collectibility is reasonably assured.
Revenue from advertising contracts and agreements is deferred until the
services and/or products are completed and delivered.
Accounts Receivable
The Company sells its products throughout the United States. The Company
evaluates its accounts receivable on a regular basis for collectibility and
provides for an allowance for potential credit losses as deemed necessary.
Earnings (Loss) per Common Share
The Company has adopted Statement of Financial Accounting Standards(SFAS) No.
128, "Earnings per Share", which established standards for computing and
presenting earnings per share (EPS). The statement simplifies the standards
for computing EPS, replaces the presentation of primary EPS with a
presentation of basic EPS and requires a dual presentation of basic and
diluted EPS on the face of the income statement. Basic EPS are based upon the
weighted average number of common shares outstanding during the period.
Diluted EPS are based upon the weighted average number of common shares if all
dilutive potential common shares had been outstanding.
11
The following potential common shares have been excluded from the computation
of diluted net income (loss) per share for all periods presented because the
effect would have been anti-dilutive:
September 30,
2003 2002
------ -----
Warrants issued in conjunction with
a private placement/consultants 333,289 0
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of five years. Maintenance and minor replacements are charged to
expense as incurred. Gains and losses on disposals are included in the results
of operations.
Impairment of Long-Lived Assets
The Company reviews its assets for impairment in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Estimated losses are included in the statements of operations as
a component of cost of sales.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable, and
accounts payable and accrued expenses. The book values of all financial
instruments are representative of their fair values.
Income Taxes
The Company utilize SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts
at each year-end based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
Estimates
The preparation of financial statements requires management to make 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations and Uncertainties
Total net sales earned from two customers constituted 63% and 24%
respectively, of total net sales for the nine months ended September 30, 2003.
Sales to one customer accounted for 83% of total net sales for the three
months ended September 30, 2003.
12
The Company had no receivables outstanding from customers at September 30,
2003 and 2002.
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2003 consisted of the following:
Fixtures $ 9,582
Equipment 164,361
------------
173,943
Less accumulated depreciation 120,141
------------
Total $ 53,802
============
5. LINE OF CREDIT
The Company maintains a line of credit with a financial institution, which
enables it to borrow up to $30,000. The line of credit is collateralized by
all of the Company's accounts receivable, of which the Company may borrow up
to 75% of the accepted accounts receivable balance. At December 31, 2002 and
September 30, 2003, the line of credit was unused.
6. NOTES PAYABLE
Notes payable at September 30, 2003 consisted of the following:
Unsecured note payable to officer, bearing interest
at 10% per annum, due on demand. $ 7,500
============
7. COMMITMENTS
The Company leases its office facilities on a month-to-month basis. Rent
expense amounted to $9,750 and $16,250 for the three and nine months ended
September 30, 2003, respectively.
8. SHAREHOLDERS' EQUITY
Common Stock
During the nine months ended September 30, 2003, the Company issued the
following shares of common stock:
Hollywood Previews, Inc. issued a total of 50,739,427 shares on a pre-merger
basis as follows:
Issued a total of 42,399,427 to founders
Issued a total of 2,640,000 shares to investors in exchange for $2,418,946 in
cash.
Issued a total of 2,500,000 shares to a third party who later became the
Company's placement agent in satisfaction of $50,000 of interest payable
Issued a total of 2,500,000 shares to the placement agent designee in exchange
for $15,000 in cash
Issued 500,000 shares to the placement agent designee as an incentive bonus
Issued 200,000 shares to a creditor in satisfaction of $150,000 notes payable
13
As part of the merger, the above shares of Hollywood Previews, Inc. were
converted to 55,179,581 shares of Irvine Pacific Corporation common shares.
Subsequent to the merger, a total of 1,689,500 shares were issued for the
conversion of a note in the amount of $29,988 per the merger agreement.
Subsequent to the merger, and during the period ended September 30, 2003, the
Company issued an aggregate of 178,309 shares of common stock to accredited
investors through a private placement for $203,971 in cash.
Common Stock Subscription
During the three months ended September 30, 2003, the Company received
subscriptions for 737,490 shares of common stock from investors through a
private placement and recorded subscription receivables of $884,964.
9. WARRANTS
As of September 30, 2003, the Company has agreed to issue, but has not yet
issued, warrants to purchase 83,289 shares of the Company's common stock
earned as commissions totaling $14,625 to the placement agent for
subscriptions obtained in private placements. The Company has also agreed to
issue, but has not yet issued warrants to purchase 250,000 shares to a
consultant for services totaling $37,500. The Company intends to issue these
warrants at exercise prices between $1.00 - $1.20 per share, with terms
expiring in three years.
10. RELATED PARTY TRANSACTIONS
Due from Affiliate
At June 30, 2003, management recorded a receivable write-off of $850,173 from
MOD Studios since the financial condition of the affiliate made collection
doubtful.
Licensing Agreement
I-Publishing licensed to the Company the exclusive rights to use its
intellectual property. The Company is to pay I-Publishing royalties of $0.05
per CD-ROM or DVD sold with the "Hollywood Previews Entertainment Magazine"
trademark or name and $0.02 per CD-ROM or DVD sold for any other publication.
The royalties are subject to inflationary increases every two years. The
license term is for 99 years beginning April 4, 2003.
Executive Compensation paid to Affiliate
In lieu of salary to three executive officers for the three-month period ended
September 30, 2003, the Company paid I-Publishing the amount of $129,750 and
recorded these payments as management compensation expense.
Repayment of Note to Affiliate
On September 6, 2003, the Company repaid in full a note payable to
I-Publishing in the amount of $76,000.
11. SUBSEQUENT EVENTS
Common Stock
14
Subsequent to September 30, 2003, the Company issued 1,056,654 shares of
common stock to investors from subscription receivables totaling $1,102,970.
Common Stock Subscription
Subsequent to September 30, 2003, the Company completed the following:
.. received subscriptions for 1,512,496 shares of common stock to investors in
a private placement and recorded a subscription receivable of $1,640,006.
.. committed to issue 50,000 warrants to a consultant for services totaling
$8,000 at an exercise price of $1.00 and term expiring in three years.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Form 10-QSB are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
OVERVIEW
On August 18, 2003, the Company entered into an Agreement and Plan of Merger,
(the "Merger Agreement"), by and among the Company, IPC Merger Sub, Inc., a
California corporation and wholly owned subsidiary of the Company ("Merger
Sub"), Kanona Moeai, Jr. and Hollywood Previews, Inc., a California
corporation ("HPI"). Pursuant to the Merger Agreement, on August 29, 2003 (the
"Closing Date"), Merger Sub merged with and into HPI with HPI as the surviving
company (the "Acquisition"). As consideration for the Acquisition, the
shareholders of HPI were issued 55,179,581 of the Company's common stock
representing 96.18% of the issued and outstanding common stock of the Company
(after giving effect to the conversion of all notes of the Registrant
outstanding immediately prior to the Acquisition). Although HPI became a
wholly-owned subsidiary following the Acquisition, because the transaction
resulted in a change of control, the transaction has been recorded as a
"reverse merger" whereby HPI is considered to be the accounting acquirer of
the Company.
Immediately prior to the Acquisition, the Company had only nominal assets and
liabilities and no current business operations. As a result of the
Acquisition, the Company has continued the business operations of HPI.
On April 5, 2003, the following occurred:
.. An affiliated company of HPI, I-Publishing, Inc. ("I-Publishing") licensed
to HPI the exclusive rights to use I-Publishing's intellectual property.
I-Publishing is to receive annual royalties for each CD distributed.
.. HPI purchased property and equipment from I-Publishing that I-Publishing had
purchased from a shareholder/officer. The transaction has been accounted for
at the carry-over basis of the assets at which they were obtained by the
shareholder/officer of I-Publishing.
As a result of the acquisition, the Company is a now a publisher of
interactive, digital, multi-media publications on CD-ROM and DVD-ROM. The
Company distributes Hollywood Previews(TM) Entertainment Magazine, an
interactive digital magazine on CD-ROM that features movie previews, video
games, and television previews, plus interviews with stars, behind the scenes
videos, music soundtracks and music videos, Hollywood fashion and style, and
other entertainment news. Hollywood Previews(TM) Entertainment Magazine is
used primarily to showcase the Company's proprietary digital publishing system
capabilities. In addition, the Company markets and
15
produces a variety of special edition digital publications and custom
promotional discs to various corporate clients. The Company's publications
are distributed through major Sunday newspapers, inserted in magazines and
periodicals; at movie theater box offices, and handed-out directly to
consumers.
The majority of revenues to date have been generated from the sale of custom
publications and special edition disks. The Company continues to pursue the
procurement of paid advertising sponsorships, licensing, content placements,
and e-commerce fees from Hollywood Previews(TM) Entertainment Magazine. The
Company intends to begin sale efforts of the Company's proprietary Usage
Report that monitors the navigation and use of the disk by its audience.
PLAN OF OPERATION
For the three and nine months ended September 30, 2003, the Company's plan of
operation has focused on four primary objectives:
.. Raising capital through two private offerings;
.. Identifying a reverse-merger candidate, and completing the reverse-merger
and reorganization;
.. Continued development and publication of Hollywood Previews(TM)
Entertainment Magazine; and
.. The identification and development of specialty and custom disc customers,
industries and content.
The Company continues to publish its showcase publication Hollywood
Previews(TM) Entertainment Magazine. During the three-month period ended
September 30, 2003, the Company produced and distributed 51,000 copies of
Hollywood Previews(TM) Entertainment Magazine, primarily in the Los Angeles,
CA market. In addition, the Company produced and distributed 50,000 copies of
special edition or custom disc publications, and licensed the production and
distribution of 2,000,000 additional discs.
The Company intends to continue publishing Hollywood Previews(TM)
Entertainment Magazine, and will continue to use this publication as a
showcase for its proprietary digital publishing system. The Company has
elected to reduce its fourth quarter 2003 publishing schedule of Hollywood
Previews(TM) Entertainment Magazine from 2,000,000 copies to 250,000 copies to
limit shortfall losses attributable to lack of committed sponsorships and
advertising revenues. Although the Company continues to receive positive
responses about its publishing system and publications from potential
clientele, the Company's ability to procure committed national sponsors and
advertisers continues to fall short of Company expectations. As advertising
and promotional budgets for most national sponsors have been pre-committed for
up to three-to-four future quarters, and as the Company only began escalated
sales efforts for Hollywood Previews(TM) Entertainment Magazine beginning in
August, 2003, the Company has not yet been able to achieve profitability on
the publication of this product.
Therefore, a major portion of the Company's time and resources has been
diverted to the development of special edition and custom publications for a
variety of industries and corporate clientele. The Company foresees that the
custom disc market will eventually constitute the majority of future Company
sales and revenues. The Company has identified and has developed new products
specifically targeted to these new markets, industries and sectors. The
Company intends to use a large portion of its capital on an ongoing basis to
develop these targeted markets. The Company will continue to publish
Hollywood Previews(TM) Entertainment Magazine, but may elect to reduce future
distribution on issues where there will be revenue shortfalls.
The Company has and will continue to form a variety of subsidiary operating
companies for the development of each of their targeted markets. The Company
intends to raise additional capital in each of these subsidiary companies
through the sale of equity securities therein. The Company believes that it
is in a stronger position to raise
16
capital for the development of these targeted markets by seeking
industry-specific investors that may have strategic investment interests.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principals generally accepted in
the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to customer programs, bad debts, income taxes, and
contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements. We maintain allowances for doubtful
accounts for estimated losses from the inability of our customers to make
required payments. If the condition of our customers were to deteriorate,
resulting in the impairment of their ability to make payments, additional
allowances may be required.
Revenue Recognition- Revenue is generated mainly through the sale and
licensing of interactive, digital, multi-media publishing and is recognized
when the product, usually either a CD-ROM or DVD, is shipped to the customer
or distributed to the public, provided that the other conditions of sale as
established by the Securities and Exchange Commission's Staff Accounting
Bulleting ("SAB") No. 101, are satisfied:
.. Persuasive evidence of an arrangement exists.
.. Delivery has occurred or services have been rendered.
.. The seller's price to the buyer is fixed or determinable.
.. Collectibility is reasonably assured.
Revenue from advertising contracts and agreements is deferred until the
services and/or products are completed and delivered.
Valuation Allowance- We record a valuation allowance to reduce our deferred
tax assets to the amount that is more likely than not to be realized. While
we have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax
assets in the future in excess of our net recorded amount, an adjustment to
the deferred tax asset would increase income in the period such determination
was made.
RESULTS OF OPERATIONS
Revenues are generated from the sale of paid advertising sponsorships,
licensing, content placements, and e-commerce fees, plus the sale to
advertisers and content providers of the Company's proprietary Usage Report
that monitors the use of the disk by its audience.
The consolidated financial statements of Irvine Pacific Corporation as of
September 30, 2003 include the accounts of the Company, its wholly owned
subsidiary HPI, and HPI's majority owned subsidiary Las Vegas Previews LLC.
Las Vegas Previews LLC had no operations for the three and nine months ended
September 30, 2003.
17
On a combined basis, the Company and the Predecessor Companies have incurred
operating losses since inception due to the expenses involved with production,
fundraising and for general and administrative expenses. Significant
expenditures at the corporate level continue. These outlays include
production and distribution costs, fundraising expenses, marketing expenses,
growth initiatives, legal, accounting and other professional fees.
The following discussion is based on a comparison of the Company's operations
for the three and nine months ended September 30, 2003 to the combined pro
forma financial statements of the Company and the predecessor companies for
the three and nine months ended September 30, 2002:
Sales
Net sales on a combined basis declined to $513,652 from $1,168,390 for the
nine months ended September 30, 2003 and 2002, respectively.
Net sales on a combined basis declined to $190,027 from $946,238 for the three
months ended September 30, 2003 and 2002, respectively.
The decrease in sales was due to mainly to a large single, non-recurring sale
made during third quarter 2002. In addition, due to efforts expended in
raising capital, the Company delayed its sales activities. These delays
resulted in limited advertising and sponsorship revenues for Hollywood
Previews Entertainment Magazine. Therefore, the Company reduced the
circulation of Hollywood Previews Entertainment Magazine. Also, the Company
shifted emphasis of its sales efforts towards special edition and custom disc
production, which have a longer sales cycle.
Cost of Sales
Combined cost of sales declined from $387,075 to $722,387 for the nine months
ended September 30, 2003 and 2002, respectively. Gross profit was $126,577
(or 25%) and $396,003 (or 33%) for the nine months ended September 30, 2003
and 2002, respectively for an overall decline of 8%.
Combined cost of sales increased to $177,889 from $66,404 for the three months
ended September 30, 2003 and 2002, respectively. Gross profit declined to
$12,138 from $879,834 for the three months ended September 30, 2003 and 2002,
respectively.
The decline in cost of sales and increase in gross loss is attributable to a
variety of circumstances including a one-time, non-recurring sale made during
the third quarter 2002. In addition, declines are also attributable to the
Company's policy of not operating on fixed margins. In an ongoing effort to
establish market share, pricing for various Company products and services will
vary. The Company foresees the need to continue its policy of cost variation
in order to achieve significant market penetration and brand recognition.
Operating Expenses
Operating expenses on a combined basis increased to $1,541,219 for the nine
months ended September 30, 2003, compared to $380,784 for the same period in
the prior year.
Operating expenses on a combined basis increased to $413,857 for the three
months ended September 30, 2003, compared to $147,375 for the same period in
the prior year.
The increase in expense is primarily due to continued start-up and development
expenses in preparation for the Company's reverse merger, including
substantial legal and accounting costs associated with the merger and various
required filings. The Company also dramatically increased sales and marketing
efforts resulting in additional operating expenses. As the Company's business
increases, it is
18
anticipated that operating expenses will increase in absolute dollars, but
should decrease as a percentage of sales.
Interest Expense
Interest expense on a combined basis decreased to $19,879 for nine-months
ended September 30, 2003, compared to $35,122 in the same period of the prior
year.
Interest expense on a combined basis decreased to $6,667 for three-months
ended September 30, 2003, compared to $12,405 in the same period of the prior
year.
The decrease is due to reductions in borrowings as a result of raising
additional financing by the sale of common stock.
Net Profit or Loss
Net loss on a combined basis for the nine months ended September 30, 2003,
increased to $(1,486,921) from $(20,701) in the comparable period of the prior
year.
Net loss on a combined basis for the three months ended September 30, 2003,
increased to $(408,386) from a profit of $720,054 in the comparable period of
the prior year.
The increase in net loss is primarily attributable to a one-time,
non-recurring sale during third quarter 2002, the substantial costs associated
with the Company's reverse-merger including costs for legal and accounting,
costs associated with sales and marketing efforts, and costs associated with
continued sales of Company securities in two private offerings. In addition,
comparison with the prior nine-month period is not representative as
operations of HPI for the first two quarters of 2002 were nominal.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended September 30, 2003, the Company and HPI raised
$2,568,946 in gross proceeds, with net proceeds of $2,478,947 through the
private sale of its equity securities. Additionally, the Company had stock
subscriptions receivable at September 30, 2003 totaling $884,964. Subsequent
to this date, the Company has raised an additional $1,640,006 in gross
proceeds from new investors.
Net cash used in operating activities for the nine months ended September 30,
2003 was $(1,363,537), resulting primarily from a net loss of $(2,357,591),
adjusted for a receivable write-off due from an affiliate of $(850,173).
Net cash used in investing activities in the nine-month period ended September
30, 2003 was $(71,196) reflecting the purchase of fixtures and equipment.
Net cash provided by financing activities for the nine months ended September
30, 2003 totaled $1,701,274. The Company received net proceeds from issuance
of common stock totaling $2,478,947. This was offset primarily by payments on
notes payable to related parties of $(325,000) and payments due affiliates of
$(460,173).
The Company's ability to make payments to fund planned capital expenditures
and operations will depend on its ability to generate sufficient cash in the
future. The Company has only limited revenues and will not be in a position to
materially increase sales until at least the first quarter of 2004. The
Company has historically raised funds to support its operating expenses and
capital requirements through sales of equity securities or through other
credit arrangements. The Company's cash on hand and cash generated from
operations should be sufficient to meet its anticipated general and
administrative needs for the next twelve months. However, in order to satisfy
its mid-term expansion and liquidity requirements, the Company will need to
raise additional funds. To the extent additional sales of equity or debt
securities are insufficient to satisfy the Company's liquidity
19
requirements, the Company may have to reduce or dramatically curtail the
development of new products, distribution of current publications and other
services. Any future funding may take the form of debt or equity or a
combination thereof.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company to date has not had
significant operations and is highly dependent on equity and debt financing.
The Company incurred net operating losses of $(943,106) and $(2,356,069) for
the three and nine month periods ended September 30, 2003.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements contained in this Quarterly Report on Form 10-QSB, and
other written and oral statements made from time to time by us, do not relate
strictly to historical facts. These statements are considered "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Words such as
"anticipate," "believe," "could," "estimate," "expect," "forecast," "intend,"
"may," "plan," "possible," "project," "should," or "will," or similar words or
expressions, are intended to identify forward looking statements. This
forward-looking information involves important risks and uncertainties that
could materially alter results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. We caution
you that such forward-looking statements are only predictions and that actual
events or results may differ materially. In evaluating such statements, you
should specifically consider the various factors that could cause actual
events or results to differ materially, including those factors described
below. It is not possible to foresee or identify all factors affecting our
forward-looking statements and you should not consider any list of such
factors to be exhaustive. We are under no duty to update any forward-looking
statements.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
consolidated financial statements, during the nine months ended September 30,
2003, the Company had a net loss of $(2,357,591) and was highly dependent on
equity and debt financing. These factors raise substantial doubt about its
ability to continue as a going concern.
The Company's ability to make payments to fund planned capital expenditures
and operations will depend on its ability to generate sufficient cash in the
future. The Company has only limited revenues and will not be in a position to
materially increase sales until at least the first quarter of 2004. The
Company has historically raised funds to support its operating expenses and
capital requirements through sales of equity securities or through other
credit arrangements. The Company's cash on hand and cash generated from
operations should be sufficient to meet its anticipated general and
administrative needs for the next twelve months. However, in order to satisfy
its mid-term expansion and liquidity requirements, the Company will need to
raise additional funds.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Although the Company will pursue a strategy of product and geographic
diversification, it is not presently broadly diversified and this lack of
diversification may not insulate the Company from market fluctuations.
A key aspect of the Company's long-term strategy is to incorporate
diversification across a number of identified promotional, publishing and
digital media disciplines. However, the Company has yet to achieve broad
product diversification. Initial
20
operations have been limited to the production and distribution of the
Hollywood Previews(TM) Entertainment Magazine and a few special edition
publications. To date, the Company has not attained its sales and revenue
goals for committed sponsors and advertisers in its Hollywood Previews(TM)
Entertainment Magazine. As a result, the Company has recently broadened its
sales and marketing efforts so as to better concentrate on the production of
custom and special edition discs.
By broadening operations, the Company is seeking to reduce its dependency on
any one product, industry or geographic region at any one time, and as such,
reducing its susceptibility to adverse economic circumstances. However, the
close association between advertising revenues and national economic
conditions will continue to expose it in the future to additional risks,
including risks associated with currency valuations and sales fluctuations in
key geographic regions.
Management believes that its multi-disciplinary approach, combined with the
industry and geographic diversification will help insulate the Company from
unforeseen economic, political and/or regulatory pressures that may arise on a
regional basis. However, there is no guarantee against recessions, regional
slow-downs or negative economic conditions that may exist now, or may occur in
the future, in some or many of the Company's key geographic regions. Negative
economic conditions could directly impact the Company's ability to distribute
its products, obtain financing for new productions, future acquisitions, or
continue to grow consistent with Management's expectations.
The Company may not be successful in establishing necessary strategic
alliances.
The Company is seeking to build alliances with leading national sponsors,
media and publishing companies, distributors, financial organizations and
technology companies, and plans to continue its strategy of developing key
alliances in order to expand its reach into the national and international
marketplace. However, there can be no assurance that the Company will be
successful in obtaining ongoing strategic alliances or that the Company will
be able to find further suitable business relationships as it develops
strategies and new products. Any failure to continue or expand such
relationships could have a material adverse effect on the Company's business,
results of operations or financial condition.
Major risks associated with strategic alliances and partnerships are (1) the
lack of control Company may have over these operations, and (2) the
possibility that in the future, the Company's strategic alliances will not
develop or market products in competition with the Company, and/or discontinue
their alliances with the Company or form alliances with the Company's
competitors.
Some of the Company's agreements have not been finalized and
terms may differ.
Many of the agreements, negotiations and other business activities of the
Company are still in discussion stage and have not yet been consummated.
Depending upon circumstances both inside and outside of the Company's control,
some or all of these agreements may never be consummated, or, if consummated,
the terms and conditions may change materially from those currently projected
or assumed by Company.
Competition and technological uncertainty exists in the market.
The Company operates in a rapidly evolving field. Competition from other
domestic and foreign companies, media, entertainment, and other institutions
in the areas of product development, product and technology acquisition,
manufacturing and marketing is intense. Competitors may succeed in obtaining
content for their products more rapidly or less expensively than the Company.
Competitors may have already developed, or be in the process of developing
technologies that are, or may be, the basis for competitive products to the
Company's current or planned lines of products. Some of these products may
have an entirely different approach or means of accomplishing the same end
results as products currently developed, or contemplated for development, by
the Company.
21
The Company's ability to respond quickly to consumer needs or advances in
digital publishing technologies, without compromising product quality, will be
crucial to our success. We are continually engaged in product development and
improvement programs to establish and improve our competitive position. We
cannot, however, guarantee that we will be successful in enhancing existing
products or developing new products or technologies that will timely achieve
or receive market acceptance.
The Company's competitive position may be adversely affected by competitive
product development or the acceptance and/or integration by the public or
sponsors of new or other forms of digital media, formats or devices not
anticipated or supported by the Company.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing technologies and
products that are more effective or affordable than those being developed by
the Company or that would render the Company's technology and products less
competitive or obsolete.
If we are unable to develop and market new products and technologies, we may
experience a decrease in demand for our products or our products could become
obsolete.
The Company faces technology risks.
The Company's products are subject to the risks of failure inherent in the
development and testing of products based on innovative or developing
technologies. These risks include the possibilities that Company technology or
any or all of the Company's products may be found to be ineffective, or to
have substantial limitations, or otherwise fail. One or more of the Company's
competitors may achieve patent protection that could have a material adverse
effect on the Company. Although the Company does not currently have any
specific plans to do so, it may prosecute or may be required to defend patent
or trademark infringement litigation or patent interference proceedings with
holders of competitive patents or trademarks. The Company may incur
substantial costs in defending or prosecuting such proceedings. In addition,
such proceedings may impact the Company's competitive position and there can
be no assurance that the Company will be successful in any patent or trademark
litigation.
There is no guarantee that the motion picture studios will continue to
provide the Company with content and movie trailers at no cost.
Presently, the Company is being provided copyrighted theatrical movie trailers
and other copyrighted public dissemination's such as press releases,
behind-the-scenes footage, video clips, celebrity interviews and other
promotional media directly from film studios and other sources at no cost.
This same promotional media is also made available to other companies,
broadcasters and production facilities for their use and incorporation into
various other broadcast mediums and products. Traditionally, this media has
been provided free of charge in the form of industry "Press Kits" and made
available for re-broadcast or re-distribution by third parties without license
or fees. The Company will continue to rely upon the availability of this free
media and content as the key component for the Hollywood Previews
Entertainment Magazine. Although it is not anticipated, should in the future
this content become unavailable, or should at any time studios begin charging
a license or other royalties for the use or re-broadcast of its copyrighted
materials, the Company's ability to continue producing the Hollywood Previews
Entertainment Magazine could be jeopardized, and the production and
distribution of this core Company product could prove non-viable. This would
have an immediate and materially adverse effect upon the Company's revenue
projections, and subsequently affect Company viability.
The Company's future depends, in part, on its Key Personnel, Consultants
and Principal Management's continued participation.
22
The Company's ability to successfully develop its products, manage growth and
maintain its competitive position will depend, in a large part, on its ability
to attract and retain highly qualified management. The Company is dependent
upon its Chief Executive Officer, President, Chief Financial Officer, and
other key members of its management and consulting team. Competition for such
personnel is significant, and there can be no assurance that the Company will
be able to continue to attract and retain such personnel. The Company's
consultants may be affiliated or employed by others and some may have
consulting or other advisory arrangements with other entities that may
conflict or compete with their obligations to the Company. The Company
addresses such potential conflicts by requiring that its consultants,
collaborators and sponsored researchers execute confidentiality agreements
upon commencement of relationships with the Company, by closely monitoring the
work of such persons and by requiring material transfer and patent assignment
agreements wherever possible and appropriate.
Loss of relationships with key suppliers may harm the Company.
Whenever possible, the Company will acquire businesses, products or product
lines which do not rely on a single supplier for raw materials or finished
goods, but there can be no assurance that some products or product lines will
be able to utilize materials or parts except those available through a single
supplier.
Control by Management.
The Company's officers, directors, founders, employees and principal
shareholders currently own a controlling position of the Company's outstanding
stock. Management will be able to elect a majority of the Company's Board of
Directors and will have the ability to control the Company and direct its
business and affairs. This concentration of ownership could have the effect
of delaying or preventing a change in control of the Company.
Lack of Product or Multi-Media Insurance Coverage.
We do not presently have liability insurance to protect us from the costs of
claims for damages due to the use or distribution of our publications. The
Company intends on securing such insurance in the future. This insurance may
be limited in certain circumstances and limited in amount. Recent premium
increases and coverage limitations may make this insurance uneconomic.
However, even if the Company obtains such insurance, one or more liability
claims could exceed policy limits. If we continue to have no coverage or our
insurance does not provide sufficient coverage, product liability claims could
result in material losses in excess of our reserves.
Quarterly Operating Results May Vary.
Our quarterly operating results are subject to substantial fluctuations and
any failure to meet financial expectations for any fiscal quarter may
disappoint securities analysts and investors and could cause our stock price
to decline.
.. Our quarterly operating results may vary significantly due to a combination
of factors, many of which are beyond our control. These factors include:
.. Changes in demand for our products;
.. Our ability to meet the demand for our products;
.. Existing and increased competition;
.. Our ability to compete against significantly larger and better funded
competitors;
.. The number, timing, pricing and significance of new products and product
introductions and enhancements by us and our competitors;
.. Our ability to develop, introduce and market new and enhanced versions of
our products on a timely basis;
.. Changes in pricing policies by us and our competitors;
23
.. The timing of significant orders and shipments;
.. Litigation with respect to liability, trademark or copyright claims or
product recalls and any insurance covering such claims or recalls; and
.. General economic factors.
As a result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and you should not rely upon these
comparisons as indications of future performance. These factors may cause our
operating results to be below market analysts' expectations in some future
quarters, which could cause the market price of our stock to decline.
General Economic Slowdowns May Have a Material Effect on Sales.
If changes in the economy and consumer spending reduce consumer demand for our
products, our sales and profitability will suffer.
The Company is Highly Dependant Upon Outside Consultants.
If our consultants or collaborative partners do not perform, we may be unable
to develop and bring to market new products as anticipated.
We may in the future enter into consulting collaborative arrangements with
third parties to develop products. These arrangements may not produce
successful products. If we fail to establish these arrangements, the number
of products from which we could receive future revenues will be limited.
Our dependence on consulting or collaborative arrangements with third parties
subjects us to a number of risks. These arrangements may not be on terms
favorable to us. We cannot absolutely control the amount and timing of
resources our consultants or collaborative partners may devote to our
products, and these third parties may choose to pursue alternative products.
These third parties also may not perform their obligations as expected.
Business combinations, significant changes in their business strategy, or
their access to financial resources may adversely affect a consultant's or
partner's willingness or ability to complete its obligations under the
arrangement. Moreover, we could become involved in disputes with our
consultants or partners, which could lead to delays or termination of the
arrangements and time-consuming and expensive litigation or arbitration.
Our Intellectual Properties Rights May be Challenged or Infringed.
Should our intellectual property rights not adequately protect our products or
technologies, others could compete against us more directly, which would hurt
our sales and profitability.
Our success depends in part on our ability to obtain patents or rights to
patents, copyrights, protect trade secrets, operate without infringing upon
the proprietary rights of others, and prevent others from infringing on our
patents, copyrights, trademarks and other intellectual property rights. We
will be able to protect our intellectual property from unauthorized use by
third parties only to the extent that it is covered by valid and enforceable
patents, copyrights, trademarks and licenses. Patent and/or copyright
protection generally involves complex legal and factual questions and,
therefore, enforceability of such rights cannot be predicted with certainty.
Patents and copyrights may be challenged, invalidated or circumvented. Thus,
any patents and/or copyrights that we own or license from others may not
provide adequate protection against competitors. In addition, any pending and
future patent applications may fail to result in patents being issued. Also,
those patents that are issued may not provide us with adequate proprietary
protection or competitive advantages against competitors with similar
technologies. Moreover, the laws of certain foreign countries do not protect
our intellectual property rights to the same extent as do the laws of the
United States.
24
In addition to patents, copyrights and trademarks, we rely on trade secrets
and proprietary know-how. We seek protection of these rights, in part,
through confidentiality and proprietary information agreements. These
agreements may not provide meaningful protection or adequate remedies for
violation of our rights in the event of unauthorized use or disclosure of
confidential and proprietary information. Failure to protect our proprietary
rights could seriously impair our competitive position.
If third parties claim we are infringing their intellectual property rights,
we could suffer significant litigation or licensing expenses or be prevented
from marketing our products.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of others. However,
regardless of our intent, our technologies may infringe the patents and
copyrights, or violate other proprietary rights of third parties. In the event
of such infringement or violation, we may face litigation and may be prevented
from pursuing product development or commercialization.
Our international business exposes us to a number of risks.
A significant part of our current sales are and a significant part of our
projected future sales will be derived from international operations. In
addition, we anticipate having material international operations, including, a
variety of jointly-owned subsidiary operations. Accordingly, we will be
exposed to risks associated with international operations, including risks
associated with re-valuation of the local currencies of countries where we
sell our products or conduct business, which may result in our products
becoming more expensive in local currency terms, thus reducing demand or in
increased costs to us. Our operations and financial results also may be
significantly affected by other international factors, including:
.. Foreign government regulation;
.. Political or economic instability in our target markets;
.. Trade restrictions;
.. Changes in tax laws and tariffs;
.. Inadequate protection of intellectual property rights in some countries;
.. Managing foreign distributors, manufacturers and staffing; and
.. Managing foreign branch offices.
If these risks actually materialize, our sales to international customers, as
well as those domestic customers that use products manufactured abroad, may
decrease.
Future Acquisitions may prove unprofitable.
If we make any acquisitions, we will incur a variety of costs and may never
realize the anticipated benefits.
We intend to attempt to acquire businesses, technologies or products that we
believe are a strategic fit with our business. If we undertake any transaction
of this sort, the process of integrating a business, technology or product may
result in operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, we may never realize the anticipated benefits of
any acquisition. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and/or impairment related to goodwill and other intangibles, and the
incurrence of large, immediate write-offs.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of our
common stock in the public market, or the perception that these sales could
occur. In
25
addition, these factors could make it more difficult for us to raise funds
through future offerings of common stock.
ITEM 3. CONTROLS AND PROCEDURES
(a) The Company's management, including the Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of the
effectiveness of disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this quarterly report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded
that, to the best of their knowledge, as of the end of the period
covered by this quarterly report, the disclosure controls and
procedures are effective in ensuring that all material information
required to be filed in this quarterly report has been made known to
them in a timely fashion. There were no changes in the Company's
internal control over financial reporting that occurred during the
period covered by this report that have materially affected, or are
likely materially affect, the Company's internal control over
financial reporting.
(b) There were no changes in the Company's internal controls or in other
factors that could have significantly affected these controls
subsequent to the date of the Company's recent evaluation.
26
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
NONE
ITEM 2: CHANGES IN SECURITIES
As part of the merger, the shares of Hollywood Previews, Inc. were converted
to 55,179,581 shares of Irvine Pacific Corporation common shares on a post
merger basis, and 1,689,500 shares of Irvine Pacific Corporation were issued
to non-affiliates for the conversion of a note in the amount of $29,988 per
the merger agreement.
For the three months ended September 30, 2003, the Company sold an aggregate
of 178,309 shares to four non-U.S. accredited investors and received gross
proceeds of $203,971 in cash. The shares were sold pursuant to an exemption
provided by Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D promulgated thereunder. Commissions paid to the placement agent
totaled $26,516.
27
ITEM 3: DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NONE
ITEM 5: OTHER INFORMATION
NONE
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit Number Description
- -------------- -----------
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a)
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a)
32.1 Certification of Chief Executive Officer required by Rule
13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350
(B) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on August 29, 2003,
regarding the reverse acquisition of Hollywood Previews, Inc.
28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date November 12, 2003 IRVINE PACIFIC CORPORATION
By: /s/ David MacEachern
---------------------------------------
David MacEachern, Chief Executive
Officer
By: /s/ Franklin Unruh
---------------------------------------
Franklin Unruh, Chief Financial Officer
29