UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number: 0-5014
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PACIFIC REALM, INC.
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(Name of Small Business Issuer in its charter)
Delaware 95-2554669
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
13428 Maxella Avenue, Suite #322, Marina del Rey, CA 92092
----------------------------------------------------------
(Address of principal executive offices)(Zip Code)
Issuer's telephone number: (310) 574-8555
Indicate by check mark if the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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. x Yes No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at September 30, 2002
Common Stock, $.00008 2,737,413 shares
par value ----------------
Outstanding Securities
Transitional Small Business Disclosure Format (check one): Yes[] No[x]
PACIFIC REALM, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial statements are unaudited and included herein beginning on page F1 and
are incorporated herein by this reference.
2
REPORT OF INDEPENDENT ACCOUNTANT
To the Board of Directors
Pacific Realm, Inc.
(a Delaware corporation)
We have made a review of the balance sheet of Pacific Realm, Inc. as of
September 30, 2002, and the related statements of operations for the three and
six months period ended September 30, 2002 and 2001 and the statement of cash
flows for the six months ended September 30, 2002 and 2001, in accordance with
the standards established by the American Institute of Certified Public
Accountants. These financial statements are the responsibility of the Company's
management.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have audited, in accordance with generally accepted auditing standards, the
balance sheet as of March 31, 2002, and the related statements of operations,
cash flows and changes in common shareholders' equity (deficit) for the period
then ended, and our report dated June 4, 2003, expressed an unqualified opinion
on those financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of September 30, 2002, is fairly stated in all
material respects in relation to the balance sheet from which it has been
derived.
/s/ Clyde Bailey
--------------------------
Clyde Bailey P.C.
San Antonio, Texas
June 13, 2003
F-1
Pacific Realm Inc.
Balance Sheets
(Unaudited)
September 30 March 31
2002 2002
------------------------------------
A S S E T S
-----------
Current Assets:
Cash $ 5,807 $ -
Accounts Receivable 37,500
--------------- -----------------
Total Current Assets 43,307 -
--------------- -----------------
Total Assets $ 43,307 $ -
=============== =================
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
--------------------------------------------------------------------------
Current Liabilities
-------------------
Accounts Payable $ 9,327 $ 6,060
---------------- -----------------
Total Current Liabilities 9,327 6,060
Commitments and Contigencies - -
Stockholders' Equity
Preferred Stock, $.0001 par value, 2,000,000 shares - -
authorized; none issued and outstanding
Common stock, $.00008 par value, 200,000,000 shares 219 219
authorized; 2,737,413 shares issued and *
outstanding
Additional paid-in capital 973,236 973,236
Accumulated deficit (939,475) (979,515)
---------------- -----------------
Total Stockholders' Equity 33,980 (6,060)
---------------- -----------------
Total Liabilities and Stockholders' Equity $ $ 43,307 $ -
================ =================
* Retroactively Restated
See accompanying notes to Financial Statements
F-2
Pacific Realm
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
September 30 September 30
-----------------------------------------------------------------------------
2002 2001 2002 2001
--------------- -------------- --------------- ----------------
Revenues:
Revenue $ 30,000 $ 1,253 $ 60,000 $ 6,553
---------------- -------------- ---------------- ----------------
Total revenues 30,000 1,253 60,000 6,553
Operating Expenses:
Legal & Professional 6,750 - 16,304 -
General and Administrative 1,982 1,404 3,656 6,593
--------------- -------------- --------------- ----------------
8,732 1,404 19,960 6,593
--------------- -------------- --------------- ----------------
Income (Loss) from operations 21,268 (151) 40,040 (40)
--------------- -------------- --------------- ----------------
Provision for Income Taxes:
Income Tax Benefit (Expense) - - - -
Net Income (Loss) $ 21,268 $ (151) $ 40,040 $ (40)
=============== ============== =============== ================
Loss per common share:
From operations $ $ 0.01 $ (0.00) $ 0.01 $ (0.00)
--------------- -------------- --------------- ----------------
Weighted average common shares outstanding 2,737,413 2,737,413 2,737,413 2,737,413
=============== ============== =============== ================
Retroactively Restated
See accompanying notes to Financial Statements.
F-3
Pacific Realm Inc.
Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30
----------------------------------------
2002 2001
------------------ ------------------
Cash Flows from Operating Activities:
Net Income $ 40,040 $ (40)
Adjustments to Reconcile net loss to net cash
provided by (used in) operating
activities:
Changes in operating assets and liabilities:
Accounts Payable 3,267 -
Accounts Receivable (37,500) -
------------------ ------------------
Net Cash provided by (used in) Operating Activities $ 5,807 $ (40)
Cash Flows from Investing Activities:
Fixed Assets - -
------------------- ------------------
Net Cash provided by (used in) Investing Activities $ - $ -
Cash Flows from Financing Activities:
Loan Payable, stockholder - -
------------------- ------------------
Net Cash provided by (used in) Financing Activities $ - $ -
Net Increase (Decrease) in cash and cash equivalents 5,807 (40)
Cash at beginning of year $ - $ 45
=================== ==================
Cash at end of year $ 5,807 $ 5
=================== ==================
Supplemental disclosure: -
Total interest paid $ - $ -
=================== ==================
See accompanying notes to Financial Statements.
F-4
PACIFIC REALM INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1- BASIS OF PRESENTATION
- -----------------------------
GENERAL
- -------
The consolidated unaudited interim financial statements of the Company as of
September 30, 2002 and for the three and six months ended September 30, 2002 and
2001, included herein have been prepared in accordance with the instructions for
Form 10QSB under the Securities Exchange Act of 1934, as amended, and Article 10
of Regulation S-X under the Securities Act of 1933, as amended. The March 31,
2002 Balance Sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations relating
to interim consolidated financial statements.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
at September 30, 2002 and March 31, 2002, and the results of their operations
for the three and six months ended September 30, 2002 and 2001, and their cash
flows for the six months ended September 30, 2002 and 2001.
The results of operations for such periods are not necessarily indicative of
results expected for the full year or for any future period. These financial
statements should be read in conjunction with the audited financial statements
as of March 31, 2002 and related notes included in the Company's Form 10-KSB
filed with the Securities and Exchange Commission
ORGANIZATION
- ------------
Pacific Realm Inc. ("the Company") was incorporated under the laws of the State
of Delaware in 1968 for the purpose to promote and carry on any lawful business
for which a corporation may be incorporated under the laws of the State of
Delaware. The company has a total of 200,000,000 authorized common shares with a
par value of $.00008 and 2,000,000 preferred shares with a par value of $.001
per share and with 2,713,413 common shares issued and outstanding and no
preferred shares issued and outstanding as of September 30, 2002 (retroactively
restated). The Company filed an amendment of its Certificate of Incorporation
with the State of Delaware to increase the authorized shares from 20,000,000
authorized common shares to 200,000,000 authorized shares and to change its par
value from $.0001 to $.00008 in March 2003.
[ THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
F-5
PACIFIC REALM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
- -------------------------------------------------------------
ACCOUNTING METHOD
- -----------------
The Company's financial statements are prepared using the accrual method of
accounting. Revenues are recognized when consulting engagements have been earned
and completed and expenses when incurred on the related consulting engagements.
Since the consulting engagements are usually less than one year, the Company
recognizes its revenues when the engagements are completed. This method is used
because the typical contract is completed in six months or less and does not
contain a refund provision in the contract.. An engagement is considered
complete when all costs except significant items have been incurred. Revenues
from time contracts are recognized currently as the work is performed. Losses on
contract are recognized by expenses the actual expenses on the completed job.
During 2000, the Company adopted the U.S. Securities and Exchange Commission's
("SEC") Staff Accounting Bulletin 101, "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. The adoption of SAB 101 did not have a
material effect on the Company's business, financial condition, results of
operations or cash flows. The Company believes that SAB 101 has been followed in
the recognition of revenues.
EARNINGS PER COMMON SHARE
- -------------------------
The Company adopted Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share requiring the
restatement of all prior periods.
Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year.
Diluted earnings per share are computed on the basis of the weighted average
number of common shares and dilutive securities outstanding. Dilutive securities
having an anti-dilutive effect on diluted earnings per share are excluded from
the calculation. The Company does not have any dilutive securities as of
September 30, 2002.
NOTE 2 - COMMON STOCK
- -----------------------
The company has a total of 200,000,000 authorized common shares and 2,000,000
preferred shares with a par value of $.00008 per share and with 2,737,068 common
shares issued and outstanding and no preferred shares issued and outstanding as
of September 30, 2002.
In August 2002, the Board of Directors authorized a 20 to 1 reverse split of the
Company's common stock. The financial statements as of September 30, 2002 were
retoractively adjusted to reflect the effect of this change,
In January 2003, the Board of Directors authorized a 3 to 1 forward split of the
Company's common stock. The result of this forward split increased the
outstanding shares from to 911,356 outstanding common shares to 2,737,413
outstanding common shares after adjusting for fractional shares.
F-6
Pacific Realm Inc.
Notes to Financial Statements
NOTE 3 - COMMITMENT AND CONTINGENCIES
- -------------------------------------
The Company has not recognized any commitments or contingencies at this time.
NOTE 4 - SUBSEQUENT EVENTS
- --------------------------
There are no subsequent events that warrant disclosure in these financial
statements.
[ THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
F-7
BASIS OF PRESENTATION
The accompanying unaudited financial statements are presented in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and Item 310 under subpart A of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying statements should be read in conjunction with the audited
financial statements for the year ended March 31, 2002. In the opinion of
management, all adjustments (consisting only of normal occurring accruals)
considered necessary in order to make the financial statements not misleading,
have been included. Operating results for the three months ended September 30,
2002 are not necessarily indicative of results that may be expected for the year
ending March 31, 2003. The financial statements are presented on the accrual
basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for disclosures that report the Company's historical results, the
statements set forth in this section are forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements. Additional information concerning factors that may cause actual
results to differ materially from those in the forward-looking statements are in
the Company's annual report on Form 10-KSB for the year ended March 31, 2002 and
in the Company's other filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company assumes no
obligation to update any forward-looking statements or comments on the reasons
why actual results may differ therefrom.
Results of Operations
The Company realized a net profit of $21,268 from operations for the three month
period ended September 30, 2002 compared to a net loss of ($151) for the three
month period ended September 30, 2001. For the three month period ended
September 30, 2002, the Company had revenues of $30,000, composed of consulting
income. The Company had revenues of $1,253 for the three month period ended
September 30, 2001. The net profit per share for the three month period ended
September 30, 2002 was $.01 per share compared to a net loss per share of nil
for the three month period ended September 30, 2001.
The Company had costs and expenses of approximately $9,000 for the three month
period ended September 30, 2002 compared to costs and expenses of approximately
$1,400 for the three month period ended September 30, 2001. The Company's
expenses consist of legal and professional fees and general and administrative
expenses. The increase in expenses is due to the increased costs of operating as
the Company's revenues have increased.
The Company realized a net profit of $40,040 from operations for the six month
period ended September 30, 2002 compared to a net loss of ($40) for the six
month period ended September 30, 2001. For the six month period ended September
30, 2002, the Company had revenues of $60,000, composed of consulting income.
The Company had revenues of $6,553 for the six month period ended September 30,
2001. The net profit per share for the six month period ended September 30, 2002
was $.01 per share compared to a net loss per share of nil for the six month
period ended September 30, 2001.
3
The Company had costs and expenses of approximately $20,000 for the six month
period ended September 30, 2002 compared to costs and expenses of approximately
$6,600 for the six month period ended September 30, 2001. The Company's expenses
consist of legal and professional fees and general and administrative expenses.
The increase in expenses is due to the increased costs of operating as the
Company's revenues have increased.
The Company's assets at September 30, 2002 were approximately $43,000 compared
to no assets at March 31, 2002. The difference is due to the Company's
operations which resulted in cash of approximately $5,800 and accounts
receivable of $37,500 at September 30, 2002. The Company's liabilities at
September 30, 2002 were approximately $9,300 compared to liabilities of
approximately $6,000 at March 31, 2002. The Company's current liabilities at
September 30, 2002 and March 31, 2002 consisted of accounts payable.
Total shareholders' equity increased from a deficit of ($6,060) at March 31,
2002 to $33,980 at September 30, 2002.
Liquidity and Capital Resources
As of September 30, 2002, the Company had working capital of approximately
$34,000 consisting of $43,407 in current assets and $9,327 in current
liabilities. The Company had negative working capital of approximately ($6,000)
at March 31, 2002 consisting of no assets and $6,060 in current liabilities. The
Company has adequate working capital for its current operations.
Effect of Inflation
Inflation did not have any significant effect on the operations of the Company
during the three months ended September 30, 2002. Further, inflation is not
expected to have any significant effect on future operations of the Company.
New Accounting Pronouncements
In April 2002, the FASB approved for issuance Statements of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds previous
accounting guidance, which required all gains and losses from extinguishment of
debt be classified as an extraordinary item. Under SFAS 145 classification of
debt extinguishment depends on the facts and circumstances of the transaction.
SFAS 145 is effective for fiscal years beginning after May 15, 2002 and is not
expected to have a material effect on the Company's financial position or
results of its operations.
In July 2002, the FASB issued Statements of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146). SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.
In December 2002, the FASB issued Statements of Financial Accounting Standards
No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure--an
4
amendment of FASB Statement No. 123." This Statement amends FASB Statement No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The adoption of SFAS 148 is not expected to have a material effect on
the Company's financial position or results of its operations.
Inflation
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future.
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures by
Mr. Joseph Gutierrez, both the chief executive officer and chief accounting
officer of the company, as of a date within 90 days of the filing date of this
quarterly report, such officer has concluded that the Company's disclosure
controls and procedures are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
Securities and Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported, within the time period specified by the Securities and
Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II OTHER INFORMATION
Items 1, 2, 3, 4 an 5 are Inapplicable
Item No. 6 - Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed during the three months ended September
30, 2002.
(b) Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC REALM, INC.
Date June 20, 2003 /s/ Joseph Gutierrez
----------------------------
Joseph Gutierrez, CEO, CFO
5
FORM OF CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATION
I, Joseph Gutierrez, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Pacific Realm, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing date of this quarterly
report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 20, 2003 /s/ Joseph Gutierrez
----------------------------
Joseph Gutierrez, President
6
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pacific Realm, Inc. on Form 10-QSB
for the period ended September 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), each of the undersigned,
in the capacities and on the dates indicated below, hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
/s/ Joseph Gutierrez
Joseph Gutierrez, President
Dated: June 20, 2003
7