UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
| (Mark One) [X ] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended __September 30, 2006_ |
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from _________________ to _________________ |
| |
Commission file number ___0-30118____ |
EMPYREAN HOLDINGS INC.
(exact name of small business issuer as specified in its charter)
___NEVADA_____________________________________
(State or other jurisdiction of incorporation or organization) | _88-0413417________________
(IRS Employer Identification No.) |
11200 Westheimer Rd., Suite 900
Houston, TX 77042
(address of principal executive offices)
Issuers telephone number: (713) 243 8731
(Registrant's telephone number, including area code)
EMPYREAN COMMUNICATIONS, INC.
10700 Richmond Avenue, Suite 100,
Houston, TX 77042
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer
filed all documents and reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12months(or for such shorter period that the registrant was required to file such reports)and
has been subject to such filing requirements for the past 90 days (X) Yes ( ) No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (__) No (X)
As of September 30, 2006, there were 7,835,565 * shares of common stock issued and outstanding
Note: * Does not include 22,501 shares "on hold" and awaiting return from third party
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X]
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Following are the unaudited financial statements for the period ended September 30, 2006.
EMPYREAN HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of September 30, 2006 and December 31, 2005
(unaudited)
See accompanying summary of accounting policies
and notes to financial statements.
EMPYREAN HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF INCOME & EXPENSES
Three and Nine Months Ended September 30, 2006 and 2005 and the
Period from December 30, 2004 (Inception) through September 30, 2006
(unaudited)
See accompanying summary of accounting policies
and notes to financial statements
EMPYREAN HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2006 and 2005 and the
Period from December 30, 2004 (Inception) through September 30, 2006
(unaudited)
See accompanying summary of accounting policies and notes
to financial statements
EMPYREAN HOLDINGS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Empyrean Holdings, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with Empyrean's audited 2005 year end financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period have been reflected herein. The results of operations for interim periods are, however, not necessarily indicative of the results to be expected for the full year.
Use of Estimates. In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenue and expenses in the statements of income and expenses. Actual results could differ from those estimates.
NOTE 2 - SHARE-BASED COMPENSATION
On January 1, 2006, Empyrean adopted SFAS No. 123 (R), "Share-Based Payment." SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to financial statement recognition. Empyrean adopted SFAS 123(R) using the modified prospective method which requires the application of the accounting standard as of January 1, 2006. The consolidated financial statements as of and for the quarter ended September 30, 2006 reflect the impact of adopting SFAS 123(R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Since Empyrean has not granted options during the quarter ended September 30, 2006 or during any period prior to January 1, 2006, the adoption of SFAS 123(R) had no impact.
NOTE 3 - EQUITY
On June 2, 2006, 10,000,000 (200,000 on a split adjusted basis) restricted shares were issued to William Melchiori as a signing bonus for him to serve as Director and Chief Financial Officer of Empyrean Holdings, Inc. He will also serve as President and Director of Empyrean's wholly owned subsidiary, Empyrean Financial Services, Inc. and also as a Director of Empyrean's recently formed wholly owned subsidiary, Empyrean Properties, Inc.
On June 30, 2006, four town homes valued at $772,000 were contributed and $226,334 in debt was canceled by Hesperia Advisors Limited in exchange for 1,000,000 convertible preferred shares. These shares are convertible any time by the holder for 4,000,000 post-split (see Note 5) common shares. As it is Empyrean's intent to sell these town homes to generate cash flow, they have been designated as "held-for-sale." Therefore they will be carried at the lower of cost or fair value (net of expected sales costs) during the holding period and will not be depreciated.
NOTE 4 - SALE OF PROPERTY AND RELATED PARTY DEBT REDUCTION
One of the four town homes acquired on June 30, 2006 was sold for a net loss of $18,631. The net cash amount of $168,368 was received on September 22, 2006. Out of the funds received, $160,000 was paid to Independent Management Resources, LLC to reduce Empyrean's debt with this company.
NOTE 5 - REVERSE STOCK SPLIT - ROUNDING UP OF SHARES
A 50:1 (fifty-to-one) reverse split of Empyrean's common shares was implemented on June 26, 2006, resulting in 7,858,039 total outstanding common shares. Though no common shares were issued during the three months ended September 30, 2006, the rounding up of fractional shares owned by beneficial shareholders to the next higher share number (as provided for in the terms of the 50:1 reverse split of Empyrean's common shares implemented on June 26, 2006) has increased the total outstanding common shares of the company by 27 shares to 7,858,066 shares. All share and per share information has been retroactively restated in the consolidated financial statements to reflect the reverse stock split.
Item 2. Management's Plan of Operation.
Our principal activities remain concentrated on implementing our corporate development plan. The first two stages that were completed by June 30, 2006 and resulted in our stockholders' equity being enhanced by nearly $1.00 million.
The total appraised value of the four town homes owned by the company's wholly owned subsidiary, Empyrean Properties, Inc., in the fast expanding town of Kewaskum, Wisconsin was $772,000. However, during the third quarter, one unit was sold for a net loss of $18,631 and from the $168,368 net proceeds received, $160,000 was used to reduce the company's related party debt.
The remaining unencumbered town homes have a total appraised value of $585,000 and may be sold or leveraged to obtain funds for business acquisitions should suitable opportunities become available. The leasing of these town homes to generate income is also another option being considered. As the company has yet to have a track record of revenue-producing operations however, there is no operating history upon which to base any assumption that the company will be able to achieve its business objectives.
Discussions are in progress with our affiliate and real property consultant, United Construction Group (UCG) (www.gounited.com) for our subsidiary, Empyrean Properties, Inc., to participate in several development projects. The first project has been identified as the $30 million residential development being undertaken by UCG in Santa Barbra, California. An SB-2 registration statement to raise $5 million is under preparation and part of the funds to be raised will be invested in this upscale residential development. The salubrious location of this project has been referred to as "the playground of the rich and famous".
The company's other subsidiary, Empyrean Financial Services, Inc. is close to finalizing agreements to provide financial accounting and consulting services to six clients and more are expected to be obtained in the near future. The revenues to be obtained from these clients is expected to make the company self sustaining by the end of the year and the projected total revenues anticipated for 2007 is not less than $400,000.
Liquidity
During the next 12 months, we will need significant working capital to fund our current plans to participate in real estate development projects with UCG and to make other acquisitions as appropriate.
A start on the financing process with be made the SB-2 registration to raise $5 million as mentioned in an earlier section and it is the intention to utilize well known investment bankers and/or qualified underwriters to assist in the financing process.
Item 3. Controls and Procedures
As of September 30, 2006, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-14(c) under the Securities Exchange Act of 1934) under the supervision and with the participation of our chief executive officer and chief financial officer. Based on and as of the date of such evaluation, the aforementioned officers have concluded that our disclosure controls and procedures are effective for timely gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934, as amended. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(F) and 15d-15(f) under the 1934 Act) during the period ended September 30, 2006, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 5. Other Information -
Capitalization
2. It is recorded that though no common shares have been issued since the Q2 10QSB for the period ended June 30, 2006 was filed, the company's issued and outstanding common shares has increased by 27 shares to 7,835,565 (excluding the 22,501 shares awaiting return from a third party). This is due to the rounding up of shares of beneficial shareholders to the next highest number as allowed for in the terms of the 1 to 50 reverse split that took effect at the close of business on June 26, 2006.
Item 6. Exhibits
Exhibit No. Document Location
3(i) Articles of Incorporation Previously Filed
3(ii) Bylaws Previously filed
31 Certification Included
32 Certification Included
_______________________________________________________________________
Note:
The 2nd Amendment to the company's Q2 10-KSB which contained the restated financial statements was filed on October 10, 2006
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.
EMPYREAN HOLDINGS, INC.
/s/ Robert L. Lee
Robert L. Lee,
President and Director Date: November 9, 2006
