U.S. 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 quarter ended March 31, 2001
- --------------------------------------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 0-30118
EMPYREAN COMMUNICATIONS, INC - Formerly DIRECTION TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 88-0413417
--------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
PMB 723, 250 "H" St.,
Blaine, WA 98230
-----------------------------
(Address of Principle Executive Offices)
Issuer's Telephone Number: (713) 935-2187
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Company was required to file such reports). And (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
---- ---- ---- ----
Page 2
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each Issuer's classes of common
equity, as of the latest practicable date:
March 31, 2001: Common Stock - 25,366,800
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained in Item
6 of this report.
Transitional Small Business Issuer Format Yes No X
----- -----
Page 3
EMPYREAN COMMUNICATIONS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Balance Sheets as of March 31, 2001 and
December 31, 2000 6
Statements of Operations for the three months ended
March 31, 2001 and March 31, 2000 and from Inception through
March 31, 2001, 7
Statements of Cash Flow for the three months ended
March 31, 2001 and March 31, 2000 and from Inception through
March 31, 2001 8
Notes to Financial Statements for the three months ended
March 31, 2001 and March 31, 2000 and from Inception through
March 31, 2001 12
Item 2. Management's Plan of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8 - K 14
Signatures 14
Exhibit 27. Financial Data Schedule 15
Page 4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Financial Statements of the Company required to be filed with this 10-QSB
Quarterly Report were prepared by management and commence on the following page,
together with related Notes. In the opinion of management, these Financial
Statements fairly present the financial condition of the Company, but should be
read in conjunction with the Financial Statements of the Company, Direction
Technologies Inc., for the year ended December 31, 2000 previously filed with
the Securities and Exchange Commission.
Page 5
EMPYREAN COMMUNICATIONS INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, 2001 and December 31, 2000
(Stated in US Dollars)
(Unaudited)
---------
ASSETS March 31, December 31,
------
2001 2000
---- ----
Current
Cash $ 5,396 $ 121
Prepaid expenses - 16,000
------------ ------------
5,396 16,121
Bandwidth Contract - (Empyrean Communications) 23,920,010 -
------------ ------------
$ 23,925,406 $ 16,121
============ ============
LIABILITIES
Current
Accounts payable $ 539,753 $ 50,639
Loans payable - -
------------ ------------
539,753 50,639
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Share capital
Authorized:
50,000,000 common shares, $0.001 par value
10,000,000 preferred shares,
$0.001 par value
Issued:
25,366,800 common shares - Note 2 24,639,156 695,745
Deficit accumulated during the
development stage (1,253,503) (730,263)
------------ ------------
- (34,518)
------------ ------------
$ 23,025,406 $ 16,121
============ ============
The accompanying notes are an integral part of these financial statements.
Page 6
EMPYREAN COMMUNICATIONS INC.
(A Development Stage Company)
STATEMENTS OF LOSS AND DEFICIT
for the three month periods ended March 31, 2001 and 2000
and for the period April 30, 1998 (Date of Inception) to March 31, 2001
(Stated in US Dollars)
(Unaudited)
---------
April 30, 1998
Three Three (Date of
months ended Months ended Inception) to
March 31, March 31, March 31,
2001 2000 2001
---- ---- ----
Operating expenses $ 454,230 $ 1,833 $ 1,218,483
----------- ----------- -----------
Loss before other items (454,230) (1,833) (1,218,483)
Other items
Excess value of shares
issued on investment - - (1,048)
Share of loss of Qiblah
Tech. Ltd. - - (3,952)
Expense recoveries 29,577 - 29,577
----------- ----------- -----------
Net loss for the period (424,653) (1,833) (1,245,156)
Deficit, beginning of period (730,263) (33,976) -
----------- ----------- -----------
$(1,154,916) $ (35,809) $(1,245,156)
=========== =========== ===========
Loss per share $ (0.00) $ (0.00)
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 7
EMPYREAN COMMUNICATIONS INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
for the three month periods ended March 31, 2001 and 2000
and for the period April 30, 1998 (Date of Inception) to March 31, 2001
(Stated in US Dollars)
(Unaudited)
---------
April 30, 1998
Three Three (Date of
months ended Months ended Inception) to
March 31, March 31, March 31,
2001 2000 2001
---- ---- ----
Cash Flows from Operating
Activities
Net (loss) $ (539,753) $ (1,833) $(1,253,503)
Add: items not affecting cash
Share of Qiblah Tech. Ltd. (loss) - - 3,952
Excess value of shares issued
on investment - - 1,048
Shares issued to pay expenses - - 6,625
Non-cash compensation charge - - 519,120
Expense recovery 29,577 - 29,577
----------- ----------- -----------
(510,172) (1,833) (693,181)
Change in non-cash items
Prepaid expenses 16,000 - -
Accounts payable (454,230) (2,026) (454,230)
Loans payable - 4,324 3,866
----------- ----------- -----------
Net cash (used by) from
operating activities (948,406) 465 (1,223,545)
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
Page 8
EMPYREAN COMMUNICATIONS INC. Continued
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
for the three month periods ended March 31, 2001 and 2000
and for the period April 30, 1998 (Date of Inception) to March 31, 2001
(Stated in US Dollars)
(Unaudited)
---------
April 30, 1998
Three Three (Date of
months ended Months ended Inception) to
March 31, March 31, March 31,
2001 2000 2001
---- ---- ----
Cash Flows from Operating
Activities
Net (loss) $ (539,753) $ (1,833) $(1,253,503)
Cash flow from investing activities
Investment in Qiblah Tech Ltd. - - -
Acquisition of license fees - - (50,000)
Acquisition of Empyrean
Communications 19,888 - 19,888
----------- ----------- -----------
Net cash (used) by investing
activities 19,888 - 30,112
----------- ----------- -----------
Cash flows from financing activities
Proceeds from issuance of
common shares 22,400 - 187,400
----------- ----------- -----------
Net cash provided by financing
activities 22,400 - 187,400
----------- ----------- -----------
Net increase (decrease) in cash 5,275 - 5,275
Cash, beginning of period 121 14 121
----------- ----------- -----------
Cash, end of period $ 5,396 $ 479 $ 5,396
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
Page 9
EMPYREAN COMMUNICATIONS INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the period April 30, 1998 (Date of Inception) to March 31, 2001
(Stated in US Dollars)
(Unaudited)
---------
Deficit
Accumulated
Additional During the
Common Paid-in Development
Shares Par Value Capital Stage Total
------ --------- ------- ----- -----
Net loss for the period - $ - $ - $ (850) $ (850)
---------- ---------- ----------- ----------- ----------
Balance, as at December 31, 1998 - - - (850) (850)
For cash:
Capital stock issued pursuant
to an offering at - $0.001 5,000,000 5,000 - - 5,000
Capital stock issued pursuant
to an offering memorandum
at - $0.50 31,000 31 15,469 - 15,500
For acquisition of Qiblah
Technologies Ltd. 5,000,000 5,000 - - 5,000
Net loss for the year - - - (33,126) (33,126)
---------- ---------- ----------- ----------- ----------
Balance, as at December
31, 1999 10,031,000 10,031 15,469 (33,976) (8,476)
For cash:
Capital stock subscribed pursuant
to a subscription agreement
at - $0.50 200,000 200 99,800 - 100,000
Pursuant to the exercise of
warrants at - $0.50 89,000 89 44,411 - 44,500
Shares issued as partial payment
of license fee at - $3.31 2,000 2 6,623 - 6,625
Non-cash compensation charge - - 519,120 - 519,120
Net loss for the period - - - (696,287) (696,287)
---------- ---------- ----------- ----------- ----------
Balance, as at December 31, 2000 10,322,000 $ 10,322 $ 685,423 $(1,253,503) $ (34,518)
---------- ---------- ----------- ----------- ----------
For cash:
Pursuant to the exercise of
warrants at - $0.50 44,800 45 22,355 - 22,400
For acquisition of Empyrean
Communications 15,000,000 15,000 24,448,484 1,120,763 23,342,768
Net loss for the year - - - (1,253,503) (1,253,503)
---------- ---------- ----------- ----------- ----------
Balance, as at March 31, 2001 25,366,800 25,367 24,613,788 (1,253,503) (23,360,285)
========== ========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements.
Page 10
EMPYREAN COMMUNICATIONS INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2001
(Stated in US Dollars)
(Unaudited)
---------
Note 1 Interim Reporting
-----------------
While the information presented in the accompanying interim three month
financial statements is unaudited it includes all adjustments which are, in the
opinion of management, necessary to present fairly the financial position,
results of operations and cash flows for the interim periods presented. All
adjustments are of normal recurring nature. It is suggested that these
financial statements be read in conjunction with the company's December 31, 2000
annual financial statements.
Note 2 Common Stock
------------
Commitments
Share Purchase Warrants
At March 31, 2001, 68,200 share purchase warrants are outstanding.
Each warrant entitles the holder to purchase one additional share of
the company at $0.50 per share until April 17, 2001.
Share Purchase Option
At March 31, 2001, 800,000 share purchase options are outstanding. Each option
entitles the holder to purchase one additional share of the company at $0.75 per
above until April 17, 2010.
Page 11
EMPYREAN COMMUNICATIONS INC.
NOTES TO THE FINANCIAL STATEMENTS FOR THE THREE MONTH PERIODS ENDED MARCH 31,
2001 AND MARCH 31, 2000 AND FOR THE PERIOD APRIL 30, 1998 (INCEPTION) THROUGH
MARCH 31, 2001.
1. BASIS OF PRESENTATION
In the opinion of management, the unaudited financial statements reflect
all normally recurring adjustments necessary to fairly present the
Company's financial position and results of operations for the periods
indicated. The accompanying interim financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's 10-KSB for the period ended December 31, 2000, which has been
filed with the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the Company's annual financial
statements have been omitted from the quarterly financial statements based
upon Securities and Exchange Commissions rules and regulations. Net loss
per common and common equivalent share was computed based on the net loss
divided by the weighted average number of common and common equivalent
shares outstanding, unless antidilutive, during the year presented.
2. FINANCING
Common Additional
Shares Paid-in
# Par Value Capital
------- --------- -------
Balance, December 31, 2000 10,322,000 $ 10,322 $ 685,423
Issuance of shares:
- pursuant to the exercise
of warrants
- at $0.50 per share 44,800 45 22,355
- pursuant to acquisition
of Empyrean Communications,
Inc. 15,000,000 15,000 24,985,000
---------- ---------- -----------
Balance, March 31, 2001 25,366,800 $ 25,367 $25,692,778
========== ========== ===========
The capital raised was used to fund operations. The Company anticipates
needing additional capital to fund operations during the upcoming year.
The Company intends to raise capital through a combination of the private
placement of its securities, establishing operating lines of credit, and
through the sale of product.
3. RELATED PARTY TRANSACTIONS
On January 12, 2000, the company acquired the shares of Qiblah
International Industries Ltd. (Qiblah"). Qiblah was a private company
controlled by a significant shareholder of the Company. On January 19,
2000, two directors of Qiblah became directors of the company. On March 8,
2001 the company completed the purchase of Empyrean Communications, Inc. on
a share for share basis and issued 15,000,000 shares of the company's
common stock. Two former directors of Qiblah resigned their positions with
the company and three directors of the former Empyrean Communications
became directors of the company. Loans payable at March 31, 2001 includes
$1,500 (2000: $Nil) owing to directors of the Company
4. DESCRIPTION OF SECURITIES
The Company has two class of securities authorized; 50,000,000 shares of
$0.001 par value common voting stock and 10,000,000 of $0.001 par value
preferred shares. The holders of the Company's Common Stock are entitled
to one vote per share on each matter submitted to a vote at a meeting of
stockholders. The shares of Common Stock carry no cumulative voting rights
in the election of directors. There are no preferred shares issued.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption rights and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of Common
Stock are entitled to share equally in corporate assets after satisfaction
of all liabilities. All shares of the Common Stock now outstanding are
fully paid and non-assessable.
Page 12
The Company has incentive options outstanding. The terms and conditions of
the options granted were for the optionee to purchase a number of shares of
the authorized $0.001 par value Common Stock of the Company, at the
purchase price of $0.75 per share for a period of 5 years.
The terms and conditions of the options granted were for the optionee to
purchase a number of shares of the authorized $0.001 par value Common Stock
of the Company, at the purchase price of $0.75 per share for a period of 5
years.
The following options were granted: Rolf Papsdorf 200,000
Dieter Schindelhauer 200,000
Ken Liebscher 200,000
Dharcarium Ltda. 200,000
Sundance Capital Group 200,000
Bruce Haglund 200,000
Maurice Jacquesson 100,000
On March 8, 2001 Rolf Papsdorf, Dieter Schindelhauer and Maurice Jaquesson
resigned from the company and their options were retired unexercised.
There is no provision in the Company's Articles of Incorporation, as
amended, or Bylaws that would delay, defer, or prevent a change in control
of the Company.
Item 2. Management's Plan of Operations
The Company is in its initial stages of development with no revenues or income
and is subject to all the risks inherent in the creation of a new business.
Since the Company's principal activities to date have been limited to
organizational activities, prospect development, and acquisition of interests,
it has no record of any revenue-producing operations. Consequently, there is no
operating history upon which to base an assumption that the Company will be able
to achieve its business plans.
During the quarter the Company purchased Empyrean Communications, Inc. on a
share for share basis and issued 15,000,000 of the company's common stock.
Subsequently the company divested itself of the Qiblah division for one dollar.
The Directors of the company, Rolf Papsdorf and Dieter Schindelhauer resigned
from the Board of Directors of the company and Dale Renaud, George Burks, and
Robert Lee were added to the Board of Directors. Dale Renaud was elected the
new President and George Burks as Secretary/Treasurer. A finders fee will be
paid based on the final consolidated financials.
The company officially changed its name from Direction Technologies, Inc. to
Empyrean Communications, Inc.
PRINCIPAL PRODUCT.
One of the specific reasons the Company was founded is for the purpose of
entering into a world-wide license agreement with E.T.C. Industries Ltd. of
Vancouver, British Columbia, Canada to license certain technology, and obtain
advice in facilitating the production of electric vehicles using certain
technology developed by the licensor. The license agreement expired during the
quarter and will not be renewed as the company is now pursuing new interests.
The other specific reason for formation of the Company is to purchase certain
assets of Qiblah International Industries Ltd. a British Columbia corporation,
of Vancouver, British Columbia, Canada (a non-operational holding company).
Qiblah International Industries Ltd. owns 50% of Qiblah Technologies Ltd. a duly
registered non-reporting, non-listed South African public corporation. This
firm had developed a state-of-the art electronic device called the Qiblah
Locator, a battery-operated hand-held device that indicates the direction of the
Muslim religious center Mecca from any location in the world. The Qiblah Locator
is designed to be of assistance to the more than 1.5 billion adherents of the
Muslim faith in the performance of their religious observations. This division
of the company was sold to the original developers of the product for a sum of
one dollar during the quarter.
The direction of Empyrean Communications, Inc. will now be the development of
broadband telecommunications capabilities through the agreements acquired with
the purchase of Empyrean. Empyrean Communications, Inc. is a broadband provider
capable of delivering fiber capacity to OC-192 levels. Empyrean intends to
direct its marketing efforts towards Multi-Media Broadcast & Content Delivery
markets via DSL users in a scalable manner. Empyrean's mission is to "light up"
the 29,000 miles of fiber-optical digital broadband it currently has under
contract. This would provide Empyrean's future clients with the ability to
purchase, rent lease or joint-venture smaller configurations of bandwidth such
as the OC-12, OC-3 and DS3 levels. These capacity levels have a greater demand
and could generate much higher revenue streams than the larger OC-48's.
Page 13
LIQUIDITY.
During the next 12 months, the Company will need significant working capital to
fund its marketing efforts and to manufacture product. The Company intends to
obtain working capital from the sale of product and through private investments
made by third parties. During the quarter, the Company approved the issuance
of 15,000,000 shares as the purchase price of Empyrean Communications, Inc. A
finders fee will be paid based on the final consolidated financials.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None;
Item 2. Changes in Securities and Use of Proceeds.
During the first quarter of 2001, the Company issued 15,000,000
restricted shares of common stock to the shareholders of record of the private
company purchased, Empyrean Communications, Inc. The shares issued were:
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STOCKHOLDERS EMPYREAN DIRECTION SHARES
------------ -------- ----------------
SHARES RECEIVED
------ --------
SURRENDERED
-----------
- --------------------------------------------------------------------------------
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VNET INVESTMENT COMPANY 12,500,000 12,500,000
12115 N 1-35 SERVICE ROAD
OKLAHOMA CITY, OKLAHOMA 73131
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RENAUD FAMILY TRUST 1,000,000 1,000,000
2920 SHADOWBRIAR DRIVE 31328
HOUSTON TEXAS 77082
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STARBRIGHT MMG LIMITED PARTNERSHIP 250,000 250,000
2832 BELLEVUE AVE
W. VANCOUVER B.C. CANADA
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QUADRANT FINANCIAL INC. 250,000 250,000
2107 DEEP COVE RD.
N. VANCOUVER B.C. CANADA V7G 1S8
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VINTAGE INTERNATIONAL INC. 250,000 250,000
711-945 MARINE DRIVE
WEST VANCOUVER B.C. V7T 1A8
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GEORGE J. RENAUD 250,000 250,000
1930 COLUMBUS
STUTTGART ARKANSAS 72160
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LANA M. CAMPBELL 250,000 250,000
14007 BRADLEY RD.
NORTH LITTLE ROCK, ARKANSAS 72113
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CHARLES KARPOWICZ 250,000 250,000
801 S. RODNEY PARHAM #34E
LITTLE ROCK ARKANSAS 72205-4877
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Page 14
The Company also issued a total of 44,800 shares pursuant to the exercise of
warrants at $0.50 per share.
Item 3. Defaults Upon Senior Securities.
None;
Item 4. Submission of Matters to a Vote of Security Holders.
None;
Item 5. Other Information.
On March 3, 2000 the Company was cleared by the NASD for trading on
the OTC Bulletin Board. The symbol was DRCG.
On April 19, 2001 the trading symbol was changed to EPYN and a new
Cusip No. 29245C 10 7 issued.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K.
March 8, 2001
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.
EMPYREAN COMMUNICATIONS, INC
Date: 05/15/01 By: /s/ Dale Renaud
President and Director
Date: 05/15/01 By: /s/ George Burks
Secretary/Treasurer and Director