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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            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| OMB APPROVALOMB Number: 3235-0416 Expires: March 31, 2007Estimated average burden    hours per response: 182.00**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2005______________________________[ ] 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 smallbusiness 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 principalexecutive offices)

 

Issuers telephonenumber: (713) 260 7236

(Registrant'stelephone number, including area code)

 

EMPYREANCOMMUNICATIONS, INC.

10700 Richmond Avenue,Suite 100,

Houston, TX 77042(Former name, former address and former fiscal year, if changed since lastreport)

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 definedin Rule 12b-2 of the Exchange Act). Yes _____ No X
As of September 30, 2005, there were 373,744,939* shares of common stockissued and outstanding

Note: * Does not include 1,150,000 shares "on hold" and awaiting return fromthird party

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X  ]
**PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.
Following are the un-audited financial statements for the period endedSeptember 30, 2005

EMPYREAN HOLDINGS, INC.

(formerly TRADEWINDS INTERNATIONAL CORP.)

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

(unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements ofEmpyrean Holdings, Inc. ("Empyrean") (formerly Tradewinds International Corp. ("Tradewinds"))have been prepared in accordance with accounting principles generally acceptedin the United States of America and the rules of the Securities and ExchangeCommission ("SEC"), and should be read in conjunction with Tradewinds' audited2004 annual financial statements and notes thereto contained in Empyrean's Form8-K/A filed September 27, 2005. In the opinion of management, all adjustments,consisting of normal recurring adjustments, necessary for a fair presentation offinancial position and the results of operations for the interim periodspresented have been reflected herein. The results of operations for interimperiods are not necessarily indicative of the results to be expected for thefull year. Notes to the financial statements, which would substantiallyduplicate the disclosure contained in Tradewinds' audited 2004 annual financialstatements, as reported in Empyrean's Form 8-K/A filed September 27, 2005, havebeen omitted.

Use of Estimates. In preparing financial statements,management makes estimates and assumptions that affect the reported amounts ofassets and liabilities in the balance sheet and revenue and expenses in thestatements of income and expenses. Actual results could differ from thoseestimates.

NOTE 2 - ACQUISITION OF REAL ESTATE INVESTMENT PROPERTY

On March 7, 2005, Tradewinds acquired a condominium propertylocated in Key West, Florida (the "Key West Property") for a total purchaseprice of $779,085.

Tradewinds financed the purchase of the Key West Propertywith a series of borrowings as follows:
A promissory note (the "Senior Secured Note") dated March  7, 2005, for the principal sum of $570,000 from Huck Finn, LLC, the seller of  the Key West Property. The Senior Secured Note is an interest only note that  bears interest at the rate of 6.5% per annum. Interest only in the amount of  $3,087.50 shall be payable in 35 monthly installments. The first of said  installments is due and payable on April 7, 2005, and one of said installments  is due and payable on the 7th day of each and every calendar month  thereafter. The 36th and final installment of the principal balance  and all remaining accrued interest shall be due and payable on March 7, 2008.  The Senior Secured Note is secured by the lien of a first mortgage deed upon  the Key West Property. A promissory note (the "Subordinated Secured Note - Related  Party") dated March 7, 2005, for the principal sum of $207,663 from Thomas  Bojadzijev, who at the time was Tradewinds' president. The Subordinated  Secured Note - Related Party is an interest only note that bears interest at  the rate of 6.5% per annum. Payments may be made at anytime and in any amount  as determined by Tradewinds, with payment being first applied to interest due  and any remaining balance to be applied to principal. On March 6, 2008, the  entire balance then outstanding, including principal and accrued interest will  be due and payable in full. The Subordinated Secured Note - Related Party is  secured by the lien of a second mortgage deed upon the Key West Property.An additional borrowing under the Unsecured Note in the  amount of $1,422.
NOTE 3 - REVERSE MERGER TRANSACTION

On April 11, 2005, Tradewinds' parent, Hesperia AdvisorsLimited ("Hesperia" or "the Tradewinds Shareholders") executed a stock purchaseagreement(the "Agreement") with Empyrean. Pursuant to the Agreement, Empyreanexchanged 200,000,000 shares of common stock to Hesperia for 100% of theownership interest in Tradewinds. At closing, 51% of Tradewinds common stock wastransferred to Empyrean with the remaining 49% being transferred to escrow untilsuch time as Hesperia transfers additional real estate property with a value ofat least $1,000,000 (the "Additional Real Estate") into Tradewinds. At such timeas Hesperia transfers the Additional Real Estate into Tradewinds, Empyrean willissue Hesperia 75,000,000 shares of Empyrean's convertible preferred stock andthe remaining 49% of Tradewinds' common stock will be released from escrow toEmpyrean. Each share of the convertible preferred stock will be convertible intofour shares of Empyrean common stock. As of September 30, 2005, the AdditionalReal Estate had not been transferred to Tradewinds.

As a result of the share issuance, the TradewindsShareholders end up controlling approximately 74% of Empyrean's issued andoutstanding shares resulting in the transaction being accounted for as reversemerger with Tradewinds being deemed the accounting acquirer. Since thistransaction involved the merger of a private company (i.e., Tradewinds) into apublic shell (i.e., Empyrean), it is considered to be a capital transactionrather than a business combination. This transaction is being accounted for as areverse merger, except that no goodwill or other intangible assets are beingrecorded. For financial accounting and reporting purposes, the historicalfinancial statements of Empyrean prior to the merger have been restated to bethose of Tradewinds, the accounting acquirer. 

NOTE 4 - EQUITY

In January 2005, Empyrean increased its authorized commonshares to 1,000,000,000 shares and increased its authorized preferred shares to200,000,000 shares.

In March 2005, Empyrean issued 20,000,000 shares to anEmpyrean officer in exchange for services valued at $100,000.

In April, 2005, Empyrean issued 200,000,000 shares inconnection with Tradewinds reverse merger transaction. See Note 3 for additionaldiscussion of the reverse merger transaction.

In May, 2005, Empyrean issued 30,000,000 shares to ThomasBojadzijev, who at the time was Tradewinds' president, for consulting servicesvalued at $180,000.

On July 20, 2005, the Company's Board of Directors declared a25% common stock split, payable in the form of a 25% stock dividend toshareholders of record as of August 30, 2005.  The distribution of suchdividend, totaling 74,978,988 shares of common stock, occurred on August 30,2005.  All share and per share information has been retroactively restatedin the consolidated financial statements to reflect the stock split.

 

The interim financial statements included herein, presented in accordancewith United States generally accepted accounting principles and stated in U.S.dollars, have been prepared by the Company, without audit, pursuant to the rulesand regulations of the Securities and Exchange Commission. Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations, although the Company believesthat the disclosures are adequate to make the information presented notmisleading. 

These statements reflect all adjustments, consisting of normal recurringadjustments which, in the opinion of management, are necessary for fairpresentation of the information contained therein. It is suggested that theseinterim financial statements be read in conjunction with the financialstatements of the Company for the year ended December 31, 2004 and notes theretoincluded in the Company's Form 8-K/A. The Company follows the same accountingpolicies in the preparation of interim reports. 

Results of operations for the interim periods are not indicative of annualresults. 

These conditions raise substantial doubt about the Company's ability tocontinue as a going concern. These financial statements do not include anyadjustments relating to the recoverability and classification of recorded assetamounts or amounts and classification of liabilities that might arise from thisuncertainty. 
**Item 2. Management's Plan of Operation.**
Since the company's principal activities, until the acquisition of TradewindsInternational Corp., have been limited to organizational activities, prospectdevelopment, and acquisition of interests, it has no record of revenue-producingoperations. There is, therefore, no operating history upon which to base anyassumption that the company will be able to achieve its business plans. 

The acquisition of Tradewinds International Corp., a Nevada corporation, inApril this year was, therefore, a small but positive step that the company hastaken towards becoming revenue producing in the near future. Tradewinds owns a2-room condominium in the salubrious luxury resort homes community of CoralHammock (www.coralhammock.com) in Key West, Florida. In mid-September 2005, theagreement was finalized for Keys Luxury Resorts, Inc (www.keysluxuryresorts)topromote and management this rental property. For the third quarter under reviewno income was obtained but a good improvement is expected once the unusuallyactive hurricane season is over. 
Since the Tradewinds acquisition, the company has been operating as anational real estate holding firm. Due to the extensive rebuilding andconstruction requirements caused by the unfortunate affects of Hurricane Katrinain New Orleans and the surrounding areas, management is in the process ofreviewing its Corporate Development Master Plan. In view of the tremendousrebuilding work required in these hurricane damaged areas, the company'spreviously reported development portfolio is under consideration for updatingand adjustment. It is pleasing to record, however, that the company's closeaffiliation with the established national real estate development andconstruction company, United Construction Group (UCG), has been solidified andjoint venture agreements are under preparation for finalization by the twoparties in the near future. The revised strategy will be for the company tojoint venture with UCG in the projects currently under construction or whereground breaking is imminent so that early revenue streams can be obtained by thecompany. 

During the third quarter the company's wholly owned subsidiary, EmpyreanProperties, Inc, was dormant but due consideration will be given to utilizing itfor the joint ventures to be undertaken with UCG. The acquisition of establishedcompanies in the real estate industry that will provide synergy for the longterm efficiency and profitability of the company continues to be pursued.
**Liquidity**
During the next 12 months, the company will need significant working capitalto fund its current development portfolio and to make other acquisitions as andwhen suitable opportunities arise. The previous strategy to raise funds atreasonable cost over the last few months did not achieve the desired results.With this experience in mind and also to conform with the revision of thestrategy for joint ventures with USG, it has been determined that it will beprudent for the company at this juncture of its development, to raise the fundsrequired in smaller amounts over several stages. Regulation D private placementsare presently being considered for up to $10 million and an agreement submittedby an Investment banking firm is being favorably considered. 
**Item 3. Controls and Procedures**
As of September 30, 2005, the Company carried out an evaluation of theeffectiveness of the Company's disclosure controls and procedures (as defined byRule 13a-14(c) under the Securities Exchange Act of 1934) under the supervisionand with the participation of the Company's chief executive officer and chieffinancial officer. Based on and as of the date of such evaluation, theaforementioned officers have concluded that the Company's disclosure controlsand procedures were effective. 

The Company also maintains a system of internal accounting controls that isdesigned to provide assurance that assets are safeguarded and that transactionsare executed in accordance with management's authorization and properlyrecorded. This system is continually reviewed and is augmented by writtenpolicies and procedures, the careful selection and training of qualifiedpersonnel and an internal audit program to monitor its effectiveness. During thethree-month period ended September 30, 2005, there were no significant changesto this system of internal controls or in other factors that could significantlyaffect those controls. 
**PART II - OTHER INFORMATION

Item 5. Other Information**
Board Meetings:

1.The Board of Directors, at a special meeting held in Houston, Texas on July20, 2005, approved that a common stock dividend of 25% (twenty-five percent)or0.25 old share for 1.00 new share be declared and paid out to shareholders ofrecord as of August 30, 2005. It is recorded that this share payout was preparedand duly implemented without problem.

2.The Board of Directors at another special meeting held in Houston onOctober 7, 2005 approved that the company's corporate offices be moved to 11200Westheimer Rd., Houston, TX 70042 to take advantage of the better facilitiesmade available by the office management company at a competitive price.Sufficient space for the convenient expansion of the company's office facilitiesis also available at this new location
** 

Item 6. Exhibits and Reports on Form 8-K.

Exhibit No. Document Location

3(i) Articles of Incorporation Previously Filed

3(ii) Bylaws Previously filed 

31 Certification Included

32 Certification Included

_______________________________________________________________________
** 

Reports on Form 8-K.

A: No filing of any Form 8-K report was done during the third quarter.

B: To comply with comments made by the SEC an Amended 10QSB report for the  second quarter ending June 30, 2005 was filed on October 14, 2005. 

 
******SIGNATURES**
In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized. 
**EMPYREAN HOLDINGS, INC.**
 

 

***/s/ Robert L. Lee                   *** Date  October 31, 2005

Robert L. Lee, President and Director

 

 

 ****** |