UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          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| 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 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) 243 8731
(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, 2006, there were 7,835,565 * shares of common stockissued and outstanding

Note: * Does not include 22,501 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 unaudited financial statements for the period endedSeptember 30, 2006.

EMPYREAN HOLDINGS,INC. 

(A Development StageCompany)

CONSOLIDATED BALANCESHEETS

As of September 30,2006 and December 31, 2005

(unaudited)

 

See accompanyingsummary of accounting policies

and notes to financialstatements.

 

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

CONSOLIDATEDSTATEMENTS OF INCOME & EXPENSES

Three and Nine MonthsEnded September 30, 2006 and 2005 and the

Period from December30, 2004 (Inception) through September 30, 2006

(unaudited)

 

 

See accompanyingsummary of accounting policies

and notes to financialstatements

 

 

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

Nine Months EndedSeptember 30, 2006 and 2005 and the

Period from December30, 2004 (Inception) through September 30, 2006

(unaudited)

See accompanyingsummary of accounting policies and notes

to financialstatements

 

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

NOTES TO CONSOLIDATEDFINANCIAL 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 generallyaccepted in the United States of America and the rules of the Securities andExchange Commission, and should be read in conjunction with Empyrean's audited2005 year end financial statements. In the opinion of management, alladjustments, consisting of normal recurring adjustments, necessary for a fairpresentation of financial position and the results of operations for the interimperiod have been reflected herein. The results of operations for interim periodsare, however, not necessarily indicative of the results to be expected for thefull year.

Use of Estimates. In preparing financial statements, management makesestimates and assumptions that affect the reported amounts of assets andliabilities in the balance sheet and revenue and expenses in the statements ofincome 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 employeestock options, to be recognized in the financial statements based on their fairvalues. The pro forma disclosures previously permitted under SFAS 123 are nolonger an alternative to financial statement recognition. Empyrean adopted SFAS123(R) using the modified prospective method which requires the application ofthe accounting standard as of January 1, 2006. The consolidated financialstatements as of and for the quarter ended September 30, 2006 reflect the impactof adopting SFAS 123(R). In accordance with the modified prospective method, theconsolidated financial statements for prior periods have not been restated toreflect, and do not include, the impact of SFAS 123(R). Since Empyrean has notgranted options during the quarter ended September 30, 2006 or during any periodprior 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) restrictedshares were issued to William Melchiori as a signing bonus for him to serve asDirector and Chief Financial Officer of Empyrean Holdings, Inc. He will alsoserve as President and Director of Empyrean's wholly owned subsidiary, EmpyreanFinancial Services, Inc. and also as a Director of Empyrean's recently formedwholly 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 for1,000,000 convertible preferred shares. These shares are convertible any time bythe holder for 4,000,000 post-split (see Note 5) common shares. As it isEmpyrean's intent to sell these town homes to generate cash flow, they have beendesignated as "held-for-sale." Therefore they will be carried at the lower ofcost or fair value (net of expected sales costs) during the holding period andwill 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 lossof $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 ManagementResources, 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 wasimplemented on June 26, 2006, resulting in 7,858,039 total outstanding commonshares. Though no common shares were issued during the three months endedSeptember 30, 2006, the rounding up of fractional shares owned by beneficialshareholders to the next higher share number (as provided for in the terms ofthe 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 to7,858,066 shares. All share and per share information has been retroactivelyrestated in the consolidated financial statements to reflect the reverse stocksplit.

 

 

 

 

 

 

 
** 

Item 2. Management's Plan of Operation.**
Our principal activities remain concentrated on implementingour corporate development plan. The first two stages that were completed by June30, 2006 and resulted in our stockholders' equity being enhanced by nearly $1.00million. 

The total appraised value of the four town homes owned by thecompany's wholly owned subsidiary, Empyrean Properties, Inc., in the fastexpanding town of Kewaskum, Wisconsin was $772,000. However, during the thirdquarter, one unit was sold for a net loss of $18,631 and from the $168,368 netproceeds received, $160,000 was used to reduce the company's related party debt.

The remaining unencumbered town homes have a total appraisedvalue of $585,000 and may be sold or leveraged to obtain funds for businessacquisitions should suitable opportunities become available. The leasing ofthese town homes to generate income is also another option being considered. Asthe company has yet to have a track record of revenue-producing operationshowever, there is no operating history upon which to base any assumption thatthe company will be able to achieve its business objectives.

Discussions are in progress with our affiliate and realproperty consultant, United Construction Group (UCG) (www.gounited.com) for oursubsidiary, Empyrean Properties, Inc., to participate in several developmentprojects. The first project has been identified as the $30 million residentialdevelopment being undertaken by UCG in Santa Barbra, California. An SB-2registration statement to raise $5 million is under preparation and part of thefunds to be raised will be invested in this upscale residential development. Thesalubrious location of this project has been referred to as "the playground ofthe rich and famous".

The company's other subsidiary, Empyrean Financial Services,Inc. is close to finalizing agreements to provide financial accounting andconsulting services to six clients and more are expected to be obtained in thenear future. The revenues to be obtained from these clients is expected to makethe company self sustaining by the end of the year and the projected totalrevenues anticipated for 2007 is not less than $400,000.

 
**Liquidity**
During the next 12 months, we will need significant workingcapital to fund our current plans to participate in real estate developmentprojects with UCG and to make other acquisitions as appropriate. 

A start on the financing process with be made the SB-2registration to raise $5 million as mentioned in an earlier section and it isthe intention to utilize well known investment bankers and/or qualifiedunderwriters to assist in the financing process.
**Item 3. Controls and Procedures**
As of September 30, 2006, we carried out an evaluation of theeffectiveness of our disclosure controls and procedures (as defined by Rule13a-14(c) under the Securities Exchange Act of 1934) under the supervision andwith the participation of our chief executive officer and chief financialofficer. Based on and as of the date of such evaluation, the aforementionedofficers have concluded that our disclosure controls and procedures areeffective for timely gathering, analyzing and disclosing the information we arerequired to disclose in our reports filed under the Securities Exchange Act of1934, as amended. There were no changes in our internal control over financialreporting (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, orare reasonably likely to materially affect, our internal control over financialreporting.

 

 

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 therestated financial statements was filed on October 10, 2006

 

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 

Robert L. Lee, 

President and Director Date: November9, 2006

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