U.S. SECURITIES ANDEXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-KSB

 

ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(D)

OF THE SECURITIESEXCHANGE ACT OF

1934 [NO FEE REQUIRED]

 

FOR THE FISCAL YEARENDED DECEMBER 31, 2001

 

 

Under Section 12(b) or(g) of the Securities and Exchange Act of 1934.

 

EMPYREANCOMMUNICATIONS, INC.

----------------------------

(Name of SmallBusiness Issuer in its charter)

 

| Nevada
000-30118
88-0413417
State or other      jurisdiction of incorporation
Commission File      Number
IRS      Identification No.
 

2537 South Gessner,Suite 114, Houston Texas 77063

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Address of principalexecutive offices) (Zip Code)

 

Issuer's telephonenumber: (713) 260-7263

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Direct Technologies,Inc.

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(Former Name)

 

Securities to beregistered pursuant to Section 12(b) of the Act:

 

None

 

Title of each class Nameof each exchange on which

to be so registered eachclass is to be registered

 

None

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None

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Securities to beregistered pursuant to Section 12(g) of the Act:

 

Title of Class: CommonStock

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days.        Yes [X] No [_]

Check if there is no disclosure of delinquent filers in responseto Item 405 of Regulation S-B is not contained in this form, and no disclosurewill be contained, to the best of registrant's knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. [X]

There were no revenues generated during the fiscal year endedDecember 31, 2001.

The Aggregate market value of the voting and no-voting commonequity held by non-affiliates computed by reference to the average bid and askedprice of such common equity as of May 14, 2002: $282,935.60

Number of shares of Common Stock, $0.001 par value per share, ofthe registrant outstanding as of December 31, 2001: 24,268,348.

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated herein by reference.

Transitional Small Business Issuer Format Yes No X

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PART I.

ITEM 1. DESCRIPTION OF BUSINESS.

(a) Business Development.

Empyrean Communications, Inc., a Nevada corporation("Company"), was originally organized on April 30, 1998 as FujiInternational, Inc.; the name was changed on December 28, 1998 to DirectionTechnologies, Inc. In March of 2001, Direction Technologies, Inc., merged withEmpyrean Communications, Inc., and the name was changed to EmpyreanCommunications, Inc., The business office of the Company is located at 2537South Gessner, Suite 114, Houston Texas 77063. The Company operates on thecalendar fiscal year. Currently, the Company has no employees. The Companyanticipates diversifying its asset holdings with the intent of being in a betterpositioned to improve its anticipated income position. Management feels thatsuch diversification may be a hedge against the continuing concerns involvingraising capital to funds its operations and diversify its holdings, and willproduce a direct and tangible benefit to the Company in the next year.

(b) Business of Issuer.

Empyrean Communications, Inc. was formed as a private companyin 2000 to provide optical digital broadband service on both a domestic andinternational basis. Utilization of the latest technical applications was toenable Empyrean to meet the voice, data and video communications needs ofbusiness customers on a single network. Empyrean's planned all"optical" network was to interface with private lines and privatenetworks, coaxial cable, optical fiber, wireless networks and DSL enhancedcircuits designed to provide seamless service to customers. The network wouldutilize IP technology incorporating network scalability and was to be managedthrough operating centers located at key nodes to provide secure, high qualitybroadband services.

Empyrean Communications, Inc. was originally intended to be abroadband provider capable of delivering fiber capacity to OC-192 levels.Empyrean intended to direct its marketing efforts towards Multi-Media Broadcast& Content Delivery markets via DSL users in a scalable manner. Empyrean'smission was to "light up" the 29,000 miles of fiber-optical digitalbroadband it had under contract. This would provide Empyrean's future clientswith the ability to purchase, rent lease or joint venture smaller configurationsof bandwidth such as the OC-12, OC-3 and****DS3 levels. These capacitylevels have a greater demand and could generate much higher revenue streams thanthe larger OC-48's.
**Industry Trends

Although the trends in the Broadband Sector were favorable toEmpyrean early in the year 2001, the current plights of leading BroadbandCompanies such as Enron, Global Crossing and Williams changed very rapidly asthe year progressed. Late in the year and the early part of 2002, Managementdetermined that Empyrean needed to reevaluate its position in the broadbandarena.

Regulation: The telecommunications industry underwentsignificant regulatory and technological changes over the past decades; however,in late 2001 and early 2002, a number of bandwidth companies came under carefulscrutiny by the federal government as a result of the Enron failures. Empyreanmanagement felt that the initiation and implementation of additional legislativeaction by the federal government would place an extreme burden on smallcompanies to exist.

Legislation: The Company has become concerned thatlegislation will be enacted by federal and state governments, in an attempted todeal with problems encountered by national telecommunication companies, whichwill restrict companies entering the market from competing with establishedcompanies.

Empyrean Target Market
Empyrean's initial target market was to consist of largenational ISPs, governments, government agencies,financialinstitutions, electric utilities, colleges and universities, health care, banks,and brokerage houses located in North America. Empyrean saw the key to capturingits share of this market as one of creating a solid and recognizable identitywithin the industry and among potential and future clients. Although this goalcontinues to remain a viable approach, the decrease in the amount of availablecapital funding in the marketplace today has caused Empyrean to reconsider itsobjectives.

Competition
Empyrean understood the market conditions that prevailedearly in 2001. The Company believed it was in a unique position in relation toits competitors. The majority of Empyrean's competition has been committed toinfrastructures that could not be reasonably upgraded. Previous capitalexpenditures currently committed by competitors could not be disregarded atwill, without the consequences of severe income pressures, a condition that hasproven to be a significant reality today.

However, during the later part of 2001, Empyrean recognizedthat funds from conventional sources, including private financing, were not asavailable as in past years. Empyrean also began to question the ability tosecure funding from non-conventional means for small companies in thecommunication business. Given these warning signs, management found itself facedwith a virtually inescapable conclusion; to seek an opportunity to diversifyinto an area that shows exponential potential for growth, rather thanconstriction.

Future Outlook.

After carefully re-visiting the plans and objectives ofEmpyrean over the last quarter of 2001 and the first quarter of 2002, managementhasdecided to re-direct the Company away from thedirect broadband business

ITEM 2. PROPERTIES

Empyrean does not own any real property. Current leasecontract is for 140 square feet office in an Executive Suite located at 2537at2537 South Gessner Rd., Suite 114, Houston Texas, 77063. The terms of the leasecovers a period of month to month at a rate of $500.00 per month.

ITEM 3. LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On or about July 30, 2002, the Company will hold its AnnualShareholders Meeting to deal with normal business. In addition, the shareholderswill be asked to vote on changes to its Articles of Incorporation incorporatinga name change, expanding voting rights for holders of Preferred Stock of theCompany, and increases in the Company's authorized common stock.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATEDSHAREHOLDERS MATTERS.

On March 3, 2000 the Company was cleared by the NASD for tradingon the OTC Bulletin Board. The symbol under the name Empyrean Communications,Inc., is EPYR

At the present time, there are no assets available for thepayment of dividends on the Shares. The Company does not anticipate paying anydividends in the next twelve months.

The Articles of Incorporation currently authorize the issuanceof 50,000,000 shares of common stock, with a par value of $0.001. The holders ofthe Shares: (a) have equal ratable rights to dividends from funds legallyavailable therefore, when, as, and if declared by the Board of Directors of theCompany; (b) are entitled to share ratably in all of the assets of the Companyavailable for distribution upon winding up of the affairs of the Company; (c) donot have preemptive subscription or conversion rights and there are noredemption or sinking fund applicable thereto; and (d) are entitled to onenon-cumulative vote per share on all matters on which shareholders may vote atall meetings of shareholders. These securities do not have any of the followingrights: (a) cumulative or special voting rights; (b) preemptive rights topurchase in new issues of Shares; (c) preference as to dividends or interest;(d) preference upon liquidation; or (e) any other special rights or preferences.In addition, the Shares are not convertible into any other security. There areno restrictions on dividends under any loan other financing arrangements orotherwise. See a copy of the Articles of Incorporation, and an amendmentthereto, and Bylaws of the Company, attached as Exhibit 3.1, Exhibit 3.2, andExhibit 3.3, respectively, to this Form 10-SB/A. As of December 31, 2001, theCompany had 24.268,348 shares of common stock outstanding.

Non-Cumulative Voting.

The holders of Shares of Common Stock of the Company do not havecumulative voting rights, which means that the holders of more than 50% of suchoutstanding Shares, voting for the election of directors, can elect all of thedirectors to be elected, if they so choose. In such event, the holders of theremaining Shares will not be able to elect any of the Company's directors.

Share Purchase Warrants

At December 31, 20010, no share purchase warrants wereoutstanding. 

Share Purchase Option

At December 31, 2001, 65,000 share purchase options wereoutstanding. Each option entitles the holder to purchase one additional share ofthe company at $15.00 per share until April 17, 2010.

Dividends.

The Company does not currently intend to pay cash dividends. TheCompany's proposed dividend policy is to make distributions of its revenues toits stockholders when the Company's Board of Directors deems such distributionsappropriate. Because the Company does not intend to make cash distributions,potential shareholders would need to sell their shares to realize a return ontheir investment. There can be no assurances of the projected values of theshares, nor can there be any guarantees of the success of the Company. Adistribution of revenues will be made only when, in the judgment of theCompany's Board of Directors, it is in the best interest of the Company'sstockholders to do so. The Board of Directors will review, among other things,the investment quality and marketability of the securities considered fordistribution; the impact of a distribution of securities on its customers, jointventure associates, management contracts, other investors, financialinstitutions, and the company's internal management, plus the tax consequencesand the market effects of an initial or broader distribution of such securities.

Transfer Agent.

The Company has engaged the services of Pacific Stock TransferCompany, 500 E. Warm Springs Road, Suite 240, Las Vegas, NV 89119, to act astransfer agent and registrar.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.

Company management has determined (see Part 1, Item # 1), toguide the company into a new direction away from the broadband industry. InFebruary of 2002, the Company acquired, by way of a stock swap, two Virginiafiber-manufacturing companies, Belfiber Company and Basalt Fiber Company. In sodoing, the Company acquired 100% of all outstanding stock of both companies, andintends to direct all of its efforts to the development of these companies, aswell as possible future acquisitions within the same scope of business.

BASALT FIBER COMPANY
**Executive Summary**
By focusing on its unique strengths, key customers, nichemarkets, Basalt Fiber Company ("Basalt Fiber") will attempt topenetrate the industrial fiber market, while striving to meet projected salesgoals, and produce a favorable gross margin on sales, cash management andworking capital.

Basalt Fiber Company was formed to produce coated mineral fiberin the form of continuous basalt glass filament to satisfy the high-qualitysegment of the nine-million-ton worldwide market for reinforcement of epoxyresins, gasket materials, fine paper and other products. The basalt productsproduced for the thermal insulation, acoustic and corrosion resistiveapplication offers an extremely large market potential. The short-term goal ofBasalt Fiber is to optimize a continuous basalt glass filament manufacturingplant with a minimum of investment. The emphasis will be on attracting capitalto build a manufacturing facility and to grow production capacity to create aprofitable operation. A price premium is currently available due to the supplyand demand imbalance, and a lack of competition.
**Corporate Mission**
Basalt Fiber Company is a Virginia Corporation created for thesole purpose of introducing basalt fiber and related products to the Americanmarket. Basalt Fiber hopes to generate a fair return for shareholders andfinance continued growth and development of quality products with earnedprofits. The Company hopes to maintain a friendly, fair and creative workenvironment, and one that respects diversity, new ideas and hard work.

Basalt Fiber anticipates that basalt fiber, in specific markets,will replace the commonly used E or S Glass products. Basalt fiber is anadvanced technology for the fiber and composites industry that offers thepotential to replace many of the conventional fiberglass products. Basalt Fiberexpects to provide to its customers a reliable source of basalt products.
**Products**
Created in part by the United State Environmental ProtectionAgency's ban on asbestos, the Company believes that the available market inthe United States for basalt filament is 100,000 tons per year today, and willgrow rapidly once a national source is in commercial production.

Basalt Fiber will produce and market basalt glass filament, afilament relatively new to North America, which can be used instead of E-glassfilament, and, in many cases, instead of S-glass and ECR-glass filament. Beyondthe use as a replacement of E-glass filament, basalt glass filament can also beused in special applications where E-glass cannot be used due to its properties,such as in higher temperature applications. Since in these applications a muchhigher priced special glass and other filament are used, basalt glass filamentcan command higher prices, making the business more profitable.

Basalt Fiber will initially offer its products to their nichemarkets, asking a higher price for its filament, which will maximize return onequity for its investors. Later, as production capacity is added, penetrationinto larger, lower priced markets will be made with the intent of increasingsales and profits. Also, to maintain the market lead, the Company hopes toincrease research and development, in order to maintain and potentially increasemarket and technology leadership.

Since Basalt Fiber expects to be the first in the westernhemisphere to introduce this product, the Company will have to initially investfunds to optimize the bushing and melting technology. Existing technology isavailable and will be used for the initial installation and production.Development will start in 2002 to increase capacity and lower cost for theproduction of the filament.
**Competitive Comparison**
Because Basalt Fiber has technologically advanced properties,the Company expects that its major competitive strength will be the improvementin performance over current Fiberglass products, and its usage in uniqueapplications, such assuch as filtration and separation at high temperatures,corrosive resistance to acid and alkali, higher insulation temperatures andstronger in tensile strength.
**Sourcing**
The basalt stone is in abundance throughout the Northeastern andSoutheastern United States. The Company's location in Virginia gives it anadvantage for purchasing the basalt stone from a number of locations. TheCompany can purchase a higher quality of basalt stone, which has already beentested, from New Jersey and North Carolina. Once sales increase, the Companyexpects it will be able to buy at better prices, based on higher volumes.

Test and certification of the basalt fiber is an important stepin introducing the fiber to the available markets. Certain companies that havetested basalt fiber are in the process of providing the Company with thetechnical data that is received from the testing. The Company intends toundertake additional testing in the future, in hopes that new markets can beidentified.
**Technology**
Within the next year, the Company hopes to have the ability toweave from Basalt Yarn custom orders for the composite industry. This will thengive Basalt Fiber the ability to add value to the products sold and to increaseits profit margin. Also, if the market expands in the use of basalt material,consideration****will be given to the expansion of the manufacturingfacilities and possibly the licensing of the technology, so that basalt productcan be produced in other areas of the world.
**MARKETING ISSUES:

Consumers:**
Any application potentially using high strength, heat resistantfibers.
**Competition:**
Basalt Fiber knows of no current direct competition fromexisting companies. However, because the industry in general is highlycompetitive, the Company expects that competition will emerge in the next five(5) years.
**Government & Industry:**
The Company anticipates that Continuous basalt filament willhave strong industrial and research support, and will be welcomed as an asbestosalternative with no negative health consequences.
**Price Base:**
Price of basalt fiber should be close to that of fiberglass,however, technical advantages over glass and special usage applications maycommand a premium for specific applications.
**Technology:**
Continuous basalt filament fiber has a melt point approachingthat of ceramic fiber. In addition, basalt fiber can have high strength,excellent fiber/resin adhesion and ability to be easily processed usingconventional processes and equipment. There is available technology to enhancethe properties of basalt fibers.

The continuous basalt filament has a window of opportunity foracceptance in several new applications in the friction, textile, composites,cement, and paper industries. This window of opportunity should remain open forthe next twenty-four (24) to thirty-six (36) months, provided that the Companycan move swiftly enough to exploit this opportunity.
**Applications:**
Basalt fiber is the effective replacement for theecology-dangerous asbestos, fiberglass and natural or synthetic fibers used inthe manufacturing of technical fabrics. Basalt fiber and fabrics are farsuperior to other modern day fiber materials, in their properties and technicalparameters - low volume mass, wide application temperature range, an ability toabsorb water 10 times lower than the same parameter of glass or other fibers,high chemical resistance to alkali, acids and other aggressive environments, lowthermal conductivity and high ability to absorb sound.

Unique modern ecology-safe technology, inexpensive rawmaterials, high mechanical, acoustic- thermal- and electric insulating,filtering and other properties of basalt fiber and derivative products areanticipated to be in demand in different segments of industry, such as:

 
**Aviation (engine and parts insulation; acoustic        insulation of exhaust systems in gas-dynamic units);
**Electronic (fabrication of printed circuit        boards with high thermal and stable electrical properties);
**Refinery and chemical(used in filters to        clean process air from dust and wastewater from oil products);
**Automotive (engine and body insulation; used in        brake shoe as alternative to asbestos);
**Construction (nonflammable durable construction        parts as alternative to wooden parts; soft and hard roof materials);
**Machine building(shock-absorption pads        for presses; thermal insulation for commercial and residential        refrigerators; thermal insulation of tanks filled with liquid oxygen,        nitrogen and other gases);
**Shipbuilding (thermal insulation as alternative        to asbestos);
**Bag filters (Basalt Fiber is superior to        traditionally used filter materials by their to ability to withstand        high temperature, low ability absorb water (less than 1%), high chemical        stability and low thermal conductivity).
**Other Applications:

Friction:**
Disc pads for cars, block for trucks and trailers, trains,buses, aircraft, anything that has motion must be stopped and therefore has abrake pad, machinery, motors, etc.
**Non-Woven:**
Filters, felted products (bags, padding, headliners), clothing,special blankets, molding blankets.
**Woven:

Fire protection-clothing, cloths for high temperatureapplications.
**Paints/Caulks/Coatings/Sealants:**
Driveways, pools epoxies, high temp caulks, special sealers forcars, trucks, airplanes, industrial caulks and****sealants.
**Plastics:**
Fenders, doors, panels, bumpers, hulls for boats, housings forchains saws, mowers, parts for numerous applications from bolts to valve covers,poles, fences, applications are limited to your imagination.
**Cement:**
Reinforcement for all kinds of cement, stucco, roads,decorative, pools etc. This is a huge market and we will have an advantage overglass because of our chemistry is alkaline resistant, this is a big plus and wecould get a premium for what we will be replacing.
**Heat Shields;**
Around and in mufflers for cars, trucks, buses, lawnmowers,generators, and more, around gas tanks, under hood because of the increase inengine temperatures, on floors of cars, under the carpets.
**Rubber:**
Tires, gaskets, seals, and butyl.
**Molding:**
Used with different binders to mold almost anything, tables,computer housings this is another, you only have to use your imagination.
**Asphalt/Bitumen:**
In roads mineral fiber will reduce glare, make tire noisequieter, longer life, help dissipate water.
**Paper:**
Heat resistant papers for small ovens, irons and other smallappliance, millboards for high temperature applications, specialty papers.
**BELFIBER COMPANY

Executive Summary**
Belfiber Company ("Belfiber") expects to begin salesin 2002, with a projection for sales of more than $2,000,000 in three years,while producing a high gross margin on sales and attractive cash flow withminimal working capital. This projection is speculative, and will depend onnumerous factors, including, but not limited to market conditions, availabilityof materials and effectiveness of Belfiber's sales force.

Belfiber was formed to market imported basalt and fiberglassfiber materials. APC will combine with Belfiber to provide for an existing highmargin product line serving the high-performance pulsejet segment of the hightemperature filtration market while adding value to Belfiber's basalt andfiberglass materials. The basalt products that will be produced by APC for thethermal insulation, acoustic and corrosion resistant FRP applications offer amarket potential for increasing sales and profit.

Belfiber's marketing plan calls for the filtration mediaproducts to be sold to bag and cartridge fabricators. The basalt needlefeltswill be sold both through distribution and on a direct basis to large end-users.
**Company Summary**
Basalt products have been used in the former Soviet Union for aconsiderable length of time in both military and consumer product applications.Belfiber is in a position of producing and marketing new products that will bein demand to replace current fiber products, and increase the reliability ofthermal products. The products manufactured and the new products developed willhelp accelerate market penetration and their applications of use.
**Company History**
Air Purator is a world leader in the production of fiberglassneedle-felts for the filtration industry. Its products have been used inpulsejet filter bags for over 20 years and in high temperature filter cartridgesfor more than 10 years.

The original product was developed by Huyck Felt, an Austrianpaper-making felt company, in the late 1970's to compete with the expandedPTFE membrane media patented by W.L. Gore and Associates in 1975. Huyck firstestablished the business unit in Rennsaeler, New York and transferred it to itsMt. Hope Machinery division and relocated to its present Taunton, Massachusetts'slocation in 1985. Many of the present production personnel have been with thecompany since 1985.

Present management took over APC in late 2000, and has attemptedto reestablish the company's value relative to membrane media. New productsand customer-oriented sales efforts turned the company in a positive directionby mid-2001. The installation base is again increasing, overhead was reduced andAPC became profitable in 2001.

Today, APC's product range has expanded to include fiveproduct lines used in all types of high temperature gas filtration and productcollection.
**Products**
APC's needled fiberglass products are designed to withstandhigh temperatures and aggressive environments for particulate control andproduct recovery applications. With temperature capabilities ranging from 550to 750 F, APC media products can be used in a wide range of manufacturing andprocess applications.

The basalt fiber felts are designed to offer thermal insulationwith a useful temperature of 1800F, much higher than the 1200F offiberglass. This temperature is close to that of ceramic, but without theassociated health risks.

The following is a list and description of the products producedor anticipated to be produced by APC during the years 2002 and 2003:
**Product Description**
Huyglas - Economical fiberglass media designed for use inpulsejet baghouses operating at temperatures of up to 550F. An updated,high-value version was introduced 18 months ago, and is gaining marketacceptance, particularly in the Asian market.

Dynaglas - Fiberglass media designed for high temperature, wiresupported cartridge applications. Introduced into the North American market andbeing introduced into Europe by multi-national customers.

DynaPleat - Composite fiberglass media for use in unsupportedhigh temperature cartridge applications. The product was introduced two yearsago in field trials with several cartridge manufacturers with worldwidedistribution. First orders occurred in 2001.

HuySeal - Gasketing and cuff material providing thickness andflexibility. It is a new product currently being introduced, with initial salesexpected in mid-2002.

HuyFlex - Ultra-life fiberglass and PTFE composite media. Inbeta test with expected commercial status at end of 2002.
**Competitive Comparison**
APC's products will operate over a greater range oftemperature and chemical conditions than the competitive bag media. Its productstypically are installed after other products have failed due to their operatingconditions. Our products are positioned at a higher price than woven fiberglass,which does not filter as efficiently, and at a lower price to membrane materialssuch as Gore-Tex, which is a more efficient filter but does not tolerate hightemperature or the presence of liquid hydrocarbons as well as APC products.

APC has no direct competition to its fiberglass products. Thereis no current supplier of thin basalt felts to the North American market.
**Future Products**
Within the next year APC anticipates the development of a basaltfiber into a thin basalt fiber insulation mat. This will then give the abilityto add value to Belfiber products.

APC is in the process of developing long-life filtration mediafor bags and cartridges using a composite support fabric constructed from glassand PTFE (polytetrafluoroethylene) yarns. A similar product from W.L. Gore andAssociates has created a market for this type product, but management believesthis product has technical weaknesses compared with APC filtration media. APChas recently introduced gasketing and pleatable cartridge materials that arestill in the introductory and customer evaluation stages.
**Market Analysis Summary**
APC's fiberglass products serve the high temperature pulsejet(400-700F) filter market. The bag market segment is rapidly expanding as olderbaghouses using other technologies are replaced with the newer pulsejettechnology. The high temperature cartridge market segment is also poised forrapid growth as APC has the first viable product (DynaPleat) for a pleated mediathat can operate above 425F.

The market for thin basalt felt is untouched as only thickermats have been available, while the thinner mats offer conformability advantagesfor use in complex-shape insulation panels.
**Product Distribution Patterns**
APC has established a strategic partnership with AeropulseIncorporated within the past year to increase APC's installation base throughAeropulse's sales in the United States and Asia, principally in the carbonblack market.

APC is currently attempting to establish favorable relationshipswith the bag and cartridge manufacturers dealing in the high temperature market.APC has established relationships with fabricators within the past year, andanticipates sales from the Indian market and the China market. Negotiation iscurrently under way with a European representative who will be based in the UK.

Basalt products will initially be sold entirely throughdistribution to expedite their sales through existing networks.
**New Company Summary**
In accomplishing the re-direction from the BandwidthCommunications business, Empyrean management has recognized the vulnerability inits original holdings, and has therefore diversified into a manufacturing arenain which it has excellent management capabilities.

With the addition of Mr. Anthony Fanale and Mr. Michael Swink tothe Board of Directors, Empyrean has added the hands-on and management expertisenecessary to direct the company's activities successfully into the future. Thenew management style of the Company will be reflected by the participation ofthe owners.

Additionally, Empyrean Board of Directors elected to change thename of the Corporation from Empyrean Communications to Therma Tech Corporationto keep with the new direction the Company has taken.

ITEM 7. FINANCIAL STATEMENTS

Included herewith are the audited financial statements andIndependent Auditors' Report for the year ended December 31, 2001:

 

**EMPYREAN    COMMUNICATIONS, INC.**

(formerly    Direction Technologies, Inc.)    

(A    Development Stage Company)    

REPORT    AND CONSOLIDATED FINANCIAL STATEMENTS    

December    31, 2001 and 2000    

(Stated    in US Dollars)    

** **

 
         
**INDEPENDENT    AUDITORS' REPORT**

     

To the Stockholders,

Empyrean Communications, Inc.

(formerly Direction Technologies,    Inc.)

We have    audited the accompanying consolidated balance sheets of Empyrean    Communications, Inc. (formerly Direction Technologies, Inc.) and subsidiary    as of December 31, 2001 and 2000 and the related consolidated statements of    loss and deficit accumulated during the development stage, stockholders'    deficiency and cash flows for the year ended December 31, 2001, for the    period October 30, 2000 (Date of Incorporation) to December 31, 2000 and for    the period October 30, 2000 (Date of Incorporation) to December 31, 2001.    These financial statements are the responsibility of the Company's    management. Our responsibility is to express an opinion on these financial    statements based on our audits.

We    conducted our audits in accordance with auditing standards generally    accepted in the United States of America. Those standards require that we    plan and perform an audit to obtain reasonable assurance about whether the    financial statements are free of material misstatement.     An audit includes examining on a test basis, evidence supporting the    amounts and disclosures in the financial statements. An audit also includes    assessing the accounting principles used and significant estimates made by    management, as well as evaluating the overall financial statement    presentation. We believe that our audit provides a reasonable basis for our    opinion.

In our    opinion, these consolidated financial statements referred to above present    fairly, in all material respects, the financial position of Empyrean    Communications, Inc. (formerly Direction Technologies, Inc.) and subsidiary    as of December 31, 2001 and 2000 and the results of their operations and    their cash flows for the year ended December 31, 2001, for the period    October 30, 2000 (Date of Incorporation) to December 31, 2000 and for the    period October 30, 2000 (Date of Incorporation) to December 31, 2001, in    conformity with accounting principles generally accepted in the United    States of America.

The    accompanying financial statements referred to above have been prepared    assuming that the Company will continue as a going concern.     As discussed in Note 1 to the financial statements, the Company is in    the development stage, has no established source of revenue and is dependent    on its ability to raise capital from shareholders or other sources to    sustain operations. These factors, along with other matters as set forth in    Note 1, raise substantial doubt that the Company will be able to continue as    a going concern.  The financial    statements do not include any adjustments that might result from the outcome    of this uncertainty.

     

     

Vancouver, Canada

"AMISANO          HANSON"

May          10, 2002          

Chartered          Accountants

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