U.S. SECURITIES ANDEXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(D) 

OF THE SECURITIESEXCHANGE ACT OF1934

 

FOR THE FISCAL YEARENDED DECEMBER 31, 2006

EMPYREAN HOLDINGS,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.
 

11200 Westheimer Rd.,Suite 900, Houston, TX 77042

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

(Address of principalexecutive offices) (Zip Code)

Issuer's telephonenumber: (713) 243 8714

 

 

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

None

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

Title of Class: Common Stock

Title of Class: Preferred

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes [X] No[_]

Check if there is no disclosure of delinquent filers in response to Item 405of Regulation S-B contained in this form, and no disclosure will be contained,to the best of registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB. [X]

Indicate by check mark whether the registrant is a shell company (as definedin Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Revenues for the fiscal year ended December 31, 2006 were: $6,714

The Aggregate market value of the voting and non-voting common equity held bynon-affiliates computed by reference to the average bid and asked price of suchcommon equity as of March 15, 2007: $156,568

Number of shares of Common Stock, $0.001 par value per share, of theregistrant outstanding as of December 31, 2006: * 9,858,066
**Note:**
* Inclusive of 22,501 shares "on hold" and awaiting return by a third party.

Number of shares of Preferred Stock of the registrant outstanding as ofDecember 31, 2006: 11,000,000

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated herein by reference.

Transitional Small Business Issuer Format Yes No X

---- ----

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this annual report on Form 10-KSB contain or maycontain forward-looking statements that are subject to known and unknown risks,uncertainties and other factors which may cause actual results, performance orachievements to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements. Theseforward-looking statements were based on various factors and were derivedutilizing numerous assumptions and other factors that could cause our actualresults to differ materially from those in the forward-looking statements. Thesefactors include, but are not limited to, our ability to consummate a merger orbusiness combination, economic, political and market conditions andfluctuations, government and industry regulation, interest rate risk, U.S. andglobal competition, and other factors. Most of these factors are difficult topredict accurately and are generally beyond our control. You should consider theareas of risk described in connection with any forward-looking statements thatmay be made herein. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date of this report.Readers should carefully review this annual report in its entirety, includingbut not limited to our financial statements and the notes thereto. Except forour ongoing obligations to disclose material information under the Federalsecurities laws, we undertake no obligation to release publicly any revisions toany forward-looking statements, to report events or to report the occurrence ofunanticipated events. For any forward-looking statements contained in anydocument, we claim the protection of the safe harbor for forward-lookingstatements contained in the Private Securities Litigation Reform Act of 1995.

PART I.

ITEM 1. DESCRIPTION OF BUSINESS

(a) Business Development and Objectives

Empyrean Holdings, Inc., a Nevada corporation (the "Company" or "Empyrean"),was originally organized on April 30, 1998 as Fuji International, Inc.; the namewas changed on December 28, 1998 to Direction Technologies, Inc. In March of2001, Direction Technologies, Inc. merged with Empyrean Communications, Inc.,and the name was changed to Empyrean Communications, Inc. 

Following approval obtained at the Special shareholders' meeting held onJanuary 5, 2005, the Company's name was changed to Empyrean Holdings, Inc.effective January 25, 2005. The new name was adopted to more accurately reflectthe Company's revised business plan to develop and expand as a holding company.

The uncompleted section of the Stock purchase agreement of April 8, 2005between Empyrean and Hesperia Advisors Limited was finalized between the twoparties in an Addendum included to this agreement on June 30, 2006. 

The terms of the Addendum were favorable to Empyrean and are summarizedbelow: 

(a) To compensate for the loss of the Key West condominium in December    2005 an unencumbered town home with an appraised value of $211,000 was    transferred to Empyrean's wholly owned subsidiary, Empyrean Properties, Inc.    Furthermore, Hesperia fully forgave the Note of $226,334 and 

(b) As provided in Phase II of the Stock purchase agreement of April 8,    2005.  Hesperia transferred another three unencumbered town homes with    a total appraised value of $561,000 to Empyrean Properties, Inc and accepted    1,000,000 of Empyrean's convertible preferred shares as full payment.

All these four town homes were deeded to Empyrean Properties, Inc. on June30, 2006, and the 1,000,000 convertible preferred shares were issued toHesperia. With the acquisition of these four town homes valued at $772,000 andthe $226,334 in debt cancellation made by Hesperia Advisors Limited, theCompany's financial situation was significantly enhanced. At the conclusion ofthese transactions, Empyrean ceased being designated a "shell company," andnotification was made to the Securities and Exchange Commission.

The Company's mission is to continue to develop Empyrean through selectivediversification and acquisitions into a profitable multi-based holding companythat will provide competitive return on investments for its shareholders andinvestors. 

Over the last year, the Company has established three wholly ownedsubsidiaries, Empyrean Properties, Inc., Empyrean Financial Services, Inc. andEmpyrean Staffing, Inc. to serve as vehicles for the implementation of itscorporate objectives. Empyrean Financial Services is attempting to finalizeagreements to provide accounting and financial consulting services to threeclients. 

Empyrean Properties is in negotiations to participate in real estatedevelopment projects with an established development company, UnitedConstruction Group (UCG). Though there is no guarantee at this stage that suchprojects can be finalized with UCG, management feels that the chances areencouraging. The Company is working toward being included in the first project,which is expected to be a $30 million residential development in Santa Barbara,CA. That project is expected to commence ground breaking in about 6 months.

The recently formed Empyrean Staffing has commenced preliminary work toestablish a professional employee organization (PEO), which is commonly referredto as a staff leasing company. Several clients have already expressed interestin using Empyrean Staffing's services. The final decision as to the feasibilityof offering services as a PEO is expected to be made by mid-2007.

The financial, corporate and business office of the Company is located in anexecutive suite managed by a large national company, Corporate Office Centers,at 11200 Westheimer Rd., Suite 900, Houston Texas 77042. The Company has no fulltime employees but services for basic office requirements are also provided byCorporate Office Centers. 

(b) Business of Issuer.

Presently, Empyrean Holdings, Inc. has no ongoing businessoperations but its subsidiary, Empyrean Properties, owns two town homes inKewaskum, WI. The other subsidiary, Empyrean Financial Services, is expected tobe revenue producing once the agreements with three clients are finalized.Barring any unforeseen circumstances, the other subsidiary, Empyrean Properties,will be a participant in a residential development project in the near future.

ITEM 2. DESCRIPTION OF PROPERTY 

(a) Ownership

As mentioned above, the Company through its wholly ownedsubsidiary, Empyrean Properties, Inc., owns two town homes in the fastdeveloping town of Kewsakum, WI. The two properties have a carrying value of$386,500 and are being held for sale. It is the intention to utilize the salesproceeds to finance business development and fund-raising activities.

(b) Office lease

The current lease agreement with Corporate Office Centers isfor two 160 square foot offices located at 11200 Westheimer Rd., Suite 900,Houston Texas, 77042. The term of the lease is month to month and basic rentalis $1,500 per month. Extra costs averaging about $150 per month are incurred forother office services and facilities.

 

ITEM 3. LEGAL PROCEEDINGS 

The condominium located at 12 Coral Way, Key West, FL, and owned by theCompany's wholly owned subsidiary, Tradewinds International Corp. (Tradewinds)was lost through foreclosure action taken by the previous owner and mortgagee,Huck Finn LLC on December 20, 2005. The full amount of the debt owed on theproperty is a debt of Tradewinds. The debt was incurred by Tradewinds prior tothe acquisition of Tradewinds stock by the Company and that debt has never beenassumed by Empyrean. Management believes that although Tradewinds has no assetswith which to pay the debt, that debt is not an obligation of Empyrean. However,in 2005 the Company  recognized a loss of $139,000 on abandoned real estateinvestment. At the time of the completion of this report, management believesthat this property has yet to be resold by Huck Finn LLC.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted for a vote of security holdersduring the fourth quarter of the fiscal year ended December 31, 2006.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERSMATTERS. 

On March 3, 2000 the Company was approved by the NASD for trading on the OTCBulletin Board. The trading symbol under the former name, EmpyreanCommunications, Inc, was EPYR. As required by the name change to EmpyreanHoldings Inc. made on January 25, 2005, the Company's symbol was changed to EPYH.Following the implementation of the 1 to 50 (one to fifty) reverse split of theCompany's common shares on June 26, 2006, however, the trading symbol waschanged once more to EMPY.

At the present time, there are no funds available for the payment ofdividends. The Company also does not anticipate paying any dividends in the nexttwelve months.

The Articles of Incorporation currently authorize the issuance of1,000,000,000 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, 2006, theCompany had 9,858,066 shares (inclusive of 22,501 shares 'on hold' and awaitingreturn by a third party) of common stock outstanding.

Non-Cumulative Voting.

The holders of shares of Common Stock of the Company do not have cumulativevoting rights, which means that the holders of more than 50% of such outstandingShares, voting for the election of directors, can elect all of the directors tobe elected, if they so choose. In such event, the holders of the remainingShares will not be able to elect any of the Company's directors. 

Share Purchase Warrants

At December 31, 2006, no share purchase warrants were outstanding.

Dividends.

The Company does not currently intend to pay cash dividends. The Company'sproposed dividend policy is to make distributions of its revenues to itsstockholders 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 theneither shares, 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 continues to retain 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 FINANCIAL CONDITION ANDRESULTS OF OPERATIONS.

During 2006, the Company obtained net cash flows from investing activitiestotaling $230,023 from the proceeds of the sale of two town homes in Kewaskum,WI. Additional cash flow from the sale of the Company's two remaining town homesis expected for 2007.

After allowing for the expected cash flows discussed above, the Company willstill require significant working capital for the next 12 months. An updatedBusiness Plan is being prepared for the Company to raise funds through a privateplacement or the sale of shares through public registration. Management believesthat its working capital requirements for 2007 will be approximately $5,000,000for general overhead and investment in real estate development projects.

The average high and low prices of the Company's stock by quarters are givenbelow:

 
 
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter     High
0.009
0.0067
0.165
0.047     Low
0.0065
0.0056
0.123
0.043
 

ITEM 7. FINANCIAL STATEMENTS

Included herewith are the following financial statements:

Audited Financial Statements for the Year Ended December 31, 2006

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Empyrean Holdings, Inc.

(A Development Stage Company)

Houston, Texas

We have audited the accompanying consolidated balance sheet of EmpyreanHoldings, Inc. ("Empyrean") as of December 31, 2006, and the relatedconsolidated statements of income and expenses, cash flows and changes instockholders' equity for the two year period then ended and for the period fromDecember 30, 2004 (Inception) through December 31, 2006. These consolidatedfinancial statements are the responsibility of Empyrean's management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

We conducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we planand perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of Empyrean, asof December 31, 2006, and the results of its operations and its cash flows forthe periods described in conformity with accounting principles generallyaccepted in the United States of America.

The accompanying consolidated financial statements have been preparedassuming that Empyrean will continue as a going concern. As discussed in Note 2to the consolidated financial statements, Empyrean has suffered recurring lossesfrom operations which raises substantial doubt about its ability to continue asa going concern. Management's plans regarding those matters also are describedin Note 2. The consolidated financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

 

/s/ Malone & Bailey, PC

Malone & Bailey, PC

www.malone-bailey.com

Houston, Texas

 

 

March 12, 2007

 

 

 

EMPYREAN HOLDINGS,INC. 

(A Development StageCompany)

CONSOLIDATED BALANCESHEET

December 31,2006 

 

ASSETS                                                                  

                                                             

  

CurrentAssets                                                          

 Cash                                                      $   35,443         

  Notereceivable                                              100,000                 

 Deposits                                                        525                  

                                                            -----------      

     Total Current Assets                                     135,968                

                                                                            

RealEstate Investment Property, net of impairments            386,500

                                                            -----------            

     Total Assets                                          $  522,468          

                                                           ===========      

                                                            

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

LIABILITIES

 

CurrentLiabilities

 Accounts payable                                         $   15,264         

  Notepayable - related party                                 16,275         

                                                            -----------       

      Total Current Liabilities                               31,539              

                                                            ----------       

 

 

Commitments and Contingencies                                       -   

 

STOCKHOLDERS' EQUITY

 

 Preferred stock, $.001 par, 200,000,000 shares                                 

   authorized, 11,000,000 shares issued 

    andoutstanding                                            11,000   

  Commonstock, $.001 par, 1,000,000,000 shares                             

    authorized,   9,858,066 shares issued 

     andoutstanding                                            9,858   

  Paid incapital                                           1,415,774               

 Deficit accumulated during the development stage           (945,703)             

                                                     -----------             

    Total Stockholders' Equity                               490,929                     

                                                           -----------                   

      Total Liabilities and Stockholders' Equity         $   522,468              

                                                           ===========                   

            

 

 

 

See accompanying summary of accounting policies

and notes to financial statements.

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

CONSOLIDATEDSTATEMENTS OF INCOME & EXPENSES

Years Ended December31, 2006 and 2005 and the

Period from December30, 2004 (Inception) through December 31, 2006

Inception

 

                                                                                         

                      Inception

                                                Year Ended     Year Ended     Through

                                               December 31,    December 31, December 31

                                                   2006            2005          2006

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

 

INCOME

Rentalincome                                 $    6,714       $       -    $    6,714

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

     Total Income                                 6,714                -        6,714

                                                           

EXPENSES

General &administrative                         263,631          263,745       527,451

Depreciation expense                                   -           21,232       21,232

Interestexpense                                  18,533           59,893        78,426

Cost ofrecapitalization                               -          115,479       115,479

Writedown of property to fair value              11,500                -       11,500

Loss onabandonment of investment property             -          154,354       154,354

Loss onsale of property                          43,975                -        43,975

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

      Total Expenses                            337,639           614,703      952,417

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

  NETLOSS                                   $  (330,925)     $  (614,703)  $ (945,703)

                                              ============    ============= ============ 

 

Basicand diluted loss per share             $    (0.04)       $    (0.09) 

   

Weighted average common

   sharesoutstanding                          7,713,392        6,701,708            

 

See accompanyingsummary of accounting policies

and notes to financialstatements.

 

 

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

Years Ended December31, 2006 and 2005 and the

Period from December30, 2004 (Inception) through December 31, 2006

 

 

 

                                                                       Inception    

                                          Year Ended     Year Ended       Through

                                         December 31,   December 31,    December 31,      

                                            2006           2005            2006                                                                                                 

CASH FLOWS FROMOPERATING ACTIVITIES

  Net loss                              $ (330,925)    $ (614,703)      $ (945,703) 

  Adjustments toreconcile net loss

     to cash usedin operating activities:

  Stock issued forservices                  63,000        180,000         243,000

  Stock basedcompensation                  120,000              -         120,000

  Cost ofrecapitalization                       -         115,479         115,479

  Loss on sale ofproperty                   43,977              -          43,977

  Write down ofproperty to fair value       11,500              -          11,500

  Loss on abandonedinvestment property          -         154,354         154,354

 Depreciation                                   -          21,232         21,232        

  Changes in:

    Otherassets                                 -           (525)           (525)        

    AccountsPayable                        (17,106)       141,765         124,734 

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

NET CASH USED INOPERATING ACTIVITIES      (109,554)        (2,398)       (111,952)

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

          

CASH FLOW FROMINVESTING ACTIVITIES

Proceeds from saleof real estate           330,023             -          330,023

Issuance of notereceivable                (100,000)            -         (100,000)

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

NET CASH PROVIDEDBY INVESTING ACTIVITIES    230,023             -          230,023

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

 

CASH FLOWS FROMFINANCING ACTIVITIES

  Payments onrelated party debt           (182,585)             -        (182,585)

  Proceeds fromrelated party debt           97,419              -          97,419

  Proceeds fromissuance of common stock         -           2,538           2,538            

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

NET CASH (USEDIN)PROVIDED BY 

  FINANCINGACTIVITIES                     (85,166)          2,538         (82,628) 

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

 

NET CHANGE INCASH                           35,303            140          35,443

  Cash balance,beginning                       140              -               -                    

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

                                                                                

Cash balance,ending                     $   35,443       $    140        $ 35,443               

                                        ===========     ===========     ===========

                                                    

SUPPLEMENTALDISCLOSURES:

   Cash paid forinterest                $   10,914       $     -         $ 10,914

   Cash paid forincome taxes            $       -        $     -         $      -

 

NON-CASH INVESTINGAND FINANCING ACTIVITIES:

   Shares issued tosettle related

      partydebt                         $   72,759       $     -         $  72,759

   Shares issuedfor property            $  772,000       $     -         $ 772,000

   Forgiveness ofrelated party debt     $  226,334       $     -         $ 226,334

 

 

 

 

See accompanyingsummary of accounting policies and notes

to financial statement

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

CONSOLIDATED STATEMENTOF CHANGES IN STOCKHOLDERS' EQUITY

Period from December30, 2004 (Inception)

Through December 31,2006

 

 

                                         Preferred                  Common

                                     Shares      Amount        Shares     Amount

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

 

Stock issued for:

       - cash                            -    $       -                -  $       -

       - 25% stockdividend    

          declared InJuly 2005           -            -       50,000,000      50,000

       - reverseacquisition              -            -      200,000,000     200,000

       -reverse split declared

         June 26, 2006                    -           -     (245,000,000)   (245,000)

NetLoss                                  -            -                -          -

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

Balances, December 31,2004               -            -        5,000,000       5,000

 

Stock issued for:

-       25% stock dividend

Declared in July2005            -            -        24,978,988     24,979

      - reverseacquisition         10,000,000      10,000      68,765,951     68,766

      -services                          -            -        30,000,000     30,000

      -reverse split declared

        June 26, 2006                    -            -     (121,269,873)  (121,270)

NetLoss                                  -            -                -          -

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

Balances, December 31,2005         10,000,000      10,000       7,475,066      7,475

 

Stock issued for:

      -debt                               -            -          150,000        150

      -services                           -            -        2,233,000      2,233

      -property                     1,000,000       1,000              -          -     

Debtforgiveness                           -            -               -           -

 

NetLoss                                   -            -                -         -

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

Balances, December 31,2006         11,000,000  $   11,000       9,858,066  $   9,858

                                    =========== ===========    ======================

 

 

 

 

                                                  Deficit

                                                 Accumulated

                                                  During the

                                     Paid in     Development

                                    Capital        Stage          Totals

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

Stock issued for:

      -cash                       $       -       $       -    $         -   

      - 25% stockdividend

        declared inJuly 2005          (50,000)            -              -   

      - reverseacquisition           (200,000)            -              -

      -reverse split declared

        June 26, 2006                 245,000            -             -

NetLoss                                   -             (75)           (75)  

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

Balances, December 31,2004             (5,000)          (75)           (75)    

 

Stock issued for:

-        25% stock dividend 

Declared in July2005         (24,979)            -              -

      - reverseacquisition            (76,228)            -           2,538

      -services                       150,000             -         180,000

      -reverse split declared

        June 26, 2006                 121,270            -             -

NetLoss                                   -         (614,703)      (614,703)

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

Balances, December 31,2005            165,063       (614,778)      (432,240)        

 

Stock issued for: 

      -debt                           303,615             -         303,765

      -services                       176,097             -         178,330   

      -property                       252,664             -         253,664

Debtforgiveness                       518,335             -         518,335

 

NetLoss                                   -         (330,925)      (330,925)

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

Balances December 31,2006        $  1,415,774     $ (945,703)   $   490,929

                                    ===========  =============   =============  

 

See accompanyingsummary of accounting policies and notes

to financialstatements.

 

EMPYREAN HOLDINGS,INC.

(A Development StageCompany)

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS 

 

 

NOTE 1 - BASIS OF PRESENTATION

Nature of business: Empyrean Holdings, Inc. ("Empyrean") was incorporated  in Nevada on December 30, 2004. Empyrean is a development stage entity whose  activities to date have included business planning and capital raising  activities. Empyrean intends to engage in the real estate investment, staffing  and financial consulting business.

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

Principles of Consolidation: The accompanying financial statements include  the accounts of Empyrean and it's wholly owned subsidiaries. All significant  inter-company balances and transactions with consolidated subsidiaries have  been eliminated in consolidation.

Cash and Cash Equivalents: For purposes of the statement of cash flows,  Empyrean considers all highly liquid investments purchased with an original  maturity of three months or less to be cash equivalents. There were no cash  equivalents as of December 31, 2006.

Revenue Recognition: Revenue is recognized when persuasive evidence of an  arrangement exists, service has been rendered, the sales price is fixed or  determinable, and collectibility is reasonably assured.

Income Taxes: Empyrean recognizes deferred tax assets and liabilities based  on differences between the financial reporting and tax bases of assets and  liabilities using the enacted tax rates and laws that are expected to be in  effect when the differences are expected to be recovered. Empyrean provides a  valuation allowance for deferred tax assets for which it does not consider  realization of such assets to be more likely than not.

Share-Based Compensation: On January 1, 2006, Empyrean adopted SFAS No. 123  (R), "Share-Based Payment." SFAS 123(R) replaced SFAS No. 123 and supersedes  APB Opinion No. 25. SFAS 123(R) requires all share-based payments to  employees, including grants of employee stock options, to be recognized in the  financial statements based on their fair values. The pro forma disclosures  previously permitted under SFAS 123 are no longer an alternative to financial  statement recognition. Empyrean adopted SFAS 123(R) using the modified  prospective method which requires the application of the accounting standard  as of January 1, 2006. The consolidated financial statements as of and for the  year ended December 31, 2006 reflect the impact of adopting SFAS 123(R). In  accordance with the modified prospective method, the consolidated financial  statements for prior periods have not been restated to reflect, and do not  include, the impact of SFAS 123(R). Since Empyrean has not granted options  during the year ended December 31, 2006 or during any period prior to January  1, 2006, the adoption of SFAS 123(R) had no impact.

Earnings Per Share: The basic net loss per common share is computed by  dividing the net loss by the weighted average number of common shares  outstanding. Diluted net loss per common share is computed by dividing the net  loss adjusted on an "as if converted" basis, by the weighted average number of  common shares outstanding plus potential dilutive securities. For the years  ended December 31, 2006 and 2005, there were no dilutive securities  outstanding.

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, Empyrean has incurred  recurring net losses of $330,925 and $614,703 in 2006 and 2005, respectively,  and an accumulated deficit of $945,703 as of December 31, 2006. These  conditions raise substantial doubt about Empyrean's ability to continue as a  going concern. Management is trying to raise additional capital through sales  of common stock as well as seeking financing from third parties. The financial  statements do not include any adjustments that might be necessary if Empyrean  is unable to continue as a going concern.

NOTE 3 - ABANDONMENT OF REAL ESTATE INVESTMENT PROPERTY

As previously reported in 2005, the Key West condominium was lost through  foreclosure action taken by Huck Finn, LLC, the Note holder and mortgagee. As  of the date of these financial statements, it is Empyrean's understanding that  the Key West Property had not yet been sold by Huck Finn, LLC. In connection  with the Key West Property foreclosure, Empyrean has removed both the Key West  Property and Senior Secured Note (including related default accruals) from its  books and in 2005 recognized a loss on abandoned real estate investment  property of $139,095. 

Recent appraisals of the Key West Property indicate that it is valued at  $510,000. It is therefore management's belief that, once sold, the proceeds  realized from the sale of the Key West Property should be sufficient to settle  the amount due under the foreclosure judgment. In the event that the proceeds  from the ultimate sale are not sufficient to cover the amount due under the  foreclosure judgment, Empyrean will be responsible for making up the  shortfall.

NOTE 4 - INCOME TAXES

               Deferred tax assets - NOLs                  $ 246,000

              Less: valuation allowance                    (246,000 )

                                                           -------- 

              Net deferred taxes                           $      - 

                                                           ========

Empyrean has net operating loss carry-forwards of  approximately $702,000 at December 31, 2006, which begin expiring in 2025.

 

NOTE 5 - EQUITY 

 

On June 2, 2006, 10,000,000 (200,000 on a split adjusted basis) restricted  shares valued at $58,000 were issued to William Melchiori as a signing bonus  for him to serve as Director and Chief Financial Officer of Empyrean Holdings,  Inc. He will also serve as President and Director of Empyrean's wholly owned  subsidiary, Empyrean Financial Services, Inc. and also as a Director of  Empyrean's recently formed wholly owned subsidiary, Empyrean Properties, Inc.

A 1:50 (one to fifty) reverse split of Empyrean's common shares was  implemented on June 26, 2006, resulting in 7,858,039 total outstanding common  shares. All share and per share information has been retroactively restated in  the consolidated financial statements to reflect the reverse stock split.

On June 30, 2006, four town homes valued at $772,000 were contributed and  $226,334 in debt was canceled by Hesperia Advisors Limited in exchange for  1,000,000 convertible preferred shares. These shares are convertible any time  by the holder for 4,000,000 post-split shares.

On December 11, 2006, 2,000,000 restricted common shares valued at $120,000  were issued to the two Directors and officers of Empyrean as compensation for  the extensive consulting services provided during the year. 

 

NOTE 6 - SALE OF REAL ASSETS AND FUNDS UTILIZATION

One of the four town homes acquired on June 30, 2006 was sold for a net  loss of $18,631. The net cash amount of $168,368 was received on September 22,  2006. From the funds received $160,000 was paid to Independent Management  Resources, LLC to reduce Empyrean's debt with this company.

One more unit of the three remaining town homes was sold on December 21,  2006 for a net loss of $18,887 when compared to this unit's carrying value of  $187,000. The net amount of $168,113 obtained for this sale was received on  September 22, 2006. Out of the funds received, $32,000 was paid to Independent  Management Resources, LLC to settle fully Empyrean's debt with this company.  

In order to obtain some income on the surplus funds being held it was  decided to make a short term interest bearing loan of $100,000 to Independent  Management Resources, LLC,. The simple interest rate of 8% per annum will be  charged for this loan until it is repaid in full.

Due to the fact that the above mentioned properties were sold for less than  book value, Empyrean took a charge of $11,500 to write down the remaining two  town homes to market value.

 

NOTE 7 - NOTE PAYABLE - RELATED PARTY

Advances made by Tom Bojadzijev before his termination as a real estate  consultant for Empyrean continue to accrue interest at 8% per annum. The  amount of this note is $16,275 inclusive of accrued interest through December  31, 2006.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

During the month of October 2005, Empyrean entered into a six-month lease  (from November 2005 through April 30, 2006) for its current office space at  the rate of $625 per month. In connection with the signing of this lease  agreement, Empyrean was required to pay a deposit of $525. For the year ended  December 31, 2005, Empyrean recognized $1,250 of rent expense under this  agreement. The current lease agreement is month to month and basic rental is  $1,500 per month. Extra costs averaging about $150 per month are incurred for  other office services and facilities. For the year ended December 31, 2006,  Empyrean recognized $17,444 of rent expense under this agreement. As of  December 31, 2006, Empyrean had no future minimum lease payments. 

1,150,000 shares of stock were issued in 2001 for financing that did not  occur. Empyrean has instructed its transfer agent to cancel the shares. Under  Nevada law, the shares cannot be formally and unilaterally canceled without  court adjudication. The other party has refused to cooperate. These shares  have, however, been reduced to only 22,501 after the recent one to fifty  reverse split. Though these 22,501 shares are included in the issued and  outstanding shares of the Company, mention is made that these 22,501 shares  are on hold awaiting return by a third party.

 

 

 
**ITEM 8.**CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**
None.
**ITEM 8A. CONTROLS AND PROCEDURES**
As of December 31, 2006, 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 the quarter ended December 31, 2006, there were no significant changesto this system of internal controls or in other factors that could significantlyaffect those controls.
**ITEM 8B. OTHER INFORMATION**
None.

 

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITHSECTION 16(A) OF THE EXCHANGE ACT.

The names, ages, and respective positions of the directors, officers, andsignificant employees of the Company are set forth below. Mr. Lee has held hispositions since March 2001 and there are no other person(s) who can beclassified as a promoter or controlling person of the Company. Mr. Melchiori wasappointed a Director and CFO of the Company on June 1, 2006

Robert L. Lee, Director, President and CEO, Secretary and Treasurer Age 64.

William Melchiori, Director and CFO Age 57

ITEM 10. EXECUTIVE COMPENSATION.

(a)    No officer or director of Empyrean is receiving anyremuneration in the form of salaries and/or allowances at this time. However,common stock was issued as signing bonus and for consulting services during theyear. On June 2, 2006, 200,000 restricted shares (on a split adjusted basis) wereissued to William Melchiori as signing bonus for him to serve as Director andCFO of the Company. 

(b)     On December 11, 2006, 2,000,000 restricted shareswere issued to the two Directors and officers of the Company as compensation forthe extensive consulting services provided during the year. In the new year,consideration will be given to drawing up a compensation plan with incentivesfor the two officers and the issuance of shares will be incorporated in thisplan.

(c)     There are no annuity, pension or retirementbenefits proposed to be paid to officers, directors or employees of thecorporation in the event of retirement at normal retirement date pursuant to anypresently existing plan provided or contributed to by the corporation or any ofits subsidiaries.

 

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The majority shareholder, Hesperia Advisors Limited owns 5,000,000 shares or50.72 % of the issued and outstanding common shares. Hesperia also 1,000,000convertible Preferred shares (1 preferred to 4 common) and Aegis Capital Corpowns another 10,000,000 Preferred shares. 

As on December 31, 2006, only two other persons or entities own more than 5 %of the Company's shares as shown below:

Robert L. Lee owns 1,214,000 common shares or 12.31 % and William Melchioriowns 1,235,336 common shares or 12.53 % of the issued and outstanding commonshares.

 

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE. INCLUDE LIST OF DIRECTORS, COMMITTEES ON WHICH THEY SERVE AND IFTHEY ARE INDEPENDENT DIRECTORS-

Other than as set forth in Item 7, there are no relationships, transactions,or proposed transactions to which the registrant was or is to be a party, inwhich any of the named persons set forth in Item 404 of Regulation SB had or isto have a direct or indirect material interest.

ITEM 13. EXHIBITS

Exhibit No.DocumentLocation
3.1Articles of IncorporationIncorporated by Reference
3.2BylawsIncorporated by Reference
31.1 and 31.2Certifications per Rule 13a-14(a)/15d-14(a)Included
32.1 and 32.2Certifications per Section 1350Included
ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

1. Audit Fees: Aggregate fees billed for each of the last two (2) fiscalyears for professional services rendered by the principal accountant for theaudit of the annual financial statements and review of financial statementsincluded on Form 10-QSB: 

2005: $29,345

2006: $29,157

2. Audit-Related Fees: Aggregate fees billed in each of the last two (2)fiscal years for assurance and related services by the principal accountant thatare reasonably related to the performance of the audit or review of thefinancial statements and are not reported previously.

2005: $0 

2006: $0 

3. Tax Fees: Aggregate fees billed in each of the last two (2) fiscal yearsfor professional services rendered by the principal accountant for taxcompliance, tax advice, and tax planning. 

2005: $0 

2006: $0 

4. All Other Fees: Aggregate fees billed in each of the last two (2) fiscalyears for products and services provided by the principal accountant, other thanthe services previously reported.

2005: $0 

2006: $0 

5. Audit Committee Pre-Approval Procedures. The Board of Directors has not,to date, appointed an Audit Committee.

 

SIGNATURES

In accordance with Section 13 or 15(d) 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 CEO

Date: March 28, 2007

In accordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.
**/s/ Robert L. Lee**  Robert L. Lee, President and CEO Date: March 28, 2007
/s/ William Melchiori  William Melchiori, CFODate: March 28, 2007
 
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