U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section1 3
or 15(d) of the Securities Exchange Act
of 1934,
For the Quarter Ended June 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 333-16031
Empire Communications Corporation
(name of small business issuer as specified in its charter)
Nevada 86-0793960
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
4001 West 104th Terrace, Overland Park, KS 66207
(Address of principal executive offices)
913-469-1662
(Registrant's telephone no., including area code)
10670 North Central Expressway, Suite 235
Dallas, Texas 75231
(Former name, former address, and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter 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 ______
Common Stock outstanding at June 30, 1998: 2,000,000 shares of $.001 par value
Common Stock
<PAGE>
Part 1 Financial Information
Item 1 Financial Statements
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management together with Related
Notes. In the opinion of management, the Financial Statements fairly present the
financial condition of the Registrant.
<TABLE>
<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc.)
[Development Stage Company]
CONDENSED BALANCE SHEETS
[Unaudited]
ASSETS
June 30, 1998 Dec. 31, 1997
------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 263,001 $10,434
Accounts Receivable - 8
Notes Receivable 1,250,000 -
Total Current Assets 1,513,001 10,442
--------- ------
PROPERTY AND EQUIPMENT (NET) - 24,680
OTHER ASSETS:
Deposits - 125
Total Other Assets - 125
- ---
TOTAL ASSETS $1,513,001 $35,247
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, 1998 Dec. 31, 1997
------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 216 $ 2,510
Unearned Revenue - 388
Total Current Liabilities 216 2,898
------------ ------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; authorized 5,000,000 shares at $0.001
par value; 2,350,000 shares issued and outstanding
2,350
Common stock; authorized 50,000,000 shares at $0.001 par
value; 2,000,000 shares issued and outstanding
2,000 1,600
Additional paid-in Capital 1,601,691 104,041
Deficit accumulated during the development stage
(93,256) (73,292)
Total Stockholders' Equity 1,512,785 32,349
--------- ------
TOTAL LIABILITIES & EQUITY $1,513,001 $35,247
========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTE: The balance sheet at December 31, 1997 was taken from the audited
financial statements at that date.
2
<PAGE>
<TABLE>
<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc. and Subsidiary)
[Development Stage Companies]
CONDENSED STATEMENT OF OPERATIONS
[Unaudited]
For the Three For the Three Months
Months Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
REVENUE $ 0.00 $ 0.00
Cost of Goods Sold $ - -
Total Revenue $ 0.00 $ 0.00
-------- ------
EXPENSES
General and Administrative Expenses 216 $15,924
Depreciation
Total Expenses $216 $15,924
-------
INCOME FROM OPERATION
($216) ($15,924)
OTHER INCOME
Loss on sale of asset ($0.00) -
Interest income - -
TOTAL OTHER INCOME ($0.00) -
NET INCOME ($216) ($15,924)
NET LOSS PER SHARE ($0.00009) ($0.0067)
Weighted Average Number of Shares Outstanding 2,370,555
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc. and Subsidiary)
[Development Stage Companies]
CONDENSED STATEMENT OF OPERATIONS
[Unaudited]
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
REVENUE $13,206 $ 0.00
Cost of Goods Sold (1,200) -
Total Revenue $12,006 $ 0.00
------- ------
EXPENSES
General and Administrative Expenses 17,622 $15,924
Depreciation 2,313
Total Expenses $19,935 $15,924
------- -------
INCOME FROM OPERATION
($7,929) ($15,924)
OTHER INCOME
Loss on sale of asset ($12,035) -
Interest income - -
TOTAL OTHER INCOME ($12,035) -
NET INCOME ($19,964) ($15,924)
NET LOSS PER SHARE ($0.001) ($0.0067)
Weighted Average Number of Shares Outstanding 2,370,555
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc.)
[A Development Stage Companies]
Consolidated Statements of Stockholders' Equity
Capital In Deficit
Common Stock Preferred Excess of Accumulated
During the
Development
Shares Amount Shares Amount Par Value Stage
--------------- ---------------- ----------------- ---------------- --------------- ---------------
BALANCE
<S> <C> <C> <C> <C> <C> <C>
July 31, 1996 -- $ -- -- $ -- $ -- $ --
Common stock issued for cash
at $0.001 per share 1,000,000 $1,000 -- -- -- --
Recapitalization of G.E.C., 500,000 500 -- -- 4,141 --
Inc.
Net loss for the period ended
December 31, 1996 -- -- -- -- (5,017)
BALANCE,
December 31, 1996 1,500,000 1,500 -- -- 4,141 (5,017)
Common stock issued for cash
at $1.00 per share 100,000 100 -- -- 99,000 --
Net loss for the year ended
December 31, 1997 -- -- -- -- -- (68,275)
BALANCE,
December 31, 1997 1,600,000 1,600 -- -- 104,041 (73,292)
Common stock issued as 2;1
forward split as 100%
stock dividend 1,600,000 1,600 -- -- (1,600) --
Common stock surrendered to
treasury shares pursuant
to sale agreement of
G.E.C., Inc. (1,200,000) (1,200) -- -- -- -
Preferred stock issued for
cash at $0.6382 per share -- -- 2,350,000 2,350 1,497,650 --
Net loss for the period ended
June 30, 1998 -- -- -- -- -- (19,964)
BALANCE,
June 30, 1998 2,000,000 (2,000) 2,350,000 2,350 1,600,091 (93,256)
</TABLE>
5
<PAGE>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc. and Subsidiary)
[Development Stage Companies]
NOTES TO UNAUDITED CONDENSED & CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements - The accompanying financial statements have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations at June 30, 1998
and for all the periods presented have been made.
Organization and Operating History -- The Company was incorporated in the State
of Nevada on April 27, 1995, under the name of Landmark Leasing, Corp. The
Company planned on operating as a leasing company of residential property,
commercial property, vehicles, and related activities. The Company has
discontinued these activities and accordingly remains a development stage
company. The Company changed its name to Litigation Economics, Inc. on August
22, 1996 when it acquired all of the outstanding stock of GEC, Inc., for
1,000,000 shares of the Company's common stock valued at $.001 per share which
represented the capital contributed to GEC by its founders. The acquisition of
GEC was recorded as a recapitalization of GEC, whereby the acquired company is
treated as the surviving entity for accounting purposes. GEC was formed on July
31, 1996 in the State of Idaho, and was engaged in the field of economic
advising and consulting and commenced principal business operations as of June
2, 1997.
On March 16, 1998, Empire Financial Investments LLC, a Texas limited liability
company ("Empire"), purchased 2,350,000 shares of the Company's new Series A
Convertible Preferred Stock. As of March 16, 1998, these shares and the common
share votes associated with these Series A Preferred shares, constituted
approximately 77.9% of total common share votes of the Company, and constituted
approximately 54% of the total equity securities of the Company. Empire was a
controlled subsidiary of Empire Financial Corporation ("EFC"), a Texas-based
merchant banking and investment firm headquartered in Dallas, Texas.
Accounting Method - The Company's financial statements are prepared using the
accrual method of accounting. The Company has selected a December 31, year end.
Net Loss Per Share - The computation of loss per share of common stock is based
on the weighted average number of shares outstanding at the date of the
consolidated financial statements.
Provision for Taxes - At December 31, 1996, the Company had net operating loss
carry forwards of approximately $5,000 that may be offset against future taxable
income through 2011. No tax benefit has been reported in the financial
statements, because the Company believes there is a 50% or greater chance the
carry forwards will expire unused. Accordingly, the potential tax benefits of
the loss carry forward are offset by a valuation allowance of the same amount.
Depreciation Methods - The Company is depreciating its property and equipment,
which consists of computer equipment, fax machines, filing cabinets, etc., using
the straight line method, over the estimated useful lives of the related assets
ranging from 3 to 10 years.
Cash and Cash Equivalents - For purposes of financial statement presentation,
the Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
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reporting period. Actual results could differ from those estimates. Principles
of Consolidation - The consolidated financial statements include accounts of
Empire Communications Corporation and its wholly-owned subsidiary, GEC, Inc.
through March 13, 1998, at which date GEC was sold to Mr. and Mrs. Cornelius
Hofman. Inter-company transactions have been eliminated.
Revenue Recognition -- Revenue will be recognized upon the completion of
consulting and advising services.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have significant cash and has not had
significant operations. To date, the Company has been able to cover operating
costs with existing financial resources. Officers of the Company have committed
to make capital contribution or advances to the Company should additional funds
be needed to pay operating expenses.
NOTE 4 - COMMON STOCK
In October of 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the "Plan"), allowing the Company to offer its key employees, officers,
directors, consultants, and sales representatives and opportunity to acquire a
proprietary interest in the Company. There are 500,000 shares reserved and
available for distribution under the Plan. These shares will underlie the
Options issued by the Company pursuant to the Plan. The Option holders will not
be protected against dilution if the Company should issue additional shares of
common stock in the future. Neither the Options, nor the shares underlying the
Options have preemptive rights.
As of March 31, 1998, no options have been granted or exercised pursuant to the
Plan.
On March 12, 1998, the Board of Directors of the Company declared a 2 for 1
forward split of the outstanding common stock, in the form of a 100% stock
dividend distributed to shareholders of record on March 1, 1998, payable on
March 13, 1998.
On March 13, 1998, pursuant to the sale agreement for GEC, Mr. and Mrs.
Cornelius Hofman, surrendered 1,200,000 shares of common stock that are now held
as treasury shares.
On March 16, 1998, Empire Financial Investment LLC, a Texas limited liability
company purchased 2,350,000 shares of the Registrant's new Series A Convertible
Preferred Stock for the purchase price of $1,500,000. Payment terms for the
transaction were $250,000 in cash with the remaining balance of $1,250,000 as a
note receivable to the company.
NOTE 5 - SUBSEQUENT EVENTS
Effective on July 14, 1998, the Company, Empire Financial Investment LLC, and
Mr. and Mrs. Cornelius Hofman all agreed to rescind the transactions whereby
Empire had invested in the Company and assigned to it valuable contract rights,
and whereby Mr. and Mrs. Hofman had purchased the Company's GEC subsidiary. All
consideration given by any of the parties to each other was returned and title
to all rights and property was returned to status quo ante.
Item 2 Management's Discussion and Analysis
Summary
The Company was incorporated on April 27, 1995. During its
approximately three years of operations, the Company has generated no
significant revenues and continues to be considered a development stage company.
The Company raised funds at first from its founders, and then from a public
7
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offering in July, 1997. During 1997 and early 1998, the Company attempted to
develop an economic consulting and expert witness business based on the talents
of its then management and a proprietary software program for the analysis of
economic damages. This effort proved unsuccessful.
During the first quarter of 1998, a change in name and control of the
Company took place and was announced, together with several related material
corporate actions. During the second quarter, the Company received informal word
that Empire Financial Corporation desired to rescind its controlling investment
in the Company's convertible preferred stock and also desired to rescind its
assignment to the Company of the contract rights for the acquisition of
PaperDirect, Inc. and Current Social Expressions, businesses that are engaged in
the wholesale distribution of specialty paper and related products and greeting
cards to the United States business community. The Company was amenable to the
rescissions and they became effective July 14, 1998. In that connection, the
Company also announced that it had reacquired its former operating subsidiary,
GEC and rescinded the transaction with Mr. and Mrs. Cory Hofman whereby they had
acquired GEC from the Company for stock and cash.
The Company has moved its executive offices to Overland Park, Kansas in
space provided by the Company's new Chief Executive Officer and sole Director,
Norman Petersen. Further details concerning the rescission of the PaperDirect
and GEC transactions can be found in the Report on Form 8-K filed by the Company
with the Commission on July 20, 1998.
Results of Operations
The Company had no operations in the second quarter of 1998, a time
when it was concentrating its efforts on the PaperDirect and Current Social
Expressions acquisitions, including an abortive private placement of the
Company's common stock. Modest expenses were incurred in the quarter in
accounting costs associated with the aborted private placement. Legal and other
expenses associated with the aborted PaperDirect and Current Social Expressions
acquisitions are expected to be billed during the third quarter and will be
recorded as expenses at that time.
With the reacquisition of its GEC subsidiary, which was the Company's
sole business operation during 1997 and the first quarter of 1998, the Company
expects to return to the general level of operations experienced at that time.
The Company has never experienced a profit from operations to date.
Financial Condition and Liquidity
Total assets at June 30, 1998 were $1.55 million, made up almost
totally of the $1,500,000 investment made in the Company by Empire Financial
Investment LLC., together with the $10,000 cash paid to the Company by Mr. and
Mrs. Hofman for their purchase of GEC. Otherwise, total assets were
substantially the same as at the end of the first quarter. On July 14, 1998, the
Empire's investment in the Company was rescinded and refunded, as was the
Hofmans' purchase of GEC.
8
<PAGE>
Liabilities were cut in half between March 31, 1998 and June 30, 1998,
and remain insignificant. With the reacquisition of its GEC operating
subsidiary, the Company expects to incur additional short-term liabilities.
Stockholders equity at June 30, 1998 remained high, reflecting the
Empire Financial equity purchase. With the rescission of the Empire investment
on July 14, 1998, shareholders equity would be down from the same quarter last
year and from year end as a result of the accumulated losses from operations. As
of June 30, 1998, the Company had accumulated losses of $93,256, which will be
available to be applied against some of the future profits of the Company, if
any, as a shelter against corporate income taxes.
At June 30, 1998, the Company's only asset of value, other than its
cash, was its contract to acquire PaperDirect and Current Social Expressions.
With the rescission of these planned acquisitions and the Company's prior sale
of its GEC subsidiary on July 14, 1998, the Company's only asset will be GEC and
the consulting business that can be done through that entity.
The Company does not have sufficient cash on hand to cover expected
costs of operating the Company during the remainder of 1998. It is likely that
the Company will have to attempt to raise additional equity through one or more
offerings of its common stock unless GEC is able to generate sufficient cash
from its operations to pay such expenses.
Forward Looking Statements
Except for the historical information in this document, the matters
described herein are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
not to place undue reliance on any forward-looking statements, which speak only
as of the date made. The Company advises readers that various risks and
uncertainties could affect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from those
anticipated or projected. These risks and uncertainties include, but are not
limited to, those related to: the economic environment, particularly in the
regions where the Company operates; competitive products and pricing; changes in
prevailing interest rates; fiscal and monetary policies of the U.S. and other
governments; regulations; acquisitions and the integration of acquired
businesses; technology and associated risks; and other risks and uncertainties
affecting the Company's operations and personnel.
The Company specifically disclaims any obligation to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
9
<PAGE>
Part II Other Information
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
During the first quarter, the Company effected a 2-for-1 stock split of
its common stock in the form of a 100% stock dividend paid on March 13, 1998 to
common shareholders of record on March 1, 1998.
Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
No Exhibits
A Form 8-K Report was filed on May 20, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Empire Communications Corporation
/s/ Norman Petersen
Date: 8/12/98 --------------------------
By Norman Petersen
President and Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 263,001
<SECURITIES> 0
<RECEIVABLES> 1,250,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,513,001
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,513,001
<CURRENT-LIABILITIES> 216
<BONDS> 0
0
2,350
<COMMON> 2,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,512,785
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 1,200
<TOTAL-COSTS> 1,200
<OTHER-EXPENSES> 17,406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,964)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,964)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,964)
<EPS-PRIMARY> (0.001)
<EPS-DILUTED> (0.001)
</TABLE>
