U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
For the Quarter Ended September 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)
Registrant's telephone no., including area code: 913-469-1662
-------------------------------------------
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 November 12, 1998 - 3,200,000 shares of
$.001 par value Common Stock.
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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.
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc)
[Development Stage Company]
CONDENSED BALANCE SHEETS
[Unaudited]
ASSETS
September 30, 1998 Dec. 31, 1997
------------------ -------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 3,001 $10,434
Accounts Receivable - 8
Notes Receivable -
Total Current Assets 3,001 10,442
------------ -------
PROPERTY AND EQUIPMENT (NET) - 24,680
OTHER ASSETS:
Deposits - 125
Total Other Assets - 125
--------- ------
TOTAL ASSETS $ 3,001 $35,247
============ =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Sept.30, 1998 Dec. 31, 1997
------------- -------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $16,210 $2,510
Unearned Revenue - 388
Total Current Liabilities 16,210 2,898
---------- -----
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; authorized 50,000,000 shares at 3,200 1,600
$0.001 par value; 3,200,000 shares issued and
outstanding
Additional paid-in Capital 92,841 104,041
Deficit accumulated during the development stage (109,250) (73,292)
Total Stockholders' Equity (13,209) 32,349
TOTAL LIABILITIES & EQUITY $ 3,001 $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 and condensed.
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EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc.)
[Development Stage Companies]
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
For the Three For the Three
Months Ended Months Ended
Sept. 30, 1998 Sept. 30, 1997
-------------- --------------
<S> <C> <C>
REVENUE $0.00 $7,036
Cost of Goods Sold $ - -
Total Revenue $0.00 7,036
----- -----
EXPENSES
General and Administrative Expenses 15,994 $42,165
Depreciation -
Total Expenses $15,994 $42,165
------- -------
INCOME FROM OPERATION
($15,994) ($35,129)
OTHER INCOME:
Loss on sale of asset ($0.00) (858)
Interest income - -
TOTAL OTHER INCOME ($0.00) (858)
NET INCOME/LOSS ($15,994) ($35,987)
NET LOSS PER SHARE ($.004) ($.02)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc. and Subsidiary)
[Development Stage Companies]
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1998 Sept. 30, 1997
-------------- --------------
<S> <C> <C>
REVENUE $13,206 $7,036
Cost of Goods Sold (1,200) -
Total Revenue $12,006 $7,036
------- ------
EXPENSES
General and Administrative Expenses 33,616 $58,089
Depreciation 2,313 -
Total Expenses $35,929 $58,089
------- -------
INCOME FROM OPERATION
($23,923) ($51,053)
OTHER INCOME:
Loss on sale of asset ($12,035) (858)
Interest income - -
TOTAL OTHER INCOME ($12,035) (858)
NET INCOME/LOSS ($35,958) ($51,911)
NET LOSS PER SHARE (.011) (.03)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc.)
[A Development Stage Company]
Consolidated Statements of Stockholders' Equity
Capital In Deficit Accumulated
Common Stock Preferred Excess Of During the
Shares Amount Shares Amount Par Value Development Stage
------ ------ ------ ------ --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
July 31, 1996 -- $ -- -- $ -- $ -- $ --
Common stock issued for cash
at $0.001 per share 1,000,000 $1,000 -- -- -- --
Recapitalization of GEC, Inc. 500,000 500 -- -- 4,141 --
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 -- -- 99,900 --
Net loss for the year ended
December 31, 1997 -- -- -- -- -- (68,275)
BALANCE, 1,600,000 1,600 -- -- 104,041 (73,292)
December 31, 1997
Common stock issued as 2:1
forward split as 100% stock
dividend 1,600,000 1,600 -- -- -- --
Common stock surrendered to
treasury shares pursuant to sale
agreement of GEC, Inc. (1,200,000) (1,200) -- -- -- --
Preferred stock issued for cash
at $0.6382 per share -- -- 2,350,000 2,350 1,497,650 --
Preferred stock surrendered to
treasury share pursuant to
recission resolution (2,350,000) (2,350) (1,497,650) --
</TABLE>
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<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc.)
[A Development Stage Company]
Consolidated Statements of Stockholders' Equity
(Continued)
Capital In Deficit Accumulated
Common Stock Preferred Excess Of During the
Shares Amount Shares Amount Par Value Development Stage
------ ------ ------ ------ --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Common stock reissued pursuant
to recission resolution 1,200,000 1,200 -- -- (11,200) --
Net loss for the period ended
September 30, 1998 -- -- -- -- -- (35,958)
BALANCE,
September 30, 1998 3,200,000 3,200 -- -- 92,841 (102,950)
</TABLE>
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EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc.)
[A Development Stage Company]
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 September 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 engaging in leasing 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 or $1,000. The acquisition of GEC was recorded
as a recapitalization of GEC, whereby GEC was treated as the surviving entity
for accounting purposes. GEC was formed on July 31, 1996 in the State of Idaho.
Accordingly, GEC is also considered a development stage company.
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 is a
wholly-owned subsidiary of Empire Financial Corporation ("EFC"), a Texas-based
merchant banking and investment firm headquartered in Dallas, Texas. Empire
introduced the Company to an opportunity to acquire two subsidiary businesses of
the Deluxe Corporation ("the Paper Direct transaction"). In late May, 1998,
Empire informed the Company that it no longer wished to proceed with the Paper
Direct transaction through the Company, and that it desired a rescission of its
investment in the Company. In connection with the Paper Direct transaction, the
Company had sold all of the outstanding stock of GEC to Cornelius and Stacey
Hofman in return for cancellation of shares in the company and a certain cash
consideration. When the Paper Direct transaction was rescinded with Empire, GEC
was reaquired by the company by a return of all consideration by the Hofmans.
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 carryforward 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
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 the subsidiary was sold to a
company controlled by Cornelius Hofman. Inter-company transactions have been
eliminated.
Revenue Recognition - Revenue will be recognized upon the completion of
consulting and advising services.
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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.
NOTE 3 - RELATED PARTY TRANSACTIONS
None.
NOTE 4 - COMMON STOCK
In October of 1996, the Board of Directors adopted the Litigation Economics,
Inc., 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. The total number
of shares reserved and available for distribution under the Plan shall be
500,000 shares. 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, in connection with the sale of GEC, Mr. and Mrs. Cornelius A.
Hofman II, surrendered 1,200,000 shares of common stock that are now held as
treasury shares.
On March 16, 1998, Empire Financial Investments 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.
On July 15, 1998, pursuant to the rescission resolution, Empire Financial
Investments, LLC surrendered 2,350,000 shares of the Registrant's new Series A
Convertible Preferred Stock to the treasury in exchange for $250,000 in cash the
cancellation of $1,250,000 note receivable owed to the company. Simultaneously,
1,200,000 shares of common stock were reiussed to Mr. and Mrs. Cornelius A.
Hofman II in return for all of the outstanding stock of GEC.
NOTE 5 - SUBSEQUENT EVENTS
None.
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Item 2. Management's Discussion and Analysis
Summary
The Company was incorporated on April 27, 1995. During its first
approximately three years of operations, the Company has generated no
significant revenues and is thus considered a development stage company. The
Company raised funds initially from its founders, and then from a public
offering in July, 1997. In 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 in litigation contexts. During this time period, the Company took the
name Litigation Economics, Inc. to reflect its new business plan.
During the first quarter of 1998, the Company changed its name to
Empire Communications Corporation and sold a controlling equity interest to
Empire Financial Corporation, a Dallas, Texas-based merchant bank, all in
connection with the Company's proposed acquisition and operation of two
businesses then being sold by DeLux Corporation: PaperDirect, Inc. and Current
Social Expressions. The Company worked hard in February, March, April and early
May to complete due diligence on the PaperDirect and Current Social Expressions
acquisitions and to raise new equity funding through a private placement.
Several corporate actions took place in contemplation of the PaperDirect and
Current Social Expressions acquisitions, including the sale of the Company's
GEC, Inc. subsidiary to the Company's then controlling shareholders, Mr. and
Mrs. Cornelius Hofman for a surrender of 1.2 million shares of the Company's
Common Stock and some cash.
Late in the second quarter of 1998, Empire Financial Corporation
indicated its desire to rescind its investment in the Company, and also to
rescind its assignment to the Company of the contract rights for the acquisition
of PaperDirect, Inc. and Current Social Expressions. The Company agreed, and the
Empire Financial investment was unwound, the PaperDirect and Current Social
Expressions acquisition efforts ceased, the new private placement was abandoned,
and Mr. and Mrs. Hofman agreed to sell GEC back to the Company for a return of
the consideration they paid--all during the third quarter of 1998. 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 in July
1998.
The Company is now exploring various business opportunities, and in the
third quarter the Company moved its executive offices to Overland Park, Kansas
in space provided by the Company's new Chief Executive Officer and sole
Director, Norman Petersen.
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Results of Operations
The Company lost ($15,994) during the third quarter of 1998, resulting
in a net loss per share of $0.004. This compares to a net loss of ($35,987)
(($0.02) per share) during the third quarter of 1997 when the Company was
engaged in the economic consulting business. Although the Company earned $7,036
in revenues in the September 1997 third quarter, compared with no earnings in
the 1998 period, higher administrative expenses resulted in the higher loss in
the 1997 quarter.
For the nine months ended September 30, 1998, the Company earned
$12,000 in revenue, compared with $7,036 for the some nine months in 1997. This
higher revenue was the result of the growth in GEC's economic consulting
business, and resulted in a smaller net loss during the first nine months of
1998 ($35,958) than in the same period in 1997 ($51,911). On a per share basis,
the Company lost $0.01 per share for the 1998 period compared to a loss of $0.03
per share for the same period in 1997. A larger number of shares outstanding on
September 30, 1998 accounted for some of the comparative difference.
The Company continues to suffer from the expenses of the abortive
PaperDirect transactions and the several months in 1998 when the Company's
economic consulting business was sold away. This is evidenced by the GEC
subsidiary generating no revenues in the three months ended September 30, 1998.
Substantially all of the expenses booked in the third quarter 1998 were
PaperDirect transaction-related. Management expects that it may take some time
for GEC to get back to earning revenues or for the Company to enter into a new
business enterprise. As a result, Management does not expect the Company to be
profitable in the fourth quarter of 1998.
Financial Condition and Liquidity
Total assets at quarter end were $3,001, compared with $35,247 at
December 31, 1997. This decline in assets reflects the sale of the economic
consulting business in early 1998 and the expenditure of cash on hand to
facilitate the abortive PaperDirect transactions. The increase in liabilities is
a direct result of PaperDirect-related expenses being accrued to accounts
payable.
As a result of assets lost in the sale and repurchase of the economic
consulting business and cash expended in the PaperDirect effort, shareholders
equity in the Company declined to a negative net worth of ($13,209) at September
30, 1998 compared with a positive shareholder equity of $35,247 at December 31,
1997.
The financial condition of the Company is tenuous, and without an
infusion of new capital to pay existing creditors the Company is insolvent and
in danger of an involuntary bankruptcy proceeding. Management is looking for a
source of additional equity or long term debt funding, but no sources have been
located as of the date of this Report. Management intends to consult with the
Company's largest shareholders to determine their desires for the Company on a
going forward basis.
Year 2000 Issues
The Company is aware of the issues facing it and the rest of the world
resulting from the Year 2000 and related computer system problems. The Company
believes that its own information processing computers are new enough to be free
of these problems, but Management has not yet tested the Company's systems to
ascertain the status. The Company is aware that several systems that it uses for
non-information processing may have embedded date-sensitive chips that will
cause malfunction or non function during 1999 or on and after December 31, 1999.
The Company has not made any assessment of these embedded chips. The Company is
also aware that even if its own computers and other systems are Year 2000
compliant, the failure of important third party suppliers of goods and services
to the Company would have a material adverse impact on the Company's ability to
survive. Some of these important third parties are electricity, water, natural
gas and government services to the Company and its surrounding community. The
Company has not made any assessment of the readiness of these important third
party suppliers.
The Company has expended no funds on Year 2000 remediation or
assessment, and does not project any funds to be available for Year 2000
remediation or assessment during the rest of 1999.
The Company has no contingency plans in the event itself or one or more
material suppliers experiences Year 2000 problems.
Forward Looking Statements
Except for the historical information in this document, the matters
described herein, including but not limited to Year 2000 issues, 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.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None.
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
None
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
Date: 11/12/98 By /s/ Norman Peterson
--------------------------
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,001
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,001
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,001
<CURRENT-LIABILITIES> 16,210
<BONDS> 0
0
0
<COMMON> 3,200
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,001
<SALES> 0
<TOTAL-REVENUES> 13,206
<CGS> 1,200
<TOTAL-COSTS> 35,929
<OTHER-EXPENSES> 12,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,958)
<EPS-PRIMARY> (0.011)
<EPS-DILUTED> (0.011)
</TABLE>
