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 March 31, 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 or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
10670 N. Central Expressway, Suite 235, Dallas, Texas 75231
(Address of principal executive offices)
Registrant's telephone no., including area code: 214-750-1323
Former name, former address, and former fiscal year, if
changed since last report:
Litigation Economics, Inc.
227 South Ninth Avenue, Pocatello, ID 83201
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 March 31, 1998: 2,000,000 shares(1) of $.001
par value common stock.
______________________
(1) Does not include 2,350,000 shares of Convertible Preferred Stock outstanding
at March 31, 1998.
<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
Mar. 31, 1998 Dec. 31, 1997
------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 263,595 $10,434
Accounts Receivable - 8
Notes Receivable 1,250,000 -
Total Current Assets 1,513,595 10,442
---------- -------
PROPERTY AND EQUIPMENT (NET) - 24,680
OTHER ASSETS:
Deposits - 125
Total Other Assets - 125
- ------
TOTAL ASSETS $1,513,595 $35,247
========== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Mar. 31, 1998 Dec. 31, 1997
------------- -------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $594 $2,510
Unearned Revenue - 388
Total Current Liabilities 594 2,898
---- -----
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock; authorized 5,000,000 shares at
At $0.001 par value; 2,350,000 shares issued and 2,350 -
outstanding
Common stock; authorized 50,000,000 shares at 2,000 1,600
$0.001 par value; 2,000,000 shares issued and
outstanding
Additional paid-in Capital 1,601,691 104,041
Deficit accumulated during the development stage (93,040) (73,292)
Total Stockholders' Equity 1,513,001 32,349
---------- -------
TOTAL LIABILITIES & EQUITY $1,513,595 $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.
2
<PAGE>
<TABLE>
<CAPTION>
EMPIRE COMMUNICATIONS CORPORATION
(Formerly Litigation Economics, Inc. and Subsidiary)
[Development Stage Companies]
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
For the Three For the Three From Inception,
Months Ended Months Ended Apr. 22, 1995 -
March 31, 1998 March 31, 1997 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUE $13,206 $0.00 $32,740
Cost of Goods Sold (1,200) - (1,200)
Total Revenue $12,006 - $31,540
------- -------
EXPENSES
General and Administrative Expenses 17,406 - 106,379
Depreciation 2,313 - 6,060
Total Expenses $19,719 - $112,439
------- --------
INCOME FROM OPERATION
($7,713) - $80,899
OTHER INCOME:
Loss on sale of asset ($12,035) - (12,173)
Interest income - - 32
TOTAL OTHER INCOME ($12,035) - ($12,141)
NET INCOME ($19,748) - ($93,040)
NET LOSS PER SHARE (.001) Nil (.04)
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.)
[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 G.E.C, 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 -- -- (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 quarter ended
March 31, 1998 -- -- -- -- -- (19,748)
BALANCE,
March 31, 1998 2,000,000 2,000 2,350,000 2,350 1,600,091 (93,040)
</TABLE>
4
<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 March 31,
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. On August 22, 1996, the Company acquired all of the outstanding stock
of GEC, Inc., (the Subsidiary) for 1,000,000 shares of the Company's common
stock valued at $.001 per share or $1,000 which represented the capital
contributed to the subsidiary. The acquisition of the Subsidiary was recorded as
a recapitalization of the Subsidiary, whereby the acquired company is treated as
the surviving entity for accounting purposes. The subsidiary was formed on July
31, 1996 in the State of Idaho. The Subsidiary is engaged in the field of
economic advising and consulting and commenced principal business operations as
of June 2, 1997. Accordingly, the subsidiary 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 Registrant'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
controlled subsidiary of Empire Financial Corporation ("EFC"), a Texas-based
merchant banking and investment firm headquartered in Dallas, Texas. EFC is
actively engaged in the acquisition and development of operating companies,
focused on industrial production and commercial distribution businesses.
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.
5
<PAGE>
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 3 - RELATED PARTY TRANSACTIONS
On March 13, 1998, the Board of Directors of the Company approved the assignment
to the Company, and the Company's assumption of, Empire's agreement with Deluxe
Corporation for the acquisition by Empire of two of Deluxe Corporation's
operating businesses: specifically all of the equity securities of Paper Direct,
Inc. and all of the assets of Current Social Expressions, Inc. The Company is
obligated to pay Deluxe Corporation $80,000,000 for these businesses, and the
Company intends to raise this money though a combination of leveraged
acquisition debt, using the assets being acquired as collateral, and new equity
funding, including the $1,500,000 capital infusion from Empire. The Company is
currently developing a private offering of equity securities to complete the
acquisition funding for the PaperDirect/Social Expressions transaction.
Sale of Subsidiary
Also on March 13, 1998, the Shareholders and the Board of Directors of the
Company approved the sale of all of the Company's interest in G.E.C., Inc. to
Cornelius A. Hofman II, the former President and Chief Executive Officer of the
Company, G.E.C., Inc. was the Company's sole operating subsidiary through which
it conducted its historical economic consulting business. This sale was made for
$130,000, being paid $10,000 in cash and $120,000 through the surrender by Mr.
and Mrs. Hofman of 1,200,000 shares of common stock. The shares surrendered by
Mr. and Mrs. Hofman are now held as treasury shares.
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 by
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, pursuant to the sale agreement for G.E.C., Inc., 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.
NOTE 5 - SUBSEQUENT EVENTS
The company is currently raising $10.8 million for the acquisition of
PaperDirect/Social Expressions transaction, which has not been completed as of
May 8, 1998.
6
<PAGE>
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 generated no significant
revenues and is thus considered a development stage company. The Company raised
funds at first from its founders, and then from a public 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.
During the first quarter of 1998, a change in name and control of the
Company took place. Empire Financial Corporation of Dallas, Texas purchased
2,350,000 shares of convertible preferred stock in a private placement on March
16, 1998, and thereby acquired voting and economic control of the Company. The
purchase price for the new convertible preferred stock was $1,500,000,
represented by $250,000 in cash and a promissory note for the balance of the
purchase price. The Company's name was changed to Empire Communications
Corporation, and the Company acquired all of Empire Financial Corporation's
rights to a purchase contract whereby the Company could acquire two businesses
from Deluxe Corporation: PaperDirect, Inc. and Current Social Expressions. These
businesses are engaged in the wholesale distribution of specialty paper and
related products and greeting cards to the United States business community.
In connection with the change of control and name change, a number of
actions were taken. The former President and his wife, majority shareholders of
the Company, (a) sold 1,200,000 shares of their Company stock back to the
Company, to be held as treasury stock, and (b) purchased substantially all of
the assets of the Company in return for this surrender of shares and the payment
of $10,000 in cash. The Company declared a stock dividend of one new share of
common stock for each share owned as of March 1, 1998. This 2-for-1 stock split,
in the form of a 100% stock dividend, was effective on March 13, 1998. Also, the
Company commenced a private offering of common stock to raise up to $10,800,000
in new equity capital for the purpose of facilitating the acquisition of
PaperDirect and Current Social Expressions.
The acquisition of PaperDirect and Current Social Expressions is
expected to take place on May 29, 1998.
Results of Operations
The Company lost $19,748 during the first quarter of 1998, resulting in
a net loss of $0.001 per common share. There were no operations during the first
quarter of 1997 with which to compare the current quarter's performance.
7
<PAGE>
The Company expects to have profitable operations after the closing of
the PaperDirect and Current Social Expressions acquisitions in the second
quarter, although the results for the actual second quarter will be impacted by
acquisition related costs, and the Company may not be profitable for the second
quarter.
Financial Condition and Liquidity
Total assets at quarter end were $1,513,595, which is significantly
higher than at March 31, 1997 or December 31, 1997. The improved asset size is
the result of the new equity subscription from Empire Financial Corporation in
March 1998. The purchase price paid by Empire is reflected in the higher cash
balance and in the note receivable.
Liabilities were significantly reduced for the quarter as a result of
insignificant business operations and the acquisition of the former business of
the Company by its former President during the quarter.
Stockholders equity is higher, reflecting the Empire Financial equity
purchase. Without the Empire investment in the Company, 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 quarter end, the Company had
accumulated losses of $93,040 which will be available to be applied against some
of the future profits of the Company, if any.
The Company's only asset of value, other than its cash, is its contract
to acquire PaperDirect and Current Social Expressions. These business
acquisitions will significantly increase the assets and liabilities of the
Company. For example, the Company anticipates closing on the purchase of
PaperDirect and Current Social Expressions using borrowed funds for
substantially the entire purchase price. This could result in up to $ 80,000,000
of new debt to be recorded in the second quarter as a result of the business
acquisitions. The Company believes that the revenues to be achieved from the new
businesses will be sufficient to pay debt service on the acquisition
indebtedness, and that the pending private offering of the Company's common
stock will also relieve a significant portion of this acquisition debt.
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
8
<PAGE>
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
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
During the first quarter, the Shareholders approved the change in name
to Empire Communications Corporation and also approved the sale of substantially
all of the assets of the Company to its former President. This was done by
written consent as permitted by Nevada law.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Exhibit 3.1 Articles of Amendment to Article of Incorportion
(incorporated by reference form Registrant's Form 8-K
filing on March 28, 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
Date: 5/14/98 By /s/ Louis A. Farris, Jr.,
-----------------------------
President and Chief Executive Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 263,595
<SECURITIES> 0
<RECEIVABLES> 1,250,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,513,595
<PP&E> 0
<DEPRECIATION> 2,313
<TOTAL-ASSETS> 1,513,595
<CURRENT-LIABILITIES> 594
<BONDS> 0
0
2,350
<COMMON> 2,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,513,595
<SALES> 13,206
<TOTAL-REVENUES> 13,206
<CGS> 1,200
<TOTAL-COSTS> 1,200
<OTHER-EXPENSES> (2,035)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,748)
<EPS-PRIMARY> (0.001)
<EPS-DILUTED> (0.001)
</TABLE>
