United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 2004 0-50218
EMPS RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
UTAH
(State or other jurisdiction of incorporation or organization
87-0669131
(I.R.S. Employer Identification No.)
875 Donnor Way, Unit 705, Salt Lake City, Utah 84108
(Address of principal executive offices)
(801) 582-1881
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None.
Securities registered pursuant to section 12(g) of the Exchange Act:
Common, $0.001 par value
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. (1) Yes [X ] No [ ]
As of November 10, 2004, the issuer had 3,300,000 shares of its $0.001 par value
common stock outstanding.
INDEX
EMPS Research Corporation
Form 10-QSB
For The Quarter Ending September 30, 2004
Part I. Financial Information Page
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited) - September 30, 2004
and December 31, 2003 3
Condensed Statements of Operations (Unaudited)
For the Three and Nine Months Ended September 30, 2004
and 2003, and for the Cumulative Period from
January 31, 2001 (Date of Inception) through
September 30, 2004 4
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2004 and 2003,
and for the Cumulative Period from January 31, 2001
(Date of Inception) through September 30, 2004 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation 9
Item 3. Controls and Procedures 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
(a) Exhibits
31. Certification of the President, Chief Executive
Officer and Chief Financial Officer
32. Certificate of the President, Chief Executive
Officer and Chief Financial Officer pursuant
to 18 U.S.C.ss.1350
(b) Reports on Form 8-K
Signatures 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EMPS RESEARCH CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2004 2003
----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 5,137 $ 22,531
Due from related party - -
----------------------------------------------------------------------------------------------------------------------
Total Current Assets 5,137 22,531
----------------------------------------------------------------------------------------------------------------------
Other Assets
Patents and deferred patent costs, net of amortization
of $745 and $590 1,891 2,046
----------------------------------------------------------------------------------------------------------------------
Total Other Assets 1,891 2,046
----------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,028 $ 24,577
----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,476 $ 2,413
Franchise tax payable - 100
Deferred revenue 4,588 9,190
----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 8,064 11,703
----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock; $0.001 par value, 50,000,000
shares authorized, 3,300,000 and 3,300,000 shares
issued and outstanding respectively 3,300 3,300
Additional paid-in capital 224,503 33,845
Deficit accumulated during the development stage (228,839) (24,271)
----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity (1,036) 12,874
----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 7,028 $ 24,577
======================================================================================================================
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
EMPS RESEARCH CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the
Cumulative
Period from
For the Three Months Ended For the Nine Months Ended January 31, 2001
September 30, September 30, (Date of Inception)
------------------------------- ------------------------------- through
2004 2003 2004 2003 September 30, 2004
-----------------------------------------------------------------------------------------------------------------------
Revenue $ - $ - $ - $ - $ -
-----------------------------------------------------------------------------------------------------------------------
Expenses
General and administrative 2,606 5,771 204,413 11,340 228,052
Amortization 52 51 155 154 745
-----------------------------------------------------------------------------------------------------------------------
Total Expenses 2,658 5,822 204,568 11,494 228,797
-----------------------------------------------------------------------------------------------------------------------
Net Loss From Operations (2,658) (5,822) (204,568) (11,494) (228,797)
Other Income (Expense)
Grant revenue 3,642 - 4,603 57 146,725
Grant expense (3,642) - (4,603) (57) (146,725)
Interest expense - - - - (42)
-----------------------------------------------------------------------------------------------------------------------
Total Other Expense - - - - (42)
-----------------------------------------------------------------------------------------------------------------------
Net Loss $ (2,658) $ (5,822) $ (204,568) $ (11,494) $ (228,839)
=======================================================================================================================
Basic and Diluted Loss Per Share $ (0.00) $ (0.00) $ (0.06) $ (0.00)
===================================================================================================
Weighted Average Common
Shares Outstanding 3,300,000 3,300,000 3,300,000 3,300,000
===================================================================================================
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
EMPS RESEARCH CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the
Cumulative
Period from
For the Nine Months Ended January 31, 2001
September 30, (Date of Inception)
------------------------------ through
2004 2003 September 30, 2004
--------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Cash from grant $ - $ - $ 151,312
Cash paid for grant expenses (3,061) (2,625) (145,183)
Cash paid for interest - - (42)
Cash paid for non-grant expense (14,333) (6,798) (33,050)
------------------------------------------------------------------------------------------------
Cash Used in Operating Activities (17,394) (9,423) (26,963)
------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from sale of common stock - - 32,100
------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities - - 32,100
------------------------------------------------------------------------------------------------
Net Change in Cash (17,394) (9,423) 5,137
Cash at the Beginning of the Period 22,531 34,437 -
------------------------------------------------------------------------------------------------
Cash at End of the Period $ 5,137 $ 25,014 $ 5,137
================================================================================================
Reconciliation of Net Loss to Cash
Used in Operating Activities
------------------------------------------------------------------------------------------------
Net Loss $ (204,568) $ (11,494) $ (228,839)
Adjustments to reconcile net loss to
cash used in operating activities:
Options granted for services 190,658 - 190,658
Amortization of patent costs 155 154 745
Organization costs paid by issuance
of common stock - - 264
Impairment of patent - - 2,145
Change in assets and liabilities:
Prepaid assets - 1,106 -
Due from related party - - -
Accounts payable 1,063 968 3,476
Franchise tax payable (100) (100) -
Deferred revenue (4,602) (57) 4,588
------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities $ (17,394) $ (9,423) $ (26,963)
================================================================================================
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
EMPS RESEARCH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Condensed Interim Financial Statements - The accompanying unaudited condensed
financial statements of EMPS Research Corporation ("the Company") are condensed
and, therefore, do not include all disclosures normally required by accounting
principles generally accepted in the United States of America. These statements
should be read in conjunction with the Company's most recent annual financial
statements for the years ended December 31, 2003 and 2002, included in the form
10-KSB filed with the United States Securities and Exchange Commission on March
30, 2004. In particular, the Company's significant accounting principles were
presented as Note 1 to the Financial Statements in that report. In the opinion
of management, all adjustments necessary for a fair presentation have been
included in the accompanying condensed financial statements and consist of only
normal recurring adjustments. The results of operations presented in the
accompanying condensed financial statements are not necessarily indicative of
the results that may be expected for the full year ending December 31, 2004.
Basis of Presentation - EMPS Research Corporation was organized under the laws
of the State of Utah on January 31, 2001. EMPS Corporation, the Company's former
parent, formed the Company by giving cash and patented technology in exchange
for all of the issued and outstanding shares of EMPS Research Corporation. The
accompanying financial statements include only the accounts of EMPS Research
Corporation and are not presented on a consolidated basis with EMPS Corporation
which was its Parent Company. Effective May 23, 2003, EMPS Research Corporation
was spun-off from EMPS Corporation. The 3,000,000 shares of the Company's common
stock owned by EMPS Corporation were distributed to shareholders of EMPS
Corporation and at that date the Company was no longer a subsidiary of EMPS
Corporation. Certificates for the spin-off were issued July 31, 2003.
Stock-Based Compensation - On March 12, 2003 the Company adopted a stock-based
employee compensation plan. The Company will account for the options using the
intrinsic value method in accordance with APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Employee stock options
have not been granted nor have any employee stock awards occurred; therefore, no
employee stock-based compensation has been recognized in the accompanying
financial statements nor would there have been any employee stock-based
compensation using the fair value method to value grants and awards.
The Company accounts for its stock-based compensation issued to non-employees
using the fair value method in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation. Under SFAS No. 123, stock-based compensation is
determined as the fair value of the equity instruments issued. The measurement
date for these issuances is the earlier of the date at which a commitment for
performance by the recipient to earn the equity instruments is reached or the
date at which the recipient's performance is complete. Stock-based compensation
to non-employees totaled $190,658 through September 30, 2004.
Basic and Diluted Loss Per Share - Basic and diluted loss per share is computed
by dividing net loss by the weighted-average number of common shares outstanding
during the period. At September 30, 2004, there were outstanding stock
6
EMPS RESEARCH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2004
equivalents to purchase 2,000,000 shares of common stock that were not included
in the computation of basic and diluted loss per share as their effect would
have been anti-dilutive, thereby decreasing the net loss per common share.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company is receiving free office space through a related party. The value of
the free rent to date has been of nominal value.
On February 16, 2004 the Company issued 1,000,000 options to purchase common
shares to a current shareholder for services provided to the Company more fully
described in Note 4.
NOTE 3 - DEPARTMENT OF ENERGY AWARD
The Department of Energy (DOE), through its Office of Industrial Technologies
(OIT) 2000 Inventions and Innovation (I&I) Program awarded a grant to the
Company during 2001. The Company's application was titled "Development of a
High-Frequency Eddy-Current Separator". The grant was approved in the amount of
$199,000.
The grant is a DOE small business grant and thus the Company has no financial
obligation to DOE under the award. The Company is not required to compensate DOE
upon successful (or unsuccessful) commercialization of a prototype (such as for
royalties or commissions). Prior to entering into the award as a small business
concern, the Company had the option to identify technical data that was
proprietary and to elect to retain title to this proprietary data. In so doing
this election, the unlimited right to such technical data by DOE was voided per
DOE regulations. Per DOE regulations if the Company has a "subject invention"
related to work done under the award it can obtain unlimited rights to the
technical data for the "subject invention" and has license to use the invention
only for government use, not commercial use. Even so, if proper application and
reporting is done for the "subject invention" the Company can retain title to
the "subject invention" and the above rights to DOE to use the invention or
technical data is void. Management intends to perform the proper reporting and
application process to retain title to any "subject invention" that may arise,
if any, during the course of the award.
The original project period for the grant was from February 1, 2001 to January
31, 2003 but has been extended to June 30, 2005. Research assistance to be
conducted under the grant has been subcontracted to outside entities. To further
the project, the Company retained Dr. Mark J. Hagmann of Deseret Electronics
Research Corp ("DERC") during June 2004. The Company expects DERC to quantify
the range of current and frequency that must be produced for a newly designed
high-frequency amplifier. During the three months ended September 30, 2004 the
Company incurred grant expenses in the amount of $3,642. Total grant expenses
from inception through September 30, 2004 were $146,725.
NOTE 4 - STOCK OPTION PLAN
On March 12, 2003, the Board of Directors approved the EMPS Research Corporation
2003 Stock Option Plan (the "Plan"), which allows for the grant of up to
5,000,000 incentive stock options or nonqualified stock options. The exercise
7
EMPS RESEARCH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2004
price of the incentive stock options granted under the Plan will be determined
by the Stock Option Committee of the Board of Directors at the time of grant and
may not be less than 100% of the fair value of the stock. The exercise price of
an incentive stock option granted to a 10% shareholder shall not be less than
110% of the fair market value of the stock. Expiration and vesting terms of
options will be determined at the time of the grant.
On February 16, 2004 the Company issued two non-qualified options to purchase an
aggregate of 2,000,000 common shares at an exercise price of $0.10 per share.
The options, which expire on February 16, 2009, were issued to an outside
consultant and to a current shareholder for services. The options cannot be
exercised until the Company acquires assets with a fair market value of at least
$2,000,000. The exercise price on the grant date was determined by the Board of
Directors and is equal to the cash price of the Company's most recent sale of
common shares and the value for which the Company agreed to sell shares to
Techgrand Company Limited, a Hong Kong limited company in the private equity
credit agreement described in Note 5.
The Company valued the issuance of options to purchase 2,000,000 common shares
at $190,658, or approximately $0.09 per share, with the related expense charged
to operations. The Company estimated the value of the options granted on the
date granted using the Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 3.06%, expected
dividend yield of 0.0%, expected life of 5 years and expected volatility of
175%. The expense is recognized during the first quarter of 2004, the period the
options were granted.
NOTE 5 - PRIVATE EQUITY CREDIT AGREEMENT
On November 12, 2003, the Company entered into a Private Equity Credit Agreement
with Techgrand Company Limited, a Hong Kong limited company ("Techgrand"), a
current shareholder. Techgrand has agreed to provide the Company with an equity
credit line of up to $470,000. Pursuant to the Agreement, the Company can
require Techgrand to purchase restricted common shares of the Company in
increments of $75,000 to $100,000, up to a total of $470,000 worth of restricted
Company common stock at the greater of $0.10 per share or 85% of the prevailing
market price as defined in the Agreement. The Company intends to use these funds
for operational expenses and to further its business activities. No funds have
been advanced and no shares of the Company's common stock have been issued under
this Agreement.
8
Item 2. Managements Discussion and Analysis or Plan of Operations
Forward Looking Information and Cautionary Statement
Certain statements in this quarterly report may be deemed to be
forward-looking statements. Forward-looking statements regarding economic
conditions, effects of corporate initiatives, future profitability, projections,
future revenue opportunities, and their impact on the Company are
forward-looking statements and not historical facts. These statements are
estimates or projections involving numerous risks or uncertainties, including
but not limited to, consumer demand, acceptance of products and services offered
by the Company, successful research and development activities, the Company's
ability to control expenses, actions by competitors, changes in market needs and
technology, political or regulatory matters, litigation, general economic
conditions and changes in management strategy.
Actual results or events could differ materially from those discussed
in the forward-looking statements. See our annual report on Form 10-KSB as filed
with the Securities and Exchange Commission for further information. We disclaim
any obligation to publicly update, revise or correct any forward-looking
statements, whether as a result of new information, future events or otherwise.
The information contained in this analysis should be read in
conjunction with the financial statements contained herein and related
disclosures.
Overview
EMPS Research Corporation (the "Company") was incorporated under the
laws of the state of Utah on January 31, 2001, for the purpose of researching
and developing commercial applications for patented technology for a high
frequency eddy current separator that may be used to separate nonmagnetic
particulate materials from other materials without chemicals, heat or water. The
patented technology was originally acquired by the Company's former parent
company, EMPS Corporation, a Nevada corporation, from Particle Separation
Technologies, L.C., a Utah limited liability company. The Company is in the
development stage.
The Company's business activity is focused on continuing research and
development efforts to develop and test prototype equipment derived from the
patents. The Company has primarily funded its research and development
activities from a research grant awarded to the Company from the Department of
Energy's Office of Industrial Technologies 2000 Inventions and Innovation
program. The Company received $199,000 the research grant in January of 2001. As
of September 30, 2004, the Company had spent approximately $146,700 of the
grant.
The Company continues to investigate other technologies and
opportunities, particularly in the Republic of Kazakhstan, where the Company's
current technology was invented.
Plan of Operations
On or about January 16, 2001, the Company received a research grant in
the amount of $199,000 from the Department of Energy ("DOE"), through its Office
of Industrial Technologies 2000 Inventions and Innovation ("I&I") program for
use in developing an HFECS prototype. The Company recently received approval to
extend the grant period through June 2005. The DOE has informed the Company that
no additional extensions of time will be granted.
Until recently, Altaire Systems had been assisting the Company in
designing, fabricating and assembling the prototype HFECS. Much of the design,
fabrication and assembly of the initial prototype has been completed and the
Company had hoped to have a completed initial prototype from Altaire Systems for
testing during the second quarter of 2004. Based on work completed up through
9
the second quarter 2004, however, the Company and Altaire Systems determined the
need to reconfigure the drive system to better suit the needs of the Company's
planned target market. The Company has retained the services of Dr. Mark J.
Hagmann of Deseret Electronics Research Corp ("DERC") to design, test and
provide specifications for the reconfigured drive system. The Company hopes to
have a fully functional initial prototype by year-end 2004. The funds to pay
Altaire Systems and DERC have and will come from the I&I grant money.
As the majority of the remaining I&I grant funds will now be used to
change the configuration of the HFECS, the Company will seek an industry partner
willing to cost share in the testing and final development of the HFECS.
As of September 30, 2004, the Company had spent approximately $146,700
of the I&I grant money. The Company expects that most of the remaining
approximately $52,300 I&I grant money will be paid to DERC and Altaire Systems
to finish development of the prototype.
The Company does not plan to market or manufacture the HFECS. Rather,
it plans to research, develop and test the prototype. If and when testing proves
to be successful, the Company will seek to license the technology for marketing
and manufacture. The Company expects that the prototype will work in smaller
commercial settings.
The Company intends to pursue market and exploit the commercial
applications of this technology through licensing agreements with independent
third parties. To date, however, the Company has made limited contacts with
outside sources and no firm commitments or license arrangements are in place.
In November 2003, the Company entered into a Private Equity Credit
Agreement whereby Techgrand Company Limited, a Hong Kong limited company has
agreed to provide the Company an Equity Credit Line of up to $470,000 in
exchange for common shares of the Company at the greater of $0.10 per share or
85% of the prevailing market price as defined in the Agreement. The Company
believes it can satisfy its current cash requirements for the next twelve months
from the remaining proceeds of the I&I grant and from funds provided under the
Private Equity Credit Agreement with Techgrand. As of September 30, 2004, the
Company has not used the Equity Credit Line.
In addition, the Company has been invited by the DOE to make
application for the DOE NICE(3) grant in conjunction with the Utah Engineering
Experiment Station at the University of Utah and the University's industry
partners in Utah. The NICE(3) grant is a cost sharing program for projects that
develop and demonstrate advances in energy efficient and clean production
technologies. To date the Company has not actively pursued this grant because it
has been unsuccessful in finding an industry partner. The Company continues to
seek an industry partner, and when an appropriate partner is found, the Company
intends to make application for the NICE3 grant.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have conducted an evaluation
of the Company's disclosure controls and procedures (as defined in Rule
13A-15(e) under the Securities Exchange Act of 1934 ("Exchange Act") as of the
end of the period covered by this quarterly report (the "Evaluation Date").
Based on their evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in its Exchange Act reports is recorded,
processed, summarized and reported within the applicable periods specified by
the SEC's rules and forms.
(b) Changes in Internal Controls and Procedures. During the period
covered by this quarterly report, there were no changes in the Company's
internal control over financial reporting (as defined in Rule 13a-15) or 15d-15
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company's internal controls over financial reporting.
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
None.
(B) Exhibits. The following exhibits are included as part of this
report:
Exhibit No. Exhibit
----------- -------
Exhibit 31.1 Certification of Principal Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Principal Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Principal Executive Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Principal Financial Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
EMPS Research Corporation
November 15, 2004 By: /s/ Timur Kunayev
----------------------------
Timur Kunayev,
Principal Executive Officer
November 15, 2004 By: /s/ James Gunnell
----------------------------
James Gunnell,
Principal Financial Officer
12