<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File Number: 1-11883
EMB CORPORATION
---------------
(Name of small business issuer as
specified in its charter)
HAWAII 95-3811580
- --------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3200 BRISTOL STREET, EIGHTH FLOOR, COSTA MESA, CALIFORNIA 92626
----------------------------------------------------------------
(Address of principal executive offices)
(714) 437-0738
--------------------------
(Issuer's telephone number)
575 ANTON BOULEVARD, SUITE 200, COSTA MESA, CALIFORNIA 92626
--------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 6,161,551
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMB Corporation and Subsidiary -- Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS As of As of
March 31, 1997 September 30,
CURRENT ASSETS (Unaudited) 1996
-------------- ------------
<S> <C> <C>
Cash $ 129,645 $ 395
Accounts receivable (no allowance deemed necessary) 17,958 14,582
Inventory, net 31,880 35,324
Notes receivable 100,000 14,000
Mortgage loans receivable 3,105,625 -
----------- -----------
TOTAL CURRENT ASSETS 3,385,108 64,301
PROPERTY AND EQUIPMENT, net 175,182 149,363
RELATED PARTY RECEIVABLE 1,258 129,687
NOTE RECEIVABLE 3,200,000 -
LAND HELD FOR SALE 43,000 843,000
OTHER ASSETS 507,629 4,128
----------- -----------
$ 7,312,177 $ 1,190,479
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 213,393 $ 195,374
Bank overdrafts - 27,177
Accrued expenses 41,637 48,886
Line of credit 3,105,625 -
Notes payable - current portion 246,293 293,793
Capital lease obligations - current portion 14,161 28,553
----------- -----------
TOTAL CURRENT LIABILITIES 3,621,109 593,783
NOTES PAYABLE, net of current portion 22,770 65,000
CAPITAL LEASE OBLIGATIONS, net of current portion 28,000 30,096
DEFERRED GAIN 2,560,000 -
----------- -----------
TOTAL LIABILITIES $ 6,231,879 $ 688,879
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized, no shares
issued or outstanding $ - $ -
Common stock, no par value, 30,000,000 shares
authorized; 5,806,692 and 5,311,817 shares issued
and outstanding, respectively 4,748,579 3,910,391
Common stock subscribed (187,875) (200,000)
Retained deficit (3,480,406) (3,208,791)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,080,298 501,600
----------- -----------
$ 7,312,177 $ 1,190,479
=========== ===========
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the six months For the three months
ended March 31, ended March 31,
------------------- --------------------
1997 1996 1997 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Mortgage loan revenues $1,318,741 $ 121,907 $ 978,309 $ 18,129
Product sales 9,210 276 -
---------- ---------- ---------- ----------
TOTAL REVENUES 1,327,951 121,907 978,585 18,129
COST OF SALES 7,872 - - -
---------- ---------- ---------- ----------
Gross profit 1,320,079 121,907 978,585 18,129
OPERATING EXPENSES
General and administrative 2,200,140 805,230 961,151 376,790
Depreciation 11,853 12,263 5,000 10,763
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 2,211,993 817,493 966,151 387,553
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (891,914) (695,586) 12,434 (369,424)
OTHER INCOME (EXPENSES)
Interest expense (18,101) (24,055) (6,095) (20,135)
Gain on land sale 640,000 - - -
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE) 621,899 (24,055) (6,095) (20,135)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (270,015) (719,641) 6,339 (389,559)
Income taxes 1,600 800 - 800
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (271,615) $ (720,441) $ 6.339 $ (390,359)
========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ (.05) $ (.23) $ - $ (.09)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,605,527 3,128,199 5,806,692 4,158,650
========== ========== ========== ==========
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Preferred Stock Stock Shareholders'
------------------------ ------------------------ Subscription Retained Equity
Shares Amounts Shares Amount Receivable Deficit (Deficit)
--------- ---------- ---------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995 1,644,350 $ 345,250 - $ - $ - $ (565,593) $ (220,343)
Proceeds from sale of
shares 412,707 1,017,914 - - - - 1,017,914
Shares issued for services 836,389 1,279,460 - - - - 1,279,460
Shares issued to founders
for services 893,712 35,749 - - - - 35,749
Shares issued for Monterey
land 200,000 800,000 - - - - 800,000
Shares issued for note
receivable 50,000 200,000 - - (200,000) - -
Shares issued for debt 116,009 232,018 - - - - 232,018
Shares issued for net
assets of Pacific
International, Inc. 1,158,650 - - - - - -
Net loss - - - - - (2,643,198) (2,643,198)
--------- ---------- ---------- ---------- ------------ ----------- -----------
BALANCE, SEPTEMBER 30, 1996 5,311,817 $3,910,391 - $ - $ (200,000) $(3,208,791) $ 501,600
Proceeds from sale of
shares 50,000 137,500 - - - - 137,500
Proceeds from exercise of
warrants 27,500 55,000 - - - - 55,000
Shares issued for services 350,000 537,500 - - - - 537,500
Warrants exercised for
note receivable 36,125 72,250 - - (112,875) - (40,625)
Payments on note receivable - - - - 125,000 - 125,000
Net loss - - - - - (277,954) (277,954)
--------- ---------- ---------- ---------- ------------ ----------- -----------
BALANCE, DECEMBER 31, 1996 5,775,442 $4,712,641 - $ - $ (187,875) $(3,486,745) $ 1,038,021
--------- ---------- ------------ ---------- ------------ ----------- -----------
Warrants exercised 31,250 35,938 - - - - 35,938
Net income - - - - - 6,339 6,339
--------- ---------- ------------ ---------- ------------ ----------- -----------
BALANCE, MARCH 31, 1997 5,806,692 $4,748,579 - $ - $ (187,875) $(3,480,406) $ 1,080,298
========= ========== ============ ========== ============ =========== ===========
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months Six months
ended ended
March 31, March 31,
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (271,615) $(720,441)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 537,500 116,307
Gain on sale of land (640,000) -
Depreciation 11,853 12,263
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (3,376) (21,613)
Mortgage loans receivable (3,105,625) -
Inventory 3,444 (57,798)
Note receivable (86,000) -
Prepaid expenses and other assets 503,501) -
Increase (decrease) in:
Accounts payable 18,019 50,103
Accrued expenses (34,425) 109,925
Line of credit 3,105,625 -
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (968,101) (511,254)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (37,673) ( 37,199)
Proceeds from sale of land 800,000 -
Loans made on related party receivable 128,429 (264,221)
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 890,756 (301,420)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 54,000 698,958
Payments under capital lease obligations (16,488) (11,000)
Proceeds from exercise of warrants 35,938 -
Payments on borrowings (184,355) -
Payments on common stock subscribed 125,000 -
Sale of common stock 192,500 100,000
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 206,595 787,958
------------ -----------
NET INCREASE (DECREASE) IN CASH 129,250 (24,716)
CASH, BEGINNING OF PERIOD 395 26,071
------------ -----------
CASH, END OF PERIOD $ 129,645 $ 1,355
============ ===========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying financial statements
contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the balance sheet of EMB
Corporation and subsidiary as of March 31, 1997, and the results of
their operations and their cash flows for the six months ended March 31,
1997 and 1996, respectively. The financial statements are consolidated
to include the accounts of EMB Corporation and its subsidiary company
(together "the Company").
Certain 1996 amounts have been reclassified to conform to current period
presentation. These reclassifications have no effect on previously
reported net income.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements as stated in its report on Form
10-KSB for the fiscal year ended September 30, 1996.
NOTE 2. INCOME (LOSS) PER COMMON SHARE:
Income (loss) per common share is based on the weighted average number
of common shares outstanding during the period. No material dilution of
earnings per share would result for the periods if it were assumed that
all outstanding warrants were exercised.
The income (loss) per common share computations, and the weighted
average common shares outstanding, for the three month period ended
March 31, 1996, were adjusted to reflect the effects of the 4:1 reverse
stock split subsequently effected during fiscal 1996.
NOTE 3. MATERIAL EVENT:
On December 30, 1996, the Company sold its undeveloped Monterey,
California land (which had been held for sale) to an unrelated third-
party for $4,000,000. The Company received $800,000 cash and a note
receivable for $3,200,000. The note receivable is secured by the
property, bears interest at 12% per annum, and calls for nine annual
installments of principal and interest of $422,867 commencing December
30, 1997, with the balanced due on December 30, 2006. This transaction
was accounted for consistent with Statement of Financial Accounting
Standards No. 66, and applied the installment method for recognition of
gain on the sale.
NOTE 4. SIGNIFICANT AGREEMENT:
The Company entered into an agreement with a national lender whereby the
lender has extended a $3,500,000 warehouse line of credit to the Company
solely for the purpose of funding residential mortgage loans.
Additionally, the lender has executed a master commitment to purchase
$50,000,000 of jumbo and conforming residential mortgages from the
Company, with an option for an additional $50,000,000 commitment.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
GENERAL
The Company, formerly called "Pacific International, Inc.", a Hawaii
corporation, was incorporated in 1960, and was originally organized to acquire
and manage developed and undeveloped real estate. However, the Company had not
conducted significant operations for a number of years until it agreed to
acquire substantially all of the assets and assume certain liabilities of
Sterling Alliance Group, Ltd. in December, 1995. Subsequently, the Company
changed its name to EMB Corporation to reflect the change in the purpose and
nature of its business. For accounting purposes, this was treated as a
recapitalization of the Selling Stockholder, with the historical financial
information prior to merger being that of the Selling Stockholder.
The principal business of the Company is the origination and processing
of residential mortgage loans using a service which the Company calls Video
InteractiveMortgage Process ("VIP"). Mortgages originated and/or purchased by
the Company have been resold primarily to ICI Funding Corporation, a division of
Imperial Credit Industries, Inc.; although mortgages in the future may be held
for investment, sold to third parties, or securitized and issued as mortgage
backed securities. See "Capital Resources" and "Liquidity", below.
LOAN ORIGINATIONS AND PURCHASES
The Company increased its mortgage loan volume from $10,436,740 during
the three month period ended March 31, 1996, to $56,609,743 for the three month
period ended March 31, 1997, representing an increase of 542%. Mortgage volume
increased 728% to $101,789,905 during the six month period ended March 31, 1997,
from $13,981,976 during the six month period ended March 31, 1996. This increase
in mortgage loan volume appears to be continuing primarily due to the expansion
of the Company's marketing activities.
RESULTS OF OPERATIONS
The following table sets forth certain operating information regarding
the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- -----------------------------
1997 1996 1997 1996
--------- --------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Mortgage loan revenues................. $ 978,309 $ 18,129 $ 1,318,741 $ 121,907
Product sales revenues................. $ 276 $ -- $ 9,210 $ --
General and administrative expenses.... $ 961,151 $ 376,790 $ 2,220,140 $ 805,230
Depreciation........................... $ 5,000 $ 10,763 $ 11,853 $ 12,263
Interest expense....................... $( 6,095) $( 20,135) $( 18,101) $( 24,055)
Gain on sale of land................... $ -- $ -- $ 640,000 $ --
Net income (loss)...................... $ 6,339 $( 390,359) $( 271,615) $( 720,441)
Net income (loss) per share............ $ -- $ (.09) $ (.05) $ (.23)
</TABLE>
7
<PAGE>
Three months ended March 31, 1997 compared with three months ended March 31,
- ----------------------------------------------------------------------------
1996
- ----
REVENUES. Mortgage loan revenues increased 5,396% to $978,309 in the
three month period ended March 31, 1997, from $18,129 in 1996. Revenues were
generated primarily from loan processing and resale of mortgage loans. No real
estate was sold during either fiscal quarter. The increase in revenues was
attributable to the expansion of the Company's marketing activities, and an
increase in mortgage lending in California.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 255% to $961,151 in the three month period ended March 31, 1997 from
$376,790 in 1996. This increase is principally attributable to increased
activity in its mortgage loan processing business, an increase in employees, and
the costs of establishing additional mortgage loan offices.
DEPRECIATION. Depreciation decreased 46% to $5,000 in the three month
period ended March 31, 1997, from $10,763 in the three months ended March 31,
1996.
RESULTS OF OPERATIONS. Net income was $6,339 during the three month
period ended March 31, 1997, as compared with a loss of $(390,359) during the
same period of 1996, due primarily to the increase in mortgage loan revenues.
Six months ended March 31, 1997 compared with six months ended March 31, 1996
- -----------------------------------------------------------------------------
REVENUES. Revenues increased 1,089% in the six month period ended March
31, 1997, to $1,327,951 from $121,907 during the same period of 1996. This
increase is attributable to the expansion and growth of the mortgage lending
business of the Company.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 273% to $2,200,140 during the six month period ended March 31, 1997,
from $805,230 in the same period of 1996, due to increases in the number of
employees of the Company, compensation to consultants paid in Common Stock of
the Company, and the opening of additional mortgage loan offices of the Company.
DEPRECIATION. Depreciation decreased 3.3% to $11,853 in the six month
period ended March 31, 1997, from $12,263 in the six month period ended March
31, 1996.
NET LOSS FROM OPERATIONS. The net loss from operations increased 78% to
$891,914 in the six month period ended March 31, 1997, from $695,586 in the six
month period ended March 31, 1996. This increase was due primarily to the costs
of expanding the marketing activities of the Company, including the
establishment of additional mortgage loan offices in Florida, Nevada and Texas.
8
<PAGE>
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
The following summary table (unaudited) presents comparative cash flows of
the Company for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net cash used in operating activities................... $ (968,101) $ (511,254)
Net cash used in investing activities................... $ 890,756 $ (301,420)
Net cash provided by financing activities............... $ 206,595 $ 787,958
</TABLE>
CAPITAL EXPENDITURES. The Company has incurred capital expenditures for
equipment and office furniture used in its mortgage loan business. Capital
expenditures during the three month period ended March 31, 1997 and 1996 totaled
$29,990 and $34,096, respectively. During the six month periods ended March 31,
1997 and 1996, capital expenditures totaled $37,673 and $37,199, respectively.
LIQUIDITY AND CAPITAL RESOURCES. The Company's capital resources have
historically been provided by cash from operations, by the sale of its Common
Stock and warrants and by short term loans.
The Company intends to raise additional capital through an offering of its
Common Stock and warrants to fund mortgage loans and to provide additional
working capital to fund future operations, although no specific plans or
commitments presently exist to pursue an offering of its securities.
At March 31, 1997, the Company had current assets of $3,385,108 and current
liabilities of $3,621,879, resulting in a working capital deficit of $(236,001),
as compared to a working capital deficit of $(192,232) at March 31, 1996.
Working capital decreased by $43,769.
Net cash used in operating activities decreased to $(968,101) for the six
months ended March 31, 1997, from $(511,254) for the six months ended March 31,
1996, or a difference of $456,847. The decrease in net cash used in operating
activities was primarily attributable to the increase of other assets.
The Company has recently completed the opening of four (4) regional
offices, located in Las Vegas, Nevada; Houston, Texas; Daytona Beach, Florida
and Ft. Lauderdale, Florida. The offices in Ft. Lauderdale and Las Vegas were
acquired from James Financial Services Corp.
The warehouse line of credit is available for the funding of loans which
will be sold not only to ICI Funding Corporation, but also to other investors,
including Resource Bancshares Mortgage Group. During the time period following
funding of a loan, but prior to resale of the loan, the Company realizes either
interest income or expense depending upon the note rate for the underlying
mortgage vis a vis the interest rate on the warehouse line of credit, i.e.,
presently, prime + 1/2%.
9
<PAGE>
The Company has reduced the amount of its outstanding indebtedness during
the six month period ended March 31, 1997. An undeveloped property continues to
be subject to a deed of trust in the amount of $65,000. However, the notes to
related parties payable of $407,528 at September 30, 1996, have been paid in
full, and other notes have been reduced by cash payments of $90,250 and by
issuance of 465,000 shares of the Common Stock of the Company, valued at $1.75
per share, to a noteholder.
As of March 31, 1997, the Company has notes payable to unrelated parties in
the total amount of approximately $269,063, including a $65,000 deed of trust
amount on its undeveloped land. The Company believes that this remaining
indebtedness will be paid primarily from its cash flow from operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no known pending or threatened legal proceedings to which the
Registrant is, or likely to be, a party or of which any of its assets are likely
to be subject.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Registrant has only one class of its securities that is issued and
outstanding which is its Common Stock, no par value.
The Registrant has an authorized class of preferred stock, however, no
shares of preferred stock are issued or outstanding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 21, 1997, the Registrant held its Annual Meeting of Shareholders.
At that meeting the shareholders voted as follows:
(a) Election of Directors
<TABLE>
<CAPTION>
Nominee Vote For Vote Against Abstain(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph K. Brick 4,408,911 12,500 6,124
Bruce J. Brosky 4,408,911 12,500 6,124
Malcolm K. Crist 4,408,911 12,500 6,124
Rory P. Hughes 4,408,646 12,765 6,124
William V. Perry 4,408,911 12,500 6,124
Ann L. Petersen 4,408,911 12,500 6,124
Michael P. Roth 4,408,911 12,500 6,124
James E. Shipley 4,408,521 12,890 6,124
B. Joe Wimer 4,408,646 12,765 6,124
</TABLE>
- --------------------
(1) All abstentions were broker non-votes
10
<PAGE>
(b) Amendment to increase the member of authorized shares of Common Stock
in the Registrant's 1996 Stock Option, SAR and Stock Bonus Plan to
1,250,000 shares:
Vote For: 4,026,561
Vote Against: 37,762
Abstain/Non-Vote: 363,212
(c) Approval of Harlan & Boettger as Independent Accountants:
Vote For: 4,412,473
Vote Against: 13,500
Abstain/Non-Vote: 1,562
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
Exhibit 10(e) Master Commitment to Purchase Jumbo and Conforming
Residential Mortgages dated January 1, 1997
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
On January 9, 1997, the Registrant filed a report on Form 8-K regarding the
sale of its real property in Monterey County, California, for $4,000,000 to
Holdfast Holdings, Ltd. The purchase price of $4,000,000 was paid by the payment
of an $800,000 down payment and an installment land contract for $3,200,000 with
annual payments amortized over 20 years, due and payable in 10 years. The
effective date of the sale was December 30, 1996.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMB CORPORATION
Date: May 21, 1997 By: /s/ William V. Perry
-----------------------------------------
William V. Perry, Vice President
Date: May 21, 1997 By: /s/ B. Joe Wimer
-----------------------------------------
B. Joe Wimer, Secretary, Treasurer and
Principal Accounting Officer
<PAGE>
EXHIBIT 10(E)
ICI FUNDING CORPORATION LETTERHEAD
Commitment No. 3539
Seller No. 000600013
January 24, 1997
Ms. Rory Hughes
President
ELECTRONIC MORTGAGE BANC, LTD.
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
RE: MASTER COMMITMENT TO PURCHASE JUMBO AND CONFORMING RESIDENTIAL MORTGAGES
Dear Ms. Hughes:
ICI FUNDING CORPORATION, a subsidiary of IMPERIAL CREDIT MORTGAGE HOLDINGS,
INC., hereinafter referred to as "Buyer", hereby commits to purchase/fund from
ELECTRONIC MORTGAGE BANC, LTD. hereinafter referred to as "Seller" first trust
deed mortgage loan(s) pursuant to the terms and conditions set forth herein and
the ICI Sellers Guide, the PROGRESSIVE SERIES, PROGRESSIVE EXPRESS AND ADVANTAGE
SERIES Guide (Guides) as amended from time to time, and the ICIFC Sale
Agreement. Seller is bound by all conditions of the Guides and Sale Agreement or
under a separate written agreement. By executing this Commitment, Buyer hereby
agrees to purchase, and Seller hereby agrees to sell those certain Loan(s),
subject to terms and conditions of this Commitment.
1. AMOUNT OF COMMITMENT: Buyer will offer Seller $50,000,000 commitment
---------------------
in exchange for 30,000 shares of Seller's non restricted stock at a
price of $2.00.
2. TERM OF COMMITMENT: This is a nine month (9), optional delivery,
-------------------
Master Commitment. The Commitment expiration date will be October 31,
1997 or upon the fulfillment of the amount of commitment, whichever
occurs first. All loans must be committed and delivered to Buyer in
purchasable form prior to expiration of this Commitment.
3. COMMITMENT FEE: An up front commitment fee of one-eighth of one
---------------
percent (.125%) will be waived by Buyer in exchange for 30,000 shares
of Seller's non restricted stock at a price of $2.00 (assuming the
stock currently trades at $4.00).
3a. OPTIONAL COMMITMENT: Buyer will also offer Seller an option to an
--------------------
additional $50,000,000 forward commitment with an expiration date of
July 31, 1998, for an additional 30,000 shares at a price of $2.00 to
be delivered to Buyer at the time of exercising the option. The option
must be exercised by September, 1997.
13
<PAGE>
3b. OPTIONAL COMMITMENT FEE: If Seller elects to exercise the option of
------------------------
$50,000,000 commitment, an additional 30,000 shares of Seller's non
restricted stock at a price of $2.00 should be delivered to Buyer at
the time of exercising the option.
4. ELIGIBLE PRODUCT TYPES: Seller may sell and Buyer will purchase
-----------------------
mortgage products pursuant to the terms of the Guide(s), the following
types of mortgage loans:
. Progressive Series (including Super Select) loan programs;
. Progressive Advantages Series;
. Progressive Express program, Retail Originations only-See
attached Guidelines.
Each product offers the following type of mortgage loan:
. 30 year fully amortizing fixed rate;
. 15 year fully amortizing fixed rate;
. 6 month LIBOR semi-annually adjusting ARMs with 1/6 Caps;
. 2 year fixed Rollover to 6 month LIBOR semi-annually adjusting
ARMS;
5. UNDERWRITING GUIDELINES: Except as set forth herein, including the
------------------------
attached conditions, loan documentation and underwriting must be in
compliance with the Guide(s). Any exception to the guidelines not
specified within this commitment, must be approved by Buyer prior to
the delivery of the loan for purchase. Program parameters and pricing
parameters are subject to change.
6. PRIOR UNDERWRITING APPROVAL BY BUYER: Seller may submit loans to Buyer
-------------------------------------
for prior approval. Loans that are rejected by Buyer are ineligible
for purchase. If a loan has been rejected by any other conduit, Seller
must notify Buyer of reason for rejection at the time of loan
submission. Prior underwriting is required by Buyer on loan as
parameters stated in the attached Exhibit "B".
Regardless of the underwriting delegation given herein as shown in
Exhibit B, Buyer will require prior underwriting for the following:
. Any loans with exceptions to the Guideline(s);
. Cash reserves less than required by Guideline(s);
. Non-ARMs length transactions (as define in ICIFC's Underwriting
Guideline);
. Credit history and delinquent credit outside of program
guidelines;
. 2 years employment not in the same line of work;
7. DELEGATED UNDERWRITING: Seller is delegated as per attached Exhibit B.
-----------------------
All loans not delegated as per attached must be prior approved by
Buyer or contract Services as described below. Buyer will have the
right to terminate all or any portion of the delegation given to the
Seller providing Buyer notify Seller in writing stating a termination
date of such delegation.
14
<PAGE>
8. PRIOR APPROVAL BY CONTRACT SERVICES: Seller may select prior
------------------------------------
underwriting by Contract Service Underwriting (acceptable to Buyer)
for Progressive Series (Select) as stated in Exhibit B. Loans rejected
by another conduit or Buyer will not be eligible for Contract Service
Underwriting.
Acceptable Mortgage Insurance Contract Services:
. CMAC
. UGI
. PMI
. GE
. RMIC
Unacceptable Mortgage Insurance Contract Services
. MGIC
9. PURCHASE PRICE: The purchase price will be based on the posted rates
---------------
and prices, plus any pricing adjustments on Knight Ridder screens 7271
through 7289 for the applicable loan program being locked in. For all
FIXED RATE PROGRESSIVE SERIES, SMART AND PROGRESSIVE EXPRESS loans,
the screen price will be increased by one-half of one percent (0.50%)
at a time of rate lock in. For all FIXED RATED ADVANTAGE SERIES loans,
the screen price will be increased by five-eighths of one percent
(0.625%) at time of rate lock in. FOR ALL ADJUSTABLE LOANS DESCRIBED
HEREIN, THE SCREEN PRICE WILL ALSO BE INCREASED BY ONE-EIGHTH OF ONE
PERCENT (.125%) AT TIME OF RATE LOCK IN.
10. LOCK-IN PROCEDURES: Seller will reference this Master Commitment
-------------------
number and specify the preferred pricing parameters at time of
commitment, and follow the standard Guide requirements for best
efforts lock-in. Bulk lock-ins are allowed for a minimum of $500,000
and are considered mandatory delivery, plus or minus two percent (2%).
11. PRIVATE MORTGAGE INSURANCE: All Progressive loans with balances
---------------------------
exceeding the lesser of 80.01% of the purchase price or the appraised
value shall be insured by a mortgage insurance company acceptable to
Buyer. Said mortgage insurance coverage shall be in a form acceptable
to Buyer and must reduce exposure to at least seventy-five (75%)
percent of the original value on Progressive products. For loans
originated under Progressive Express, refer to Underwriting Guidelines
attached for specific mortgage insurance coverage and companies. The
Progressive Guide provides for a "Lenders Option" (no MI option) for
Progressive product, with additional cost to Seller (see applicable KR
screen for pricing).
12. DELIVERY RESTRICTIONS: Property types and program percentages are
----------------------
unrestricted except for the PROGRESSIVE program which will be subject
to delivery limitations set forth below.
15
<PAGE>
PROGRESSIVE DELIVERY PERCENTAGE LIMITATIONS
-------------------------------------------
. LTV LIMITATIONS: Allow a maximum of 30% of the aggregate amount of
all Progressive delivered to exceed 80% LTV to a maximum of 95%
LTV, with mortgages greater than 90% LTV not to exceed 20% of the
Commitment amount;
. REDUCED DOC: Not to exceed 40% of the aggregate amount of all
Progressive delivered;
. NEW AND SECOND HOME: Not to exceed 15% of the aggregate amount of
all Progressive delivered;
. LOANS GREATER THAN $650,000: Not to exceed 20% of the aggregate
amount of all Progressive delivered;
. 2-4 UNIT PROPERTIES: Not to exceed 5% of the aggregate amount of
all Progressive delivered;
. NO INCOME/NO ASSET: Not to exceed 20% of the Commitment amount;
. 100% FINANCING: Not to exceed 5% of the Commitment amount;
. 80% NO RATIO: Not to exceed 15% of the Commitment amount;
. PROGRESSIVE EXPRESS: NOT EXCEED 50% OF THE TOTAL COMMITMENT
AMOUNT;
. PROGRESSIVE EXPRESS GEOGRAPHIC LIMITATION: NOT MORE THAN 40% OF
THIS COMMITMENT MAY CONSIST OF LOANS LOCATED IN CALIFORNIA.
13. SERVICING: Loans shall be sold in their entirety to Buyer, with
----------
servicing rights of such loans released to Buyer upon purchase. All
servicing rights of loans purchased according to this Commitment shall
be included with this purchase and shall be considered transferred and
owned by Buyer as of the date of funding of each loan purchase and
Seller shall have no further rights or claims of any type as of the
date of each loan purchase.
All servicing activities, records, funds and including, but not limited
to, any escrow and buydown balances, all funds held for the benefit of
these loans, and insurance records shall be transferred to Buyer on the
date of purchase. The cost for establishing new tax service contracts
will be at Seller's expense.
14. PAIR-OFF: Once loans are locked in for block commitments, a pair-off
---------
fee of one eighth of one percent (.125%), plus any market movement, will
be assessed on the difference, if any, between the Commitment amount
(minus delivery tolerance) and the actual amount delivered. Seller will
remit payment to Buyer for the amount of the pair-off fee within ten
910) days from the expiration date of the commitment.
15. SALES AND FUNDING: Funding will occur within seventy two (72) hours of
------------------
delivery, provided Seller delivers all required documents and
outstanding conditions, in addition to, the original promissory notes
evidencing the loans to be purchased, duly endorsed in favor of Buyer,
prior to the purchase date. Seller shall furnish copies of the
assignment of deed of trust or mortgage, in addition to other documents
outlined in the Guide.
16
<PAGE>
EXHIBIT 10(E)
In addition to any applicable pricing adjustments poste don applicable
Knight Ridder screens the following additional fees will be charged on all
loans purchased by Buyer:
Tax Service Fee - $55.00 or prevailing TransAmerica rate;
Administrative Fee - $125.00 per loan;
Prior Underwriting Fee - $75.00;
16. GEOGRAPHICAL RESTRICTIONS: Unless other stated, mortgages secured by
--------------------------
properties located in the continental United States and Hawaii, Alabama are
eligible for purchase.
17. WARRANTIES AND REPRESENTATIONS: Seller, to induce Buyer to fund loans,
-------------------------------
warrants, represents and covenants to Buyer that in connection with each
loan transaction:
Warranties within this agreement shall survive the transfer to and purchase
by Buyer and shall be deemed to successors and assigns. No waiver of any
default or breach by Seller shall be implied from any omission by Buyer or
its assigns to take any action on account of such default if such default
continues or is repeated. No written waiver shall affect any breach other
than the breach specified in such waiver and only to the extent therein
expressly stated. Any failure or delay by Buyer or its assigns in
exercising any rights, power, or remedy hereunder shall not be deemed a
waiver thereof.
17a. PROGRESSIVE EXPRESS SELLER'S CERTIFICATION: Seller makes the following
-------------------------------------------
certification to induce Buyer to commit to the purchase of Progressive
Express loans.
. The loan terms furnished in Progressive Express Application are true,
accurate, and complete.
. The information contained in Progressive Express Application was
obtained directly from the borrower by a full-time employee of Seller
or its duly authorized agent.
. The credit report submitted on the subject borrower, co-borrower, if
applicable, was ordered by Seller or its duly authorized agent
directly from the credit bureau which prepared the report was received
directly from said credit bureau.
18. INDEMNIFICATION: Without limiting any of Buyer's rights contained in this
----------------
agreement, Seller shall indemnify, defend and hold Buyer, its successors
and assigns, and its officers agents, and employees harmless including
judgments, court costs, and actual credit reporting agency costs, and
attorney fees related to any breach of Seller warranty, representation, or
covenant contained in this agreement. This indemnification shall survive
the terms of this agreement for all loan closed until the sooner of: (a)
written release by Buyer and any successor or assign; (b) payoff of the
loan; or (c) the lapse of any applicable statute of limitation.
17
<PAGE>
19. MODIFICATION, WAVIER OR AMENDMENT: No modification or waiver of or
----------------------------------
amendment to any of the terms of this Commitment shall be effective unless
it is in writing signed by all parties hereto.
20. ASSIGNMENT: This Commitment is only assignable by Buyer. This Commitment
-----------
is not intended to benefit any third party. Buyer may only assign this
Commitment to a party who has the ability to perform all of Buyer's
obligations under this Commitment.
21. APPLICABLE LAW: The Commitment shall be governed by and construed under the
---------------
laws of the State of California, to the jurisdiction of whose courts the
parties hereby agree to submit.
22. ENFORCEMENT: In the event of any action by Buyer or Seller to enforce this
------------
Commitment, the prevailing party shall be entitled to receive, in addition
to all other relief, the costs thereof including, without limitation,
attorney's fees and court costs.
23. ENTIRE AGREEMENT: This Commitment and any agreement, document or instrument
-----------------
attached hereto or referenced herein integrates all of the terms and
conditions mentioned herein or incidental hereto, and supersedes all oral
negotiations and prior writings regarding the subject matter hereof.
24. NOTICES: Buyer and Seller mutually agree that each of them will immediately
--------
upon demand by the other party, execute such documents or perform such acts
as may be required by such party to perform their objectives under this
agreement; and refusal to cooperate and execute documents or perform acts
required by this agreement shall be considered a material breach hereof and
shall suspend the performance of non-breaching party full and complete
performance of the breaching party.
All notices, requests, demands or other communications that are to be given
under this contract shall be in writing, addressed to the appropriate
parties and sent postage prepaid to the address below:
If to Buyer: ICI Funding Corporation
20371 Irvine Ave., Bldg. A
Santa Ana Heights, CA 92707
ATTN: Mary Glass
If to Seller: ELECTRONIC MORTGAGE BANC, LTD.
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
ATTN: Rory Hughes
25. SEVERABILITY: Whenever possible, each provision of this Commitment shall be
-------------
interpreted in such manner as to be valid and effective under applicable
law, but if any such provision shall be ineffective to the extent of such
prohibition or invalidity
18
<PAGE>
without invalidating the remainder of such provision or the remaining
provisions of the Commitment.
26. HEADINGS: The headings used herein are used for convenience only, are not
---------
part hereof and shall not be used in construing this Commitment.
27. COUNTERPARTS: This Commitment may be execute in any number of counterparts
-------------
and all such counterparts taken together shall be deemed to constitute on
and the same instrument.
28. FINANCIAL CONDITION: Prior to, or concurrent with the execution of this
--------------------
Commitment, Seller agrees to submit a recent audited financial statement.
Unless otherwise waived by Buyer, Seller must have a minimum audited net
worth of at least $1,000,000 in order to deliver loans under this
Commitment.
If the terms and conditions of the Commitment are acceptable to Seller, please
execute the acceptance where indicated on this Commitment and return one copy of
the signed agreement. A signed copy hereof singed by Seller must be received by
Buyer or its authorized representative along with the contract for stock option
mentioned din paragraph 3 within five (5) business days of receipt by Seller.
The individuals executing this Commitment by their signatures do hereby certify
that are duly authorized to execute this document on behalf of the parties they
represent.
-------------------------------------------
By: Frank Matorano
Senior Vice President
ICI FUNDING CORPORATION
/s/ Mary Glass
-------------------------------------------
By: Mary C. Glass
Senior Vice President
ICI FUNDING CORPORATION
We hereby acknowledge and accept all of the terms and conditions of this
Commitment for the sale of the Loans described herein:
Date: 1/29/97
--------------
/s/Joseph K. Brick
-------------------------------------------
By: Joseph K. Brick
President
ELECTRONIC MORTGAGE BANC, LTD.
<PAGE>
EXHIBIT 10(E)
ICI FUNDING CORPORATION LETTERHEAD
(A) Commitment No. MA3539
Seller No. 000600013
FIRST AMENDMENT
May 2, 1997
Mr. _______________
President
ELECTRONIC MORTGAGE BANC, LTD.
575 Anton Blvd., Suite 200
Costa Mesa, CA 92626
RE: FIRST AMENDMENT TO FORWARD COMMITMENT TO PURCHASE PROGRESSIVE SERIES,
PROGRESSIVE EXPRESS AND ADVANTAGE SERIES PROGRAM
Dear Mr. Hughes:
ICI FUNDING CORPORATION, a subsidiary of IMPERIAL CREDIT MORTGAGE HOLDINGS,
INC., hereinafter referred to as "Buyer", hereby commits to purchase/fund from
ELECTRONIC MORTGAGE BANC, LTD., hereinafter referred to as "Seller", first and
second trust deed mortgage loans pursuant to the terms and conditions set forth
herein and the ICI Sellers Guide, the PROGRESSIVE SERIES, PROGRESSIVE EXPRESS
AND ADVANTAGE SERIES Guide (Guides) and Sales Agreement. By executing this
Amendment, Buyer hereby agrees to purchase, and Seller hereby agrees to sell
those certain Loan(s), subject to terms and conditions of this commitment which
is amended in the following manner:
COMMITMENT NO. MA3539 WILL BE AMENDED AS FOLLOWS:
9. PURCHASE PRICE: The purchase price will be based on the posted rates
---------------
and prices, plus any pricing adjustments on Knight Ridder screens 7271
through 7289 for the applicable loan program being locked in. For the
following loan programs, the screen price will be increased at time of rate
lock-in:
. SIX-MONTH ARM LOANS - FIVE-EIGHTS OF ONE PERCENT (.625%); (all
programs)
ALL OTHER TERMS OF THE ORIGINAL COMMITMENT WILL REMAIN UNCHANGED.
If the terms and conditions of the Amendment are acceptable to Seller, please
execute the acceptance where indicated on this Amendment and return one copy of
the signed Amendment. Such copy
20
<PAGE>
EXHIBIT 10(E)
hereof, signed by Seller must be received by Buyer within 3 business days of
receipt of this Amendment, otherwise this Amendment may be rendered null and
void.
The individuals executing this Commitment by their signatures do hereby certify
that are duly authorized to execute this document on behalf of the parties they
represent.
/s/ Mary Glass
-----------------------------------------------
By: Mary C. Glass
Senior Vice President
ICI FUNDING CORPORATION
-----------------------------------------------
By: James W. Dickinson
Vice President
ICI FUNDING CORPORATION
We hereby acknowledge and accept all of the terms and conditions of this
Commitment for the sale of the Loans described herein:
Date:
-----------------------------------------------
/s/ B. Joe Wimer
----------------------------------------------------
By: B. Joe Wimer
Secretary
ELECTRONIC MORTGAGE BANC, LTD.
now known as EMB Mortgage Corporation
21
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