<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 DECEMBER 31, 1996
[ ] 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)
575 ANTON BOULEVARD, SUITE 200, COSTA MESA, CALIFORNIA 92626
-------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 437-0715
--------------------------
(ISSUER'S TELEPHONE NUMBER)
NOT APPLICABLE
------------------------------------------------------------------
(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: 6,190,267
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 December 31,
1996 September 30,
CURRENT ASSETS (Unaudited) 1996
-------------- --------------
<S> <C> <C>
Cash $ 836,035 $ 395
Accounts receivable (no allowance deemed necessary) 30,407 14,582
Inventory, net 31,880 35,324
Note receivable -- 14,000
Mortgage loans receivable 1,825,650 --
------------ ------------
TOTAL CURRENT ASSETS 2,723,972 64,301
PROPERTY AND EQUIPMENT, net 150,193 149,363
RELATED PARTY RECEIVABLE 132,521 129,687
NOTE RECEIVABLE 3,200,000 --
LAND HELD FOR SALE 43,000 843,000
OTHER ASSETS 9,129 4,128
------------ ------------
$ 6,258,815 $ 1,190,479
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 274,307 $ 195,374
Bank overdrafts -- 27,177
Accrued expenses 87,488 48,886
Line of credit 1,825,650 --
Notes payable-current portion 343,526 293,793
Capital lease obligations-current portion 28,828 28,563
------------ ------------
TOTAL CURRENT LIABILITIES 2,559,799 593,783
NOTES PAYABLE, net of current portion 84,997 65,000
CAPITAL LEASE OBLIGATIONS, (net of current portion) 23,123 30,096
------------ ------------
TOTAL LIABILITIES 2,667,919 688,879
SHAREHOLDERS' EQUITY
Common stock, no par value, 30,000,000 shares authorized;
6,190,267 and 5,311,817 shares issued and outstanding,
respectively 5,334,879 3,910,391
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock subscribed (187,875) (200,000)
Retained deficit (1,556,108) (3,208,791)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,590,896 501,600
------------ ------------
$ 6,258,815 $ 1,190,479
============ ============
</TABLE>
2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
December 31,
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
REVENUES
Mortgage loan revenue $ 340,443 $ 103,779
Product sales 8,934 --
------------ -----------
TOTAL REVENUES 349,377 103,779
COST OF SALES 7,872 --
------------ -----------
Gross profit 341,505 103,779
OPERATING EXPENSES
General and administrative 1,859,549 417,641
Depreciation 6,853 1,500
------------ -----------
TOTAL OPERATING EXPENSES 1,866,402 419,141
------------ -----------
LOSS FROM OPERATIONS (1,524,897) (315,362)
OTHER INCOME (EXPENSES)
Interest expense (21,620) (3,920)
Gain on land sale 3,200,000 --
------------ -----------
TOTAL OTHER INCOME (EXPENSE) 3,178,380 (3,920)
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,653,483 (319,282)
Income taxes 800 800
------------ -----------
NET INCOME (LOSS) $ 1,652,683 $ (320,082)
============ ===========
NET INCOME (LOSS) PER COMMON SHARE $ .30 $ (.15)
============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,433,603 2,108,949
============ ===========
</TABLE>
3
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Stock Total
----------------------- ----------------- Subscription Retained Shareholders'
Shares Amounts Shares Amounts Receivable Deficit Equity
--------- ---------- ------ ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 5,311,817 $3,910,391 - $ - $(200,000) $(3,208,791) $ 501,600
Proceeds from sale of shares 77,500 192,500 - - - - 192,500
Shares issued for services 764,825 1,159,738 - - - - 1,159,738
Shares issued for note
receivable 36,125 112,875 - - (112,875) - -
Payments on note receivable - - - - 125,000 - 125,000
Net income - - - - - 1,652,683 1,652,683
--------- ---------- ------ ------ --------- ----------- ----------
Balance, December 31, 1996 6,190,267 $5,334,879 - $ - $(187,875) $(1,556,108) $3,590,896
========= ========== ====== ====== ========= =========== ==========
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------------
1996 1995
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,652,683 $ (320,082)
Adjustments to reconcile net income to net cash
used in operating activities:
Common stock issued for services 1,159,738 116,307
Gain on sale of land (3,200,000) --
Depreciation 6,853 1,500
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (15,825) (1,081)
Mortgage loans receivable (1,825,650) --
Inventory 3,444 --
Net receivable 14,000 --
Prepaid expenses and other assets (5,001) --
Increase in:
Accounts payable 51,756 7,078
Accrued expenses 38,602 66,961
Line of credit 1,825,650 --
------------ ----------
NET CASH USED IN OPERATING ACTIVITIES (293,750) (129,317)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (7,683) (3,103)
Proceeds from sale of land 800,000 --
Loans made on related party receivable (2,834) (11,931)
------------ ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 789,483 (15,034)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 54,000 18,490
Payments under capital lease obligations (6,698) --
Payments on borrowings (24,895) --
Payments on common stock subscribed 125,000 --
Sale of common stock 192,500 100,000
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 339,907 118,490
------------ ----------
NET INCREASE (DECREASE) IN CASH 835,640 (25,861)
CASH, BEGINNING OF PERIOD 395 26,071
------------ ----------
CASH, END OF PERIOD $ 836,035 $ 210
============ ==========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited 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 December 31, 1996 and the result of their
operations and their cash flows for the three months ended December 31,
1996 and 1995, respectively. The financial statements are consolidated to
include the accounts of EMB Corporation and its subsidiary company
(together "the Company").
Certain 1995 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-K 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 December 31,
1995, were adjusted to reflect the effects of the 4:1 reverse stock
split effected fiscal 1996.
NOTE 3. MATERIAL EVENT:
On December 30, 1996 the Company sold the Monterey 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 balance due on December 30, 2006.
NOTE 4. SIGNIFICANT AGREEMENT:
The Company entered into an agreement with a national lender whereby the
lender has extended a $3,000,000 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 to an additional $50,000,000 commitment.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion is intended to assist in an understanding of
the Company's financial position as of December 31, 1996 and December 31, 1995
and the results of its operations for the periods then ended.
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. ("SAG") 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 SAG, with the historical financial information prior to
merger being that of SAG.
There are two primary segments of the mortgage business in which the
activities of the Company will be concentrated, the origination and processing
of residential mortgage loans on a retail basis using a system which the Company
calls Mortgage Approval Xpress, and from the financing of loans both on a retail
basis for loans originated by the Company, and on a wholesale basis for loans
originated by mortgage brokers. Mortgages funded by the Company may be held for
investment, sold to third parties, or securitized and issued as mortgage backed
securities.
Historically, the Company has used capital contributions and loans
from various individuals to fund its operations. To this point, the Company has
not had adequate funds to actually fund mortgages on its own behalf, except
through a warehouse line from Imperial Warehouse Lending Group, Inc.
Management believes its unique approach to originating and processing
residential mortgage loans through the use of its MortgageShare software
distinguishes it from other companies in the industry.
There are no assurances that the Company will be able to obtain a
profitable level of operations.
Results of Operations. The following table sets forth certain
---------------------
operating information of the Company for the three months ended December 31,
1996 and 1995 (unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
Revenues from processing
mortgages and product sales....... $ 340,443 $ 103,779
General and administrative expense.. $1,859,549 $ 417,641
Depreciation........................ $ 6,853 $ 1,500
Net Profit (Loss)................... $1,652,683 $ (320,082)
</TABLE>
7
<PAGE>
Capital Expenditures, Capital Resources and Liquidity. The following
-----------------------------------------------------
summary table presents comparative cash flows of the Company for the three
months ended December 31, 1996 and 1995 (unaudited).
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
Net cash used in operating activities................ $293,750 $129,317
Net cash provided by (used in) investing activities.. $789,483 $(15,034)
Net cash provided by financing activities............ $339,907 $118,490
</TABLE>
Three months ended December 31, 1996 compared with the three months ended
- -------------------------------------------------------------------------
December 31, 1995
- -----------------
Revenues. Revenues increased 237% to $349,377 in the first quarter
--------
ended December 31, 1996 from $103,779 in 1995. Revenues were generated from the
loan process segment, product sales and the sale of real property ($4,000,000).
General and Administrative Expenses. General and administrative
-----------------------------------
expenses increased 345% to $1,859,549 in the three month period ended December
31, 1996, from $417,641 in 1995. This increase can be attributable to stock
issued for services of $1,159,738 and increased activity in the loan processing
segment of the business.
Depreciation. Depreciation increased 357% to $6,853 in the three
------------
month period ended December 31, 1996 from $1,500 in 1995 due to the acquisition
of additional computer equipment.
Net Loss from Operations. The net loss from operations increased 384%
------------------------
to $1,524,897 in the three month period ended December 31, 1996, as compared
with a loss of $315,362 in 1995 due primarily to the stock issued for services
during the three month period ended December 31, 1996.
Capital expenditures. The Company has incurred capital expenditures
--------------------
for equipment and office furniture used in its loan process service. Capital
expenditures during the fiscal quarter ended December 31, 1996 and 1995 totaled
$7,683 and $3,103 respectively.
The Company intends to finance any future capital expenditures by
utilizing capital lease arrangements with various leasing companies.
Capital resources. The Company's capital resources have been provided
-----------------
by capital contributions, loans, and the sale of real property. The Company
intends to raise capital through an offering of its common stock and warrants
which will be used to purchase additional computers and related equipment, to
further develop its software, to expand its marketing activities, and to provide
additional working capital to fund future operations.
Liquidity. Since October 1, 1996, the Company has increased its
---------
liquidity through the sale of its Common Stock and warrants in an offering made
under Regulation D under the Securities Act of 1933, as amended, and by the sale
of real property. The
8
<PAGE>
Company has further extended its liquidity for its mortgage lending operations
through its warehouse line of credit to $3,000,000 with Imperial Warehouse
Lending Group, Inc., a division of Imperial Credit Industries, Inc.
The Company has increased the amount of its outstanding indebtedness
during the fiscal quarter ended December 31, 1996 by approximately $70,000. An
undeveloped property continues to be subject to a deed of trust in the amount of
$65,000.
As of December 31, 1996, the Company has notes payable to unrelated
parties in the total amount of approximately $428,500, including the $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
and from the sale of additional shares of its Common Stock.
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 or are
likely to be subject.
Item 2. Changes in Securities
During the fiscal quarter ended December 31, 1996, the Registrant offered
and sold 113,625 shares of common stock in reliance upon Regulation D under the
Securities Act of 1933 (the "Act"), and issued warrants to purchase 50,000
shares of common stock exercisable during a term of two years at prices ranging
from $2.00 to $3.00 per share. Additionally, the Company issued 739,825 and
25,000 shares under Section 4(2) of the Act and Rule 701, respectively.
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
Not applicable.
Item 5. Other Information.
Not applicable.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
--------
Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 1996.
However, the Registrant filed a report on Form 8-K on January 9, 1997
regarding the sale of its real property in Monterey, 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.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EMB CORPORATION
Date: February 14, 1997 By: /s/ James E. Shipley
------------------------------------------------
James E. Shipley, President
Date: February 14, 1997 By: /s/ B. Joe Wimer
------------------------------------------------
B. Joe Wimer, Secretary, Treasurer and Principal
Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 836,035
<SECURITIES> 0
<RECEIVABLES> 30,407
<ALLOWANCES> 0
<INVENTORY> 31,880
<CURRENT-ASSETS> 2,723,972
<PP&E> 150,193
<DEPRECIATION> 6,853
<TOTAL-ASSETS> 6,258,815
<CURRENT-LIABILITIES> 2,559,799
<BONDS> 0
0
0
<COMMON> 5,334,879
<OTHER-SE> (1,743,980)
<TOTAL-LIABILITY-AND-EQUITY> 6,258,815
<SALES> 349,377
<TOTAL-REVENUES> 349,377
<CGS> 7,872
<TOTAL-COSTS> 7,872
<OTHER-EXPENSES> 1,866,402
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,620
<INCOME-PRETAX> 1,653,483
<INCOME-TAX> 800
<INCOME-CONTINUING> 1,652,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,652,683
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
