<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] 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
---------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS
SPECIFIED IN ITS CHARTER
HAWAII 95-3811580
------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3200 BRISTOL STREET, EIGHTH FLOOR, COSTA MESA, CALIFORNIA 92626
----------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 437-0738
--------------------------
(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 ANKRUPTCY
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: 9,750,942
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
<PAGE>
ITEM 1. FINANCIAL STATEMENTS *
EMB CORPORATION AND SUBSIDIARIES - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS As of As of
March 31, 1998 September 30
CURRENT ASSETS (Unaudited) 1997
----------------- -----------------
<S> <C> <C>
Cash $ 826,457 $ 61,409
Restricted Cash - 34,000
Accounts Receivable (net of allowance of $17,958 134,123 8,890
and $17,958, respectively)
Mortgage Loans Held For Sale 14,368,574 7,092,238
Notes Receivable - officers 247,600 227,600
Current Portion Of Notes Receivable 335,001 165,574
Prepaid Expenses And Other 752,089 218,441
----------------- -----------------
TOTAL CURRENT ASSETS 16,663,844 7,808,152
PROPERTY AND EQUIPMENT, net 827,282 462,992
NOTE RECEIVABLE, LESS CURRENT PORTION 3,161,133 3,161,133
RELATED PARTY RECEIVABLE 590,786 166,212
LAND HELD FOR SALE 357,879 43,000
INTANGIBLE ASSETS, NET 118,379 105,885
OTHER ASSETS 3,217,769 1,275,210
================= =================
$ 24,937,072 $ 13,022,584
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 945,962 $ 539,488
Warehouse line of credit 14,528,738 7,029,738
Accrued Expenses 978,508 170,743
Notes Payable - current portion 326,211 227,487
Capital lease obligations - current portion 38,748 24,467
Other current liabilities 758,163 -
----------------- -----------------
TOTAL CURRENT LIABILITIES 17,576,330 7,991,923
RELATED PARTY PAYABLE 439,898 130,405
NOTES PAYABLE, net of current portion 490,000 17,154
CAPITAL LEASE OBLIGATIONS, net of current portion 116,244 3,361
DEFERRED GAIN 3,161,133 3,200,000
----------------- -----------------
TOTAL LIABILITIES 21,783,605 11,342,843
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized,
675,000 and 648,648 issued or outstanding, respectively 1,359,000 1,009,000
Common stock, no par value, 30,000,000 shares authorized;
9,750,942 and 7,535,942 shares issued and outstanding,
respectively 10,830,587 6,955,482
Common stock to be issued 160,875
Common stock subscribed (net of allowance of $100,000
and $187,875, respectively) (100,000) (100,000)
Retained deficit (8,936,120) (6,345,616)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 3,153,467 1,679,741
----------------- -----------------
$ 24,937,072 $ 13,022,584
================= =================
</TABLE>
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months For the three months
ended March 31 ended March 31
-------------------------- --------------------------
1998 1997 1998 1997
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
REVENUES
Mortgage loan revenues $ 4,046,944 $ 902,451 $ 2,866,501 $ 553,085
Product sales -- -- -- --
----------- ----------- ----------- -----------
TOTAL REVENUES 4,046,944 902,451 2,866,501 553,085
COST OF SALES 2,201,893 -- 1,725,211 --
----------- ----------- ----------- -----------
Gross Profit 1,845,051 902,451 1,141,290 553,085
OPERATING EXPENSES
General and Administrative 4,774,680 2,208,012 3,203,568 961,151
Depreciation 46,575 11,853 26,950 5,000
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 4,821,255 2,219,865 3,230,518 966,151
INCOME (LOSS) FROM OPERATIONS (2,976,204) (1,317,414) (2,089,228) (413,066)
OTHER INCOME (EXPENSE)
Interest income 424,187 -- 39,329 --
Interest expense (77,354) (18,101) (77,354) (6,095)
Gain on land sale 38,867 -- -- --
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 385,700 (18,101) (38,025) (6,095)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (2,590,504) (1,335,515) (2,127,253) (419,161)
Income Taxes 1,600 --
NET INCOME (LOSS) $(2,590,504) $(1,337,115) $(2,127,253) $ (419,161)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (0.31) $ (0.23) $ (0.23) $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 8,455,365 5,709,361 9,218,831 6,024,053
=========== =========== =========== ===========
</TABLE>
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
March 31, March 31,
1998 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,590,504) $(1,337,115)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 1,773,866 537,500
Note payable issued for commitment fees 25,500
Gain on sale of land
Depreciation and amortization 46,575 11,853
Changes in operating assests and liabilities:
(Increase) decrease in:
Accounts receivable (125,233) (3,376)
Mortgage loans receivable (7,276,336) (3,105,625)
Inventory 3,444
Note receivable (189,427) (86,000)
Related party receivable (424,574)
Prepaid expenses and other assets (2,476,207) (103,501)
Land held for sale (314,879)
Increase (decrease) in:
Accounts payable 406,474 18,019
Accrued expenses 807,765 (34,425)
Related party payable 309,493
Other liabilities 719,296
---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (9,333,691) (4,073,726)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (376,784) (37,673)
Proceeds from sale of land 800,000
Proceeds from sale of rights
Loans made on related property receivable 128,429
---------------- ----------------
NET CASH PRVIDED BY (USED IN) INVESTING ACTIVITIES (376,784) 890,756
---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from warehouse line of credit 7,499,000 3,105,625
Net proceeds from issuance of notes payable 735,359 54,000
Net proceeds (payments) under capital lease obligations 127,164 (16,488)
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
Sale of preferred stock 350,000
Common stock issued in subsidiary acquisitions 1,730,000
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,441,523 3,312,220
---------------- ----------------
NET INCREASE (DECREASE) IN CASH 731,048 129,250
CASH, BEGINNING OF PERIOD 95,409 395
---------------- ----------------
CASH, END OF PERIOD $ 826,457 $ 129,645
================ ================
</TABLE>
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR SIX MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Common Common Total
Common Stock Stock Stock Stock to Retained Shareholders
Shares Amounts Shares Amounts Subscribed be Issued Deficit Equity
------------ ------- --------- ---------- ---------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 7,535,942 $6,955,482 648,648 $1,009,000 ($100,000) $160,875 $(6,345,616) $1,679,741
Shares issued for services 1,215,000 2,145,105 -- -- -- (160,875) -- 1,984,230
Shares issued for acquisition
of Preferred Financial
Services, Inc. 100,000 191,000 -- -- -- -- -- 191,000
Shares issued for acquisition
of American Teleconferencing
Services, Inc. 500,000 855,000 -- -- -- -- -- 855,000
Shares issued for acquisition
of Investment Consultants,
Inc. (Equityline) 400,000 684,000 -- -- -- -- -- 684,000
Proceeds from sale of Series B
Preferred stock -- -- 675,000 350,000 -- -- -- 350,000
Cancellation of Series A
preferred Stock -- -- (486,486) -- -- -- -- --
Net Loss -- -- -- -- -- -- (2,590,504) (2,590,504)
BALANCE, MARCH 31, 1998 9,750,942 $10,830,587 837,162 $1,359,000 ($100,000) -0- $(8,936,120) $3,153,467
</TABLE>
<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 subsidiaries as of March 31, 1998, and the results of
their operations and their cash flows for the six months ended March 31,
1998 and 1997, respectively. The financial statements are consolidated
to include the accounts of EMB Corporation and its subsidiary companies
(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 A
to the Company's financial statements as stated in its report on Form
10-KSB for the fiscal year ended September 30, 1997.
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.
NOTE 3. MATERIAL EVENT:
Not applicable.
NOTE 4. SIGNIFICANT AGREEMENT:
In 1996, the Company entered into an agreement with a national lender
whereby the lender extended a $3,000,000 warehouse line of credit to the
Company solely for the purpose of funding residential mortgage loans. In
February 1998 this agreement was revised to provide for a $10,000,000
warehouse line of credit. In September and October, 1997, such lender
executed three (3) master commitments to purchase a total of
$150,000,000 of jumbo and conforming residential first and second
mortgages from the Company. As of December 31, 1997, the Company had
funded in excess of $100,000,000 against its master commitment and was
negotiating for a new, larger master commitment. Following the
fulfillment of the foregoing master commitments, on March 2, 1998, the
Company entered into a new master commitment for the purchase by such
lender of $500,000,000 of jumbo and conforming residential first and
second mortgages from the Company.
NOTE 5. The increase in assets attributable to "Land held for sale" and "Related
party receivable" resulted primarily from the acquisition of the Stock
of Investment Consultants, Inc., dba Equityline Financial Services, of
Denver, Colorado.
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, was originally organized to acquire and
manage developed and undeveloped real estate and had not conducted significant
operations for a number of years until, in December, 1995, it agreed to acquire
substantially all of the assets and assume certain liabilities of Sterling
Alliance Group, Ltd., a Colorado corporation ("SAG"). Following the close of
such transaction, the Company changed its name to EMB Corporation to reflect the
change in the purpose and nature of its business. For accounting purposes, such
transaction was treated as a recapitalization of SAG, with the historical
financial information prior to merger being that of SAG.
The principal business of the Company is the origination and processing
of residential mortgage loans using a service which the Company calls Video
Interactive Mortgage Process ("VIP"). Mortgages originated and/or purchased by
the Company have been resold primarily to Impac Funding Corporation, formerly
ICI Funding Corporation; although mortgages in the future may be held for
investment, sold to other third parties, or securitized and issued as mortgage
backed securities. See "Capital Resources" and "Liquidity", below.
<PAGE>
LOAN ORIGINATIONS AND PURCHASES
The Company increased its funded mortgage loan volume to $182,599,396
during the six-month period ended March 31, 1998, as compared to $31,824,360 for
the six-month period ended March 31, 1997, representing an increase of 473%. The
primary causes of such increase in mortgage loan volume were the expansion of
the Company's marketing activities and the opening of new offices in Denver,
Colorado and Dallas, Texas. The Denver operations resulted from the acquisition
of all of the stock of Investment Consultants, Inc., dba Equityline, Financial
Services, in December 1997. The Dallas operations resulted from the purchase of
the Dallas office of Deposit Guaranty Mortgage Corporation in January 1998.
RESULTS OF OPERATIONS
The following table sets forth certain operating information regarding
the Company:
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- -----------
(unaudited)
Mortgage loan revenues............................ $ 2,866,501 $ 553,085
Cost of sales..................................... 1,725,211 --
General and administrative expenses............... 3,203,568 961,151
Depreciation...................................... 26,950 5,000
Interest, net..................................... (38,025) (6,095)
Gain on sale of land.............................. -- --
Net income (loss)................................. (2,127,253) (419,161)
Net income (loss) per share....................... (0.23) (.07)
Three-months ended March 31,1998 compared with three-months ended March 31,1997
REVENUES. Mortgage loan revenues, net of commitment fees, increased
418% to $2,866,501 in the three-month period ended March 31, 1998, from $553,085
in 1997. Revenues were generated primarily from loan processing and resale of
mortgage loans. The increase in revenues was attributable to the expansion of
the Company's marketing activities outside the State of California as a result
of the opening of offices in Denver, Colorado and Dallas, Texas.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 233% to $3,203,568 in the three-month period ended March 31, 1998 from
$961,151 in 1997. This increase is principally attributable to increased
activity in the Company's mortgage loan processing business, an increase in its
employees, and the costs of the newly acquired Denver and Dallas offices. In
addition, the Company incurred significant expenses relative to both short-term
and longer term consulting agreements with outside marketing and other advisors.
It is anticipated that a significant portion of these expenses will be of a
non-recurring nature.
DEPRECIATION. Depreciation increased 439% to $26,950 in the three-month
period ended March 31,1998, from $5,000 in the three-months ended March 31,
1997. The increase in depreciation resulted from the additional expenditures for
office equipment and office furniture for expansion of the Company's mortgage
operation.
RESULTS OF OPERATIONS. The net loss was $2,127,253 during the
three-month period ended March 31, 1998, as compared with a loss of $419,161
during the same period of 1997, due primarily to the opening of offices in
Dallas, Texas and Denver, Colorado, an investment in new software and hardware
technology, and consulting fees paid to outside marketing and other advisors.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
The following summary table (unaudited) presents comparative cash
flows of the Company for the periods indicated.
<PAGE>
SIX MONTHS ENDED
MARCH, 31
-------------------------------
1998 1997
-------------- -------------
Net cash used in operating activities....... $ ( 9,333,691) $ (4,073,726)
Net cash used in investing activities....... $ (376,784) $ 890,756
Net cash provided by financing activities... $ 10,441,523 $ 3,312,220
CAPITAL EXPENDITURES. The Company has incurred capital expenditures for
office equipment, office furniture and other fixed assets used primarily in its
mortgage loan business. Capital expenditures during the six-month periods ended
March 31,1998 and 1997 totaled $423,359 and $49,526, 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, Preferred Stock and warrants and by short-term loans.
The Company intends to raise additional capital through an offering of
its Common Stock, Preferred 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 any offering of its
securities.
At March 31, 1998, the Company had current assets of $16,663,844 and
current liabilities of $17,576,330, resulting in a working capital deficit of
$912,486, as compared to a working capital deficit of $183,772 at March 31,
1997. Working capital decreased by $728,714.
Net cash used in operating activities decreased to $(9,333,691) for the
three months ended March 31, 1998, from $(4,073,726) for the six-months ended
March 31, 1997, or a difference of $5,259,965. The decrease in net cash used in
operating activities was primarily attributable to the increase of mortgage
loans receivable and other assets.
On December 23, 1997, the Company acquired all of the outstanding stock
Investment Consultants, Inc., d/b/a Equityline, Inc, ("Equityline"). Equityline
operates as a mortgage banking firm, specializing in home equity and second
mortgage loans. It operates out of an office located in Denver, Colorado.
The warehouse line of credit is available for the funding of loans which
the Company expects will be sold not only to Impac Funding Corporation, formerly
ICI Funding Corporation, but also to other investors, including: Resource
Bancshares Mortgage Group, Source One Mortgage (formerly doing business as The
Mortgage Authority) and others. 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%.
The Company has increased the amount of its outstanding indebtedness to
$21,783,605 from $l1,342,843 during the six-month period ended March 31, 1998,
an increase of $ 10,440,762. Undeveloped properties are subject to deeds of
trust in the amount of $379,878. Notes to related parties payable of $130,405
at September 30, 1997, increased to $439,898 at March 31, 1998, as a result of
the Equityline acquisition.
As of March 31, 1998, the Company has a long-term note payable to an
unrelated party in the amount of $490,000. The Company believes that this and
other remaining indebtedness will be paid primarily from its cash flow from
operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings or other legal developments occurred
during the period.
ITEM 2. CHANGES IN SECURITIES
Effective November 1,1997, the Company entered into a Stock Purchase
Agreement with the sole stockholder of Preferred Holding Group, Incorporated
("PHG"), Colorado corporation, to purchase all of the issued and outstanding
capital stock of PHG in exchange for 100,000 shares of the Common Stock of the
Company in reliance upon Section 4(2) of the Securities Act of 1933. In
November 1997, the name of Preferred Holding Group, Incorporated, was changed to
EMB Financial Services, Inc.
Effective December 23, 1997, the Company entered into a Stock Purchase
Agreement with the two stockholders of Investment Consultants, Inc. ("ICI"), a
Colorado corporation (d/b/a Equityline Financial Services, to purchase all of
the issued and outstanding capital stock of ICI in exchange for 400,000 shares
of the Common Stock of the Company in reliance upon Section 4(2) of the
Securities Act of 1933.
Effective December 23, 1997, the Company entered into a Stock Purchase
Agreement with the sole stockholder of American Teleconferencing Services, Inc.
("ATS"), a Nevada corporation, to purchase all of the issued and outstanding
capital stock of ATS in exchange for 500,000 shares of the Common Stock of the
Company in reliance upon Section 4(2) of the Securities Act of 1933.
Effective December 31, 1997, the Company entered into a 10% Convertible
Preferred Purchase Agreement by which the Company issued 675,000 shares of its
new 10% Convertible Preferred Stock, Series B for $350,000 and in exchange for
486,486 shares of its previously outstanding shares of its 8% Convertible
Preferred Stock, Series A, and issued additional warrants to purchase 400,000
shares of the Common Stock of the Company exercisable at $2.375 per share in
reliance upon Section 4(2) of the Securities Act of 1933. As a result, the
Company had 162,162 of its Series A Preferred Stock and 675,000 shares of its
Series B Preferred Stock issued and outstanding as of December 31, 1997.
Effective January 30, 1998, the Company offered and sold a convertible
note with warrants in the principal amount of $500,000 to non-U.S. persons in
reliance upon Regulation S under the Securities Act of 1933. Interest is payable
on the note at eight percent (8%) per annum and is due and payable on January
30, 2000. The principal amount of the note is convertible into shares of the
Common Stock of the Company at a conversion rate of $2.375 per share. In
addition, the holders of the note acquired warrants to purchase 100,000 shares
of Common Stock at am exercise price of $2.375 per share.
During the fiscal quarter ending March 31, 1998, the Company issued
300,000 shares of common stock to Impac Funding Corporation in connection with
the purchase by the Company of a new master commitment totalling $500,000,000
(See Note 4 of Financial Statements, above). In addition, the Company issued
760,000 shares of common stock to various non-affilliated persons or entities as
consideration for consulting services pursuant to various consulting agreements
between the Company and those persons or entities. These issuances were made in
pursuant to the Company's 1996 Stock Option, SAR and Stock Bonus Plan with the
shares being registered with the U.S. Securities and Exchange Commission on Form
S-8 (File No. 333-45283), effective January 30, 1998. Another 50,000 shares of
common stock were issued to an officer of the Company in reliance upon Section
4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the
Company during its fiscal quarter ended March 31, 1998. The Annual Meeting of
the shareholders of the Company was held on April 9, 1998. At that meeting, the
shareholders re-elected eight directors, all of which were nominees of the
Company, and approved the appointment of Harlan & Boettger as independent
accountants for the Company for the current fiscal year, subject to change by
the Board of Directors of the Company.
<PAGE>
ITEM 5. OTHER INFORMATION.
On May 20, 1998, the Company dismissed its independent accountants,
Harlan & Boettger. The reports of Harlan & Boettger for the fiscal years ended
September 30, 1996 and September 30, 1997 contained no adverse opinion,
disclaimers of opinion nor were they modified as to uncertainty, audit scope or
accounting principles. The decision to dismiss the firm of Harlan & Boettger
was made by the Board of Directors of the Company. At no time during the
engagement of Harlan & Boettger as independent accountants for the Company were
there any disagreements, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope of
procedure.
On May 20, 1998, the Company engaged the firm of Corbin & Wertz of
Irvine, CA as independent accountants for the Company. Prior to May 20, 1998,
neither the Company, nor anyone on its behalf, has consulted with Corbin & Wertz
concerning the accounting principles of any specific completed or contemplated
transaction, any type of audit opinion on the Company's financial statements nor
any other material factor which might be considered by the Company in reaching a
decision as to any accounting, auditing or financial reporting issue.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No.10 Impac Funding Corporation master commitment to
purchase jumbo and conforming residential
mortgages dated March 2, 1998.
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fiscal
quarter ended March 31, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMB CORPORATION
Date: May 20, 1998 By: /s/ James E. Shipley
---------------------------
James E. Shipley, President
Date: May 20, 1998 By: /s/ B. Joe Wimer
---------------------------
B. Joe Wimer, Secretary, Treasurer and
Principal Accounting Officer
<PAGE>
EXHIBIT 10
March 2, 1998
Mr. Russ Kidder
Managing Director
EMB MORTGAGE CORPORATION
3200 Bristol Street, 8th Floor
Costa Mesa, CA 92626
RE: MASTER COMMITMENT TO PURCHASE JUMBO AND
CONFORMING RESIDENTIAL MORTGAGES
Dear Mr. Kidder:
IMPAC FUNDING CORPORATION ("IFC"), a subsidiary of IMPAC MORTGAGE
HOLDINGS, INC., hereinafter referred to as "Buyer", hereby commits to
purchase/fund from EMB MORTGAGE CORPORATION, hereinafter referred to as
"Seller" first trust deed mortgage loan(s) pursuant to the terms and
[LOGO conditions set forth herein and the IFC Sellers Guide, the Progressive
OF Series I - VI and Progressive Express (TM) Guide (Guides) as amended
IMPAC from time to time, and the IFC Sale Agreement. Seller is bound by all
APPEARS conditions of the Guides and Sale Agreement or under a separate written
HERE] 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: The amount of this commitment is
$500,000,000.
2. TERM OF COMMITMENT: This is a twelve month (12), optional
delivery, Master Commitment. The Commitment expiration date will
be March 2, 1999 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 300,000
shares of Seller's stock at a current price of $2.00 per share.
<PAGE>
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 I - VI loan programs;
. Progressive Express programs;
. ConformPlus(TM) programs - See attached separate commitment
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;
. 95%LTV PROGRESSIVE EXPRESS: SELLER MAY DELIVER UP TO 5% OF
COMMITMENT AMOUNT TO A MAXIMUM OF 95%LTV TO MAXIMUM OF
$300,000 LOAN AMOUNT, PROVIDED THAT:
1. MINIMUM FICO SCORE OF 700;
2. OWNER OCCUPIED, PRIMARY RESIDENCE;
3. PURCHASE MONEY ONLY;
4. BORROWER OWNS NO OTHER PROPERTIES;
5. NO SELF-EMPLOYED;
6. SINGLE FAMILY RESIDENCE ONLY (NO CONDOS AND/OR
UNITS);
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 another
conduit, Seller must notify Buyer of reason for rejection at the
time of loan submission.
Regardless of the underwriting delegation class given herein,
Buyer will require prior underwriting for the following:
. Any loans with exceptions to the IFC Seller's Guideline(s);
. Cash reserves less than required by the IFC Seller's
Guideline(s);
. Non-arms length transactions (as defined in IFC Seller's
Underwriting Guideline);
. Credit score, credit history and delinquent credit outside of
program guidelines;
. 2 years employment not in the same line of work;
. Multiple loans to the same borrower;
. Condo Hotel program;
. Foreign National program;
. 100% Financing (80/20) program;
<PAGE>
7. DELEGATED UNDERWRITING: Seller is not delegated for
underwriting. All loans must be prior approved by Buyer or by
Contract Underwriting Services (Only approved CMAC underwriters
for Express programs).
8. PRIOR APPROVAL BY CONTRACT SERVICES: Seller may select prior
underwriting by Contract Service Underwriting (acceptable to
Buyer) for Progressive Series. 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 the following loan programs, the screen price
will be increased at time of rate lock in:
FIXED RATE 30 DAY 10 DAY MANDATORY
Progressive Series I-III 0.50 0.50
Progressive Series III+-VI 0.625 0.875
Progressive Express I 0.50 0.50
Progressive Express II-VI 0.50 0.75
2 YEAR ARM 30 DAY 10 DAY MANDATORY
Progressive Series I-III 0.125 0.125
Progressive Series III+-VI 0.125 0.375
Progressive Express I 0.125 0.125
Progressive Express II-VI 0.125 0.375
<PAGE>
6 MONTH ARM 30 DAY BEST 10 DAY MANDATORY
EFFORTS
Progressive Series I-III 0.625 0.625
Progressive Series III+-VI 0.625 0.875
Progressive Express I 0.625 0.625
Progressive Express II-VI 0.625 0.875
MAXIMUM PREMIUM PRICED TO SELLER SHALL BE ONE PERCENT (1.0%)
OVER POSTED MAXIMUM SCREEN PRICING EXCLUDING ANY PRICE OR YIELD
ADJUSTMENTS.
IF ANY MORTGAGE LOAN SOLD TO BUYER HEREUNDER IS PREPAID BY MORE
THAN FIFTY PERCENT (50%) OF THE ORIGINAL PRINCIPAL BALANCE
WITHIN SIXTY (60) DAYS FOLLOWING THE PURCHASE BY BUYER, THE
BUYER HAS THE RIGHT TO REQUIRE THE SELLER TO REIMBURSE BUYER FOR
ANY PREMIUM, INDUCEMENTS, SERVICING RELEASED PREMIUM, INCLUDING
ANY AMOUNT PAID BY BUYER FOR THE MORTGAGE LOAN, WITHIN TEN (10)
BUSINESS DAYS UPON WRITTEN NOTICE. COMMENCING ON THE 61ST DAY
AND CONTINUING UNTIL THE END OF THE 12TH MONTH AFTER THE
PURCHASE BY BUYER, BUYER WILL REDUCE THE AMOUNT OF THE
REIMBURSEMENT BY 1/12TH FOR EACH MONTH THE LOAN HAS BEEN FUNDED
BY BUYER.
9a. PRICING INCENTIVE: BUYER AGREES TO PAY AN ADDITIONAL 5 BASIS
POINT REBATE FOR LOANS LOCKED ON THE INTERNET, THROUGH JUNE
30TH, 1998, TO QUALIFIED CUSTOMERS; LOANS MUST BE CLOSED WITHIN
COMMITMENT PERIOD TO QUALIFY FOR THIS BONUS.
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 issued 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 product. For loans originated under Progressive
Express, refer to Underwriting Guidelines attached for specific
mortgage coverage and companies.
12. DELIVERY RESTRICTIONS: Property types and programs percentages
are unrestricted except for the PROGRESSIVE program which will
be subject to delivery limitations set forth below:
<PAGE>
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;
. NOO 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;
. 80% NO RATIO: Not to exceed 15% of the commitment amount;
. 100% FINANCING: Not to exceed 5% of the Commitment amount;
. PROGRESSIVE EXPRESS GEOGRAPHIC LIMITATION: NOT MORE THAN 40% OF THIS
COMMITMENT MAY CONSIST OF LOANS LOCATED IN CALIFORNIA.
. 95%LTV PROGRESSIVE EXPRESS: BUYER WILL ALLOW UP TO 5% OF COMMITMENT
AMOUNT TO BE DELIVERED AS 95%LTV EXPRESS UP TO $300,000 LOAN AMOUNT.
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 (10) 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
<PAGE>
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.
In addition to any applicable pricing adjustments posted on applicable
Knight Ridder screens the following additional fees will be charged on
all loans purchased by Buyer:
Tax Service Fee - $59.00 or prevailing TransAmerica rate;
Administrative - $125.00 per loan;
16. GEOGRAPHICAL RESTRICTIONS: Unless otherwise stated, mortgages secured by
properties located in the continental United States and Hawaii are
eligible for purchase. Properties located in the state of Alabama and
Alaska are not 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
wavier 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,
<PAGE>
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 loans 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.
19. MODIFICATION, WAIVER 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: Impac Funding Corporation
20371 Irvine Ave., Bldg. A
Santa Ana Heights, CA 92707
ATTN: Mary Schannault
<PAGE>
If to Seller: EMB MORTGAGE CORPORATION
3200 Bristol Street, 8th Floor
Costa Mesa, CA 92626
ATTN: Russ Kidder
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 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 executed 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 $3,000,000 in order to deliver loans under
this Commitment.
<PAGE>
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 signed by Seller must be received by
Buyer or its authorized representative within five (5) business days of receipt
by Seller, or this agreement will be considered null and void.
The individuals executing this Commitment by their signatures do hereby certify
they are duly authorized to execute this document on behalf of the parties they
represent.
/s/ MARY C. SCHANNAULT
------------------------------------
By: Mary C. Schannault
Senior Vice President
IMPAC FUNDING CORPORATION
------------------------------------
By: James W. Dickinson
Vice President
IMPAC 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: 3-5-98
---------
/s/ RUSSELL KIDDER
------------------------------------
By: Russ Kidder
Managing Director
EMB MORTGAGE CORPORATION
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