<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER 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 IN ITS CHARTER)
HAWAII 95-3811580
------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION )
3200 BRISTOL AVENUE, 8/TH/ FLOOR, COSTA MESA, CALIFORNIA 92626
---------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (714) 437-0715
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- ------------------------------
N/A N/A
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $276,419
The aggregate market value of voting stock held by non-affiliates of the
registrant as of January 10, 1997 :
Common stock, no par value: $48,230,429
The number of shares of the registrant's common stock outstanding as of
December 31, 1996: 5,732,801 shares
Documents incorporated by reference: none
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
--------------------
With this amendment to the Form 10-KSB of EMB Corporation is its
restated audited consolidated financial statements for its fiscal year ended
September 30, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits:
--------
23.1* Consent of Harlan & Boettger.
27 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this Amendment to its Form 10-KSB report for its fiscal
year ended September 30, 1996, to be signed on its behalf by the undersigned,
thereunto duly authorized.
Registrant: EMB CORPORATION
By: /s/ James E. Shipley
-----------------------------
James E. Shipley, President
In connection with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: January 26, 1998
By: /s/ James E. Shipley /s/ William V. Perry
------------------------------- ---------------------------
James E. Shipley William V. Perry
Director and President Director and Executive Vice
President
/s/ B. Joe Wimer /s/ Bruce J. Brosky
------------------------------- -------------------------------
B. Joe Wimer Bruce J. Brosky
Director, Secfretary, Treasurer, Director and Vice President-
Chief Financial Officer and Marketing and Public Relations
Principal Accounting officer
/s/ Joseph K. Brick /s/ Michael P. Roth
------------------------------ ---------------------------
Joseph K. Brick Michael P. Roth
Director and Vice President of Director and Vice President
EMB Mortgage Corporation
<PAGE>
EMB CORPORATION AND SUBSIDIARY
AUDITED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND 1995
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND 1995 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996
AND 1995 F-3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED
SEPTEMBER 30, 1996 AND 1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996
AND 1995 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-13
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
EMB CORPORATION AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheets of EMB Corporation
(a Hawaii corporation) and subsidiary as of September 30, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EMB Corporation and
subsidiary as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note O to the financial statements, an error resulting in the
understatement of previously reported net loss, common stock to be issued,
operating expenses and retained earnings as of September 30, 1996, was
discovered by management of the Company during the current year. Accordingly,
the September 30, 1996 financial statements have been restated to correct the
error.
San Diego, California
January 8, 1997
F-1
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30,
1996 September 30,
CURRENT ASSETS (As restated) 1995
------------ ------------
<S> <C> <C>
Cash $ 395 $ 26,071
Accounts receivable (no allowance deemed necessary) 14,582 -
Inventory, net 35,324 -
Note receivable 14,000 14,000
----------- ---------
TOTAL CURRENT ASSETS 64,301 40,071
PROPERTY AND EQUIPMENT, net (Note D) 149,363 25,692
RELATED PARTY RECEIVABLE (Note G) 129,687 54,889
LAND HELD FOR SALE (Notes A and E) 843,000 43,000
OTHER ASSETS 4,128 1,177
----------- ---------
$ 1,190,479 $ 164,829
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 195,374 $ 4,684
Bank overdrafts 27,177 -
Accrued expenses 48,888 2,249
Notes payable - current portion (Note F) 293,793 60,000
Capital lease obligations - current portion (Note I) 28,553 7,821
----------- ---------
TOTAL CURRENT LIABILITIES 593,783 74,754
RELATED PARTY PAYABLE (Note G) - 235,171
NOTES PAYABLE, net of current portion (Note F) 65,000 65,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Note I) 30,096 10,247
----------- ---------
TOTAL LIABILITIES 688,879 385,172
COMMITMENTS (Note I)
SHAREHOLDERS' EQUITY (DEFICIT)
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; 5,311,817 and 1,644,350 shares issued
and outstanding, respectively 3,910,391 345,250
Common stock to be issued 585,000 -
Common stock subscribed (200,000) -
Retained deficit (3,793,791) (565,593)
----------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 501,600 (220,343)
----------- ---------
$ 1,190,479 $ 164,829
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------
1996
(As restated) 1995
------------ ----------
<S> <C> <C>
REVENUES
Mortgage loan revenue $ 244,874 $ 97,400
Product sales 31,545 -
----------- ----------
TOTAL REVENUES 276,419 97,400
COST OF SALES 29,636 -
----------- ----------
Gross profit 246,783 97,400
OPERATING EXPENSES
General and administrative 3,375,244 531,818
Depreciation 31,056 2,662
----------- ----------
TOTAL OPERATING EXPENSES 3,406,300 534,480
----------- ----------
LOSS FROM OPERATIONS (3,159,517) (437,080)
OTHER INCOME (EXPENSES)
Interest expense (64,393) (2,164)
Other (2,688) 9,989
----------- ----------
TOTAL OTHER INCOME (EXPENSE) (67,081) 7,825
----------- ----------
LOSS BEFORE INCOME TAXES (3,226,598) (429,255)
Income taxes (Note H) 1,600 800
----------- ----------
NET LOSS $(3,228,198) $ (430,055)
=========== ==========
NET LOSS PER COMMON SHARE $ (.89) $ (.29)
=========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 3,641,421 1,469,225
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Stock Common Total
-------------------- ---------------- Subscription Stock to be Retained Shareholders'
Shares Amounts Shares Amount Receivable Issued Deficit Equity (Deficit)
--------- ---------- ------ -------- ------------ -------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 1,288,600 $ 150,000 - $ - $ - - $ (135,538) $ 14,462
Shares issued for Riverside land 8,250 33,000 - - - - - 33,000
Shares issued for services 172,500 155,250 - - - - - 155,250
Shares issued to founders for
services 175,000 7,000 - - - - - 7,000
Net loss - - - - - - (430,055) (430,055)
--------- ---------- ------ -------- -------- -------- ----------- -----------
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
Sterling Alliance Group, Ltd. 1,158,650 - - - - - - -
Shares to be issued for services - - - - - 585,000 - 585,000
Net loss - - - - - - (3,228,198) (3,228,198)
--------- ---------- ------ -------- -------- -------- ----------- -----------
BALANCE, SEPTEMBER 30, 1996
(As restated) 5,311,817 $3,910,391 - $ - $(200,000) $585,000 $(3,793,791) $ 501,600
========= ========== ====== ======== ========= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
EMB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------
1996
(As restated) 1995
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,228,198) $(430,055)
Adjustments to reconcile net income to net cash
used in operating activities:
Common stock issued for services 1,315,209 162,250
Common stock to be issued for services 585,000 -
Depreciation 31,056 2,662
Changes in operating assets and liabilities:
Increase in:
Accounts receivable (14,582) -
Inventory (35,324) -
Prepaid expenses and other assets (2,951) (1,177)
Accounts payable 217,867 349
Accrued expenses 46,637 1,449
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,085,286) (264,522)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (96,846) (6,720)
Payment for land purchase - (10,000)
Loans made on notes receivable - (14,000)
Loans made on related party receivable (74,798) (29,092)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (171,644) (59,812)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 268,893 355,776
Payments under capital lease obligations (17,300) -
Payments on borrowings (38,253) -
Proceeds from sale of common stock 1,017,914 -
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,231,254 355,776
----------- ---------
NET INCREASE (DECREASE) IN CASH (25,676) 31,442
CASH, BEGINNING OF PERIOD 26,071 (5,371)
----------- ---------
CASH, END OF PERIOD $ 395 $ 26,071
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
EMB Corporation (formerly called Pacific International, Inc.) (the
"Company") was incorporated under the laws of the State of Hawaii on May 5,
1960. Effective December 16, 1995, the Company acquired the net assets of
Sterling Alliance Group, Ltd ("SAG") which included 100% ownership in
Electronic Mortgage Banc, Ltd. ("EMB") and land held for sale. For
financial statement purposes the transaction has been recorded as a
recapitalization of SAG and the issuance of shares for the net assets of
the Company due to the fact that SAG provides substantially all of the
historic and on-going operations (See Note C). The historical and on-going
financial statements primarily represent the assets, liabilities and
operations which were acquired from SAG. All significant intercompany
accounts and transactions have been eliminated.
The Company has an interactive software system for the origination and
processing of mortgage loans which it calls Mortgage Approval Xpress
("M.A.X."). This system has been linked to the ProShare software developed
by Intel Corporation that provides direct teleconferencing and interaction
between prospective mortgage borrowers and mortgage lenders. The Company
licenses its mortgage software system to real estate brokers, builders,
credit unions, mortgage brokers and others. The Company also independently
originates and processes mortgage loans, and intends to engage in the
secondary placement of real estate mortgages.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Cash
Cash includes cash on hand and cash in checking and savings accounts.
Inventory
Inventory is stated at the lower of cost or market, cost being determined
on the first-in, first-out (FIFO) method. Inventory consists of mortgage
loan processing and teleconferencing software and equipment.
Property and Equipment
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, which
range from five to ten years. Maintenance and repairs are charged to
operations as incurred, and major improvements are capitalized. Upon
retirement, sale, or other disposition, the related cost and accumulated
depreciation are eliminated from the respective accounts and any gain or
loss on disposition is reflected in operations.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Revenue Recognition - Mortgage Brokerage
Revenue from mortgage brokerage transactions are recognized when the loan
is funded and escrow on the related real estate transaction is closed.
Revenue and Cost Recognition - Land Held for Sale
F-6
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company expects that it will from time to time hold real estate for
sale. Revenue from such sales will be recognized upon closing of the sale.
Land acquisition costs have been capitalized and they will be charged to
earnings when the related revenue is recognized. Other costs incurred in
connection with the land are charged to earnings when incurred. The basis
of the land held for sale has been determined based on cash paid of $10,000
and 208,250 shares of common stock given as consideration. A $4.00 per
share value was determined by management to be a more clearly evident value
in determining the basis for the land held for sale.
Income Taxes
Income taxes, are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting.
Deferred tax expense (benefit) results from the net change during the year
of deferred tax assets and liabilities.
Per Share Information
Net loss per common share amounts are computed by dividing net loss by the
weighted average number of common and common equivalent shares outstanding
in the period. Common stock equivalents consist of warrants granted. For
the net loss per common share calculation there were no dilutive common
stock equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B. DEVELOPMENT STAGE BUSINESS:
During the Company's fiscal year ended September 30, 1995, its operations
were not significant; therefore, the Company was considered in the
development stage. During its fiscal 1996 year, the Company's operations
were sufficient to now be considered an operating Company. The Company's
efforts are concentrated in two areas in the mortgage loan industry. First,
the development of the Company's M.A.X. software system. Second, the
development of residential mortgage lending on a retail basis directly to
consumers and on a wholesale basis to other mortgage brokers.
C. RECAPITALIZATION:
Effective December 16, 1995, the Company acquired the net assets of
Sterling Alliance Group, Ltd. for 3,375,000 shares of the Company's common
stock.
The Company previously did not have an operating business and, accordingly,
has treated the transaction as a recapitalization of SAG and recorded the
transaction at historical cost. Accordingly, the net assets acquired were
accounted for in a manner similar to a pooling of interest.
D. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Machinery and equipment $112,532 $30,160
Furniture & fixtures 71,317 -
-------- -------
</TABLE>
F-7
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<S> <C> <C>
183,849 30,160
Less accumulated depreciation 34,486 4,468
-------- -------
Property and equipment, net $149,363 $25,692
======== =======
</TABLE>
E. LAND HELD FOR SALE:
SAG acquired approximately five acres of undeveloped land in Riverside
County, California on February 24, 1995 from Rancho Brisa Corp., an
unrelated third party. SAG paid $10,000 cash, and issued 8,250 shares of
their common stock as consideration. The land was subsequently
collateralized against the $65,000 note payable to Howard C. Kuhle (See
Note F).
SAG also acquired approximately 61 acres of undeveloped land with water
producing rights and three wells in Monterey County, California on December
11, 1995 from Golden River Corp., an unrelated third party. Each well can
produce approximately 900,000 gallons of water per 24 hour period and the
water supply is replenished annually from the run-off of the surrounding
mountains. SAG issued 200,000 shares of their common stock as
consideration.
F-8
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
F. NOTES PAYABLE:
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Note payable due to Frederic R. Weeth, interest at 10%,
no established repayment schedule, note past due, principal
and any unpaid interest due on demand $ 26,250 $ 30,000
Note payable due to Thomas J. Donahue, interest at 10%
no established repayment schedule, note past due, principal
and any unpaid interest due on demand 26,250 30,000
Note payable to Howard C. Kuhle, interest at 12%, interest
only payable monthly, principal and any unpaid interest due
March 1998, secured by deed of trust on Riverside County
land 65,000 65,000
Note payable to Baronin Enterprises, Inc., interest at 8%,
note past due, principal and any unpaid interest due on demand 50,000 -
Various notes payable to unrelated parties, no established
repayment schedule, interest ranging from 8% to 11% 191,293 -
------------- -------------
358,793 125,000
Less current portion 293,793 60,000
------------- -------------
$ 65,000 $ 65,000
============ =============
</TABLE>
G. RELATED PARTY TRANSACTIONS:
Related party receivable at September 30, 1996 and 1995 consists of amounts
due from a related corporation of $129,687 and $54,889, respectively.
Related party payable consists of certain operating expenses that were paid
on behalf of the Company by a related corporation. During the year ended
September 30, 1996 the Company issued common stock in lieu of payment.
F-9
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
H. INCOME TAXES:
As discussed in Note A, the Company accounts for income taxes in accordance
with SFAS 109. The provision for income taxes for the years ended September
30, 1996 and 1995 consists solely of the $800 minimum California franchise
tax.
Provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Year ended
--------------------------
September 30 September 30
1996 1995
------------ ------------
<S> <C> <C>
Current income taxes $1,600 $ 800
Deferred income taxes - -
------ -----
Provision for income taxes $1,600 $ 800
====== =====
</TABLE>
As a result of adopting SFAS 109, the Company has recognized deferred tax
assets for the tax effects of temporary differences for the years ended
September 30, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
1996
(As restated) 1995
------------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 1,354,600 $ 120,000
----------- ---------
Gross deferred tax assets 1,354,600 120,000
Valuation adjustment (1,354,600) (120,000)
----------- ---------
Net deferred tax assets $ - $ -
=========== =========
</TABLE>
The Company has net operating loss carryforwards remaining of approximately
$2,800,000. The regular net operating loss carryforwards, which are
approximately the same as the alternative net operating loss carryforwards,
if not utilized, will expire as follows:
<TABLE>
<CAPTION>
<S> <C>
2009 $ 100,000
2010 200,000
2011 2,500,000
----------
$2,800,000
==========
</TABLE>
I. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company subleases its facilities under an operating lease from an
unrelated third party which expires in March, 1997. Rental expense for the
year ended September 30, 1996 was $90,132.
F-10
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Minimum future rental payments under the sublease total approximately
$45,064.
The noncancelable operating lease provides that the Company pays for
property taxes, insurance and certain other operating expenses applicable
to the leased premises.
Capital Leases
The Company acquired part of its equipment and furniture under capital
lease obligations. The economic substance of the capital lease agreements
is that the Company finances the acquisition by making monthly payments
over a thirty-six month period. The assets are reflected as part of
property and equipment. The following is an analysis of the book value of
the leased assets included in property and equipment as of:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
-------------- --------------
<S> <C> <C>
Cost $ 75,949 $18,068
Accumulated depreciation (23,450) (1,506)
-------- -------
Net Book Value $ 52,499 $16,562
======== =======
</TABLE>
The future minimum lease payments under capitalized leases and the present
value of the net minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
-------------------------
<S> <C>
1997 $39,927
1998 30,356
1999 3,469
-------
73,752
Less amount representing interest 15,103
-------
58,649
Less current portion of capital lease 28,553
-------
$30,096
=======
</TABLE>
F-11
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
J. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information are summarized as
follows:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------
1996 1995
-------- -------
<S> <C> <C>
Cash paid for interest and income taxes:
Interest $ 52,232 $ 2,164
Income taxes $ - $ -
Noncash investing and financing activities:
Capital lease obligations incurred $ 57,881 $18,068
Common stock issued for land $800,000 $33,000
Common stock issued for related party
payable $232,018 $ -
</TABLE>
K. CAPITAL STOCK:
The Company amended its Articles of Incorporation on May 21, 1996, which
authorized the issuance of 35,000,000 shares of capital stock; 30,000,000
shares are no par value common stock and 5,000,000 shares are preferred
stock. The preferred stock may be divided into and issued in one or more
series. As of September 30, 1996 there were no shares of preferred stock
issued or outstanding.
On September 27, 1996 the Company effectuated a one for four (1:4) reverse
stock split. The effect of this event has been retroactively applied for
financial statement presentation on the statement of stockholders' equity
(deficit).
Common stock to be issued relates to a stock for services agreement wherein
the services have been performed as of September 30, 1996, but the shares
have not been issued.
L. STOCK OPTION, SAR AND STOCK BONUS PLAN:
On April 29, 1996 the Board of Directors approved the "EMB Corporation 1996
Stock Option, SAR and Stock Bonus Plan." Options and SAR's may be granted
to employees and independent consultants. No options and SAR's shall be
exercisable within six months from date of grant or more than ten years
after date of grant. The option price of stock options shall in no event be
less than 85%, and for incentive stock options shall in no event be less
than 100% of the "fair market value" of the stock on the date of grant.
The Company has reserved a total of 250,000 shares of common stock for
issuances under the plan. As of September 30, 1996 no shares have been
granted under the plan.
M. WARRANTS:
As of September 30, 1996 there are 108,750 outstanding warrants to purchase
108,750 shares of no par value common stock at $2.00- $3.00 per share. No
warrants have been exercised as of September 30, 1996.
N. MAJOR CUSTOMER:
A major source of revenue for the Company is derived from the resale of
retail mortgage loans to a single national mortgage lender. The loss of
this business would have a material effect on the Company.
F-12
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
O. RESTATEMENT:
An error, resulting in the understatement of net loss, common stock to be
issued, operating expenses and retained deficit in the Company's previously
issued financial statements for the year ended September 30, 1996, has
resulted in the restatement of these financial statements. The changes to
retained deficit as of September 30, 1996 and the related statement of
operations for the year then ended are summarized as follows:
<TABLE>
<CAPTION>
Retained
Deficit Net Loss
------------ ------------
<S> <C> <C>
As previously reported, September 30, 1996 $(3,208,791) $(2,643,198)
Omission of stock for services transaction (585,000) (585,000)
----------- -----------
As restated, September 30, 1996 $(3,793,791) $(3,228,198)
=========== ===========
</TABLE>
The income tax effect of this error was to increase the deferred income tax
asset and the valuation allowance $234,600 at September 30, 1996.
P. SUBSEQUENT EVENT:
On December 30, 1996 the Company sold the Monterey land (which has 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 ten equal annual installments of principal and interest of
$422,867 commencing December 30, 1997, with the balance due on December 30,
2006.
F-13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the amendment to the Form 10-KSB/A annual report
of our report dated December 3, 1997, relating to the financial statements of
EMB Corporation and subsidiary (formerly called Pacific International, Inc.),
which is contained therein and to use of our name therein.
San Diego, California HARLAN & BOETTGER
January 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 395
<SECURITIES> 0
<RECEIVABLES> 14,582
<ALLOWANCES> 0
<INVENTORY> 35,324
<CURRENT-ASSETS> 64,301
<PP&E> 183,849
<DEPRECIATION> 34,486
<TOTAL-ASSETS> 1,190,479
<CURRENT-LIABILITIES> 593,783
<BONDS> 0
0
0
<COMMON> 3,910,391
<OTHER-SE> (3,408,791)
<TOTAL-LIABILITY-AND-EQUITY> 1,190,479
<SALES> 276,419
<TOTAL-REVENUES> 276,419
<CGS> 29,636
<TOTAL-COSTS> 29,636
<OTHER-EXPENSES> 3,406,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,393
<INCOME-PRETAX> (3,226,598)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (3,228,198)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,228,198)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
