<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[_] 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3200 BRISTOL STREET, EIGHTH FLOOR, COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 437-0738
--------------
(ISSUER'S TELEPHONE NUMBER)
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 [_] NO [X]
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 X
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: 27,640,955 SHARES AT
NOVEMBER 1, 1999
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [_] NO [X]
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Restricted cash $ 68,992
Mortgage loans held for sale 540,327
Other current assets 463,939
------------
Total current assets 1,073,258
Property and equipment, net 621,796
Related party receivable 61,810
Land held for sale 843,000
Goodwill 111,002
Investment in joint venture 292,842
Other assets 130,326
------------
$ 3,134,034
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,488,702
Warehouse line of credit 500,000
Accrued liabilities 739,904
Payroll taxes payable 2,538,998
Related party payable 180,786
Notes payable, current 885,182
Capital lease obligation 247,200
Other current liabilities 128,400
------------
Total current liabilities 6,709,172
Notes payable, net of current portion 75,000
Convertible notes payables 1,700,000
------------
Total liabilities 8,484,172
Shareholders' deficit:
Series A convertible preferred stock, no par value;
13,513 shares issued and outstanding 20,725
Series B convertible preferred stock, no par value;
497,500 shares issued and outstanding 927,100
Common stock, no par value; 30,000,000 shares
authorized,16,300,755 shares issued and outstanding 13,870,306
Accumulated deficit (20,168,269)
------------
Total shareholders' deficit (5,350,138)
------------
$ 3,134,034
============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of OPERATIONS
For the Three and Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
------------------ ------------------- ------------------ ------------------
1999 1998 1999 1998
------------------ ------------------- ------------------ ------------------
(unaudited) (unaudited)
Revenues -
<S> <C> <C> <C> <C>
Loan origination and other fees, $ 1,172,778 $ 2,866,501 $ 4,666,768 $ 4,046,944
net of commitment fees
Operating expenses:
Loan origination costs, commissions 590,113 1,725,211 2,571,596 2,201,893
and other fees
General and administrative 4,018,060 3,230,518 6,963,543 4,821,255
------------- ----------- ----------- -----------
4,608,173 4,955,729 9,535,139 7,023,148
------------- ----------- ----------- -----------
Loss from operations (3,435,395) (2,089,228) (4,868,371) (2,976,204)
Other income (expense):
Interest income 5,624 39,329 12,484 424,187
Interest expense (32,905) (77,354) (139,531) (77,354)
Other - - 241 38,867
------------- ----------- ----------- -----------
(27,281) (38,025) (126,806) 385,700
------------- ----------- ----------- -----------
Net loss $ (3,462,676) $(2,127,253) $(4,995,177) $(2,590,504)
============= =========== =========== ===========
Basic and dilutive loss per common
share $ (.17) $ (0.23) $ (.16) $ (0.31)
============= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of SHAREHOLDERS' DEFICIT
For the Six Months Ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Preferred Common Stock Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Deficit Deficit
--------- ---------- --------- ---------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
September
30, 1998 107,297 $ 166,465 500,000 $931,750 10,550,308 $11,749,076 $(15,173,092) $(2,325,801)
Shares issued
for services - - - - 4,535,263 1,677,998 - 1,677,998
Shares issued
in connection
with joint
venture - - - - 450,000 292,842 - 292,842
Shares issued
for conversion
of A
preferred (93,784) (145,740) - - 741,960 145,740 - -
Shares issued
for conversion
of B preferred (2,500) (4,650) 23,224 4,650 - -
Net loss - - - - - - (4,995,177) (4,995,177)
------- --------- ------- -------- ---------- ----------- ------------ -------------
Balances,
March 31, 1999 13,513 $ 20,725 497,500 $927,100 16,300,755 $13,870,306 $(20,168,269) $(5,350,138)
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of CASH FLOWS
For the Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net loss $ (4,495,177) $(2,590,504)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 1,677,998 1,773,866
Provision for write off of goodwill and
ICI severance agreement 828,211 -
Provision for impairment of property and equipment 500,000 -
Amortization of common stock issued for debt financing 105,500 -
Depreciation and amortization 147,331 46,575
Changes in operating assets and liabilities:
Accounts receivable 13,010 (125,233)
Notes receivable - (189,427)
Mortgage loans held for sale 12,677,178 (7,276,336)
Other current assets (125,766) (3,215,660)
Other assets 50,851 -
Accounts payable 820,003 406,474
Accrued liabilities 262,704 807,765
Payroll taxes payable 619,148 -
Other liabilities (279,630) 1,028,789
------------ -----------
Net cash used in operating activities 12,301,361 (9,333,691)
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (61,671) (376,784)
------------ -----------
Net cash used in investing activities (61,671) (376,784)
------------ -----------
Cash flows from financing activities:
Proceeds (Repayments) on line of credit, net (12,716,722) 7,499,000
Payments under capital lease obligations (223,363) 127,164
Proceeds from issuance of convertible and other notes payable 577,791 735,359
Proceeds from related party borrowings 78,249 -
Proceeds from issuance of A and B Preferred - 350,000
Issuances to officers 19,394 -
Common stock issued in subsidiary acquisitions - 1,730,000
------------ -----------
Net cash provided by financing activities (12,264,651) 10,441,523
------------ -----------
Net increase in cash (24,961) 731,048
Cash at beginning of period 24,961 95,409
------------ -----------
Cash at end of period $ - $ 826,457
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended March 31, 1999
NOTE 1. BASIS OF PRESENTATION
Unaudited Interim Financial Statements
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, 1999, and the results of their operations and their cash flows for the six
months ended March 31, 1999 and 1998 respectively. These consolidated financial
statements include the accounts of EMB Corporation and its subsidiary companies
(together "the Company").
Information in this report should be read in conjunction with the Company's
consolidated financial statements as stated in its report on Form 10-KSB for the
fiscal year ended September 30, 1998. The accompanying financial information is
not necessarily indicative of the results for the year ended September 30, 1999.
Going Concern
Through March 31, 1999 and continuing in fiscal 1999, the Company has incurred
significant losses. At March 31 1999, the Company has a working capital
deficit of $5.6 million, which includes approximately a $2.5 million liability
to federal and state agencies for employee and employer payroll taxes. The
Company dramatically reduced its operation on or about December 22, 1998 to
significantly reduce the losses from operations. The Company has been
relatively inactive in fiscal 1999. Management is currently funding its
operations through loans from affiliates and/or officers. The Company requires
immediate proceeds from a financing or from the sale of its land to meet its
current obligations. Management is seeking private equity and debt capital, as
well as seeking to find a buyer for its land in Monterey County, California.
There are no assurances that proceeds from the sources discussed above will be
available on acceptable terms or available at all. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Certain 1998 amounts have been reclassified to conform to current period
presentation. These reclassifications have no effect on previously reported net
income.
NOTE 2. ACQUISITION RESCISSION
Effective December 31, 1997, the Company consummated a stock purchase agreement
to acquire all of the issued and outstanding capital stock of ICI in exchange
for the issuance of 400,000 shares of the Company's common stock fairly valued
at $684,000. The agreement was accounted for under the purchase method with the
excess of cost over the fair value of the net assets acquired of $732,376
allocated to goodwill.
Pursuant to this agreement, if, as of the close of the business day eighteen
months following closing of this transaction, the aggregate fair market value of
the Shares is less than $2,000,000, ICI could elect one of two options. ICI
could have either elected that additional common shares be issued equivalent to
the difference between the sum of $2,000,000 and the aggregate fair market value
of the Shares, or rescind the transaction. On March 13, 1999, the Company and
ICI rescinded the stock purchase agreement, whereby the Company would forfeit
the 400,000 shares of common stock issued in connection with the
6
<PAGE>
EMB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended March 31, 1999
original agreement. Accordingly, the Company charged operations for unamortized
goodwill totaling $631,126 in fiscal 1999.
NOTE 3. LOSS PER COMMON SHARE
Basic and dilutive loss per common share is based on the weighted average number
of common shares outstanding during the period. Outstanding options and
warrants have not been included in the calculation of the weighted average
shares outstanding since their effects are anti-dilutive.
NOTE 4. - WAREHOUSE LINE OF CREDIT
The Company had an agreement with a national lender whereby the lender extended
a $25 million warehouse line of credit to the Company solely for the purpose of
funding residential mortgage loans. Interest was charged based on the lender's
referenced prime rate plus 0.5% per annum. During the second quarter of 1999,
the obligation was fully satisfied upon termination of the agreement.
The Company also had a master commitment with such lender totaling $150 million
during fiscal 1998 which was subsequently increased to $500 million. The master
commitment allowed the Company to fund loans of jumbo and conforming residential
first and second mortgages, and sell the loans to the lender. The master loan
commitment was terminated concurrently with the warehouse line of credit above.
NOTE 5. SHAREHOLDERS' DEFICIT
During the six months ended March 31, 1998, certain holders of the Series A
convertible preferred and Series B convertible preferred elected to convert
certain of their interests into common stock. As a result, the Company had
13,513 of its Series A convertible preferred stock and 497,500 shares of its
Series B convertible preferred stock issued and outstanding as of March 31,
1999.
During the three and six months ended March 31, 1999, the Company issued
3,720,000 and 4,535,263 shares of common stock valued at $1,334,487 and
$1,677,998, respectively, to certain consultants and advisors for services
provided.
NOTE 6. SUBSEQUENT EVENTS
Refer to the Company's Annual Report on Form 10-KSB for the year ended September
30, 1998, for events subsequent to March 31, 1999.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
GENERAL
In fiscal 1998, the Company expanded its mortgage banking operations through its
acquisition of Investment Consultants, Inc. ("ICI"). In fiscal 1999, the
Company ceased its mortgage banking operations of EMB and divested itself of ICI
due to an economic downturn in the mortgage banking industry. Later in fiscal
1999, the Company recommenced its mortgage banking operations through
acquisitions of American Residential Funding ("AMRES") and Residential Mortgage
Corporation ("RMC"). EMB Mortgage is no longer in operation.
LOAN ORIGINATIONS AND PURCHASES
The Company decreased its funded mortgage loan volume to approximately
$80,000,000 during the six month period ended March 31, 1999, as compared to
$182,599,396 for the six month period ended March 31, 1998, representing a
decrease of 56%. This decrease is principally attributable to the ceasing of
operations of EMB Mortgage.
RESULTS OF OPERATIONS
Three months ended March 31,1999 compared with three months ended March 31,1998:
Mortgage loan revenues, net of commitment fees, decreased 41% to $1,172,778 in
the three month period ended March 31, 1999 from $2,866,501 in 1998. Revenues
were generated primarily from loan processing and resale of mortgage loans. The
decrease in revenues was attributable to the ceasing of operations of EMB
Mortgage.
Cost and organization, commissions and other costs decreased to $590,113 in the
three month period ended March 31, 1999 from $1,725,211 in 1998. This decrease
is principally attributable to the ceasing of operations of EMB Mortgage.
General and administrative expenses increased to $4,018,060 in the three month
period ended March 31,1999 from $3,230,518 in 1998. This increase is principally
attributable to (1) expenses related to the issuance of common stock for various
consulting and financing services, (2) the write off of goodwill in association
with the ICI acquisition rescission.
In addition, during the current quarter the Company evaluated it assets for
impairment due to the significant decline in operations. As a result of this the
Company recorded a $500,000 provision for these assets in the current quarter.
The net loss was $3,462,676 during the three month period ended March 31, 1999,
as compared with a loss of $2,127,253 during the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital resources have historically been provided by cash from
financing activities, primarily from the sale of its preferred stock and
warrants, and through convertible debt instruments and warrants. Due to the
extended losses incurred by the Company, its cash was being depleted rapidly
from operations. At March 31, 1999, the Company had a working capital deficit
of $5.6 million. The Company reduced its operation on or about December 22,
1998 to significantly reduce the losses and cash flows from operations. The
Company has been relatively inactive during the current fiscal year. Management
is currently funding its operations through loans from affiliates and/or
officers. No cash flows have been generated through the sale of common or
preferred stock, or convertible debt securities in fiscal 1999 and management
does not believe such capital will be available to them. Management
8
<PAGE>
currently believes its sole source of repayment of its obligations will come
from the sale of its land in Monterey County, California. There are no
assurances that the sale will be completed, if at all. The Company has been in
negotiations, however, no reasonable offers have been tendered to management.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As of March 31, 1999, the Company has notes payable to unrelated parties in the
total amount of approximately $960,182. There are no assurance that the this
remaining indebtedness will be paid from its cash flow from the sale of the
Company's land located in Monterey or an equity of debt financing.
ITEM 2. LEGAL PROCEEDINGS
During December 1998, the Company terminated the majority of their employees due
to ceasing of operations of EMB Mortgage. In most cases the employees were not
given their final wages upon termination. There have been various claims made
by these employees and the labor board has taken action against the Company.
These amounts were accrued during the three month period ended December 31,
1998.
No additional legal proceedings occurred during the fiscal quarter ended March
31,1999.
ITEM 3. CHANGES IN SECURITIES
None
ITEM 4. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the Company during
its fiscal quarter ended March 31, 1999.
ITEM 6. OTHER INFORMATION.
Not applicable.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. - None
(b) Reports on Form 8-K. On or about January 26, 1999 the Company filed Form
8-K which disclosed the resignation of Corbin & Wertz as its independent
auditors and the appointment of Mckennon, Wilson & Morgan, LLP, as its
independent auditors.
9
<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: November 12, 1999 By: /s/ James E. Shipley
--------------------
James E. Shipley
Director, President and Principal Financial and
Accounting Officer
Date: November 12, 1999 By: /s/ William V. Perry
--------------------
William V. Perry
Director and Executive Vice President
Date: November 12, 1999 By: /s/ Michael P. Roth
-------------------
Michael P. Roth
Director
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 540,327
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,073,258
<PP&E> 1,426,559
<DEPRECIATION> (304,763)
<TOTAL-ASSETS> 3,134,034
<CURRENT-LIABILITIES> 6,709,172
<BONDS> 1,775,000
0
947,825
<COMMON> 13,870,306
<OTHER-SE> (20,168,269)
<TOTAL-LIABILITY-AND-EQUITY> 3,184,034
<SALES> 4,666,768
<TOTAL-REVENUES> 4,666,768
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,535,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,531
<INCOME-PRETAX> (4,995,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,995,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,995,177)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
