<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 JUNE 30, 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 [X] NO [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
CHECK WHETHER THE REGISTRANT FILED ALL DOCUMENTS AND REPORTS REQUIRED
TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE EXCHANGE ACT AFTER THE
DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY COURT. YES [_] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY, AS OF THE LAST PRACTICABLE DATE: 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
June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 115,978
Restricted cash 68,992
Accounts receivable, net of allowance of $0 424,669
Mortgage loans held for sale 500,000
Other current assets 216,334
------------
Total current assets 1,325,973
Property and equipment, net 588,803
Related party receivable 61,810
Land held for sale 843,000
Goodwill, net of accumulated amortization of $56,333 3,492,382
Investment in joint venture 292,842
Other assets 265,963
------------
$ 6,870,773
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,577,978
Line of credit 500,000
Accrued expenses 817,542
Payroll taxes payable 2,686,405
Related party payable 530,736
Current portion of notes payable 1,146,700
Current portion of capital lease obligation 209,154
Other current liabilities 128,500
------------
Total current liabilities 7,597,015
Notes payable, net of current portion 75,000
Convertible notes payables. 1,700,000
------------
Total liabilities 9,372,015
Shareholders' deficit:
Series A convertible preferred stock, no par value;
5,000,000 shares authorized, 13,513 shares issued and
outstanding 20,725
Series B convertible preferred stock, no par value;
shares authorized, 97,500 shares issued and
outstanding 183,100
Common stock, no par value; 30,000,000 shares
authorized, 24,250,755 shares issued and outstanding 19,984,754
Accumulated deficit (22,689,821)
------------
Total shareholders' deficit (2,501,242)
------------
$ 6,870,773
============
See accompanying notes to consolidated financial statements
</TABLE>
2
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of OPERATIONS
For the Three and Nine Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
------------------ ------------------- ------------------ ------------------
1999 1998 1999 1998
------------------ ------------------- ------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues -
Loan origination and other fees,
net of commitment fees $ 406,923 $4,397,814 $ 5,073,691 $ 8,444,759
Operating expenses:
Loan origination costs, commissions
and other fees 301,942 2,453,338 2,873,538 4,655,231
General and administrative 2,553,707 1,823,526 9,517,295 6,634,781
----------- ---------- ----------- -----------
2,855,649 4,276,864 12,390,833 11,290,012
----------- ---------- ----------- -----------
Income (loss) from operations (2,448,726) 120,950 (7,317,042) (2,845,253)
Other income (expense):
Interest income - 2,157 12,484 426,344
Interest expense (88,281) (9,891) (227,812) (87,245)
Other 15,500 - 15,741 38,867
----------- ---------- ----------- -----------
(72,781) (7,734) (199,587) 377,966
----------- ---------- ----------- -----------
Net income (loss) $(2,521,507) $ 113,216 $(7,516,729) $(2,467,287)
=========== ========== =========== ===========
Basic and dilutive earnings per
common share $(0.10) $0.01 $(0.42) $(0.29)
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of SHAREHOLDERS' DEFICIT
For the Nine Months Ended June 30, 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 - - - - 6,885,263 3,568,547 - 3,568,547
Shares issued in
connection with joint
venture - - - - 450,000 292,842 - 292,842
Shares issued in
connection with
acquisition of AMRES - - - - 2,000,000 1,567,230 - 1,567,230
Shares issued in
connection with
acquisition of RMC - - - - 600,000 470,169 - 470,169
Value of warrants
issued in connection
with Acquisition of
AMRES - - - - - 1,442,500 - 1,442,500
Shares issued for
conversion of A
preferred (93,784) (145,740) - - 741,960 145,740 - -
Shares issued
for conversion of
B preferred (402,500) (748,650) 3,023,224 748,650 - -
Net loss - - - - - - (7,516,729) (7,516,729)
--------- --------- -------- --------- ---------- ----------- ------------ -------------
Balances,
June 30, 1999 13,513 $ 20,725 97,500 $ 183,100 24,250,755 $19,984,754 $(22,689,821) $ (2,501,242)
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of CASH FLOWS
For the Nine Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,516,729) $ (2,467,287)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 3,568,547 2,481,704
Provision for write-off of goodwill and settlement of ICI 828,211 -
Provision for impairment of property and equipment 500,000 -
Amortization of common stock issued for debt financing 150,500 -
Depreciation and amortization 258,384 71,998
Changes in operating assets and liabilities:
Accounts receivables (6,647) 143,243
Mortgage loans held for sale 12,717,505 (15,149,853)
Employee advances - 70,667
Inventory - 31,880
Other current assets (34,049) (363,833)
Other assets (84,212) -
Accounts payable 698,232 (57,350)
Accrued liabilities 211,841 519,925
Payroll taxes payable 766,555 -
Other liabilities (151,130) 398,103
------------ ------------
Net cash used in operating activities 11,907,008 (14,322,803)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (94,482) (856,721)
Cash received from acquisition 61,567 -
Issuance of notes receivable - (358,587)
------------ ------------
Net cash used in investing activities (32,915) (1,215,308)
------------ ------------
Cash flows from financing activities:
Proceeds (Repayments) on line of credit, net (12,716,722) 15,149,853
Payments under capital lease obligations (261,409) (141,444)
Proceeds from issuance of notes payable 714,309 735,359
Payments on borrowings - (28,881)
Proceeds from related party borrowings 480,746 -
Proceeds from issuance of Preferred - 350,000
------------ ------------
Net cash provided by financing activities (11,783,076) 16,064,887
------------ ------------
Net increase in cash 91,017 526,776
Cash at beginning of period 24,961 61,409
------------ ------------
Cash at end of period $ 115,978 $ 588,185
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of CASH FLOWS
For the Nine Months Ended June 30, 1999 and 1998
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 June
30, 1999, and the results of their operations and their cash flows for the three
months ended June 30, 1999 and 1998 respectively. These consolidated financial
statements include the accounts of EMB Corporation and its subsidiary companies
(together "the Company").
Going Concern
Through June 30, 1999 and continuing in fiscal 1999, the Company has incurred
significant losses. At June 30 1999, the Company has a working capital deficit
of $6.3 million, which includes approximately a $2.7 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.
The accounting policies followed by the Company are set forth in Note 2 to the
Company's financial statements as stated in its report on Form 10-KSB for the
fiscal year ended September 30, 1998.
NOTE 2. 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 3 - 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.
6
<PAGE>
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT of CASH FLOWS
For the Nine Months Ended June 30, 1999 and 1998
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 4. SHAREHOLDERS' DEFICIT
During the nine months ended June 30, 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 97,500 shares of its
Series B convertible preferred stock issued and outstanding as of June 30, 1999.
During the three and nine months ended June 30, 1999, the Company issued
2,450,000 and 6,885,263 shares of common stock valued at $1,890,549 and
$3,568,547, respectively, to certain consultants and advisors for services
provided.
NOTE 5. SIGNIFICANT AGREEMENTS
On May 7, 1999, the Company entered into a stock purchase agreement whereby it
has agreed to purchase all of the outstanding shares of capital stock of
American Residential Funding ("AMRES") in exchange for 2,000,000 shares of the
Company's common stock fairly valued at $1,567,230. In addition, the Company
issued warrants to purchase an aggregate of 3,250,000 shares of common stock at
amounts ranging from $0.85 to $3.00 per share. These warrants were valued at
$1,442,500 and included as additional purchase consideration. The agreement was
accounted for under the purchase method with the excess of the fair value over
the net assets acquired of $2,943,413 allocated to goodwill.
On May 7, 1999, the Company entered into a stock purchase agreement whereby it
has agreed to purchase all of the outstanding shares of capital stock of
Residential Mortgage Corp ("RMC") in exchange for 600,000 shares of the
Company's common stock fairly valued at $470,169. The agreement was accounted
for under the purchase method with the excess of the fair value over the net
assets acquired of $470,169 allocated to goodwill.
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 June 30, 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
AMRES and 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 nine month period ended June 30, 1999, as compared to
$329,848,538 for the nine month period ended June 30, 1998, representing a
decrease of 76%. This decrease in mortgage loan volume appears to be continuing
primarily due to the cessation of the operations of EMB Mortgage.
RESULTS OF OPERATIONS
Three months ended June 30,1999 compared with three months ended June 30,1998:
Mortgage loan revenues, net of commitment fees, decreased 91% to $406,923 in the
three month period ended June 30,1999 from $4,397,814 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 and the rescission of the Investment Consultants acquisition.
General and administrative expenses increased to $2,553,707 in the three month
period ended June 30,1999 from $1,823,526 in 1998. This increase is principally
attributable to expenses related to the issuance of common stock for various
consulting and financing services during the current period.
The net loss was $2,521,507 during the three month period ended June 30, 1999,
as compared with net income of $113,216 during the same period of 1998, due
primarily due to the Company ceasing the operations of EMB Mortgage.
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 June 30, 1999, the Company had a working capital deficit of
$6.3 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 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
8
<PAGE>
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As of June 30, 1999, the Company has notes payable to unrelated parties in the
total amount of approximately $1,221,700. 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 County 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 June
30,1999.
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 June 30, 1999.
ITEM 6. OTHER INFORMATION.
Not applicable.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - 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 June 30, 1999.
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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 115,978
<SECURITIES> 0
<RECEIVABLES> 924,669
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,325,973
<PP&E> 976,397
<DEPRECIATION> (387,594)
<TOTAL-ASSETS> 6,870,773
<CURRENT-LIABILITIES> 7,597,015
<BONDS> 1,775,000
0
203,825
<COMMON> 19,984,754
<OTHER-SE> (22,689,821)
<TOTAL-LIABILITY-AND-EQUITY> 6,870,773
<SALES> 5,073,691
<TOTAL-REVENUES> 5,073,691
<CGS> 2,873,538
<TOTAL-COSTS> 2,873,538
<OTHER-EXPENSES> 15,741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,812
<INCOME-PRETAX> (7,516,729)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,516,729)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,516,729)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
