<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File Number: 1-11883
EMB CORPORATION
---------------
(Name of small business issuer as
specified in its charter)
HAWAII 95-3811580
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10159 E. 11TH STREET, SUITE 415, TULSA, OKLAHOMA 74128
------------------------------------------------------
(Address of principal executive offices)
(918) 836-8575
--------------
(Issuer's telephone number)
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: 4,457,777 as of August 15, 2000.
Transitional Small Business Disclosure Format (Check One): Yes ____ No X
-----
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
ASSETS
Current assets:
Cash $ 195,257
Restricted cash 38,470
Note receivable 1,055,000
Other current assets 145,922
--------------------
Total current assets 1,434,649
Property and equipment, net 36,021
Land held for sale 43,000
Equity investment 7,500,000
Lease rights 425,000
Other assets 163,141
-------------------
$ 9,601,811
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,160,050
Note payable to related party 784,543
Net liabilities of discontinued operations 4,342,732
Convertible debt 1,000,000
Notes payable 642,219
-------------------
Total current liabilities 7,929,544
-------------------
Shareholders' equity:
Common stock 22,465,672
Accumulated deficit (20,793,405)
-------------------
Total shareholders' equity 1,672,267
-------------------
$ 9,601,811
===================
See accompanying notes to consolidated financial statements.
2
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EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues, net $ 5,518 $ - $ 43,570 $ -
General and administrative expenses 155,288 177,569 519,760 695,607
Impairment of goodwill 498,309 - 498,309 -
----------- ------------- ------------- -------------
(648,079) (177,569) (974,499) (695,607)
Other income (expense):
Other 69,235 - 69,235 -
Interest expense (14,851) (34,225) (148,885) (133,878)
----------- ------------- ------------- -------------
Loss before income taxes (593,695) (211,794) (1,054,149) (829,485)
Provision for income taxes - - 800 800
Loss from continuing operations (593,695) (211,794) (1,054,949) (830,285)
Income (loss) from discontinued operations 8,771,959 (2,309,713) 7,307,807 (6,686,444)
----------- ------------ ------------ -------------
Net income (loss) $ 8,178,264 $ (2,521,507) $ 6,252,858 $ (7,516,729)
=========== ============= ============= =============
Basic and diluted income (loss) per common share:
Continuing operations $ (.30) $ (0.13) $ (0.55) $ (0.85)
=========== ============= ============ ============
Discontinued operations 4.48 (1.37) 3.81 (6.81)
=========== ============= ============ ============
Net loss $ 4.18 $ (1.50) $ 3.26 $ (7.66)
=========== ============= ============ ============
Basic and diluted weighted average shares 1,957,777 1,681,005 1,918,646 981,715
=========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,252,858 $ (7,516,729)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Common stock issued for services 853,500 3,568,547
Amortization of common stock issued for debt financings - 150,500
Provision for write off of goodwill and ICI severance agreement 498,310 828,211
Write off for impairment of fixed assets - 500,000
Depreciation and amortization 394,665 258,384
Gain on sale of discontinued operations (9,303,430) -
Changes in operating assets and liabilities net of
net assets sold:
Accounts receivable (27,570) (6,647)
Mortgage loans held for sale (1,750) 12,717,505
Other current assets (44,816) (34,049)
Accounts payable and accrued liabilities (240,487) (84,212)
Payroll taxes payable 180,221 1,676,628
Other current liabilities (2,505) (151,130)
-------------- ---------------
Net cash provided by (used) in operating activities (1,441,004) 11,907,008
-------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (5,200) (94,482)
Cash received from acquisitions 302 61,567
Decreases in other assets 36,860 -
Proceeds from sale of discontinued operations 2,945,000 -
-------------- ---------------
Net cash provided by (used in) investing activities 2,976,962 (32,915)
-------------- ---------------
Cash flows from financing activities:
Borrowings (repayments) on warehouse line of credit, net - (12,716,722)
Payments under capital lease obligations (218,728) (261,409)
Proceeds from related party borrowings (469,014) 480,746
Proceeds from (payments) of convertible and other notes payable (700,000) 714,309
-------------- ---------------
Net cash used in financing activities (1,387,742) (11,783,076)
-------------- ----------------
Net increase in cash 148,216 91,017
Cash at beginning of period 47,081 24,961
-------------- ---------------
Cash at end of period $ 195,297 $ 115,978
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NOTE 1 - BUSINESSES AND BASIS OF PRESENTATION
BUSINESSES
In December 1998, EMB Corporation (the "Company") substantially ceased
operations of its EMB Mortgage Corporation subsidiary. In January 2000, the
Company adopted a plan to divest itself of its remaining mortgage banking
operations. On February 22, 2000, the Company sold its interest in Residential
Mortgage Corporation ("RMC") to another mortgage banking entity, through the
cancellation of 40,000 shares of the Company's common stock. On April 12, 2000,
the Company entered into an Amended and Restated Purchase Agreement with e-Net
Financial.com Corp ("e-Net") to sell all of the outstanding stock currently held
by the Company of American Residential Funding, Inc. ("AMRES") and certain other
assets of the Company. See Note 7 for further discussion. The Company's limited
revenues consist of a management contract held by Titus Real Estate Corporation
("Titus").
On June 24, 2000, the Company entered into an asset purchase agreement with
Cyrus Ltd. ("Cyrus") to acquire rights to operate two natural gas processing
plants in Tennessee, through its newly formed subsidiary, Global Energy
Reserves, Inc. In connection with this agreement, the Company issued 2,500,000
shares of common stock. The acquisition will be accounted for as a reverse
acquisition since the operations of the two gas plants will be more significant
than the existing operations of EMB, the management team of the gas plants is
the new management team of the Company, and the new management team controls
approximately 55% of the issued and outstanding common stock of the Company,
after the acquisition. Management will assess the fair value of the assets
acquired and liabilities assumed of EMB, and will record these assets and
liabilities at fair value. No amounts will be recorded as goodwill since the
revenue producing assets of EMB are not significant. The Company includes the
operations of the gas plants from the date acquired.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying financial statements are unaudited and are prepared in
accordance with rules and regulations of the Securities and Exchange Commission
for interim quarterly reporting. Accordingly, these financial statements do not
include all disclosures required under generally accepted accounting principles.
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments (which include only normal recurring adjustments)
necessary to present fairly the consolidated financial position of the Company
as of June 30, 2000, and the results of its operations and its cash flows for
the three and nine months ended June 30, 2000 and 1999, respectively. These
consolidated financial statements include the accounts of EMB Corporation and
its subsidiary companies. Results for the nine months ended June 30, 2000, are
not necessarily indicative of the operations which may occur during the year
ending September 30, 2000. Refer to the Company's Annual Report on Form 10-KSB/A
for the year ended September 30, 1999 for further information.
The Company is required to have its consolidated financial statements for fiscal
2000 reviewed by its independent accountants prior to filing. As of the date of
this report, our independent accountants were unable to complete their review of
these financial statements. We will file an amendment to this Form 10-QSB when
our independent accountants complete their review of these financial statements.
5
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GOING CONCERN
Through June 30, 2000, the Company has incurred cumulative losses totaling
approximately $22 million. At June 30, 2000, the Company had a working capital
deficit of $6.6 million, which includes approximately a $3.4 million estimated
liability to federal and state agencies for employee and employer payroll taxes,
including estimated penalties and interest. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management is
currently funding the Company's operations and servicing its obligations through
proceeds from the sale of AMRES. The Company still requires proceeds from a
financing, from the sale of its land to meet its current obligations. Management
intends to negotiate satisfaction of its liabilities through negotiated
reductions in such obligations and payment of cash. There are no assurances that
proceeds from the sources discussed above will be available on acceptable terms
or available at all. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Certain prior period amounts have been reclassified to conform to current period
presentation. These reclassifications have no effect on previously reported net
losses.
NOTE 2 - LOSS PER COMMON SHARE
Basic and diluted 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 - EQUITY INVESTMENT
The Company's investment, consisting of 7.5 million shares of e-Net's common
stock, represents approximately 25% of the issued and outstanding common stock
of e-Net. The Company is deemed to have significant influence over the
management and operations of e-Net. Accordingly, the Company will report its
share of the income or loss from e-Net operations based on its ownership
interest, until such time the e-Net shares are liquidated or distributed outside
the Company's control.
NOTE 4 - LEASE RIGHTS
The Company acquired a working interest in two gas plants located in Tennessee.
The rights were acquired by Cyrus for $425,000 and are reflected in the
financial statements at historical cost due to the reverse acquisition. The
Company has contract rights which determine the revenues to be received for the
transmission of natural gas. The Company will receive 100% of the net revenues
until it recovers its investment, including costs of construction relating to
the establishment or renovation of the gas plants. After such time the Company
will receive 25% of the net revenues generated from its rights to operate the
gas plants.
6
<PAGE>
NOTE 5 - GOODWILL IMPAIRMENT
The Company had recorded goodwill in connection with its acquisition of Titus.
Management determined that such goodwill will not be recovered through
discounted cash flows, and accordingly, they recorded a provision for impairment
during the three months ended June 30, 2000.
NOTE 6 - SHAREHOLDERS' DEFICIT
On June 21, 2000, the Company's Board of Directors approved a 1 - for - 15
reverse stock split effective July 11, 2000. All per share amounts have been
restated to reflect this reverse stock split.
During the three-month period ended June 30, 2000, the Company issued 3,347
shares of restricted common stock valued at $15,562 in settlement of a lawsuit.
NOTE 7 - DISCONTINUED OPERATIONS
In January 2000, the Company adopted a plan to divest itself of its mortgage
banking operations. On February 22, 2000, the Company sold its interest in RMC
to another mortgage banking entity, through the cancellation of 40,000 shares of
the Company's common stock.
On April 12, 2000, the Company entered into an agreement with e-Net pursuant to
which E-net was to acquire all of the outstanding stock, currently held by the
Company of AMRES. In exchange, the Company received 7,500,000 shares of common
stock of e-Net, cash in the amount of $1,595,000 and a short-term promissory
note in the amount of $2,405,000. The parties determined the fair value of AMRES
to be approximately $11.5 million. Accordingly, the Company recorded a gain of
$9.3 million during the three months ended June 30, 2000 as a result of the
sale. The Company intends to distribute the e-Net common stock received by the
Company as a result of this transaction to the Company's shareholders as a
dividend. The Company has set a record date of May 31, 2000 for this
distribution. On May 17, 2000 the Company received a payment of $1,350,000
toward the short-term promissory note receivable from e-Net.
The Company used the proceeds totaling $2,945,000 through June 30, 2000 from the
sale of AMRES as follows:
Reduce accounts payable and payroll liabilities $1,089,123
Repay related party notes payable 1,150,000
Pay convertible debenture liabilities 700,000
---------
$2,939,123
=========
7
<PAGE>
The operating results of the discontinued mortgage banking operations are
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 95,202 $ 406,923 $ 2,870,371 $ 5,073,691
Operating expenses (351,069) (2,678,080) (4,699,590) (11,696,426)
Other income, net 8,446 (38,556) 117,646 (63,709)
Gain on sale of subsidiaries, net
income taxes of $259,817 9,019,380 - 9,019,380 -
--------------- --------------- -------------- --------------
Net loss from discontinued
Operations $ 8,771,959 $ (2,309,713) $ 7,307,807 $ (6,686,444)
=============== =============== ============== ==============
--------------------------------------- ------------------- -------------------- ------------------ ------------------
</TABLE>
The net liabilities of discontinued operations are summarized as follows as of
June 30, 2000:
Cash $ 283
Current assets 89,637
Property and equipment, net 383,388
Land 800,000
Other assets 22,512
Current liabilities, excluding payroll related liabilities (984,953)
Payroll related liabilities (3,416,046)
Notes payable (1,237,553)
---------------
Net liabilities of discontinued operations $ (4,342,732)
===============
--------------------------------------------------------------------------------
At June 30, 2000, the Company has unpaid federal and state payroll tax
liabilities of approximately $3.4 million, including estimated penalties and
interest. During fiscal 1999 and 1998, payroll tax deposits were not made
through the date the Company ceased operations of EMB Mortgage Corporation in
1999. Penalties and interest continue to accrue into fiscal 2000. Certain
officers of EMB Mortgage Corporation may be held personally liable in the event
EMB Mortgage Corporation does not satisfy these obligations.
In connection with its mortgage banking activities, EMB Mortgage Corporation was
required to repurchase loans, which failed within a specific time period or were
funded based on fraudulent information provided by the debtor and not detected
by its underwriting policies and procedures. In connection with the repurchase
of these assets from its mortgage warehouse lender, the Company issued a note
totaling $923,976. The non-interest bearing note was payable on August 15, 1999.
The note is currently in default and subject to a 5% late fee. The note is
secured by the land located in Monterey County, California.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
GENERAL
In fiscal 1998, the Company expanded its mortgage banking operations through its
acquisitions of Investment Consultants, Inc. ("ICI") and Preferred Holding
Group, Inc. ("PHG"). In fiscal 1999, the Company ceased its mortgage banking
operations of EMB Mortgage Corporation and divested itself of ICI due to an
economic downturn in the mortgage banking industry. Later in fiscal 1999, the
Company re-commenced its mortgage banking operations through acquisitions of
AMRES and Residential Mortgage Corporation ("RMC"). Effective September 1999,
EMB Mortgage was no longer in operation.
At the time of its acquisition by the Company, AMRES operated four company-owned
offices and licensed 10 Net Branch offices, all of which were located in
Southern California. With respect to company-owned offices, AMRES pays all
operational expenses and retains all of the income generated from that office. A
Net Branch differs in that AMRES entered into an agreement with an independent,
third party mortgage or real estate broker, licensing it to use the AMRES name
and to operate an AMRES-branded branch. The owner-manager of the Net Branch pays
all expenses of the Net Branch, including a payment to AMRES of a
pre-established fee for each closed mortgage loan. All net income is retained by
and all net loss is borne by, the Net Branch owner-manager. The amount of the
fee paid to AMRES varies depending upon the loan type and amount. In addition,
AMRES receives various costs associated with the loans which are charged to the
borrower(s). As of June 30, 2000, AMRES had four Company owned offices located
in Southern California. In addition, it had approximately 50 Net Branch offices
which were located in Southern California, Hawaii, Arizona and Florida.
Mortgages originated by the Company, through AMRES were primarily brokered to
various mortgage lenders. On January 12, 2000, the Company entered into an
agreement with e-Net Financial.com Corporation ("e-Net"), whereby e-Net acquired
certain of the assets of the Company, including all of the outstanding stock of
AMRES, the primary operating subsidiary of the Company. This transaction, which
closed on April 12, 2000, resulted in the Company discontinuing all of its
mortgage banking operations.
Prior to its acquisition by the Company in May 1999, RMC had not actively
engaged in business for approximately one year. At that time the Company began
to reactivate warehouse line of credit and government approvals for RMC. With
its decision, in January 2000, to divest itself of its mortgage banking
operations, on February 22, 2000, the Company sold its interest in RMC to
another mortgage banking entity.
Upon completion of the sales of AMRES and RMC (see Note 5 to the Company's
Consolidated Financial Statements, above), the Company changed the focus of its
operations from a financial services company to a natural resources development
company, through development of possible oil and water reserves associated with
its real property located in Monterey County, California, and through
acquisitions of other properties, including interests in producing oil and gas
and/or water properties such as Titus Real Estate. Titus Real Estate owns a
combination of non-operated working and royalty interests in 71 producing oil
and gas wells located in the State of Oklahoma.
9
<PAGE>
RESULTS OF OPERATIONS
Continuing Operations for the Three Months Ended June 30, 2000 Compared to the
Three Months Ended June 30, 1999.
REVENUES
Revenues consist of fees received under the Company management contract with
Titus. Such revenues are not significant.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased to $155,288 during the three
months ended June 30, 2000 from $177,569 during the same period in 1999, a
decrease of $22,281 or 13%. This decrease is principally attributed to decrease
in expenses related to the ceasing of operations of the Company's subsidiaries
in fiscal 1999. The Company continues to incur costs as a public company
consisting of salaries, rents, utilities, legal and professional services.
OTHER INCOME AND EXPENSE
Interest expense decreased to $14,851 during the three-month period ended June
30, 2000 from $34,225 in 1999. Interest expense for both periods consisted of
accrued interest payable on the convertible debt and the note due to a related
party. The decrease is attributed to payments on outstanding notes payable to
related parties and the convertible debt.
DISCONTINUED OPERATIONS
The Company sold its interest in AMRES and recorded a net gain on the sale of
$9.0 million. At present, the Company's note receivable from e-Net is deemed
collectible. The losses in 1999 related to these operations sold.
10
<PAGE>
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, 2000, the Company had a working capital deficit of
$6.5 million. The Company reduced its operations on or about December 22, 1998
to significantly reduce the losses and cash flows from operations. The Company
began originating loans through its acquisition of AMRES in May 1999. 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 2000 and management
does not believe such capital will be available to them. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company still requires proceeds from a financing, from the sale of its land
or the sales of its equity securities in e-Net to meet its current obligations.
Management intends to negotiate satisfaction of its liabilities through payment
of cash and e-Net securities. There are no assurances that proceeds from the
sources discussed above will be available on acceptable terms or available at
all, or that management will be successful in reducing its liabilities through
settlement with the use of e-Net common stock. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about November 17, 1998, the Company entered into a Stipulated
Judgment in the matter of YAMAICHI INTERNATIONAL (AMERICA) INC., VS. EMB
CORPORATION, USDC, Southern District of New York, Case No. 98-7152 (DLC). The
lawsuit arose out of the obligation of the Company to pay rent for its branch
corporate office in New York City. The total amount of the judgment was
$186,000. As of March 31, 2000, the Company has paid approximately $7,100 toward
the judgment.
On or about August 4, 1999, a judgment was entered against the
Company in the matter of RESOURCE BANCSHARES MORTGAGE GROUP, INC. VS. EMB
MORTGAGE CORPORATION, Circuit Court for Palm Beach County, Florida, Case No. 99-
2106-AO. The amount of the judgment was $129,518.57, and arose out of a mortgage
loan which Resource Bancshares Mortgage Group, Inc. ("RBMG") had requested the
Company to repurchase due to underwriting deficiencies. The mortgage loan in
question had been underwritten by Republic Mortgage Insurance Company and/or
RMIC Corporation (collectively, "RMIC") pursuant to a contract underwriting
agreement by and between RMIC and the Company. This agreement provided for RMIC
to provide certain remedies, including indemnification, to the Company in the
event of the failure of the RMIC underwriters to underwrite the Company's
mortgage loans in accordance with investor guidelines.
The Company and RMIC were engaged in litigation, Republic Mortgage
Insurance Corporation and RMIC CORPORATION VS. EMB MORTGAGE CORPORATION, Forsyth
County, North Carolina Superior Court, Civil Action No. 98 CVS 11380 and a
judgment was filed in favor of RMIC in April 1999, which has now been fully
satisfied by the Company. This lawsuit arises out of fees owed RMIC by the
Company for underwriting services provided by RMIC to the Company in its Daytona
Beach, Florida office. Management of the Company believes that RMIC and/or
Joseph K. Brick, former Vice President of the Company and former manager of its
Daytona Beach operations, may be liable to indemnify the Company for the losses
incurred by the Company in connection with the mortgage loan which is the basis
for the RBMG litigation, the litigation involving White Mountains Services
Corporation, which is further described in the following paragraph, and any
other potential losses involving loans underwritten by RMIC at the Daytona Beach
office.
EMB Mortgage Corporation and White Mountains Services Corporation are
currently engaged in litigation in the matter of WHITE MOUNTAINS SERVICES
CORPORATION VS. EMB MORTGAGE CORPORATION, in the state of Michigan, Oakland
County Circuit Court, Case number 00-21515-CK, concerning several loans funded
in the Daytona Beach office of the Company which were also underwritten by RMIC
under the contract underwriting agreement by and between RMIC and the Company.
This agreement provided for RMIC to provide certain remedies, including
indemnification, to the Company in the event of the failure of the RMIC
underwriters to underwrite the Company's mortgage loans in accordance with
investor guidelines. The Company intends to include RMIC in this litigation in
order to implement these indemnification provisions.
The Company and Joseph K. Brick are currently engaged in litigation,
JOSEPH K. BRICK VS. EMB CORPORATION, Circuit Court, Seventh Judicial District,
Volusia County, Florida, Case no. 99-30669 CICI. The Company has filed a Motion
to dismiss the complaint for failure to state a cause of action and for lack of
jurisdiction and has also appealed a lower court ruling entering a default
judgment against the Company and in favor of Mr. Brick.
12
<PAGE>
The Company has also initiated a lawsuit against Mr. Brick, his wife,
Florence M. Brick and their company, FMB Mortgage Corporation, in a matter
entitled EMB CORPORATION AND EMB MORTGAGE CORPORATION VS. JOSEPH K. BRICK,
FLORENCE M. BRICK, FMB MORTGAGE CORPORATION AND DOES 1 THROUGH 10, Superior
Court of the State of California, County of Orange, Case No. 00CC08083. In this
litigation, the Company and EMB Mortgage Corporation allege that Mr. Brick
breached the Separation, Asset Purchase Agreement and Release entered into by
and between the Company and Mr. Brick by failing to indemnify the Company
against losses incurred by the Company resulting from operations of the
Company's Daytona Beach, Florida office (the "Daytona Office") which was managed
by Mr. Brick and Mrs. Brick. The Company further alleges that Mr. and Mrs. Brick
were negligent in managing the Daytona Office and that Mr. and Mrs. Brick,
together with FMB Mortgage, Inc., the company which they formed to carry on the
business of the Daytona Office, committed fraud and conversion concerning tax
reporting by FMB Mortgage, Inc.
The Company and James C, Saunders, the former manager of the Company's
Denver, Colorado office (the "Denver Office") are currently engaged in
litigation in the matter entitled JAMES C. SAUNDERS VS. EMB CORPORATION, EMB
MORTGAGE CORPORATION, AND DOES 1 THROUGH 30, Superior Court of California,
County of Orange, Case No.: 00CC06034. In this litigation, Mr. Saunders alleges
the Company owes him certain moneys arising from the reacquisition of the Denver
Office operated by Mr. Saunders from the Company.
The Company and FirstBank Aurora are currently engaged in litigation
in the matter entitled FIRSTBANK OF AURORA, A COLORADO BANKING ASSOCIATION
("FIRSTBANK") VS. INVESTMENT CONSULTANTS, INC., DBA EMB MORTAGE CORPORATION AND
EMB CORPORATION, District Court, City and County of Denver, State of Colorado.
FirstBank alleges that the Company is liable for certain overdrafts relating to
a bank account which was controlled by James C. Saunders and Scott Sax, the
former managers of the Company's Denver Office operations.
The Company and Deposit Guaranty Mortgage Company ("DGMC") are
currently engaged in litigation in a matter entitled: CARRAMERICA REALTY, L.P.,
VS. DEPOSIT GUARANTY MORTGAGE COMPANY, District Court of Dallas County, Texas,
68th Judicial District, Case No. DV99-01262-C, in which the Company is named as
a Third Party for indemnification of DGMC for rent allegedly owed for the
Company's former office in Dallas, Texas.
The Company and Great West Life & Annuity Insurance Company
("Great West") are currently engaged in litigation in the matter entitled: GREAT
WEST LIFE & ANNUITY INSURANCE COMPANY VS. EMB CORPORATION, Superior Court of the
State of California, County of Orange, Case No. 00CC2474. In this litigation,
Great West alleges that the Company owes moneys for premiums for medical
insurance coverage provided by Great West to the Company and its former
employees through the period ended December 31, 1998.
During December 1998, the Company terminated the majority of its then
employees due to the ceasing of operation 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 actions
against the Company. Amounts owed the former employees were
13
<PAGE>
accrued in a prior period and periodic payments have been made to a substantial
number of the former employees. At this time all but two former employees of EMB
Mortgage have been paid in full and have provided full releases to the Company.
The Company is not engaged in any other legal proceedings except litigation in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to those proceedings will not be material to the
Company's financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. 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, 2000.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
*Exhibits filed herewith. Other exhibits are incorporated by reference to
previous filings.
#To be filed by Amendment.
Exhibit 10.1 Letter of Intent, dated May 23, 2000, by and between the Company
and Cyrus, Ltd., which was filed with the Securities and Exchange
Commission on June 19, 2000, as Exhibit 10.1 to the Company's
Current Report on Form 8-K, is hereby incorporated by this
reference.
Exhibit 10.2* Purchase Agreement, effective as of June 24, 2000, by and
between the Company and Cyrus Ltd.
Exhibit 10.3* Gas Processing Agreement, dated November 19, 1999, by and
between Hansen Consulting and Herbert White Gas Pipeline, Inc.
Exhibit 10.3a* Amendment to Gas Processing Agreement, dated April 27, 2000.
Exhibit 10.4* Sales and Purchase Agreement, dated May 22, 2000, by and
between Westfield Oil and Gas, Inc. and Alan Hansen.
Exhibit 10.5* Letter of Notice / Change of Ownership, effective May 20,
2000, acknowledged by Upper Cumberland Natural Gas Company, Inc.,
and Little Creek Farms, Inc.
Exhibit 10.6* Letter of Intent, dated May 30, 2000, by and between Hansen
Consulting and Citizens Utility.
Exhibit 10.7* Sale and Purchase Agreement / Transfer of Interest, dated
May 30, 2000, by and between Cyrus Ltd. and Alan Hansen dba
Hansen Consulting.
Exhibit 10.8* Sale and Purchase Agreement/Transfer of Interest dated May 30,
2000, by and between the Company and Cyrus, Ltd.
Exhibit 10.9* Transfer of Interest and Assignment, dated July 31, 2000, by and
between the Company and Cyrus Ltd.
Exhibit 27# Financial Data Schedule
(b) Reports on Form 8-K.
On April 11, 2000, the Company filed a report on Form 8-K which
disclosed the Stock Purchase Agreement, dated May 7, 1999, entered
into by and among the Company, Vincent Rinehart and AMRES
Holdings, LLC, whereby the Company agreed to purchase the stock of
American Residential Fundings, Inc.
14
<PAGE>
On April 18, 2000, the Company filed a report on Form 8-K which
disclosed the Amended and Restated Purchase Agreement, dated April
12, 2000, entered into by and between the Company and e-Net
Financial.Com Corporation, whereby the Company agreed to sell
certain of its assets to e-Net Financial.Com Corporation.
On June 19, 2000, the Company filed a report on Form 8-K which
disclosed a Letter of Intent, dated May 23, 2000, by and between
the Company and Cyrus, Ltd. The Letter of Intent provided that the
Company would acquire certain assets of Cyrus, Ltd.
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: August 21, 2000 By: /s/ Ben Campbell
----------------------------
Ben Campbell
Director and President
Date: August 21, 2000 By: /s/ Kenneth Quist
----------------------------
Kenneth Quist
Secretary and Principal Accounting
and Chief Financial Officer
