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 March 31, 2002
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5075 Warner Avenue, Suite B, Huntington Beach, California 92649
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(Address of principal executive offices)
(714) 377-2118
-------------------------
(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: 21,797,569 as of May 1, 2002.
Transitional Small Business Disclosure Format (Check One): Yes No X
----- -----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(UNAUDITED)
ASSETS
------
Current assets:
Cash and cash equivalents $ 333,988
Accounts receivable 478,731
Loans held for sale 42,421,181
Other current assets 311,736
------------
Total current assets 43,545,636
Property and equipment, net 100,043
Other assets:
Restricted cash --
Note receivable 66,584
Deposits and other assets 100,000
------------
Total other assets 166,584
------------
$ 43,812,263
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 583,841
Accrued expenses 2,604,277
Net liabilities of discontinued operations 1,510,567
Current portion of long term debt 38,411
Notes payable global settlement 348,109
Notes payable related parties 882,810
Convertible notes payable 500,000
Warehouse credit line 42,421,181
------------
Total current liabilities 48,889,196
------------
Long term liabilities:
Note payable long term 185,431
Stockholders' deficit:
Common stock, no par value; 30,000,000 shares authorized,
21,797,569 shares issued and outstanding 2,649,929
Preferred convertible shares Series E, no par value; 3,000,000
shares authorized; 2,500,000 shares issued and outstanding 235,000
Preferred convertible shares Series D, no par value; 1,000,000
shares authorized; 105,000 shares issued and outstanding 105,000
Treasury stock, preferred convertible shares (235,000)
Accumulated deficit (8,017,293)
------------
Total stockholders' deficit (5,262,364)
------------
$ 43,812,263
============
The accompanying notes are integral part of
these consolidated financial statements.
2
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net revenue $ 2,683,235 $ 2,361,599 $ 4,970,124 $ 3,975,325
Operating expenses 2,865,945 2,206,234 5,773,338 3,810,728
------------ ------------ ------------ ------------
Loss from Operations (182,710) 155,365 (803,214) 164,597
Other income (expenses)
Nonoperating interest (36,541) (13,814) (77,403) (13,814)
------------ ------------ ------------ ------------
Net income (loss) before income tax (219,251) 141,551 (880,617) 150,783
Provision for income taxes 0 0 2,400 800
------------ ------------ ------------ ------------
Net income (loss) $ (219,251) $ 141,551 $ (883,017) $ 149,983
============ ============ ============ ============
Basic and diluted weighted average
number of common stock outstanding 21,577,569 5,000,000 20,258,009 5,000,000
============ ============ ============ ============
Basic and diluted net income (loss) per share $ (0.01) $ 0.03 $ (0.04) $ 0.03
============ ============ ============ ============
The accompanying notes are integral part of
these consolidated financial statements.
3
EMB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (883,017) $ 149,983
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 30,077 25,955
Issuance of common stock for services 808,028
Decrease in accounts receivable 3,498 3,151
Increase in loans held for sale (1,904,795) (27,474,494)
Decrease in restricted assets 132,387 0
(Increase) decrease in other assets (170,342) 110,417
Decrease in accounts payable & accrued expenses (265,299) (36,735)
Increase in warehouse credit line 1,904,795 27,474,494
------------ ------------
Net cash flows provided by (used in) operating activities (344,668) 252,771
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) of notes receivable 36,820 (112,281)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of shares for cash 105,000 0
Decrease of notes payable (42,100) (33,209)
------------ ------------
Net cash flows provided by (used in) financing activities 62,900 (33,209)
------------ ------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (244,948) 107,281
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 578,936 68,937
------------ ------------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 333,988 $ 176,218
============ ============
Interest Paid $ 1,392,033 $ 1,162,838
============ ============
Income Taxes Paid $ -- $ --
============ ============
NonCash Items:
============
Issuance of common stock for services $ 808,028 --
============ ============
The accompanying notes are integral part of
these consolidated financial statements.
4
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Organization and Nature of Operation
EMB Corporation (formerly called Pacific International, Inc.) (EMB) was
incorporated under the laws of the State of Hawaii on May 5, 1960. Effective
December 16, 1995, EMB acquired the net assets of Sterling Alliance Group, Ltd.
("SAG") which included 100% ownership in Electronic Mortgage Banc, Ltd. ("EMB
Mortgage") and certain land held for sale in Monterey County, California. EMB
was inactive at the time of the acquisition. For financial statement purposes,
the transaction was recorded as a recapitalization of SAG.
In the fiscal year 1998, EMB expanded its mortgage banking operations through
its acquisitions of Investment Consultants, Inc. ("ICI") and Preferred Holding
Group, Inc. ("PHG"). In the fiscal year 1999, EMB ceased its mortgage banking
operations of EMB Mortgage and divested itself of the assets of ICI and PHG due
to an economic downturn in the mortgage banking industry. In May 1999, EMB began
slowly to recommence its mortgage banking operations through acquisitions of
American Residential Funding ("AMRES") and Residential Mortgage Corporation
("RMC").
On January 12, 2000, EMB's Board of Directors adopted a plan to discontinue the
operations of its mortgage banking activities. On February 22, 2000, EMB sold
its interest in RMC to another mortgage banking entity, through the cancellation
of 40,000 shares of EMB's common stock. A loss of $569,000 resulted from the
exchange. On April 12, 2000, EMB consummated an Amended and Restated Purchase
Agreement with e-Net Financial.com Corporation ("e-Net") to sell all of the
outstanding stock currently held by EMB of AMRES for $11.5 million in cash and
stock. EMB recorded a gain of $9.04 million in connection with the sale.
On February 14, 2000, the EMB acquired Titus Real Estate Corp. ("Titus Real
Estate") for $110,500 as an entry into oil and gas operations. In September
2000, the parties rescinded the transaction.
On June 24, 2000, EMB entered into an asset purchase agreement with Cyrus Ltd.
("Cyrus") to acquire rights to operate two natural gas processing plants in
Texas, through a newly formed subsidiary, Global Energy Reserves, Inc. In
connection with this agreement, EMB issued 2,500,000 shares of common stock. Due
to unforeseen circumstances, the parties were unable to close the transaction,
and the 2,500,000 shares were returned to EMB.
Pursuant to a Purchase Agreement dated July 23, 2001, EMB acquired all of the
issued and outstanding shares of Saddleback Investment Services, Inc., a
California corporation ("SB") from William R. Parker ("Mr. Parker"), its sole
shareholder. SB was incorporated on November 9, 1992 under the laws of the State
of California. SB assists third parties in obtaining long term trust deed
(mortgage) financing. SB is subject to the laws and regulations issued by HUD
and other regulatory agencies. SB, presently doing business as American National
Mortgage ("American National") is a mortgage broker and banking entity with its
principal office located in Santa Ana, California. American National was formed
in November 1992. SB was inoperative for the three-month period ended March 31,
2002.
Pursuant to a Purchase Agreement dated September 30, 2001, EMB acquired all of
the issued and outstanding shares of First Guaranty Financial Corporation, a
California corporation ("FG") from FGFC Holdings, Inc., a California corporation
("FGFC Holdings"), its sole shareholder. FG was organized June 13, 1988. First
Guaranty is a mortgage banking entity with its principal office located in Santa
Ana, California. First Guaranty was formed in June 1988 and operated solely as a
wholesale mortgage banker until June 1998. At that time, the management of First
Guaranty determined that it should expand its operations to include retail
operations, as well. First Guaranty's current operations include loans generated
5
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
as retail mortgage business with the loans being originated by in-house loan
officers, and also loans generated through wholesale lending operations with the
loans being originated by independent mortgage brokers and submitted to First
Guaranty for funding. FG is subject to the laws and regulations issued by HUD
and other regulatory agencies. For accounting purposes, the transaction has been
treated as a recapitalization of FG with the FG as the accounting acquirer
(reverse acquisition), and has been accounted for in a manner similar to a
pooling of interests.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of EMB
and its 100% wholly owned subsidiaries, FG and SB (collectively the "Company").
All significant inter-company accounts and transactions have been eliminated in
consolidation. The acquisition of FG (on September 30, 2001) has been accounted
for as a purchase and treated as a reverse acquisition since the former owners
of FG became the largest and controlling shareholder of EMB immediately
following the acquisition. The balance sheet and the statements of operation and
cashflows for the period ended March 31, 2002 includes financial statements of
EMB, FG and SB while the statements of operation and cashflows for the period
ended March 31, 2001 include only FG's statements.
Basis of presentation
The accompanying unaudited condensed consolidated interim financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for the presentation of interim financial
information, but do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These statements should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended September 30, 2001. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended September 30, 2002.
Segment Reporting
During the periods ended March 31, 2002 and 2001, the Company only operated in
one segment, therefore segment disclosure has not been presented.
2. RECENT PRONOUNCEMENTS
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting requirements
for business combinations and will require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method will be prohibited. This statement is
effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. Intangible assets with
a determinable useful life will continue to be amortized over that period. This
statement became effective January 1, 2002.
6
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations". SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The impact of
the adoption of SFAS 143 on the Company's reported operating results, financial
position and existing financial statement disclosure is not expected to be
material.
In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), was issued.
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and broadens the definition of what constitutes
a discontinued operation and how the results of a discontinued operation are to
be measured and presented. The provisions of SFAS 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The impact of the adoption of SFAS 144 on the Company's reported operating
results, financial position and existing financial statement disclosure is not
expected to be material.
The adoption of above pronouncements did not materially impact the Company's
financial position or results of operations.
3. GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
company as a going concern. However, the Company has an accumulated deficit of
$8,017,293. The Company's total liabilities exceed its total assets by
$5,262,364. The Company faces continuing significant business risks, including,
but not limited to, its ability to maintain vendor relationships by making
timely payments when due.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet it dependent upon continued operations of the company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and succeed in its future operations, The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. The Company is actively pursuing
additional funding and potential merger or acquisition candidates and strategic
partners which would enhance stockholders' investment. In that regard, the
Company had a reverse acquisition with FG on September 30, 2001. During the
three month period ended March 31, 2002, the Company raised $105,000 by issuing
Preferred shares. Management believes that the above actions will allow the
Company to continue operations through the next twelve months.
4. NET LIABILITIES OF DISCONTINUED OPERATIONS
Through September 30, 2001, EMB disposed several of its subsidiaries by selling
its interest in those subsidiaries (note 1). The net liabilities of discontinued
operations per the financial statements are summarized as follows as of March
31, 2002:
Current liabilities, excluding payroll liabilities $ (122,990)
Payroll liabilities (341,122)
Notes payable (1,046,455)
------------
Net liabilities of discontinued operations $ (1,510,567)
============
7
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On July 26, 2001, the Company and William V. Perry closed the transaction
whereby the Company sold to Mr. Perry all of the capital stock of EMB Mortgage
Corporation for a nominal consideration of $10. Prior to this transaction, EMB
Mortgage Corporation had been a wholly-owned subsidiary of the Company, with Mr.
Perry serving as its President. Prior to June 21, 2000, Mr. Perry had also been
a Director of the Company.
On July 26, 2001, the Company and David Berman closed the transaction whereby
the Company sold to Mr. Berman all of the capital stock of Ameritelecon, Inc.
for a nominal consideration of $10. Prior to this transaction, Ameritelecon,
Inc. had been a wholly owned subsidiary of the Company, with Mr. Berman serving
as its President.
5. NOTES PAYABLE - REALTED PARTIES
Notes payable consist of amounts payable to shareholders. $295,560 is due to the
president of the Company. The note is due on April 1, 2002 and bears an interest
rate of 7% and 12% if unpaid after due date. The Company has a note payable of
$500,000 to former shareholder of FG. The note bears the interest rate of 10%
per annum and is due by September 30, 2003. The Company has a note payable of
$100,000 to former shareholder of SB. The note bears the interest rate of 6% per
annum and is due by March 1, 2003. The notes payable to former shareholders of
FG and SB are secured by share capital of respective entities.
6. CONVERTIBLE NOTES PAYABLE
On or about April 10, 2001, the Company issued a 10% convertible note amounting
$500,000. The conversion price for the note is the volume-weighted trading
average Closing Bid Price during the ten (10) consecutive Trading Days
immediately preceding the Conversion Date. Interest is payable at maturity, or
upon conversion of the note, at 10% per annum.
7. LOSS PER SHARE
Loss per share for the three month and six month periods ended March 31, 2002
and 2001 were determined by dividing net loss for the periods by the weighted
average number of both basic and diluted shares of common stock and common stock
equivalents outstanding. Stocks to be issued are regarded as common stock
equivalents and are considered in diluted earnings per share calculations. At
March 31, 2002, the Company had 2,710,000 convertible preferred stock
outstanding which were considered as common stock equivalents for the "loss per
share" calculation. Preferred stock were not included in the computation of
diluted EPS because the effect of their exercise would be anti-dilutive.
8. LITIGATION
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, 2002,
the Company has paid approximately $7,100 toward the judgment. The outstanding
balance of the judgment has been accrued and reflected in the consolidated
financial statements.
8
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, which was filed on or about March 23,
1999. The Company filed an appeal of a lower court ruling entering a default
judgment against the Company and in favor of Mr. Brick. In February 2001, this
appeal was denied. Subsequent thereto, a judgment was entered by the Court in
Volusia County, Florida, in favor of Mr. Brick in the amount of $1,303,440.22.
As of June 27, 2001, Mr. Brick obtained entry of a sister-state judgment against
the Company in the State of California.
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, filed August 7, 2000. In this
litigation, the Company and its former subsidiary, EMB Mortgage Corporation,
alleged 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. and Mrs. Brick. The Company further alleged negligence
Mr. and Mrs. Brick in their management of the Company's Daytona Office and fraud
and conversion against Mr. and Mrs. Brick, together with FMB Mortgage, Inc. (the
company which they formed to carry on the business of the Daytona Office),
concerning tax reporting by FMB Mortgage, Inc. The Company and EMB Mortgage
Corporation have agreed, between themselves, that the Company will bear all
expenses of litigation, including attorney's fees and associated costs, and will
be entitled to the entire judgment, if any, obtained against the defendants
herein. The Company has accrued $1,300,000 in the consolidated financial
statements to cover any potential loss in the future.
The Company and James C. Saunders, the former manager of the Company's Denver,
Colorado office (the "Denver Office") were 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, filed May 18, 2000. In this litigation, Mr. Saunders alleged the
Company owed him certain moneys arising from the reacquisition of the Denver
Office by Mr. Saunders from the Company. A settlement was reached by the parties
to this litigation whereby the Company issued its convertible promissory note to
Mr. Saunders in the amount of $500,000 in exchange for a dismissal of this
action, which was entered on May 24, 2001.
Both the convertible note for $500,000 plus accrued interest through March 31,
2002 have been recorded by the Company to cover this debt.
The Company and Deposit Guaranty Mortgage Company ("DGMC") were 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, filed October 19, 1999, 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 DGMC stipulated to
judgment against the Company and in favor of DGMC in the amount of $30,000. No
part of this judgment has been paid. The Company has accrued $30,000 in the
financial statements to cover the judgment.
On January 3, 2001, the Company was sued in the lawsuit styled, FirstBank of
Aurora vs. Investment Consulting Inc., Jane and/or John Does 1-100 and EMB
Corporation, Denver Colorado District Court Number 01CV0018. Plaintiff seeks
damages in the amount of $29,878.13 in respect of its allegation that the
Company's bank account was overdrawn by such amount. In addition, Plaintiff
seeks interest on such amount, and its costs and attorneys' fees. The Company
was served on January 21, 2001. The Company believes the allegations raised in
the Complaint to be without merit. However, as of this date, no responsive
pleading has been filed. The Company has accrued $30,000 in the financial
statements to cover the litigation.
9
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company and Great West Life & Annuity Insurance Company ("Great West") were
engaged in litigation in the matter styled, Great West Life & Annuity Insurance
Company v. EMB Corporation, Superior Court of the State of California, County of
Orange, Case No. 00CC2472. In this litigation, Great West alleged that the
Company owed 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. The Company and Great West stipulated to judgment against the
Company and in favor of Great West in the amount of $42,648.48. No part of this
judgment has been paid. The Company has accrued $43,000 to cover the judgment.
The Company and Donald Egan were engaged in litigation in the matter entitled
Donald Egan vs. EMB Corporation, et al, District Court, Denver County, Colorado,
Case No. 99CV-000736 Division 1. In this litigation, the Plaintiff alleged that
the Company owed moneys on an outstanding promissory note. On June 3, 1999, a
Court judgment was entered against the Company in the amount of $174,136.50. The
current balance on the judgment with accrued interest after credits for payments
on behalf of the Company is $79,065.62. On November 12, 2001 the Company and
Donald Egan entered into a General Release and Settlement Agreement whereby, as
full satisfaction of the judgment, the Company assigned to Mr. Egan all of its
interest in 1,500,000 shares of common stock of e-net that the Company had
acquired in the "Global Settlement" Agreement by and between the Company, e-Net
and other parties. See Part I, Item 1, "Description of Business" for a complete
description of the "Global Settlement" Agreement. The Company has accrued
$79,000 to cover the settlement.
EMB Mortgage Corporation and Impac Funding Corporation are engaged in
litigation, Impac Funding Corporation vs. EMB Mortgage Corporation, et al.,
Superior Court, County of Monterey, and Case No. M50028, filed on August 1,
2000. This is a judicial foreclosure action, wherein Impac is seeking to
foreclose the Monterrey, California, real property owned by EMB Mortgage
Corporation. The obligation arises out of a promissory note secured by deed of
trust for moneys alleged owed to the plaintiff by EMB Mortgage Corporation for
loans required to be repurchased by EMB Mortgage Corporation or other alleged
defaults by EMB Mortgage Corporation of the various agreements with Impac
concerning the funding and purchase of loans by Impac on behalf of EMB Mortgage
Corporation. The Company and EMB Mortgage Corporation have agreed that the
Company will bear all expenses of litigation, including attorney's fees and
associated costs at its sole option, elect to assist EMB Mortgage Corporation in
reaching a resolution of the pending legal action. On or about October 4, 2001,
EMB Mortgage Corporation entered into a settlement agreement with Impac Funding
Corporation whereby the term of the promissory note was extended for one year,
with several interim payments. It was further agreed, and the Company concurred,
that, at the extended date of the note, the Company would issue shares of its
common stock to Impac Funding Corporation equivalent in value to the unpaid
balance of the note. The Settlement Agreement also provides that the Company
issue to Impac Funding Corporation a five-year warrant for the purchase of up to
100,000 shares of the Company's common stock at a price of $0.0563 per share.
On August 30, 2001, First Guaranty was sued in a lawsuit styled NFC Consultants,
Inc., HomeZipr Corp. Vs. First Guaranty Financial Corporation, et al, Superior
Court of California, County of Orange, Case No. 01CC1121. This lawsuit alleges
moneys owed by First Guaranty or other defendants arising out of a purported
consulting agreement whereby First Guaranty would receive retail mortgage leads
from one of the plaintiffs. The lawsuit also alleges that First Guaranty and
other defendants retained certain personal property of the one of the plaintiffs
arising out of the termination of a sublease of premises unrelated to First
Guaranty. The Company believes the allegations raised in the Complaint to be
without merit and has filed a Demurrer to the action. A Court hearing on the
Demurrer is presently scheduled.
10
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On July 24, 2001, the Company entered into Settlement Agreements with Ben
Campbell ("Campbell"), the former Director and President of the Company and
Kenneth J. Quist ("Quist"), the former Vice President, Secretary, Principal
Accounting and Chief Financial Officer and Director of the Company, to
compensate them for past services rendered in such capacities and to reimburse
them for expenses incurred on behalf of the Company during the nine months ended
June 30, 2001. The terms of the Settlement Agreements, among other things,
provided that the Company issue 150,000 shares and 100,000 shares of the
Company's restricted common stock to Campbell and Quist, respectively. On the
same date, the Company agreed to issue 10,000 shares of the Company's restricted
common stock to each of Roger D. Hall, a former Director of the Company, and Ann
L. Petersen, a remaining Director of the Company, as compensation for past
services rendered in such capacities. The Company had expensed $165,000 in the
year ended September 30, 2000, and had expensed $56,250 during the three months
ended December 31, 2000. These expenses were charged to additional paid in
capital as the value of services provided by management. As of June 30, 2001,
the Company reversed the charge to additional paid in capital for $221,250 and
recorded a liability for the $270,000 with the difference recorded as settlement
expense.
The Company and its subsidiaries might be engaged in other legal proceedings
which are ordinary in normal course of business. In the opinion of management,
the amount of ultimate liability with respect to those proceedings, if any, will
not be material to the Company's financial position or results of operations.
9. ACQUISITIONS
Pursuant to a Purchase Agreement dated July 23, 2001, the Company, on July 24,
2001, closed a transaction, whereby it acquired all of the issued and
outstanding shares of capital stock of Saddleback Investment Services, Inc., a
California corporation ("Saddleback") from William R. Parker ("Mr. Parker"), its
sole shareholder. In exchange for the shares of Saddleback, the Company issued
500,000 of its restricted common stock to Mr. Parker and delivered to Mr.
Parker, the Company's secured promissory note payable to Mr. Parker in the
initial principal amount of $100,000, bearing interest at the rate of six
percent (6%) per annum. The Company has secured its promissory obligation with
the shares of Saddleback acquired by the Company in this transaction. In
addition, the Company issued to SB 500,000 shares of the Company's restricted
Series E Convertible Preferred Stock in exchange for 100,000 shares of SB's
restricted Series A Convertible Preferred Stock.
Pursuant to a Purchase Agreement dated September 30, 2001, the Company acquired
all of the issued and outstanding shares of capital stock of First Guaranty
Financial Corporation, a California corporation ("FG") from FGFC Holdings, Inc.,
a California corporation ("FGFC Holdings"), its sole shareholder. In exchange
for all of the shares of common stock of FG, the Company issued 5,000,000 shares
of its restricted common stock to FGFC Holdings and delivered to FGFC Holdings
the Company's secured two-year promissory payable to FGFC Holdings in the
initial principal amount of $500,000, bearing interest at the rate of ten
percent (10%) per annum. In addition, the Company issued to FG 2,000,000 million
shares of the Company's restricted Series E Convertible Preferred Stock in
exchange for 100,000 shares of First Guaranty's restricted Series A Convertible
Preferred Stock. As a part of the transaction, FG returned to a former
shareholder, a note receivable amounting $550,000 and investments in marketable
securities amounting $1,893,750. The return of such assets have been treated as
a part of the acquisition. The Purchase Agreement also provides that Rodney K.
Thompson, who presently serves as a Director and President of First Guaranty,
and is also a Director and President of FGFC Holdings, Inc., is to be named to
the Board of Directors of the Company.
11
EMB CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For accounting purposes, the transaction was treated as a recapitalization of
FG, with the FG as the accounting acquirer (reverse acquisition), and was
accounted for in a manner similar to a pooling of interests.
10. STOCKHOLDERS' EQUITY
During the three month period ended March 31, 2002, the Company issued 105,000
shares of preferred stock, Series D, for cash amount of $105,000. During the six
month period ended March 31, 2002, the Company issued 5,090,625 shares of common
stock for consulting services of $808,028 based upon fair value of the stock
issued. The Company accounts for the issuance of equity instruments to acquire
goods and services based on the fair value of the goods and services or the fair
value of the equity instrument at the time of issuance, whichever is more
reliably measurable.
On February 4, 2002, the Company, for a consideration of $10, issued warrants
for the purchase of 50,000 shares of common stock at the last closing asked
price for the common stock on the principal market as reported by Bloomberg
Financial. The warrants expires two years after their issuance.
11. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the fiscal year
2001 presentation.
12
Item 2. Management's Discussion and Analysis or Plan of Operation.
Except for historical information, the materials contained in this
Management's Discussion and Analysis are forward-looking (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and involve a number of risks and uncertainties. These
include the Company's historical losses, the need to manage its growth, general
economic downturns, the present turmoil relating to the September 11, 2001
attacks on the United States and our country's response thereto, intense
competition in the financial services and mortgage banking industries,
seasonality of quarterly results, and other risks detailed from time to time in
the Company's filings with the Securities and Exchange Commission. Although
forward-looking statements in this Quarterly Report reflect the good faith
judgment of management, such statements can only be based on facts and factors
currently known by the Company. Consequently, forward-looking statements are
inherently subject to risks and uncertainties, actual results and outcomes may
differ materially from the results and outcomes discussed in the forward-looking
statements. Readers are urged to carefully review and consider the various
disclosures made by the Company in this Quarterly Report, as an attempt to
advise interested parties of the risks and factors that may affect the Company's
business, financial condition, and results of operations and prospects.
Overview
During the fiscal year ending September 30, 2001, the Company abandoned its
plans to enter the energy-related marketplace. Following a change of management
in July 2001, new management determined that it would be in the best interests
of the Company and its shareholders to return to the financial services sector.
In July 2001, it acquired Saddleback Investment Services, Inc., dba American
National Mortgage. On September 30, 2001, it acquired First Guaranty Financial
Corporation.
At the time of its acquisition, American National was not actively doing
business. Nevertheless, it was deemed to be an attractive candidate for
acquisition because of the numerous state licenses and its approved lending
status with government lending institutions. After its acquisition, American
National recommenced doing business; however, during the three months ended
March 31, 2002, American Naitonal was again inoperative. Management is presently
considering several options concerning the future of American National,
including, but not limited to, reactiviation of its business and sale of its
assets.
The Company's acquisition of First Guaranty Financial Corporation was
deemed appropriate because of First Guaranty's strong performance in the
wholesale mortgage banking sector of the mortgage industry. Prior to its
acquisition, First Guaranty had been experiencing a rapid expansion of its
business. Additionally, First Guaranty was deemed to be a good candidate for
acquisition because of its high profitability based upon mortgage fundings. In
short, it was, and continues to be, a well-run business operation.
13
Beginning in July 2001, the Company entered into several business
transactions that altered the composition of the Company. On July 23, 2001, the
Company acquired all of the outstanding capital stock of Saddleback Investment
Services, Inc., dba American National Mortgage. On July 26, 2001, the Company
disposed of its other two subsidiaries, EMB Mortgage Corporation and
Ameritelecon, Inc. Finally, on September 30, 2001, the Company acquired all of
the capital stock of First Guaranty Financial Corporation in exchange for 5
million shares of the Company's common stock. As a result of this exchange of
stock and the other transaction, the Company's acquisition of First Guaranty was
accounted for as a "Reverse Acquisition". Accordingly, for accounting purposes,
First Guaranty was treated as the continuing reporting entity and "Accounting
Acquirer" that acquired the Company.
Results of Operations.
Continuing Operations for the Three Months Ended March 31, 2002 as compared
to the Three Months Ended March 31, 2001.
Revenues
Revenues increased by $321,636 or 13.6%, to $2,683,235 for the three-month
period ended March 31, 2002, compared to $2,361,599 for the three-month period
ended March 31, 2001. The growth in revenues is primarily attributable to the
expansion and growth of First Guaranty's mortgage lending operations. First
Guaranty, as did most of the mortgage industry, benefited greatly from the
decline in interest rates over the last twelve months. Typically, as interest
rates fall, the refinance market heats up expanding the market of interested
borrowers beyond those borrowing for the purchase of their primary residence.
First Guaranty benefited from this market upturn, as they had the capacity in
terms of people and infrastructure to accommodate the additional business.
Costs and Expenses.
Commissions are paid to loan agents or mortgage brokers on funded loans.
Commissions increased by $257,850 or 189.7%, for the three-month period ended
March 31, 2002, to $393,767 from $135,917 for the three-month period ended March
31, 2001. Warehouse line interest expense totaled $790,677 for the three months
ended March 31, 2002 as compared to $564,192 for the three-month period ended
March 31, 2001, an increase of $226,485, or 40.1%. Bank and investor fees
totaled $265,825 for the three months ended March 31, 2002 as compared to
$106,870 for the three months ended March 31, 2001, an increase of $158,955, or
148.7%. Each of these increases is primarily related to the increased business
operations discussed above.
Salaries and Wages.
Salaries and wages totaled $549,250 in the three-month period ended March
31, 2002 compared to $304,144 in the three months ended March 31, 2001, an
increase of $245,106, or 80.6%. The increase is primarily related to the
expansion of First Guaranty's operations.
14
General and Administrative Expenses.
General and administrative expenses totaled $866,426 for the three-month
period ended March 31, 2002, compared to $1,095,111 for the three-month period
ended March 31, 2001. This decrease of $228,685, or 20.9%, can be attributed, in
part, to the reduction of expenses at the corporate level due to non-recurring
accruals of expense in the period ended March 31, 2001 for various litigation
matters. In the three-month period ended March 31, 2002, the Company had
non-cash expenses, incurred or accrued, associated with services rendered by
third parties totaling $465,473.
Interest Expense.
Interest expense, exclusive of warehouse line interest expense, was $36,541
for the three months ended March 31, 2002, compared to $13,814 in the year
earlier period. This interest expense is primarily related to the convertible
note issued by the Company on April 10, 2001, the preferred stock issued during
the quarter ended March 31, 2002 and to an increase in the outstanding notes to
related parties.
Net Profit(Loss).
The Company realized a net loss (after provision for income tax) of
$219,251 in the three-month period ended March 31, 2002 compared to a net profit
of $141,551 for the three-month period ended March 31, 2001, or $(0.01) and
$0.03 per share, respectively. The loss for the quarter can be attributed
substantially to the non-cash expenses and interest expense discussed in the
preceding two paragraphs.
Continuing Operations for the Six Months Ended March 31, 2002 as compared
to the Six Months Ended March 31, 2001.
Revenues
Revenues increased by $994,799 or 25%, to $4,970,124 for the six-month
period ended March 31, 2002, compared to $3,975,325 for the six-month period
ended March 31, 2001. The growth in revenues is primarily attributable to the
expansion and growth of First Guaranty's mortgage lending operations as
discussed above. There was, however, a slowdown in the refinance and purchase
market following the September 11, 2001 attacks on the United States. This
slowdown resulted in total revenues being reduced somewhat from what they might
otherwise have been expected to be.
Costs and Expenses.
Commissions are paid to loan agents or mortgage brokers on funded loans.
Commissions increased by $257,850 or 44.6%, for the six-month period ended
March, 2002, to $835,273 from $577,423 for the six-month period ended March 31,
15
2001. Warehouse line interest expense totaled $1,375,508 for the six months
ended March 31, 2002 as compared to $1,149,023 for the six-month period ended
March 31, 2001, an increase of $226,485, or 19.7%. Bank and investor fees
totaled $508,815 for the six months ended March 31, 2002 as compared to $349,860
for the six months ended March 31, 2001, an increase of $158,955, or 45.4%. Each
of these increases is primarily related to the increased business operations
discussed above.
Salaries and Wages.
Salaries and wages totaled $1,119,828 in the six-month period ended March
31, 2002 compared to $874,722 in the six months ended March 31, 2001, an
increase of $245,106, or 28.2%. The increase is primarily related to the
expansion of First Guaranty's operations.
General and Administrative Expenses.
General and administrative expenses totaled $1,933,914 for the six-month
period ended March 31, 2002, compared to $895,700 for the six-month period ended
March 31, 2001. This increase of $1,038214, or 115.9%, can be attributed,
primarily, to contracts with third parties for which expenses were accrued
during the first half of the six-month period of the current fiscal year versus
no such accruals during the the same period in the year earlier. In the six
month period ended March 31, 2002, the Company had non-cash expenses, incurred
or accrued, associated with services rendered by third parties totaling
$808,028.
Interest Expense.
Interest expense, exclusive of warehouse line interest expense, was $77,403
for the six months ended March 31, 2002, compared to $13,814 in the year earlier
period. This interest expense is primarily related to the convertible note
issued by the Company on April 10, 2001, the preferred stock issued during the
current six-month period and to an increase in the outstanding notes to related
parties.
Net Profit(Loss).
The Company realized a net loss (after provision for income tax) of
$883,017 in the six-month period ended March 31, 2002 compared to a net profit
of $149,983 for the six-month period ended March 31, 2001, or $(0.04) and $0.03
per share, respectively. The loss for the quarter can be attributed
substantially to the non-cash expenses and interest expense discussed in the
preceding two paragraphs.
Liquidity and Capital Resources.
In the six-month period ended March 31, 2002, net cash of $344,668 was used
from operating activities as compared to March 31, 2001 when operating
activities provided net cash of $252,771. During the six-month period ended
16
March 31, 2002, investing activities provided net cash of $36,820 as compared to
the six-month period ended March 31, 2001 when there was a net cash outflow of
$112,281. The sole component of the cash provided by investing activities for
both the current and prior year periods represented changes in notes receivable.
Net cash provided by financing for the six months ended March 31, 2002 totaled
$62,900 and consisted of decreases in note payables and issuance of preferred
shares for cash. In the six months ended March 31, 2001, net cash used in
financing totaled $33,209 which was attributable to principal paid on notes
payments.
Our consolidated financial statements have been prepared assuming the
Company will continue as a going concern. Because the Company incurred
significant losses from operations in the years prior to the acquisition of
First Guaranty and American National, it has an accumulated deficit of
$8,017,293 with total liabilities exceeding total assets by $5,262,364. As a
result it will require additional financing to meet its cash requirements. In
their report dated December 12, 2001 and February 15, 2001, that was included in
our amended annual report, our auditors included an explanatory paragraph
raising substantial doubt about our ability to continue as a going concern. Cash
requirements depend on several factors, including but not limited to, the pace
at which all subsidiaries continue to grow and generate positive cash flow, as
well as the ability to raise additional financing.
During the three-month period ended March 31, 2002, we sold 105,000 shares
of Series D Preferred Stock for total cash proceeds of $105,000. While there are
certain commitments for additional financing, and there can be no assurance that
any such commitment can be obtained on favorable terms, if at all. Management
plans to continue its growth plans to generate revenues sufficient to meet its
cost structure. Management believes that these actions will afford the Company
the ability to fund its daily operations and service its remaining debt
obligations primarily through the cash generated by operations; however, there
are no assurance that management's plans will be successful. No adjustments have
been made to the carrying value of assets or liabilities as a result of these
uncertainties.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As a result of the sale of EMB Mortgage Corporation, the following
discussion excludes those matters that pertained solely to the Company's former
subsidiary, EMB Mortgage Corporation, except as noted.
17
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 December 31, 2001, the Company has paid approximately $7,100
toward the judgment.
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, which was filed on or about March 23,
1999. The Company filed an appeal of a lower court ruling entering a default
judgment against the Company and in favor of Mr. Brick. In February 2001, this
appeal was denied. Subsequent thereto, a judgment was entered by the Court in
Volusia County, Florida, in favor of Mr. Brick in the amount of $1,303,440.22.
As of June 27, 2001, Mr. Brick obtained entry of a sister-state judgment against
the Company in the State of California.
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, filed
August 7, 2000. In this litigation, the Company and its former subsidiary, 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. and Mrs. Brick. The Company further
alleges negligence Mr. and Mrs. Brick in their management of the Company's
Daytona Office and fraud and conversion against Mr. and Mrs. Brick, together
with FMB Mortgage, Inc. (the company which they formed to carry on the business
of the Daytona Office), concerning tax reporting by FMB Mortgage, Inc. In summer
of 2001, this litigation was dismissed without prejudice by the Company;
however, the Company intends to refile and pursue these claims. The Company and
EMB Mortgage Corporation have agreed, between themselves, that the Company will
bear all expenses of litigation, including attorneys fees and associated costs,
and will be entitled to the entire judgment, if any. In connection with the
satisfaction of his prior judgment, Mr. Brick has also initiated new litigation
against the Company and others entitled Joseph K. Brick vs. EMB Corporation, EMB
Mortgage Corporation, Valley Pacific Environmental & Energy, William V. Perry
and Does 1 through 30, Superior Court of the County of Orange, Case No.
01CC10914. The Company was only recently served with the Summons and Complaint
pertaining to this litigation and, as of the date of this Current Report, has
not been required to file a response thereto. Management believes that this
litigation lacks merit, as against the Company, and will pursue a defense
thereto.
The Company and Deposit Guaranty Mortgage Company ("DGMC") were engaged in
litigation in a matter entitled CarrAmerica Realty, L.P., vs. Deposit Guaranty
Mortgage Company, District Court of Dallas County, Texas, 68th Judicial
18
District, Case No. DV99-01262-C, filed October 19, 1999, 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 DGMC stipulated to
judgment against the Company and in favor of DGMC in the amount of $30,000. No
part of this judgment has been paid.
On January 3, 2001, the Company was sued in the lawsuit styled, FirstBank
of Aurora vs. Investment Consulting Inc., Jane and/or John Does 1-100 and EMB
Corporation, Denver Colorado District Court Number 01CV0018. Plaintiff seeks
damages in the amount of $29,878.13 in respect of its allegation that the
Company's bank account was overdrawn by such amount. In addition, Plaintiff
seeks interest on such amount, and its costs and attorneys' fees. The Company
was served on January 21, 2001. The Company believes the allegations raised in
the Complaint to be without merit; however, as of this date, no responsive
pleading has been filed.
The Company and Great West Life & Annuity Insurance Company ("Great West")
were engaged in litigation in the matter styled, Great West Life & Annuity
Insurance Company v. EMB Corporation, Superior Court of the State of California,
County of Orange, Case No. 00CC2472. In this litigation, Great West alleged that
the Company owed 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. The Company and Great West stipulated to judgment against the
Company and in favor of Great West in the amount of $42,648.48. No part of this
judgment has been paid.
EMB Mortgage Corporation and Impac Funding Corporation are engaged in
litigation, Impac Funding Corporation vs. EMB Mortgage Corporation, et al.,
Superior Court, County of Monterey, Case No. M50028, filed on August 1, 2000.
This is a judicial foreclosure action, wherein Impac is seeking to foreclose the
Monterey, California, real property owned by EMB Mortgage Corporation. The
obligation arises out of a promissory note secured by deed of trust for moneys
alleged owed to the plaintiff by EMB Mortgage Corporation for loans required to
be repurchased by EMB Mortgage Corporation or other alleged defaults by EMB
Mortgage Corporation of the various agreements with Impac concerning the funding
and purchase of loans by Impac on behalf of EMB Mortgage Corporation. The
Company and EMB Mortgage Corporation have agreed that the Company will bear all
expenses of litigation, including attorneys fees and associated costs and, at
its sole option, may elect to assist EMB Mortgage Corporation in reaching a
resolution of the pending legal action. On or about October 4, 2001, EMB
Mortgage Corporation entered into a settlement agreement with Impac Funding
Corporation whereby the term of the promissory note was extended for one year,
with several interim paymentsIt was further agreed, and the Company concurred,
that, at the extended date of the note, the Company would issue shares of its
common stock to Impac Funding Corporation equivalent in value to the then unpaid
balance of the note. The Settlement Agreement also provides that the Company
will issue to Impac Funding Corporation a five-year warrant for the purchase of
up to 100,000 shares of the Company's common stock at a price of $0.0563 per
19
share. A cash payment due Impac Funding in March, 2002 in the amount of $10,000
was not made by the Company and, as a result the Company is in default of its
obligations under the terms of the settlement agreement.
On August 30, 2001, First Guaranty was sued in a lawsuit styled NFC
Consultants, Inc., HomeZipr Corp. vs. First Guaranty Financial Corporation, et
al, Superior Court of California, County of Orange, Case No. 01CC1121. This
lawsuit alleges moneys owed by First Guaranty or other defendants arising out of
a purported consulting agreement whereby First Guaranty would receive retail
mortgage leads from one of the plaintiffs. The lawsuit also alleges that First
Guaranty and other defendants retained certain personal property of the one of
the plaintiffs arising out of the termination of a sublease of premises
unrelated to First Guaranty. The Company believes the allegations raised in the
Complaint to be without merit and has filed a Demurrer to the action. On or
about January 11, 2002, the Demurrer of First Guaranty was granted by the Court,
thereby denying the lawsuit as originally pled. No new or amended pleadings have
been filed by the Plaintiffs as of the date of filing of this Quarterly Report.
The Company, and its subsidiaries, are not engaged in any other legal
proceedings except litigation in the ordinary course of 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 and Use of Proceeds.
On or about January 23, 2002, the Company issued an aggregate of 900,000
shares of its Common Stock to third parties in connection with consulting
agreements.
On or about February 4, 2002 and March 31, 2002, the Company issued an
aggregate of 105,000 shares of its Series D Preferred Stock to an unrelated
party for cash in the amount of $105,000. It also issued 50,000 Warrants to
purchase shares of Common Stock to the same party. These stock transactions were
made in reliance upon the exemption from registration under Section 4(2) of the
Securities Act.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter 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, 2002.
20
Item 5. Other Information.
On or about February 4, 2002, the Company completed the first closing and
received the first funds from a previously agreed to private placement of its
Series D Convertible Preferred Stock. The agreement between the Company and
Paramount Financial Group, Inc., ("Paramount") provides for the acquisition by
Paramount of up to 1,000,000 shares of the Series D Convertible Preferred Stock,
at a purchase price of $1.00 per share. In connection with this transaction,
Paramount also received 50,000 Warrants to purchase Common Stock of the Company.
Reference is made to the Securities Purchase Agreement and Form of Warrant,
Exhibits 99.6 and 99.7 to this Quarterly Report, for further information
concerning this transaction.
In addition, on February 4, 2002, the Company and Paramount entered into an
agreement whereby Paramount agreed to acquire up to 1,000,000 shares of the
Company's restricted Common Stock at a purchase price of $1.00 per share.
Reference is made to the Securities Purchase Agreement and Form of Warrant,
Exhibit 99.8 to this Quarterly Report, for further information concerning this
transaction. No closings have occurred with respect to this transaction.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: (All items are incorporated by reference with none
included herein)
Exhibit
Number Description
------ -----------
3.1 Restated Articles of Incorporation of EMB
Corporation are incorporated by reference to
Exhibit 3(i) to the Registrant's registration
statement on Form 10-SB (No. 1-11883), filed with
the Commission on June 28, 1996 (the "Form
10-SB").
3.1.a Certificate of Designation of Rights, Privileges,
Preferences and Restrictions of Series D
Convertible Preferred Stock of EMB Corporation,
dated September 12, 2001, filed with the State of
Hawaii, Department of Commerce and Consumer
Affairs on September 18, 2001, which was filed
with the Securities and Exchange Commission on
October 15, 2001, as Exhibit 3.1.a to the
Company's Current Report on Form 8-K, is hereby
incorporated by this reference.
3.1.b
Certificate of Designation of Rights, Privileges,
Preferences and Restrictions of Series E
Convertible Preferred Stock of EMB Corporation,
dated September 12, 2001, filed with the State of
Hawaii, Department of Commerce and Consumer
Affairs on September 18, 2001, which was filed
21
with the Securities and Exchange Commission on
October 15, 2001, as Exhibit 3.1.b to the
Company's Current Report on Form 8-K, is hereby
incorporated by this reference.
3.2 The Bylaws of the Registrant are incorporated by
referenced to Exhibit 3(ii) of Form 10-SB of the
Registrant.
10.10 Amended and Restated Purchase Agreement, dated
September 21, 2001, by and between the Company,
William R. Parker and Saddleback Investment
Services, Inc., which was filed with the
Securities and Exchange Commission on January 14,
2002, as Exhibit 10.10 to the Company's Annual
Report on Form 10-KSB, is hereby incorporated by
this reference.
10.11 Secured Promissory Note of EMB Corporation dated
July 24, 2001, which was filed with the Securities
and Exchange Commission on August 8, 2001, as
Exhibit 10.11 to the Company's Current Report on
Form 8-K dated July 23, 2001, is hereby
incorporated by this reference.
10.12 Amended and Restated Security Agreement, dated
September 21, 2001, by and between EMB Corporation
and William R. Parker, which was filed with the
Securities and Exchange Commission on January 14,
2002, as Exhibit 10.12 to the Company's Annual
Report on Form 10-KSB, is hereby incorporated by
this reference.
10.13 Amended and Restated Collateral Agent Agreement,
dated September 21, 2001, by and among EMB
Corporation, William R. Parker and the Collateral
Agent, which was filed with the Securities and
Exchange Commission on January 14, 2002, as
Exhibit 10.13 to the Company's Annual Report on
Form 10-KSB, is hereby incorporated by this
reference.
10.14 Purchase Agreement, dated July 26, 2001, by and
between EMB Corporation and William V. Perry,
which was filed with the Securities and Exchange
Commission on August 10, 2001, as Exhibit 10.14 to
the Company's Current Report on Form 8-K dated
July 26, 2001, is hereby incorporated by this
reference.
10.15 Purchase Agreement, dated July 26, 2001, by and
between EMB Corporation and David Berman, which
was filed with the Securities and Exchange
Commission on August 10, 2001, as Exhibit 10.15 to
the Company's Current Report on Form 8-K dated
July 26, 2001, is hereby incorporated by this
reference.
22
10.16 Settlement Agreement, dated June 26, 2001, by and
among, EMB Corporation, e-Net Financial.Com
Corporation (now known as Anza Capital, Inc.),
AMRES Holding LLC, Vincent Rinehart and Williams
de Broe, which was filed with the Securities and
Exchange Commission on September 11, 2001, as
Exhibit 10.16 to the Company's Quarterly Report on
Form 10-QSB/A for the period ended June 30, 2001,
is hereby incorporated by this reference.
10.16a Promissory Note dated June 27, 2001, executed by
EMB Corporation in favor of Williams de Broe,
which was filed with the Securities and Exchange
Commission on September 11, 2001, as Exhibit
10.16a to the Company's Quarterly Report on Form
10-QSB/A for the period ended June 30, 2001, is
hereby incorporated by this reference.
10.16.b Promissory Note dated June 27, 2001, executed by
e-Net Financial.com Corporation (now known as Anza
Capital, Inc.) in favor of EMB Corporation (later
terminated), which was filed with the Securities
and Exchange Commission on September 11, 2001, as
Exhibit 10.16b to the Company's Quarterly Report
on Form 10-QSB/A for the period ended June 30,
2001, is hereby incorporated by this reference.
10.16.c Promissory Note dated June 27, 2001, executed by
e-Net Financial.com Corporation (now known as Anza
Capital, Inc.) in favor of EMB Corporation (later
terminated), which was filed with the Securities
and Exchange Commission on September 11, 2001, as
Exhibit 10.16c to the Company's Quarterly Report
on Form 10-QSB/A for the period ended June 30,
2001, is hereby incorporated by this reference.
10.16.d Redeemable Convertible 10% Promissory Note dated
June 28, 2001 executed by e-Net Financial.com
Corporation (now known as Anza Capital, Inc.) in
favor of EMB Corporation, which was filed with the
Securities and Exchange Commission on September
11, 2001, as Exhibit 10.16d to the Company's
Quarterly Report on Form 10-QSB/A for the period
ended June 30, 2001, is hereby incorporated by
this reference.
10.17 Settlement Agreement, dated July 24, 2001, by and
between the Company and Ben Campbell, which was
filed with the Securities and Exchange Commission
on September 11, 2001, as Exhibit 10.17 to the
Company's Quarterly Report on Form 10-QSB/A for
the period ended June 30, 2001, is hereby
incorporated by this reference.
23
10.18 Settlement Agreement, dated July 24, 2001, by and
between the Company and Kenneth Quist, which was
filed with the Securities and Exchange Commission
on September 11, 2001, as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-QSB/A for
the period ended June 30, 2001, is hereby
incorporated by this reference.
10.19 Agreement for Consulting Services, dated July 16,
2001, by and between the Company and Belvidere
Network Enterprises, which was filed with the
Securities and Exchange Commission on September
11, 2001, as Exhibit 10.19 to the Company's
Quarterly Report on Form 10-QSB/A for the period
ended June 30, 2001, is hereby incorporated by
this reference.
10.20 Agreement of Consulting Services, dated August 1,
2001, by and between the Company and Castle Gate
Group, Ltd., which was filed with the Securities
and Exchange Commission on September 11, 2001, as
Exhibit 10.20 to the Company's Quarterly Report on
Form 10-QSB/A for the period ended June 30, 2001,
is hereby incorporated by this reference.
10.21 Redeemable Convertible 10% Promissory Note dated
April 10, 2001 executed by the Company in favor of
James Saunders, which was filed with the
Securities and Exchange Commission on September
11, 2001, as Exhibit 10.20 to the Company's
Quarterly Report on Form 10-QSB/A for the period
ended June 30, 2001, is hereby incorporated by
this reference.
10.22 Purchase Agreement by and between EMB Corporation,
FGFC Holdings, Inc. and First Guaranty Financial
Corporation dated September 30, 2001, which was
filed with the Securities and Exchange Commission
on October 15, 2001, as Exhibit 10.22 to the
Company's Current Report on Form 8-K dated
September 30, 2001, is hereby incorporated by this
reference.
10.23 Secured Promissory Note of EMB Corporation dated
September 30, 2001, which was filed with the
Securities and Exchange Commission on October 15,
2001, as Exhibit 10.23 to the Company's Current
Report on Form 8-K dated September 30, 2001, is
hereby incorporated by this reference.
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10.24 Security Agreement by and between EMB Corporation
and FGFC Holdings, Inc. dated September 30, 2001,
which was filed with the Securities and Exchange
Commission on October 15, 2001, as Exhibit 10.24
to the Company's Current Report on Form 8-K dated
September 30, 2001, is hereby incorporated by this
reference.
10.25 Collateral Agreement by and among EMB Corporation,
FGFC Holdings, Inc. and the Collateral Agent,
dated September 30, 2001, which was filed with the
Securities and Exchange Commission on October 15,
2001, as Exhibit 10.25 to the Company's Current
Report on Form 8-K dated September 30, 2001, is
hereby incorporated by this reference.
21.1 Description of the subsidiaries of the Registrant,
which was filed with the Securities and Exchange
Commission on January 14, 2002, as Exhibit 21.1 to
the Company's Annual Report on Form 10-KSB, is
hereby incorporated by this reference. .
99.1 Articles of Incorporation of First Guaranty
Financial Corporation, dated June 10, 1988, filed
with the California Secretary of State on June 13,
1988, which was filed with the Securities and
Exchange Commission on October 15, 2001, as
Exhibit 99.1 to the Company's Current Report on
Form 8-K dated September 30, 2001, is hereby
incorporated by this reference.
99.2 Certificate of Amendment to Articles of
Incorporation of First Guaranty Financial
Corporation, dated September 28, 2001, filed with
the California Secretary of State on October 10,
2001, which was filed with the Securities and
Exchange Commission on October 10, 2001, as
Exhibit 99.2 to the Company's Current Report on
Form 8-K dated September 30, 2001, is hereby
incorporated by this reference.
99.3 Certificate of Determination of Rights,
Privileges, Preferences and Restrictions of Series
A Convertible Preferred Stock of First Guaranty
Financial Corporation, dated September 28, 2001,
filed with the California Secretary of State on
October 10, 2001, which was filed with the
Securities and Exchange Commission on October 10,
2001, as Exhibit 99.3 to the Company's Current
Report on Form 8-K dated September 30, 2001, is
hereby incorporated by this reference.
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99.4 Certificate of Amendment of Articles of
Incorporation of Saddleback Investment Services,
Inc., dated September 14, 2001, filed with the
California Secretary of State on September 20,
2001, which was filed with the Securities and
Exchange Commission on January 14, 2002, as
Exhibit 99.4 to the Company's Annual Report on
Form 10-KSB, is hereby incorporated by this
reference.
99.5 Certificate of Determination of Rights,
Privileges, Preferences and Restrictions of Series
A Convertible Preferred Stock of Saddleback
Investment Services, Inc., dated September 17,
2001, filed with the California Secretary of State
on September 21, 2001, which was filed with the
Securities and Exchange Commission on January 14,
2002, as Exhibit 99.5 to the Company's Annual
Report on Form 10-KSB, is hereby incorporated by
this reference.
99.6 Securities Purchase Agreement by and between EMB
Corporation and Paramount Financial Group, Inc.,
dated September 12, 2001 (Series D Convertible
Preferred Stock).
99.7 Form of Warrant to be issued in connection with
Securities Purchase Agreement by and between EMB
Corporation and Paramount Financial Group, Inc.,
dated September 12, 2001.
99.8 Securities Purchase Agreement by and between EMB
Corporation and Paramount Financial Group, Inc.,
dated February 4, 2002 (Restricted Common Stock).
(b) Reports on Form 8-K.
-------------------
During the period ended March 31, 2002, the Company did not
file any Current Reports on Form 8-K.
26
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMB CORPORATION
Date: May 14, 2002 By: /s/ James E. Shipley
-------------------------------
James E. Shipley
President, Director,
Acting Secretary and
Acting Principal
Accounting and Chief
Financial Officer
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