<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-KSB

            [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                    THE SECURITIES AND EXCHANGE ACT OF 1934

            [_]  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

       FOR THE TRANSITION PERIOD FROM ______________ TO ________________

                       COMMISSION FILE NUMBER:  1-11883

                                EMB CORPORATION
                                ---------------
                (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                 HAWAII                                  95-3811580
      ------------------------------        -----------------------------------
     (STATE OR OTHER JURISDICTION OF        (I.R.S. EMPLOYER IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

        3200 BRISTOL AVENUE, 8/TH/ FLOOR, COSTA MESA, CALIFORNIA  92626
        ---------------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

ISSUER'S TELEPHONE NUMBER:  (714) 437-0715

SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
 
                                            NAME OF EACH EXCHANGE ON WHICH
         TITLE OF EACH CLASS                          REGISTERED
--------------------------------------  --------------------------------------
                                      
                 N/A                                     N/A


SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                          COMMON STOCK, NO PAR VALUE

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.  Yes  X   
                                                                        ---    
No ___

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [X]

     State issuer's revenues for its most recent fiscal year:  $4,156,193
     The aggregate market value of voting stock held by non-affiliates of the
     registrant as of January 9, 1998:
          Common stock, no par value:  $11,795,818
     The number of shares of the registrant's common stock outstanding as of
December 31, 1997: 8,641,42 shares

     Documents incorporated by reference: Certain exhibits to the Form 10-KSB
for the fiscal year ended September 30, 1996, and the Registration Statement on
Form SB-2 (File No. 333-21719) and amendments thereto of the registrant are
incorporated herein by reference.

     Transitional Small Business Disclosure Format:

                      Yes _______               No    X
                                                    -------
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                                    PART I


ITEM 1.   DESCRIPTION OF BUSINESS.
          ----------------------- 

          GENERAL. The Company, formerly called "Pacific International, Inc.", a
Hawaii corporation, was incorporated in 1960, and was originally organized to
acquire and manage developed and undeveloped real estate.  However, the Company
had not conducted significant operations for a number of years until it agreed
to acquire substantially all of the assets and assume certain liabilities of
Sterling Alliance Group, Ltd. ("SAG") in December, 1995.  Subsequently, the
Company changed its name to EMB Corporation to reflect the change in the purpose
and nature of its business.  For accounting purposes, this was treated as a
recapitalization of SAG, with the historical financial information prior to the
acquisition merger being that of the Company.

          The principal business of the Company is the origination and
processing of residential mortgage loans using a service which the Company calls
Video InteractiveMortgage Process ("VIP").  Mortgages originated and/or
purchased by the Company have been resold primarily to ICI Funding Corporation,
a division of Imperial Credit Industries, Inc.; although mortgages in the future
may be held for investment, sold to third parties, or securitized and issued as
mortgage backed securities.  The Company also recently commenced the origination
and processing of commercial mortgage loans.

          The Company originates loans through its executive office in Costa
Mesa, California and through its branch offices located in California, Colorado,
Connecticut, Florida, Nevada and Texas.  The Company's strategy of originating,
as compared to purchasing, a substantial portion of its loan volume results in
the generation of origination fees, service release fees, and other fees which
is the principal source of revenue to the Company.  The Company sells all of its
mortgage loans, and does not retain any servicing rights.

          INTERACTIVE MORTGAGE SOFTWARE-VIP.   The VIP software of the Company
is an interactive video-based computer software system that is designed to
facilitate mortgage loan applications and their prompt approval directly with
mortgage lenders, to prepare and submit applications for title and property
insurance, credit review, title research and escrow ordering and review.  The
system is linked to the ProShare(R) software system developed by Intel(R)
Corporation that provides direct videoconferencing and interaction between the
prospective borrower/real estate agent and mortgage lenders.  The software has
been modified and adapted to operate with the exclusive VIP software
applications of the Company.

          VIP provides the opportunity to prospective borrowers to review and
evaluate a broad range of available mortgages of varying interest rates and
terms from various lenders, and to select those specifically suited to their
financial objective for further analysis.  VIP then enables the borrower/agent
to complete a loan application of the selected mortgage lender, permits an
immediate review of the borrower's credit history and qualifications, and
facilitates prompt approval of the loan application by EMB's staff underwriters
or through the automated underwriting systems employed by Fannie Mae and Freddie
Mac, the primary secondary-market purchasers of mortgages.  Thus, in
approximately one hour, a borrower can receive loan approval, subject only to
verification of financial information and appraisal of the subject property.
VIP also permits the contemporaneous ordering and review of preliminary title
reports and escrow instructions.  A remote printer creates hard copies of
documents for signing by the borrower.

          The computer system of EMB is installed with Intel's Pentium(R)
operating system utilizing Intel's ProShare video personal conferencing 200
system which permits the borrower to see and talk directly to the loan officer
for a personal pre-qualification interview from any remote location.  The
interview may conclude with the complete loan application being submitted and
approved.

          The Company is continuing the development and refinement of its VIP
software system and continuing evaluation of electronic information gathering
and communication equipment.  The Company intends to continue to focus on its
technology and marketing relationship with Intel Corporation.  This relationship
has accelerated the development of the Company's software and has enhanced its
marketing program through exhibitions, 

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trade shows and seminars with real estate brokers, credit unions, residential
real estate developers, mortgage brokers, and others. An objective of the
Company is to become a leader in advanced mortgage software and video
communications to facilitate mortgage loans. To the extent that the Company
achieves its objective in this technological area, the Company believes that it
will complement and increase its mortgage lending business.

          LICENSES OF VIP.  The Company licenses its VIP mortgage software
system to real estate brokerage firms, credit unions, real estate developers,
mortgage brokers and others.  As of September 30, 1997, EMB had approximately
400 licensees and mortgage brokers who are served by 17 Company loan officers.
Each licensee has their own computer systems with VIP and ProShare software with
video videoconferencing capability.

          The direct relationship with real estate brokers, credit unions, land
developers and other organizations enables the Company to establish point-of-
sale opportunities to originate and process mortgage loans.  The business of the
licensee is improved because of the substantial savings of time and effort in
securing pre-qualification of their customers for mortgage financing and for
prompt loan approvals, and also provides an opportunity to enhance the quality
and timeliness of its services to its customers.  Because the mortgage services
of EMB are available seven days a week, the licensees always have on-line access
to current interest rates and fees which can be downloaded at any time to any
computer utilized by a licensee.  Similarly, the status of loans and processing
or underwriting can be determined at any time.  The borrower or his agent at any
remote site can also utilize VIP to connect with escrow, title or credit
reporting agencies with the Intel video conferencing system.  This one-stop
electronic and video connection between and among all of the important parties
to a residential real estate transaction is a highly efficient and convenient
system for the licensee and provides prompt quality service for the borrower.

          PRICING.  The Company's VIP software is priced based on a number of
factors, including the application configuration, the modules licensed and the
number of licensed users.  The list price for licenses of the VIP software is
presently $500 with a $100 fee for additional office sites.  The Company also
charges an additional continuing license fee calculated on each loan originated
by the licensee equal to 50% to 70% of the loan origination fee and yield spread
pricing of each loan, depending upon the loan production volume of the
licensee's office.  The Company may offer discounts to customers based on the
scope of the customer's commitment and other commercial considerations.
Additionally, the Company may in the future offer new or different
configurations at significantly lower or higher prices.

          CUSTOMER SERVICE AND SUPPORT.  The Company's customer service and
support organization provides customers with technical support, training,
consulting and implementation services.  All of the Company's current customers
have software maintenance agreements with the Company that provide for one or
both of the following services:

          Customer Education and Training.  The Company offers training courses
designed to meet the needs of end users, integration experts and system
administrators.  The Company also trains customer personnel who in turn may
train end users in larger deployments.  Training classes are provided at the
customers' offices.  Fees for education and training services are in addition to
and separate from the fees for software products and are typically charged
either per student and per class, or on a per diem basis.

          Software Maintenance and Support.  The Company offers telephone,
electronic mail and facsimile customer support through its central technical
support staff at the Company's headquarters.  The Company also provides
customers with product documentation and release notes that describe features in
new products, known problems and workarounds, and application notes.  Software
product license fees do not cover maintenance.  Each customer is entitled to
receive certain software upgrades, maintenance releases and technical support
for an annual fee.  The annual subscription service fee for the Company's
products covers all updates and maintenance on an ongoing basis for the term of
the subscription.

          SALES AND MARKETING.  The Company markets and sells its software and
services primarily through a direct sales force based in Costa Mesa, California.
The Company's sales and marketing organization consisted of 21 employees as of
September 30, 1997.  The Company currently has regional marketing
representatives based in 

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California, Colorado, Connecticut, Florida, Nevada, Texas and Connecticut. To
support its sales force, the Company conducts a number of marketing programs,
which includes public relations, telemarketing, seminars, and trade shows.

          The Company's strategy is to expand its marketing efforts to reach a
broad customer base in its targeted mortgage industry.  The Company's field
sales force conducts multiple presentations and demonstrations of the Company's
software to users at the customer site as a part of the direct sales effort.

          The Company believes that in order to increase sales opportunities and
profitability, it may expand into international sales.  The Company intends to
continue to expand its direct and indirect sales and marketing activities, which
will require significant management attention and financial resources.

          The Company may commit significant time and financial resources to
developing international sales and support channels.  There will be a number of
risks inherent in the Company's international business activities, including
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs and risks of localizing products for foreign countries, longer accounts
receivable payment cycles, potentially adverse tax consequences, currency
fluctuations, repatriation of earnings and the burdens of complying with a wide
variety of foreign laws.  In addition, revenues of the Company earned in various
countries where the Company does business may be subject to taxation by more
than one jurisdiction, thereby adversely affecting the Company's earnings.
There can be no assurance that such factors will not have an adverse effect on
the revenues from the Company's future international sales and, consequently,
the Company's business, financial condition or results of operations.

          The Company licenses its VIP software system to customers pursuant to
license agreements which are generally standard in form, although each license
is individually negotiated and may contain variations.  The standard form
agreements allow the customer to use the Company's software solely on the
customer's computer equipment for the customer's internal purposes, and the
customer is generally prohibited from sublicensing or transferring the licensed
materials.  The agreements generally provide that the Company's warranty of its
software is limited to correction or replacement of the affected software, and
in most cases the Company's warranty liability may not exceed the licensing fees
from the customer.  The Company's form agreement also includes a confidentiality
clause protecting proprietary information relating to the Company's software
system.

          The Company generally ships its products within a short period of time
after execution of a license.  As a result, the Company typically does not have
a material backlog of unfilled license orders at any given time, and the Company
does not consider backlog to be a meaningful indicator of future performance.

          STRATEGIC RELATIONSHIPS.  The Company believes that, in order to
provide comprehensive component and supplier management solutions, it will be
necessary to develop, maintain and enhance close associations with vendors of
hardware, software, database, and professional services.  The Company has
established marketing and strategic relationships with Intel Corporation.  The
Company's relationship with Intel Corporation has enabled it to integrate its
software with standard hardware platforms.  The Company meets with Intel
Corporation to enhance integration between their complementary products and the
Company's software.  The Company believes this relationship can enhance the
Company's ability to deliver mortgage software that support customers' existing
management architecture and that is tailored to the specific requirements of the
mortgage industry.  Although the Company seeks to maintain a close relationship
with Intel Corporation, if the Company is unable to develop and retain
effective, long-term relationships with other third parties, the Company's
competitive position could be adversely affected.

          RESEARCH AND DEVELOPMENT.  The Company has committed resources for its
software product development.  Research and development efforts are directed at
increasing software functionality, improving its performance and expanding the
capability of the software to interoperate with third party software.  The
Company intends to release new software and enhancements to existing software.
Although the Company expects that certain of its new software will be developed
internally, the Company may, based on timing and cost considerations, acquire
technology and products from third parties.

                                       4
<PAGE>
 
          The Company supplements its software development efforts by reviewing
customer feedback on existing software and working with customers and potential
customers to anticipate future functionality requirements.  To assist this
effort, the Company intends to organize a customer advisory board made up of
representatives from its key customers which will meet periodically to provide
feedback regarding the Company's current and future product plans.

          The Company's future success may depend in part upon its ability to
enhance its current software and to develop and introduce new software on a
timely basis that keep pace with technological developments, emerging industry
standards and the increasingly sophisticated needs of its customers.  There can
be no assurance that the Company will be successful in developing or marketing
software enhancements or new software that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products or that its new software or software enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance.  If the Company is unable, for technological or other reasons, to
develop and introduce new software or enhancements, the Company's business,
financial condition or results of operations could be materially adversely
affected.

          In addition, applications software products as complex as those
offered by the Company frequently contain undetected errors or failures when
first introduced or when new versions are released.  The Company has in the past
discovered software errors in certain of its products and enhancements, both
before and after initial shipments, and has experienced delays or lost revenues
during the period required to correct these errors.  There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not occur in software or releases after commencement of commercial
shipments, resulting in loss of or delay in market acceptance, which could have
a material adverse effect upon the Company's business, financial condition or
results of operations.

          COMPETITION. The Company will face intense competition in the
origination, acquisition and liquidation of its mortgage loans.  Such
competition can be expected from banks, savings and loan associations and other
entities, including REITs.  Many of the Company's competitors have greater
financial resources than the Company.

          PROPRIETARY RIGHTS AND LICENSING.  The Company's success is dependent
upon proprietary technology.  The Company may rely on a combination of copyright
and trademark laws, trade secrets, confidentiality procedures and contractual
provisions with its employees, consultants and business partners and in its
license agreements to protect its proprietary rights.  The Company may seek to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.  Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's mortgage software or to obtain and use
information that the Company regards as proprietary.  While the Company is not
aware that any of its software infringes upon the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by the Company with respect to current of future products.

          In addition, the Company relies on certain software that it licenses
from third parties, including software is used in the Company's products to
perform certain functions.  There can be no assurance that such firms will
remain in business, that they will continue to support their products or that
their products will otherwise continue to be available to the Company on
commercially reasonable terms.  The loss or inability to maintain any of these
software or data licenses could result in delays or cancellations in product
shipments until equivalent software can be identified and licensed or developed
and integrated with the Company's products.  Any such delay or cancellation
could materially adversely affect the Company's business, financial condition or
results of operations.

          The Company's products are generally provided to customers in object
code (machine-readable) format only.  From time to time, in limited
circumstances, the Company has licensed source code (human-readable) format
subject to customary protections such as use restrictions and confidentiality
agreements.  In addition, certain customers may enter into source code escrow
arrangements with the Company, pursuant to which the Company's source code will
be released to the customer upon the occurrence of certain events, such as the
commencement of bankruptcy or insolvency proceedings by or against the Company,
or certain material breaches of the agreement.  In the event of 

                                       5
<PAGE>
 
any release of the source code from escrow, the customer's license is generally
limited to use of the source code to maintain, support and configure the
Company's software products.

RESIDENTIAL MORTGAGE LENDER

          GENERAL.  EMB has been a retail mortgage broker regarding residential
mortgage loans for approximately four years, and commenced its business as a
wholesale mortgage banker, approximately one year ago.  EMB recently commenced
retail mortgage lending operations regarding commercial properties.  EMB
originates its own loans and those of its licensees on a retail basis and
provides wholesale lending services to approved mortgage brokers.  It has
entered into a correspondent lending relationship with ICI Funding Corporation,
a division of Imperial Credit Industries, Inc. ("ICI"), a national mortgage
lender.  Initially, EMB underwrites and funds its mortgage loans through a
wholesale line of credit from Imperial Warehouse Lending Group Inc., and then
resells such loans to ICI.  In the future, the Company intends to develop
associations with other mortgage lenders to participate in the secondary
marketing of mortgages.  EMB expects to negotiate servicing fees for servicing
its mortgage loans, or to obtain service release fees upon the resale of
mortgages.  The Company may also package and resell mortgage loans as asset-
backed securities in the future.

          LOAN STANDARDS.  Mortgage loans made by EMB will be loans with fixed
or adjustable rates of interest secured by first mortgages, deeds of trust or
security deeds on residential properties with original principal balances that
do not exceed 95% of the value of the mortgaged properties, unless such loans
are FHA-insured or VA-guaranteed.  Generally, each mortgage loan having a loan-
to-value ratio, as of the cut-off-date, in excess of 80%, or which is secured by
a second or vacation home, will be covered by a Mortgage Insurance Policy, FHA
Insurance Policy or VA Guaranty insuring against default all or a specified
portion of the principal amount thereof.

          The Company recently commenced the origination of home equity loans in
an amount of up to 125% of a property's appraised value.  Home equity loans are
secured by a second mortgage or second deed of trust.  Home equity loans
originated or purchased by the Company are presently sold to ContiMortgage
Corporation, a subsidiary of ContiFinancial Corporation.

          The mortgage loans will be "one to four-family" mortgage loans, which
means permanent loans (as opposed to construction or land development loans)
secured by mortgages on non-farm properties, including attached or detached
single-family or second/vacation homes, two to four-family primary residences
and condominiums or other attached dwelling units, including individual
condominiums, row houses, townhouses and other separate dwelling units even when
located in buildings containing five or more such units.  Each mortgage loan
must be secured by an owner occupied primary residence or second/vacation home,
or by a nonowner occupied residence.  The mortgaged property may not be a mobile
home.

          No mortgage loan is expected to have an original principal balance
less than $30,000.  While most loans may be less than $700,000, EMB may fund
loans of up to $2,000,000 through its own wholesale credit lines or by brokering
such loans to unaffiliated third-party mortgage lenders.  Fixed rate mortgage
loans must be repayable in equal monthly installments which reduce the principal
balance of the loans to zero at the end of the term.

                                       6
<PAGE>

          CREDIT, APPRAISAL AND UNDERWRITING STANDARDS.  Each mortgage loan must
(i) be an FHA-insured or VA-guaranteed loan meeting the credit and underwriting
requirements of such agency, or (ii) meet the credit, appraisal and underwriting
standards established by the Company.  For certain mortgage loans which may be
subject to a mortgage pool insurance policy, the Company may delegate to the
issuer of the mortgage pool insurance policy the responsibility of underwriting
such mortgage loans, in accordance with the Company's credit appraisal and
underwriting standards.  In addition, the Company may delegate to one or more
lenders the responsibility of underwriting mortgage loans offered to the Company
by such lenders, in accordance with the Company's credit, appraisal and
underwriting standards.  In connection with any such delegation of underwriting
responsibility to a lender, the Company will require that the lender (i) make
certain representations and warranties to the Company which shall be the basis
for certain of the Company's representations and warranties to the trustee; (ii)
agree to repurchase any mortgage loan which is discovered at any time not to be
in conformance with such representations and warranties, if such defect cannot
be cured within 60 days of discovery of such breach; and (iii) agree to provide
the Company within 10 days of request the credit file for any mortgage loan the
Company desires to audit for compliance with the terms of the Company's loan
purchase program.  It is anticipated that the Company will select for audit
certain of the credit files after purchase of the related mortgage loans.

          The Company's underwriting standards are intended to evaluate the
prospective mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed mortgaged property as collateral.  In the loan
application process, prospective mortgagors will be required to provide
information regarding such factors as their 

                                       7
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assets, liabilities, income, credit history, employment history and other
related items. Each prospective mortgagor will also provide an authorization to
apply for a credit report which summarizes the mortgagor's credit history. With
respect to establishing the prospective mortgagor's ability to make timely
payments, the Company will require evidence regarding the mortgagor's employment
and income, and of the amount of deposits made to financial institutions where
the mortgagor maintains demand or savings accounts. In some instances, mortgage
loans may be made by the Company under a Limited Documentation Origination
Program. For a mortgage loan to qualify for the Limited Documentation
Origination Program, the prospective mortgagor must have a good credit history
and be financially capable of making a larger cash down payment in a purchase,
or be willing to finance less of the appraised value, in a refinancing, than
would otherwise be required by the Company. Currently, only mortgage loans with
certain loan-to-value ratios will qualify for the Limited Documentation
Origination Program. If the mortgage loan qualifies, the Company waives some of
its documentation requirements and eliminates verification of income and
employment for the prospective mortgagor. The Limited Documentation Origination
Program has been implemented relatively recently and accordingly its impact, if
any, on the rates of delinquencies and losses experienced on the mortgage loans
so originated cannot be determined at this time.

          The Company's underwriting standards generally follow guidelines
acceptable to FNMA and FHLMC.  The Company's underwriting policies may be varied
in appropriate cases.  In determining the adequacy of the property as
collateral, an independent appraisal is made of each property considered for
financing.  The appraiser is required to inspect the property and verify that it
is in good condition and that construction, if new, has been completed.  The
appraisal is based on the appraiser's judgment of values, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the property.

          Certain states where the mortgaged properties may be located are
"anti-deficiency" states where, in general, lenders providing credit on one to
four-family properties must look solely to the property for repayment in the
event of foreclosure.  See "Certain Legal Aspects of the Mortgage Loans-Anti-
Deficiency Legislation and Other Limitations on Lenders".  The Company's
underwriting standards in all states (including anti-deficiency states) require
that the underwriting officers be satisfied that the value of the property being
financed, as indicated by the independent appraisal, currently supports and is
anticipated to support in the future the outstanding loan balance, and provides
sufficient value to mitigate the effects of adverse shifts in real estate
values.

          LENDER WARRANTIES AND INDEMNIFICATION OF THE COMPANY.  With respect to
the mortgage loans sold by it, each lender will make representations and
warranties to the Company which the Company deems sufficient to permit it to
make its representations and warranties in respect of such mortgage loans to the
Trustee and the certificateholders under the Pooling Agreement.  Additional
representations and warranties will be made by each lender which has been
delegated the responsibility to underwrite mortgage loans on behalf of the
Company.  See "-Credit, Appraisal and Underwriting Standards" above.  Each
lender will also make certain other representations and warranties regarding
mortgage loans sold by it.

          Each lender will agree to indemnify the Company against any loss or
liability incurred by the Company on account of any breach of any representation
or warranty made by the lender, any failure to disclose any matter that makes
any such representation and warranty misleading, or any inaccuracy in
information furnished by the lender to the Company.

          Upon the breach of any misrepresentation or warranty made by a lender,
the Company may require the lender to repurchase the related mortgage loan.

          TITLE INSURANCE POLICIES.  The servicing agreement regarding the
mortgage loans originated by the Company will usually require that, at the time
of the origination of the mortgage loans and continuously thereafter, a title
insurance policy be in effect on each of the mortgaged properties and that such
title insurance policy contain no coverage exceptions, except those permitted
pursuant to the guidelines heretofore established by FNMA.

                                       8
<PAGE>
 
COMMERCIAL LOANS

          The Company recently commenced the origination of mortgage loans on
commercial properties.  The Company presently intends to sell its commercial
mortgage loans to IMH Commercial Holding, Inc., a REIT organized by Imperial
Credit Mortgage Holding, Inc.

CURRENT MARKETS AND EXPANSION PLANS

          The Company is licensed to originate loans and/or is presently exempt
from such requirements in 33 states through its six retail offices. The Company
believes that its strategy of originating loans through a retail branch office
network represents the most profitable loan origination strategy due to the
significant level of loan origination and other fees. Additionally, such a
strategy allows the Company to maintain its underwriting quality standards when
compared to competitors that rely primarily on independent mortgage brokers.

          Although the Company is presently licensed to originate loans in 26
states, it has historically concentrated its business in California. While this
concentration has recently declined significantly, California remains a
significant part of the Company's business and has contributed approximately 70%
and 95% of the Company's total loan originations and purchases for the years
ended September 30, 1997 and year ended September 30, 1996, respectively.
Expansion outside California began in late 1996 when the Company began to
establish or acquire additional branch offices.

CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS

          GENERAL.  The mortgages originated by the Company and its licensed
affiliates will be either mortgages or deeds of trust, depending upon the
prevailing practice in the state in which the property subject to a mortgage
loan is located.  A mortgage creates a lien upon the real property encumbered by
the mortgage.  It is not generally prior to liens for real estate taxes and
assessments.  Priority between mortgages depends on their terms and generally on
the order of filing with a state or county office.  There are two parties to a
mortgage, the mortgagor, who is the borrower and homeowner (the "Mortgagor"),
and the mortgagee, who is the lender.  Under the mortgage instrument, the
Mortgagor delivers to the mortgagee a note or bond and the mortgage.  Although a
deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-homeowners called the trustor (similar to a Mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the Trustee.  Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust, generally with a power
of sale, to the Trustee to secure payment of the obligation.  The Trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust or mortgage,
and, in some cases, the directors of the beneficiary.

          FORECLOSURE.  Foreclosure of a deed of trust is generally accomplished
by a non-judicial Trustee's sale under a specific provision in the deed of trust
which authorizes the Trustee to sell the property to a third party upon any
default by the borrower under the terms of the note or deed of trust.  In some
states, the Trustee must record a notice of default and send a copy to the
borrower-trustor and to any person who has recorded a requests for a copy of a
notice of default and notice of sale.  In addition, the Trustee must provide
notice in some states to any other individual having an interest in the real
property, including any junior lienholders.  The borrower, or any other person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation.  Generally, state laws
require that a copy of the notice of sale be posted on the property and sent to
all parties having an interest in the real property.

          Foreclosure of a mortgage is generally accomplished by judicial
action.  The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property.  Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties defendant.  Judicial foreclosure proceedings are often not contested by
any of the parties defendant.  However, even when the mortgagee's right to

                                       9
<PAGE>
 
foreclose is contested, the court generally issues a judgment of foreclosure and
appoints a referee or other court officer to conduct the sale of the property.

          In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the Trustee is a
public sale.  However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale.  Rather, it is common for the lender to purchase the property
from the Trustee or referee for an amount equal to the principal amount of the
mortgage or deed of trust, accrued and unpaid interest and the expense of
foreclosure.  Thereafter, the lender will assume the burdens of ownership,
including obtaining casualty insurance and making such repairs at its own
expense as are necessary to render the property suitable for sale.  The lender
will commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property.  Depending upon market
conditions, the ultimate proceeds of the property may not equal the lender's
investment in the property.  Any loss may be reduced by the receipt of any
mortgage insurance proceeds.

          RIGHTS OF REDEMPTION.  In some states, after sale pursuant to a deed
of trust or foreclosure of a mortgage, the borrower and foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale.  In some states, redemption may occur only upon a payment of
the entire principal balance of the loan, accrued interest and expenses of
foreclosure.  In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due.  The effect of a statutory right
of redemption is to diminish the ability of the lender to sell the foreclosed
property.  The rights of redemption would defeat the title of any purchaser from
the lender subsequent to foreclosure or sale under a deed of trust.
Consequently, the practical effort of the redemption right is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run.

          ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS.  Certain
states have imposed statutory prohibitions which limit the remedies of a
beneficiary under a deed of trust of a mortgage.  In some states, statutes limit
the right of the beneficiary or mortgagee to obtain a deficiency judgment
against the borrower following foreclosure or sale under a deed of trust.  A
deficiency judgment would be a personal judgment against the former borrower
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender.  Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower.  Finally,
other statutory provisions limit any deficiency judgment against the former
borrower following a judicial sale to the excess of the outstanding debt over
the fair market value of the property at the time of the public sale.  The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.

          In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment.  For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrears within a
reasonable time period and reinstating the original Mortgage Loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of a debtor's petition.  Some
courts with federal bankruptcy jurisdiction have approved plans based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.

          Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modification may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan.

                                      10

          
<PAGE>
 
          The Internal Revenue Code of 1986, as amended, provides priority to
certain tax liens over the lien of a mortgage. In addition, substantive
requirements are imposed upon mortgage lenders in connection with the
origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal Truth-In-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes. These
federal laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.

          ENFORCEABILITY OF CERTAIN PROVISIONS.  Certain of the mortgage loans
will contain due-on-sale clauses. These clauses permit the lender to accelerate
the maturity of the loan if the borrower sells, transfer or conveys the
property. The enforceability of these clauses has been the subject of
legislation and litigation in many states, and in some cases the clauses have
been upheld, while in other cases their enforceability has been limited or
denied.

          Upon foreclosure, courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower form
the legal effect of his defaults under the loan documents.  Examples of judicial
remedies that have been fashioned including judicial requirements that the
lender undertake affirmative and expensive actions to determine the causes for
the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower failing to adequately maintain the property or
the borrower executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimum. For the most part,
these cases have upheld the notice provision as being reasonable or have found
that the sale by a Trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protections to the borrowers.

          APPLICABILITY OF USURY LAWS.  Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980 ("Title V"), provides that state
usury limitations not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Federal Home Loan Bank
Board is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V, the statute authorizes any
state to reimpose interest rate limits by adopting a law or constitutional
provision which expressly rejects application of the federal law. In addition,
even where Title V is not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on mortgage loans
covered by Title V. As of the date hereof, certain states have taken action to
reimpose interest rate limits and/or to limit discount points or other charges.

          INTERACTIVE MORTGAGE SOFTWARE.  The software of the Company is an
interactive video-based computer software system that is designed to facilitate
mortgage loan applications and their prompt approval directly with mortgage
lenders, to prepare and submit applications for title and property insurance,
credit review, title research and escrow ordering and review. The system is
linked to the ProShare(R) software system developed by Intel(R) Corporation that
provides direct videoconferencing and interaction between the prospective
borrower/real estate agent and mortgage lenders. The software has been modified
and adapted to operate with the exclusive software applications of the Company.

          The software provides the opportunity to prospective borrowers to
review and evaluate a broad range of available mortgages of varying interest
rates and terms from various lenders, and to select those specifically suited to
their financial objective for further analysis. The software then enables the
borrower/agent to complete a loan application of the selected mortgage lender,
permits an immediate review of the borrower's credit history and qualifications,
and facilitates prompt approval of the loan application by EMB's staff
underwriters or through the automated underwriting systems employed by Fannie
Mae and Freddie Mac, the primary secondary-market purchasers of mortgages. Thus,
in approximately one hour, a borrower can receive loan approval, subject only to
verification of financial information and appraisal of the subject property. The
software also permits the contemporaneous ordering 

                                       11
<PAGE>
 
and review of preliminary title reports and escrow instructions. A remote
printer creates hard copies of documents for signing by the borrower.

          The computer system of EMB is installed with Intel's Pentium(R)
operating system utilizing Intel's ProShare video conferencing system which
permits the borrower to see and talk directly to the loan officer for a personal
pre-qualification interview from any remote location.  The interview may
conclude with the complete loan application being submitted and approved.

          The Company is continuing the development and refinement of its V.I.P.
software system and continuing evaluation of electronic information gathering
and communication equipment. The Company intends to continue to focus on its
technology and marketing relationship with Intel Corporation. This relationship
has accelerated the development of the Company's software and has enhanced its
marketing program through exhibitions, trade shows and seminars with real estate
brokers, credit unions, residential real estate developers, mortgage brokers,
and others. An objective of the Company is to become a leader in advanced
mortgage software and video communications to facilitate mortgage loans. To the
extent that the Company achieves its objective in this technological area, the
Company believes that it will complement and increase its mortgage lending
business.

          LICENSES OF V.I.P.  The Company licenses its V.I.P. mortgage software
system to real estate brokerage firms, credit unions, real estate developers,
mortgage brokers and others. As of September 30, 1997, EMB had approximately 400
licenses and mortgage broker/representatives who are served by 17 Company loan
officers. Each licensee has its own computer systems with the Company's software
and ProShare software with videoconferencing capability.

          The direct relationship with real estate brokers, credit unions, land
developers and other organizations enables the Company to establish point-of-
sale opportunities to originate and process mortgage loans. The business of the
licensee is improved because of the substantial savings of time and effort in
securing pre-qualification of their customers for mortgage financing and for
prompt loan approvals, and also provides an opportunity to enhance the quality
and timeliness of its services to its customers. Because the mortgage services
of EMB are available seven days a week, the licensees always have on-line access
to current interest rates and fees which can be downloaded at any time to any
computer utilized by a licensee. Similarly, the status of loans and processing
or underwriting can be determined at any time. The borrower or his agent at any
remote site can also utilize the Company's software to connect with escrow,
title or credit reporting agencies with the Intel video conferencing system.
This one-stop electronic and video connection between and among all of the
important parties to a residential real estate transaction is a highly efficient
and convenient system for the licensee and provides prompt quality service for
the borrower.

          PRICING.  The Company's software is priced based on a number of
factors, including the application configuration, the modules licensed and the
number of licensed users. The list price for licenses of the software is
presently $500 with a $100 fee for additional office sites. The Company also
charges an additional continuing license fee calculated on each loan originated
by the licensee equal to 50% to 70% of the loan origination fee and yield spread
pricing of each loan, depending upon the loan production volume of the
licensee's office. The Company may offer discounts to customers based on the
scope of the customer's commitment and other commercial considerations.
Additionally, the Company may in the future offer new or different
configurations at significantly lower or higher prices.

          STRATEGIC RELATIONSHIPS.  The Company believes that, in order to
provide comprehensive component and supplier management solutions, it will be
necessary to develop, maintain and enhance close associations with vendors of
hardware, software, database, and professional services. The Company has
established marketing and strategic relationships with Intel Corporation. The
Company's relationship with Intel Corporation has enabled it to integrate its
software with standard hardware platforms. The Company meets regularly with
Intel Corporation to enhance integration between their complementary products
and the Company's software. The Company believes this relationship can enhance
the Company's ability to deliver mortgage software that support customers'
existing management architecture and that is tailored to the specific
requirements of the mortgage industry. Although the 

                                       12
<PAGE>
 
Company seeks to maintain a close relationship with Intel Corporation, if the
Company is unable to develop and retain effective, long-term relationships with
other third parties, the Company's competitive position could be adversely
affected.

ENVIRONMENTAL MATTERS

          The Company has not been required to perform any investigation or
clean up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.

          In the course of its business, the Company has acquired and may
acquire in the future properties securing loans that are in default. Although
the Company primarily lends to owners of residential properties, there is a risk
that the Company could be required to investigate and clean up hazardous or
toxic substances or chemical releases at such properties after acquisition by
the Company, and may be held liable to a governmental entity or to third parties
for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination.  In addition, the
owner or former owners of a contaminated site may be subject to common law
claims by third pies based on damages and costs resulting from environmental
contamination emanating from such property.

TRADE NAMES AND SERVICE MARKS

          The Company intends to register its service marks "EMB" and other
marks on the principal register of the United States Patent and Trademark
Office. The Company intends to register its service marks in such states as it
deems necessary and desirable. These names and marks are to be licensed to
licensees under license agreement provisions strictly regulating their use.

          The Company will devote substantial time, effort and expense toward
developing name recognition and goodwill for its tradenames for its operations.
The Company intends to maintain the integrity of its trade names, service marks
and other proprietary names against unauthorized use and to protect the
licensees' use against claims of infringement and unfair competition where
circumstances warrant. Failure to defend and protect such trade name and other
proprietary names and marks could adversely affect the Company's sales of
licenses under such trade name and other proprietary names and marks. The
Company knows of no current materially infringing uses.

EXECUTIVE OFFICES

          The Company currently leases its executive offices located at 3200
Bristol, 8th Floor, Costa Mesa, California 92626. The lease covers
approximately 15,000 square feet at a monthly rental of approximately $16,024
per month during its initial year, which increases to $18,937 per month during
the second year, $20,394 per month in the third year, and $21,851 per month
during the fourth and fifth year of the lease. The lease expires in 2002. The
Company believes that its facilities are adequate for its needs, and that,
should it be needed, suitable additional or alternative space will be available
in the future on commercially reasonable terms.

EMPLOYEES

          As of September 30, 1997, the Company employed a total of 49 persons.
Of the total, 33 officers and employees are employed at the principal executive
offices of the Company of which 13 were engaged in sales and marketing, 12 loan
processing support staff, 1 was in product development and technical support and
7 were in finance and administration. There were 16 employees in the 6 branch
offices of the Company of which 5 were engaged in sales and marketing, 10 in
loan processing support, and 1 in administration. In addition to its retail
branch office employees, the Company has approximately 400 mortgage broker
representatives in the State of Florida who are licensed real estate agents that
originate mortgage loans on a commission basis as wholesale buyers. None of the
Company's employees are represented by a labor union with respect to his or her
employment by the Company.

                                       13
<PAGE>
 
          The Company has experienced no organized work stoppages and believes
its relationship with its employees is good. The Company believes that its
future success will also depend to a significant extent upon its ability to
attract, train and retain highly skilled technical, management, sales, marketing
and consulting personnel. Competition for such personnel in the computer
software and mortgage industry in the United States is intense. The Company has
from time to time experienced difficulty in locating candidates with appropriate
qualifications. There can be no assurance that the Company will be successful in
attracting or retaining such personnel, and the failure to attract or retain
such personnel could have a material adverse effect on the Company's business or
results of operations.

BANKING ARRANGEMENTS

          The Company is considering several national banks to obtain a line of
credit for the purpose of assuring the availability of financing in the event
the Company determines bank financing to be necessary or desirable in the
future.

ITEM 2.   DESCRIPTION OF PROPERTY.
          ----------------------- 

          EXECUTIVE OFFICES.  The Company currently leases its executive offices
located at 3200 Bristol, 8/th/ Floor, Costa Mesa, California 92626. The lease
covers approximately 15,000 square feet at a monthly rental of approximately
$16,024 per month during its initial year, which increases to $18,937 per month
during the second year, $20,394 per month in the third year, and $21,851 per
month during the fourth and fifth year of the lease. The lease expires in 2002.
The Company believes that its new facilities are adequate for its needs, and
that, should it be needed, suitable additional or alternative space will be
available in the future on commercially reasonable terms.

          UNDEVELOPED LAND AND WATER RIGHTS.  The Company previously owned
approximately 61 acres of undeveloped real property with extensive water and
electrical improvements, and extensive water producing wells, located on Paris
Valley Road in the San Ardo area of Monterey County, California. This property
was appraised at an estimated market value of the fee simple interest as of
April 20, 1996, at $3,860,000. The property is located close to Highway 101, a
major California highway. The area is rural in nature, used primarily for cattle
and sheep raising and agricultural purposes, including vineyards and wineries to
the north and to the south. The property is comprised of two parcels separated
by Paris Valley Road. The zoning for the property is for agriculture/grazing in
the lower half, and for heavy mineral extraction on the upper half. The water
and electrical improvements provide primarily for farming use. Because of the
producing water wells on the property, commercial water production for
agricultural use is available to provide adjacent farms with excess water. The
property formerly produced crude oil; but such wells have been shut-in and the
power plant substation, natural gas pipeline system, pumps, tanks and used pipe
on the property are considered obsolete. The water producing wells, as described
in the appraisal, are capable of producing approximately 2,700,000 gallons per
24 hour production period. The water is naturally replenished annually from the
run-off of the surrounding mountains. Because this property was held for resale,
the Company made no efforts nor expended any material funds to commercially
develop or market the water resources of the property. Effective December 30,
1996, this property was sold by the Company for $4,000,000, payable by a
downpayment of $800,000, and an installment contract for $3,200,000, with annual
payments amortized over 20 years, due and payable in 10 years. The Company
received the $800,000 down payment on December 31, 1996.

          The Company has an 4.89 acre undeveloped property in Riverside County,
California, that was appraised as of December 7, 1994, at a value of $170,000.
This property is held subject to a Trust Deed Note dated March 15, 1995, in the
principal amount of $65,000.  This property owned by the Company is held for
resale and not for development purposes.  The Company may also hold real estate
for sale from time to time as a result of its foreclosure on mortgage loans that
may become in default.

ITEM 3. LEGAL PROCEEDINGS.
        ----------------- 

          In November 1997, the Company was named as a defendant in a civil
action filed by Greenhouse Group, Inc. in the Superior Court of the State of
California, Orange County (Case No. 786468).  The plaintiff alleged 

                                       14
<PAGE>
 
that the Company breached a contract with the plaintiff which was to provide
public relations and marketing services for 200,000 shares of the common stock
of the Company. The plaintiff is seeking $540,000 in damages, interest and
costs. The Company has denied the allegations of the plaintiff, and intends to
vigorously defend this civil action.

          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 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
          --------------------------------------------------- 

               No matters were submitted during the fourth quarter of the fiscal
year ended September 30, 1997, of the Company.
               
                                    PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
          -------------------------------------------------------- 

          Market for Common Equity. The Common Stock of the Company is currently
          ------------------------                                              
quoted in the over-the-counter market on the electronic bulletin board
maintained by the National Association of Securities Dealers, Inc. under the
symbol "EMBU".

          When the trading price of the Company's Common Stock is below $5.00
per share, the Common Stock is considered to be "penny stocks" that are subject
to rules promulgated by the Securities and Exchange Commission (Rule 15g-1
through 15g-9) under the Securities Exchange Act of 1934.  These rules impose
significant requirements on brokers under these circumstances, including: (a)
delivering to customers the Commission's standardized risk disclosure document;
(b) providing to customers current bid and offers; (c) disclosing to customers
the brokers-dealer and sales representatives compensation; and (d) providing to
customers monthly account statements.

          For several years prior to January 1, 1996, the market price of the
Common Stock of the Company was either nominal or non-existent because the
Company had no substantial assets and had little or no operations.  However,
after the Company entered into an acquisition agreement regarding the purchase
of certain assets of Sterling Alliance Group, Ltd. in December 1995, the Common
Stock of the Company began actively trading.

          The following table sets forth the range of high and low closing bid
prices per share of the Common Stock as reported by National Quotation Bureau,
L.L.C. for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996:                 HIGH BID/(1)(2)/    LOW BID/(1)(2)/
-----------------------------                 ----------------    ---------------
<S>                                           <C>                 <C>       
1st Quarter................................       $ 21.00            $ 1.00 
2nd Quarter................................       $ 15.00            $ 7.50 
3rd Quarter................................       $ 12.00            $ 3.25 
4th Quarter................................       $ 5.125            $ 2.375
YEAR ENDED DECEMBER 31, 1997:                                             
-----------------------------                                              
1/st/ Quarter..............................       $ 3.75             $ 2.125
2/nd/ Quarter..............................       $ 3.25             $ 1.375
3/rd/ Quarter..............................       $ 3.3125           $ 1.375
4/th/ Quarter..............................       $ 3.25             $ 1.75 
</TABLE>

________________ 
(1)  The Company is unaware of the factors which resulted in the significant
     fluctuations in the bid prices per share during the periods being
     presented, although it is aware that there is a thin market for the Common
     Stock, that there are frequently few shares being traded and that any sales
     significantly impact the market.
(2)  During September, 1996, the Company effectuated a one for four (1:4)
     reverse stock split.  The above prices for the first three quarters of 1996
     have been revised to reflect this split.

                                       15
<PAGE>
 
On January 9, 1998, the closing bid and ask prices of the Common Stock of the
Company were $2.188 bid and $2.34 asked per share. The foregoing prices
represent inter-dealer quotations without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions. On December
31, 1997, there were approximately 11 broker-dealers publishing quotes for the
Common Stock of the Company.

          As of September 30, 1997, there were 7,535,942 shares of Common Stock
issued and outstanding which were held by approximately 681 holders of record;
and 648,649 shares of 8% Convertible Preferred Stock, Series A held by one owner
of record which are not traded in any market.

          DIVIDENDS. The Company has not paid any dividends on its Common Stock
          ---------                                                            
and does not expect to do so in the foreseeable future. The Company intends to
apply its earnings, if any, in expanding its operations and related activities.
The payment of cash dividends in the future will be at the discretion of the
Board of Directors and will depend upon such factors as earnings levels, capital
requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors, and is subject to the dividend rights of the
8% Convertible Preferred Stock, Series A of the Company to the extent such
shares are not converted into the Common Stock of the Company. In addition, the
Company's ability to pay dividends may be limited under future loan agreements
of the Company which restrict or prohibit the payment of dividends.

          SALES OF UNREGISTERED SECURITIES. During October 1996, the Company
          --------------------------------                                  
issued 25,000 shares of Common Stock in reliance upon Rule 701 under the
Act under the terms of the Compensatory Benefit Plan of the Company to
consultants for services.

          During July 1997, the Company issued 69,250 restricted shares of
Common Stock as stock bonuses to certain employees; and issued 135,209 shares of
Common Stock in exchange for cancellation of debt in reliance upon Section 4(2)
under the Act.

          In August 1997, the Company issued 648,649 shares of its 8%
Convertible Preferred Stock, Series A, and a warrant to purchase 150,000 shares
of its Common Stock exercisable at $1.85 per share, for $1,200,000 in a private
offering made in reliance upon Rule 506 of Regulation D under the Act.  The
warrant expires at the close of business on August 31, 2000.

          In June, 1997, the Company issued 100,000 shares of common stock to 
Willbro Nominees, Ltd. in exchange for services in reliance upon Section 4(2) of
the Securities Act of 1933.

          In July, 1997, the Company issued 12,500 shares of common stock to 
Finex Investments, L.L.C. for services in reliance upon Section 4(2) of the 
Securities Act of 1933.

          During July, 1997, the Company issued 100,000 shares of common stock 
to Martin Janis & Company, Inc. for public relations services in reliance upon 
Section 4(2) of the Securities Act of 1933.

          During August, 1997, the Company agreed to issue 1,000,000 shares of 
common stock as its contribution to a joint venture (Technik & Trade, Inc.), 
owned 50% by the Company, to engage in the real estate mortgage business in 
Europe, Australia and New Zealand, in reliance upon Section 4(2) of the 
Securities Act of 1933.

          During fiscal 1997, the Company agreed to issue 360,000 shares of 
common stock to Capital Communications Ltd. for public relations services in 
reliance upon Section 4(2) of the Securities Act of 1933.

          During fiscal 1997, the Company agreed to issue 105,000 shares of 
common stock to ICI Funding Corporation in consideration of mortgage lending 
commitments, in reliance upon Section 4(2) of the Securities Act of 1933.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
          --------------------------------------------------------- 

          The following discussion is intended to assist in an understanding of
the Company's financial position for the fiscal years September 30, 1997 and
September 30, 1996 and the results of its operations for the periods then ended.

GENERAL

          The Company, formerly called "Pacific International, Inc.", a Hawaii
corporation, was incorporated in 1960, and was originally organized to acquire
and manage developed and undeveloped real estate. However, the Company had not
conducted significant operations for a number of years until it agreed to
acquire substantially all of the assets and assume certain liabilities of
Sterling Alliance Group, Ltd. ("SAG") in December, 1995. Subsequently, the
Company changed its name to EMB Corporation to reflect the change in the purpose
and nature of its business. For accounting purposes, this was treated as a
recapitalization of SAG, with the historical financial information prior to the
acquisition merger being that of the Selling Stockholder.

          The principal business of the Company is the origination and
processing of residential mortgage loans using a service which the Company calls
Video InteractiveMortgage Process ("VIP"). Mortgages originated and/or purchased
by the Company have been resold primarily to ICI Funding Corporation, a division
of Imperial Credit 

                                       16
<PAGE>
 
Industries, Inc.; although mortgages in the future may be held for investment,
sold to third parties, or securitized and issued as mortgage backed securities.
The Company recently entered into a correspondent lending relationship with
ContiMortgage Corporation regarding home equity mortgage loans secured by a
second deed of trust or second mortgage. See "Liquidity and Capital Resources",
below.

          The Company recently commenced the origination of mortgage loans on
commercial properties.  The Company has entered into agreements to sell its
commercial loans to IMH Commercial Holdings, Inc., a REIT organized by Imperial
Credit Mortgage Holding, Inc.

          The Company originates loans through its executive office in Costa
Mesa, California and through its branch offices located in California, Colorado,
Connecticut, Florida, Nevada and Texas. The Company's strategy of originating,
as compared to purchasing, a substantial portion of its loan volume, results in
the generation of increased origination fees, service release fees, and other
fees which is the principal source of revenue to the Company. However, the
Company also purchases loans from unaffiliated and qualified mortgage bankers,
and originates loans referred by unaffiliated mortgage brokers. The Company
sells all of its mortgage loans, and does not retain any servicing rights.

Fiscal year ended September 30, 1997 compared with the fiscal year ended
------------------------------------------------------------------------
September 30, 1996
------------------

          RESULTS OF OPERATIONS.  The following table sets forth certain
operating information regarding the Company:

<TABLE>
<CAPTION>
                                            YEAR ENDED           YEAR ENDED 
                                        SEPTEMBER 30, 1996   SEPTEMBER 30, 1997
                                        ------------------   ------------------
<S>                                     <C>                  <C>
Mortgage loan revenues and
 product sales...........................  $   276,419          $  4,156,193

Operating expenses:
 Loan original costs, commissions and
   other fees............................  $        --          $  2,331,815
                                           
 General and administrative expense......  $ 3,375,244          $  4,347,247
 Depreciation............................  $    31,056          $     71,461 
                                            ----------            ----------  

Total operating expenses.................  $ 3,406,300          $  6,750,523
Loss from operations.....................  $(3,159,517)         $ (2,594,330)
Other income (expenses)..................  $   (67,081)         $     44,105
                                            ----------            ----------
Loss before income taxes.................  $(3,226,598)         $ (2,550,225)
Income taxes.............................  $     1,600          $      1,600
                                            ----------            ----------
Net Loss.................................  $(3,228,198)         $ (2,551,825)
                                            ==========            ==========
Net loss per share.......................  $      (.89)         $       (.42)
</TABLE>

          REVENUES. Revenues increased 1.404% to $4,156,193 in fiscal 1997 from
$276,419 in 1996. Revenues were generated from the loan process services and
product sales. During fiscal 1997, the Company funded residential mortgage loans
of $139,851,291 compared to approximately $26,487,800 during fiscal 1996, an
increase of approximately 528%. No real estate was sold during either year.

          LOAN ORIGINATIONS AND PURCHASES. Mortgage volume increased 311% to
$316,187,800 during the year ended September 30, 1997, from $101,612,900 during
the year ended September 30, 1996. This


                                       17
<PAGE>
 
increase in mortgage loan volume appears to be continuing primarily due to the
expansion of the Company's marketing activities and the opening of additional
retail offices.

          OPERATING EXPENSES. Operating expenses increased 98% to $6,750,523 in
fiscal 1997 from $3,406,300 in 1996. This increase can be attributable to
increased activity in the loan processing segment of the business and the
acquisition of additional computer equipment.

          NET LOSS FROM OPERATIONS. The net loss from operations decreased 18%
to $2,594,330 in fiscal 1997 as compared with $3,159,517 in 1996 due primarily
to the increase in revenues in 1997 over 1996.

          CAPITAL EXPENDITURES.  The Company has incurred capital expenditures
for equipment and office furniture used in its loan process service. Capital
expenditures during the fiscal years ended September 30, 1997 and 1996 totaled
$377,240 and $96,046, respectively.

CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY

          CASH FLOWS.  The following summary table presents comparative cash
flows of the Company for the periods indicated.

<TABLE>
<CAPTION>
                                                       YEAR ENDED
                                                      SEPTEMBER 30,
                                                      -------------
                                                 1996                1997
                                             ---------------    -------------
            <S>                              <C>                <C>
            Net cash used in operating
             activities.....................   $ (1,085,286)    $ (8,194,411)
            Net cash used in investing
             activities.....................   $   (171,644)    $    (67,708)
            Net cash provided by financing
             activities.....................   $  1,231,254     $  8,323,233
</TABLE>

          LIQUIDITY AND CAPITAL RESOURCES.  The Company's capital resources have
historically been provided by cash from operations, by the sale of its
securities and by short term loans. The Company's ability to implement its
business strategy will depend upon its ability to continue to establish
alternative long-term financing arrangements, maintain sufficient financing
under warehousing facilities upon acceptable terms and to access the public or
private capital markets in connection with the issuance of its equity or debt
securities. There can be no assurance that such financing will be available to
the Company on favorable terms, if at all. If such financing were not available
or the Company's capital requirements exceed anticipated levels, then the
Company would be required to obtain additional financing. The Company cannot
presently estimate the amount and timing of additional financing requirements
because such requirements are dependent upon, among other things, the growth of
the Company. If the Company were unable to raise such additional capital, its
results of operations and financial condition would be adversely affected.

          The Company anticipates that it may continue operating on a negative
cash flow basis as long as it continues its rapid growth rate. The Company's
primary operating cash requirements include the funding or payment of: (i)
originations and purchases of mortgage loans; (ii) fees and expenses incurred in
connection with the origination and purchase of mortgage loans; (iii) interest
expense incurred on borrowings under its warehouse facilities; (iv) income
taxes; (v) capital expenditures; and (vi) other operating and administrative
expenses. The Company funds these cash requirements primarily through capital
market transactions, warehouse financing and other corporate borrowings.

          During fiscal 1997, the Company increased its liquidity and capital by
its sale of 648,649 shares of its 8% Convertible Preferred Stock, Series A and a
warrant to purchase 150,000 shares of Common Stock of the Company, for
$1,200,000; $313,188 realized from the exercise of warrants to purchase common
stock; and $137,500 from the sale of common stock.

                                       18
<PAGE>
 
          At September 30, 1997, the Company had current assets of $7,808,152
and current liabilities of $7,991,923, resulting in working capital deficit of
($183,771) as compared to a working capital deficit of $(529,482)  at September
30, 1996.  Working capital increased by $345,711.

          Net cash used in operating activities increased to ($8,194,411) for
the year ended September 30, 1997, from ($1,085,286) for the year ended
September 30, 1996, or a difference of $7,109,125.  The decrease in net cash
used in operating activities was primarily attributable to the increase of other
assets and notes receivable.

          During fiscal 1997, the Company completed the opening of four (4)
additional branch retail offices, located in Las Vegas, Nevada; Houston, Texas;
Daytona Beach, Florida and Ft. Lauderdale, Florida.

          The Company has increased the amount of its outstanding liabilities to
$11,342,843 from $688,879 during the year ended September 30, 1997, an increase
of $10,653,964.  This outstanding indebtedness is due primarily to the warehouse
line of credit of $7,029,738 and deferred gain on sale of land of $3,200,000. An
undeveloped property continues to be subject to a deed of trust in the amount of
$65,000.

          The warehouse lines of credit of the Company are available for the
funding of loans which will be sold not only to ICI Funding Corporation, but
also to other investors, including Resource Bancshares Mortgage Group, Inc., The
Mortgage Authority, Inc., First Union National Bank of North Carolina, and
Resource Bancshares Mortgage Group, Inc.  During the time period following
funding of a loan, but prior to resale of the loan, the Company realizes either
interest income or expense depending upon the note rate for the underlying
mortgage vis a vis the interest rate on the warehouse line of credit, i.e.,
presently, prime + 1/2%.

          The Company relies significantly upon its access to warehouse credit
facilities in order to fund new originations and purchases. The Company has a
$3,000,000 warehouse line of credit. The Company expects to be able to extend
and maintain its existing warehouse lines of credit (or to obtain replacement or
additional financing) as the current arrangements expire or become fully
utilized; however, there can be no assurance that such financing will be
obtainable on favorable terms, if at all. To the extent that the Company is
unable to maintain its warehouse lines of credit, the Company may have to
curtail loan origination and purchasing activities, which could have a material
adverse effect on the Company's operations and financial condition.

          As of September 30, 1997, the Company has notes payable to unrelated
parties in the total amount of approximately $7,274,379, including a $65,000
deed of trust amount on its undeveloped land. The Company believes that this
remaining indebtedness will be paid primarily from its cash flow from
operations, sale of mortgages and proceeds from the sale of its equity
securities.

ITEM 7. FINANCIAL STATEMENTS.
        -------------------- 

          Information with respect to this Item is set forth in "Index to
Financial Statements".

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        ---------------------------------------------------------------
        FINANCIAL DISCLOSURE.
        -------------------- 

          Not applicable.


                                   PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        -------------------------------------------------------------
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
        --------------------------------------------------


        The directors and executive officers of the Company are as follows:

                                       19
<PAGE>
 
<TABLE>
<CAPTION>
Name(1)(2)                    Age         Position
----------                    ---         --------    
<S>                           <C>         <C>
Joseph K. Brick               59          Director, and Vice President of EMB 
                                           Mortgage Corporation              
Bruce J. Brosky(3)            42          Director and Vice President-  
                                           Marketing and Public Relations
Peter Elliott                 61          Controller                      
William V. Perry(3)(4)        73          Director and Executive Vice 
                                           President, and President of EMB 
                                           Mortgage Corporation            
Ann L. Petersen               59          Director                        
Michael P. Roth               58          Director and Vice President 
James E. Shipley(4)           61          Director and President          
B. Joe Wimer(4)               41          Director, Secretary and Treasurer
</TABLE>

_______________________
(1)  The Company presently has no executive committee, nominating committee or
     audit committee of the Board of Directors.
(2)  The officers of the Company hold office until their successors are elected
     and qualified, or until their death, resignation or removal.
(3)  Member of the Company's Stock Option Committee. See "1996 Stock Option, SAR
     and Stock Bonus Plan", below.
(4)  Member of the Company's Compensation Committee. See "Compensation
     Committee", below.

          The background and principal occupations of each director and
executive officer of the Company are as follows:

          Mr. Brick became a director of the Company at the 1997 Annual Meeting
of Stockholders in March 1997. In January 1997, he became the President of EMB
Mortgage Corporation, the principal operating subsidiary of the Company until
May 1997, when he became the Vice President of EMB Mortgage Corporation. From
May 1981 to January 1997, Mr. Brick was a mortgage portfolio consultant
regarding the evaluation of commercial, multi-family and residential mortgage
products, and the servicing and conversion of mortgage portfolios. From August
1988 to April 1991, he was employed by Countrywide Funding Corporation and
managed its mortgage operations for all states east of the Mississippi. From
1984 to 1987, he was employed by Money Market Mortgage Corporation as operations
manager for its eastern region for commercial, multi-family and residential
mortgages. From 1983 to 1984, Mr. Brick was employed by M & I Mortgage
Corporation as its Vice President and Production Manager and supervised its
start-up of a national bank's mortgage subsidiary. Mr. Brick attended Marquette
University.

          Mr. Brosky has been a director and Vice President-Marketing and Public
Relations of the Company since April 29, 1996, and became a director of the
Company on May 21, 1996. From 1993 to 1995, he was the Director of Marketing of
ERA Sterling Real Estate. From 1993 to the present, Mr. Brosky has been the
Director of Marketing and Public Relations of Sterling Alliance Group, Ltd. From
1984 to 1992, Mr. Brosky was employed by GTE of California as operator services
supervisor, CAG analyst and systems analyst. Mr. Brosky received a B.A. degree
from the University of Dubuque in 1978, and received a MBA degree from Loras
College in 1979.

          Mr. Elliott became the acting Controller of the Company on September
1, 1997. From 1983 to the present, he has been the owner and President of Peter
Elliott Accountancy Corporation, Inc., a certified public accounting firm in
Rancho Cucamonga, California. From 1972 to 1983, Mr. Elliott has been the owner
and President of Government Contracts Advisory and Litigation Support Services
Corporation. Mr. Elliott received a BS degree in accounting from California
State Polytechnic University in 1964.

          Mr. Perry has been the Executive Vice President of the Company since
April 29, 1996, and became a director of the Company on May 21, 1996. He is also
the Chairman of the Board and President of EMB Mortgage

                                       20
<PAGE>
 
Corporation, a wholly owned subsidiary of the Company. From 1994 to the present,
he has been a director and Vice President of Sterling Alliance Group, Ltd. From
October 1993 to the present, Mr. Perry has been associated with ERA Sterling
Real Estate. From 1990 to October 1993, he was a director and Vice President of
Ameri-West Funding, Inc., engaged in residential, multi-family and commercial
mortgages. From 1988 to 1990, Mr. Perry was the President of First Marine
Mortgage Company. From 1985 to 1987, he was the Chief Financial Officer of
Mobile Medical Group, Inc.; and was the Chief Financial Officer and a director
of Oceanic Opera, Inc. from 1984 to 1985. From 1970 to 1984, Mr. Perry was
engaged in the real estate brokerage business with several real estate brokerage
companies. From 1962 to 1970, he was an electronics engineer with Lockheed
Missle and Space Corporation. Mr. Perry graduated from Pacific States University
in 1948 with a degree in electrical engineering.

          Mrs. Petersen became a director of the Company on November 25, 1992.
She is a resident of Hawaii and has been a housewife since being married in
1958. She attended Marquette University for two years. Mrs. Petersen is an
active volunteer in various charitable organizations, including the American
Cancer Association.

          Mr. Roth became a director of the Company at the 1997 Annual Meeting
of the Stockholders of the Company in March 1997, and became a Vice President of
the real estate division of the Company on June 16, 1997. From 1993 to the
present, he has been the Assistant Branch Manager and Sales Associate with
Coldwell Banker Real Estate, Inc., a real estate brokerage company, at its
branch office in South Laguna, California. From 1981 to 1992, Mr. Roth was the
President of Food Service Concept Marketing Inc., a marketing consulting firm.
From 1975 to 1981, he was the Vice President Management Supervisor of Wells,
Rich, Green Advertising. From 1974 to 1975, Mr. Roth was a Vice President of
Shakey's Pizza Parlors. From 1969 to 1975, he was Vice President of Marketing of
Bonanza Steakhouses, and was President of its International Division. From 1963
to 1968, Mr. Roth was engaged in franchise marketing for McDonald's Corporation
in charge of marketing in 12 western states and Hawaii. Mr. Roth received a B.S.
degree from U.C.L.A. in 1962.

          Mr. Shipley has been a director of the Company since January 15, 1996,
and became the President of the Company on April 29, 1996. From 1993 to the
present, he has been a director and the President of Sterling Alliance Group,
Ltd., an affiliate of the Company which recently sold substantially all of its
assets and operations to the Company in exchange for Common Stock. He was the
Managing Director of EMB Mortgage Corporation, a wholly owned subsidiary of the
Company engaged in the real estate mortgage business, from October 1993 to April
1996. Mr. Shipley has served as the Managing Director of ERA Sterling Real
Estate, a real estate brokerage firm, from 1987 to the present. From 1968 to
1987, he was engaged in the real estate development business with several
companies. In 1988, Mr. Shipley became subject to two felony convictions for
forgery endorsement of a check and appropriation of property entrusted to him in
the Superior Court of the State of California. Mr. Shipley received a Bachelor
of Science degree from Eastern Illinois University in 1960.

          Mr. Wimer has been the Secretary and Treasurer of the Company since
April 29, 1996, and became a director of the Company on May 21, 1996. From April
1993 to September 1995, he was the director of business promotion of City Lights
Escrow, Inc.; and from October 1992 to April 1993, was the owner and President
of Better Service Escrow, Inc. From October 1990 to October 1992, Mr. Wimer was
employed by Escrow Masters Inc. regarding business promotion; and held a similar
position with Melrose Escrow Inc. from 1988 to October 1990. In each of these
positions, he was also responsible for all banking and money management
functions. From 1985 to 1988, he was the Chief Financial Officer of Sierra
Mortgage Corporation. Mr. Wimer attended California State University-Fullerton
and Clark College.

          COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT.  To the best of the
knowledge of the Company, its directors, officers and 10% beneficial owners have
filed all reports in compliance with the reporting requirements of Section 16(a)
of the Exchange Act during the fiscal year ended September 30, 1997.

ITEM 10. EXECUTIVE COMPENSATION.
         ---------------------- 

                                       21
<PAGE>
 
          No executive officer or director of the Company received compensation
in excess of $100,000 during its fiscal year ended September 30, 1997.

          COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors is comprised of Messrs. James E. Shipley, B. Joe Wimer, and William V.
Perry. The Committee makes decisions regarding the Company's employee stock plan
and makes decisions concerning salaries and incentive compensation for the
executive officers, employees and consultants of the Company.

          1996 STOCK OPTION, SAR AND STOCK BONUS PLAN. The Company has reserved
a total of 1,250,000 shares of Common Stock for issuance under the Company's
1996 Stock Option, SAR and Stock Bonus Plan (the "Plan"). At September 30, 1997,
no options or stock bonuses covering shares of Common Stock have been granted
and issued under the Plan. Options may be granted to employees (including
officers), consultants, advisors and directors, although only employees and
directors and officers who are also employees may receive "incentive stock
options" intended to qualify for certain tax treatment. The exercise price of
non-qualified stock options must equal at least 85% of the fair market value of
the Common Stock on the date of grant, and in the case of incentive stock
options must be no less than the fair market value. Options granted under the
Plan are immediately exercisable but generally vest over four years and must be
exercised within 10 years. The members of the Stock Option Committee that
administer the Plan are presently James E. Shipley, Bruce J. Brosky and William
V. Perry.

          401(K) PLAN. In August 1997, the Company adopted a Section 401(k)
Retirement Savings Plan (the "401(k) Plan"). The 401(k) Plan is a tax-qualified
plan covering Company employees who, as of the enrollment eligibility dates
under the 401(k) Plan, have completed at least six months of service with the
Company and elect to participate in the 401(k) Plan. The Company may make
discretionary matching cash contributions to each participant based upon his or
her elective deferrals in a percentage determined by the Company prior to the
end of each plan year, and may make additional contributions in its sole
judgment. All employee contributions are fully vested at all times and
contributions by the Company to the 401(k) Plan vest over a six-year period
based upon years of service. Benefits will normally be distributed to an
employee upon (i) the employee reaching age 65, (ii) the employee's retirement
with the Company, (iii) the employee's death or disability, (iv) the termination
of the employee's employment with the Company, or (v) the termination of the
401(k) Plan.

          BOARD COMPENSATION. Directors of the Company may be compensated by the
Company for meeting attendance by an annual directors' fee of $2,500, and are
entitled to reimbursement for their travel expenses. From time to time,
directors who are not employees of the Company, will receive grants of options
to purchase the Company's Common Stock or stock bonuses. The Company does not
pay additional amounts for committee participation or special assignments of the
Board of Directors.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
          -------------------------------------------------------------- 

          The total number of shares of Common Stock of the Company beneficially
owned by each of the officers and directors, and all of such directors and
officers as a group, and their percentage ownership of the outstanding capital
stock of the Company as of September 30, 1997, are as follows:

<TABLE>
<CAPTION>
                                                                SHARES         PERCENT OF
MANAGEMENT                                                   BENEFICIALLY     OUTSTANDING
SHAREHOLDERS(1)                                                OWNED(1)          STOCK
---------------                                              ------------     ----------- 
<S>                                                          <C>              <C>
Joseph K. Brick .........................................              0           0%
  1420 North Atlantic Avenue
  Suite 1704
  Daytona Beach, Florida  32118
</TABLE> 

                                       22
<PAGE>
 
<TABLE>
<CAPTION>
                                                                SHARES         PERCENT OF
MANAGEMENT                                                   BENEFICIALLY     OUTSTANDING
SHAREHOLDERS (1)                                               OWNED (1)         STOCK
-----------------                                            ------------     ----------- 
<S>                                                          <C>              <C>
Bruce J. Brosky ............................................       88,763         1.0%
   3200 Bristol, 8/th/ Floor
   Costa Mesa, California 92626
 
Peter Elliott ..............................................            0           0%
   9567 Arrow Route, Suite L
   Rancho Cucamonga, California 91730
 
William V. Perry ...........................................      290,470 (2)    3.55%
   3200 Bristol, 8/th/ Floor
   Costa Mesa, California 92626
 
Ann L. Petersen ............................................        6,250         .08%
   Star Route 5080
   Keaau, Hawaii 96749
 
Michael P. Roth ............................................            0           0%
   3200 Bristol, 8/th/ Floor
   Costa Mesa, California 92626
 
James E. Shipley ...........................................      813,375 (3)    9.94%
   3200 Bristol, 8/th/ Floor
   Costa Mesa, California 92626
 
B. Joe Wimer ...............................................        6,250         .08%
   3200 Bristol, 8/th/ Floor
   Costa Mesa, California 92626
 
Directors and officers as a group
   (7 persons, including the above) .........................   1,205,108        14.7%
                                                                =========     ==========
</TABLE> 

___________________________________

(1)  Except as otherwise noted, it is believed by the Company that all persons
     have full voting and investment power with respect to the shares, except as
     otherwise specifically indicated. Under the rules of the Securities and
     Exchange Commission, a person (or group of persons) is deemed to be a
     "beneficial owner" of a security if he or she, directly or indirectly, has
     or shares the power to vote or to direct the voting of such security, or
     the power to dispose of or to direct the disposition of such security.
     Accordingly, more than one person may be deemed to be a beneficial owner of
     the same security. A person is also deemed to be a beneficial owner of any
     security which that person has the right to acquire within 60 days, such as
     warrants or options to purchase the Common Stock of the Company.
(2)  Represents shares of the Company owned by Win, Win, Solver Group, Inc., a
     corporation owned by Mr. Perry. It also includes 13,688 shares held by a
     trust of which Mr. Perry is the trustee. He is not a beneficiary of the
     trust, and disclaims any ownership of its securities.
(3)  Represents shares of the Company owned by World Trends Financial, Ltd., a
     corporation beneficially owned by Mr. Shipley.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
          ---------------------------------------------- 

          Effective March 12, 1997, the Company issued a promissory note in the
principal amount of $100,000 to James E. Shipley for advances made to the
Company. The note bears interest at 7% per annum and is due on March 12, 1998. 
Mr. Shipley also made additional advances to the Company. As a result, the 
Company was indebted to Mr. Shipley in the amount of $130,405 as of September 
30, 1997.

          During the fiscal year ended September 30, 1997, the Company incurred 
unreimbursed expenses regarding ERA Sterling Alliance Real Estate, a real estate
brokerage company owned by the family of James E. Shipley, a director and 
officer of the Company, in the amount of $166,212.

          During the fiscal year ended September 30, 1997, the Company made 
loans to Bruce J. Brosky, a director and Vice President of the Company in the 
total amount of $77,000, with interest at 7% per annum.

                                       23
<PAGE>
 
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.
          -------------------------------- 

         (a)     Exhibits:
                 -------- 

         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").

         3.2     The Bylaws of the Registrant are incorporated by referenced to
                 Exhibit 3(ii) of Form 10-SB of the Registrant.

         10(a)   The Asset Acquisition Agreement dated December 16, 1995, with
                 Sterling Alliance Group, Ltd. is incorporated herein by
                 reference to Exhibit 10(a) to the Form 10-SB of the Registrant.

         10(b)   The Appraisal Report dated April 22, 1996, of real property (61
                 acres) in County of Monterey, California by National Appraisal
                 Service is incorporated herein by reference to Exhibit 10(b) to
                 the Form 10-SB of the Registrant.

         10(c)   The Appraisal Report as of December 7, 1994, of 4.89 acres in
                 Counter of Riverside, California, by Tyna M. Stopnik is
                 incorporated herein by reference to Exhibit 10(c) to the Form
                 10-SB of the Registrant.

         10(d)   The License Agreement with Virtual Lending Technology, Inc. is
                 incorporated herein by reference to Exhibit 10(d) to the Form
                 10-SB of the Registrant.

         10(e)   The Seller Agreement between ICI Funding Corporation and EMB
                 Mortgage Banc, Ltd. is incorporated herein by reference to
                 Exhibit 10(e) to the Form 10-SB of the Registrant.

         10(f)   The 1996 Stock Option, SAR and Stock Bonus Plan is incorporated
                 herein by reference to Exhibit 10(f) to the Form 10-SB of the
                 Registrant.

         10(g)   The Sublease covering the executive offices of the Registrant
                 expiring March, 1997 is incorporated herein by reference to
                 Exhibit 10(g) to the Form 10-SB of the Registrant.

         10(h)   The form of license agreement with customers of the Registrant
                 is incorporated herein by reference to Exhibit 10(h) to the
                 Form 10-SB of the Registrant.

         10(i)   Residential Mortgage Loan Origination Agreement dated July 31,
                 1996, with Orange County Federal Credit Union is incorporated
                 by reference to Exhibit 10(i) of Amendment No. 1 to the Form
                 10-SB of the Registrant.

         10(j)   The Long Form Security (Installment) Land Contract with Power
                 of Sale dated December 30, 1996, is incorporated herein by
                 reference to Exhibit 7(c)(1) to the Form 8-K report of the
                 Registrant filed on January 9, 1997.

         10(k)*  Stock Purchase Agreement dated November 1, 1997, regarding
                 acquisition of Investment Consultants, Inc.

         10(l)*  ICI Master Commitment to purchase loans under ConformPlus
                 program dated October 21, 1997.

         10(m)*  ICI Master Commitment to purchase second deed trust mortgage
                 deeds dated September 12, 1997.

                                       24
<PAGE>
 
         10(n)*  ICI Master Commitment to purchase jumbo and conforming
                 residential mortgages dated September 4, 1997.

         10(o)*  Master agreement for sale of mortgages with ContiMortgage
                 Corporation.

         10(p)*  Sale agreement for purchase of mortgage loans with the Mortgage
                 Authority, Inc. dated April 3, 1997.

         10(q)*  Mortgage loan Seller/Servicer Agreement with First Union
                 National Bank of North Carolina dated March 16, 1997.

         10(r)*  Mortgage Purchase Agreement with Resource Bancshares Mortgage
                 Group, Inc. dated March 10, 1997.

         10(s)*  Stock Purchase Agreement with Linda K. Gregg dated November 1,
                 1997, regarding agreement of Preferred Holding Group,
                 Incorporated.

         11      Statement re: computation of per share earnings --Reference is
                 made to the Statements of Operations of the Registrant for its
                 fiscal year ended September 30, 1997, which are incorporated by
                 reference herein.

         21.1    Description of the subsidiaries of the Registrant: The Company
                 has four (4) wholly owned subsidiaries, (i) EMB Mortgage
                 Corporation, a California corporation; (ii) Investment
                 Consultants, Inc., a Colorado corporation; (iii) EMB
                 Financial Services, Inc., a Colorado corporation; and (iv)
                 America Teleconferencing Services, Inc., a Nevada corporation.

         23.1*   Consent of Harlan & Boettger

         27.*    Financial Data Schedule.

         _____________________  
         *Filed herewith

         (b)     Reports on Form 8-K. The Registrant did not file any reports on
                 -------------------
Form 8-K during the last quarter of the period covered by this report. 

                                       25
<PAGE>
 
                                  SIGNATURES

               In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



Registrant:         EMB CORPORATION


               By:  /s/ James E. Shipley
                    _______________________________________
                    James E. Shipley, President


               In connection with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.


Date: January 12, 1998                  
                                        
                                        
By:   /s/ James E. Shipley                 /s/ William V. Perry
      -----------------------------        -------------------------------------
      James E. Shipley                     William V. Perry
      Director and President               Director and Executive Vice President
                                        
                                        
      /s/ B. Joe Wimer                     /s/ Bruce J. Brosky
      -----------------------------        -------------------------------------
      B. Joe Wimer                         Bruce J. Brosky
      Director, Secretary, Treasurer,      Director and Vice President-Marketing
       Chief Financial Officer and          and Public Relations
       Principal Accounting Officer                     
                                        
                                        
      /s/ Joseph K. Brick                  /s/ Michael P. Roth
      -----------------------------        -------------------------------------
      Joseph K. Brick                      Michael P. Roth
      Director and Vice President          Director and Vice President
       of EMB Mortgage Corporation      

                                       26
<PAGE>
 
                         EMB CORPORATION AND SUBSIDIARY

                          AUDITED FINANCIAL STATEMENTS

                       AS OF SEPTEMBER 30, 1997 AND 1996
<PAGE>
 
                                C O N T E N T S

<TABLE>
<CAPTION>
                                                                                    PAGE
                                                                                    ----
<S>                                                                              <C>
 
INDEPENDENT AUDITORS' REPORT                                                         F-1
 
CONSOLIDATED FINANCIAL STATEMENTS:
 
 CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND 1996                       F-2
 
 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED 
   SEPTEMBER 30, 1997, 1996 AND 1995                                                 F-3
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED
   SEPTEMBER 30, 1997, 1996 AND 1995                                                 F-4
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1997,
   1996 AND 1995                                                                     F-5
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      F-6 - F-19
</TABLE>
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT



TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
EMB CORPORATION AND SUBSIDIARY:

We have audited the accompanying consolidated balance sheets of EMB Corporation
(a Hawaii corporation) and subsidiary as of September 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years ended September 30, 1997, 1996 and 1995. These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EMB Corporation and
subsidiary as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended September 30, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.



Harlan & Boettger, LLP
San Diego, California
December 3, 1997

                                      F-1
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
 
     ASSETS                                                                                           September 30,
                                                                                        September 30,     1996
                                                                                            1997      (As restated)
                                                                                        ------------  --------------
<S>                                                                                     <C>           <C>
CURRENT ASSETS
   Cash                                                                                 $    61,409     $       395
   Restricted cash (Note J)                                                                  34,000               -
   Accounts receivable (net of allowance of $17,958 and $0, respectively)                     8,890          14,582
   Mortgage loans held for sale (Note K)                                                  7,092,238               -
   Inventory                                                                                      -          35,324
   Notes receivable - officers (Note D)                                                     227,600               -
   Current portion of note receivable (Notes G and H)                                       165,574          14,000
   Prepaid expenses and other (Note C)                                                      218,441               -
                                                                                        -----------     -----------
 
 
     TOTAL CURRENT ASSETS                                                                 7,808,152          64,301
 
PROPERTY AND EQUIPMENT, net (Note F)                                                        462,992         149,363

NOTE RECEIVABLE, less current portion (Notes G and H)                                     3,161,133               -
 
RELATED PARTY RECEIVABLE (Note M)                                                           166,212         129,687
 
LAND HELD FOR SALE (Note G)                                                                  43,000         843,000
 
INTANGIBLE ASSETS, net (Note I)                                                             105,885               -
 
OTHER ASSETS (Note J)                                                                     1,275,210           4,128
                                                                                        -----------     -----------

                                                                                        $13,022,584     $ 1,190,479
                                                                                        ===========     ===========
 
     LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES
   Accounts payable                                                                     $   539,488     $   195,374
   Warehouse line of credit (Note K)                                                      7,029,738               -
   Bank overdrafts                                                                                -          27,177
   Accrued expenses                                                                         170,743          48,886
   Notes payable - current portion (Note L)                                                 227,487         293,793
   Capital lease obligations - current portion (Note O)                                      24,467          28,553
                                                                                        -----------     -----------
 
 
     TOTAL CURRENT LIABILITIES                                                            7,991,923         593,783
 
RELATED PARTY PAYABLE (Note M)                                                              130,405               -
 
NOTES PAYABLE, net of current portion (Note L)                                               17,154          65,000
 
CAPITAL LEASE OBLIGATIONS, net of current portion (Note O)                                    3,361          30,096
 
DEFERRED GAIN (Note H)                                                                    3,200,000               -
                                                                                        -----------     -----------
     TOTAL LIABILITIES                                                                   11,342,843         688,879
                                                                                        -----------     -----------
 
COMMITMENTS AND CONTINGENCIES (Note O)                                                            -               -
 
SHAREHOLDERS' EQUITY
   Preferred stock, no par value, 5,000,000 shares authorized; 648,648                 
     and 0 shares issued and outstanding, respectively                                    1,009,000               -
   Common stock, no par value, 30,000,000 shares authorized;                           
     7,535,942 and 5,311,817 shares issued and outstanding, respectively                  6,955,482       3,910,391
   Common stock to be issued                                                                160,875         585,000
   Common stock subscribed (net of allowance of $187,875 and $0, respectively)             (100,000)       (200,000)
     (Note X)
   Retained deficit                                                                      (6,345,616)     (3,793,791)
                                                                                        -----------     -----------
 
     TOTAL SHAREHOLDERS' EQUITY                                                           1,679,741         501,600
                                                                                        -----------     -----------
 
                                                                                        $13,022,584     $ 1,190,479
                                                                                        ===========     ===========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      F-2
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                        

<TABLE>
<CAPTION>
                                                                              Years ended September 30,       
                                                                      --------------------------------------- 
                                                                                        1996                  
                                                                           1997     (As restated)     1995    
                                                                       -----------   -----------   ---------- 
<S>                                                                   <C>           <C>            <C>        
REVENUES                                                                                                      
  Loan origination and other fees, net of commitment fees              $ 4,156,193   $   244,874   $   97,400 
  Product sales                                                                  -        31,545            - 
                                                                       -----------   -----------   ---------- 
                                                                                                              
     TOTAL REVENUES                                                      4,156,193       276,419       97,400 
                                                                                                              
COST OF SALES                                                                    -        29,636            - 
                                                                       -----------   -----------   ---------- 
                                                                                                              
  Gross profit                                                           4,156,193       246,783       97,400 
                                                                       -----------   -----------   ---------- 
                                                                                                              
OPERATING EXPENSES                                                                                            
  Loan origination costs, commissions and other fees                     2,331,815             -            - 
  General and administrative                                             4,347,247     3,375,244      531,818 
  Depreciation and amortization                                             71,461        31,056        2,662 
                                                                       -----------   -----------   ---------- 
                                                                                                              
     TOTAL OPERATING EXPENSES                                            6,750,523     3,406,300      534,480 
                                                                       -----------   -----------   ---------- 
                                                                                                              
LOSS FROM OPERATIONS                                                    (2,594,330)   (3,159,517)    (437,080)
                                                                       -----------   -----------   ---------- 
                                                                                                              
OTHER INCOME (EXPENSES)                                                                                       
  Interest income                                                           15,146             -            - 
  Interest expense                                                         (36,979)      (64,393)      (2,164)
  Other                                                                     65,938        (2,688)       9,989 
                                                                       -----------   -----------   ---------- 
                                                                                                              
     TOTAL OTHER INCOME (EXPENSES)                                          44,105       (67,081)       7,825 
                                                                       -----------   -----------   ---------- 
                                                                                                              
LOSS BEFORE INCOME TAXES                                                (2,550,225)   (3,226,598)    (429,255)
  Provision for income taxes (Note N)                                        1,600         1,600          800 
                                                                       -----------   -----------   ---------- 
                                                                                                              
NET LOSS                                                               $(2,551,825)  $(3,228,198)  $ (430,055)
                                                                       ===========   ===========   ========== 
                                                                                                              
NET LOSS PER COMMON SHARE                                                    $(.42)        $(.89)       $(.29)
                                                                       ===========   ===========   ========== 
                                                                                                              
WEIGHTED AVERAGE NUMBER OF SHARES                                                                             
  OUTSTANDING                                                            6,114,176     3,641,421    1,469,225 
                                                                       ===========   ===========   ==========  
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                   Common             Common                Total
                               Common Stock          Preferred Stock       Stock      Stock to be   Retained   Shareholders'
                               ------------         ----------------
                              Shares     Amounts    Shares     Amount    Subscribed     Issued      Deficit   Equity (Deficit)
                              ------     -------    ------     ------    ----------     ------      -------   ----------------
<S>                          <C>        <C>         <C>        <C>       <C>            <C>         <C>       <C>
BALANCE, SEPTEMBER 30, 1994       1,288,600  $  150,000           -        $  -      $    -       $    -      $(135,538)   $ 14,462
   Shares issued for
    Riverside land                    8,250      33,000           -           -           -            -             -       33,000
   Shares issued for services       172,500     155,250           -           -           -            -             -      155,250
   Shares issued to founders
    for services                    175,000       7,000           -           -           -            -             -        7,000
   Net loss                               -           -           -           -           -            -      (430,055)    (430,055)
                                 ----------  ----------     -------     -------     -------      -------    ----------   ----------
BALANCE, SEPTEMBER 30, 1995       1,644,350     345,250           -           -           -            -      (565,593)    (220,343)

   Proceeds from sale of
    shares                          412,707   1,017,914           -           -           -            -             -    1,017,914
   Shares issued for services       836,389   1,279,460           -           -           -            -             -    1,279,460
   Shares issued to founders
    for services                    893,712      35,749           -           -           -            -             -       35,749
   Shares issued for Monterey
    land                            200,000     800,000           -           -           -            -             -      800,000
   Shares issued for note
    receivable                       50,000     200,000           -           -    (200,000)           -             -            -
   Shares issued for debt           116,009     232,018           -           -           -            -             -      232,018
   Shares issued for net
    assets of Sterling      
    Alliance Group, Ltd.          1,158,650           -           -           -           -            -             -            -
   Shares to be issued for
    services                              -           -           -           -           -      585,000             -      585,000
   Net loss                               -           -           -           -           -            -    (3,228,198)  (3,228,198)
                                 ----------  ----------     -------  ----------   ---------   ----------    ----------   ----------
 BALANCE, SEPTEMBER 30, 1996      5,311,817  $3,910,391           -    $      -   $(200,000)   $ 585,000   $(3,793,791)  $  501,600
   (As restated)
   Proceeds from sale of
    shares                           50,000     137,500           -           -           -            -             -      137,500
   Shares issued for services       991,750   1,456,903           -           -           -     (585,000)            -      871,903
   Shares issued for exercise
    of warrants                      96,250     140,938           -           -           -            -             -      140,938
   Warrants exercised
    for subscription receivable      86,125     172,250           -           -    (212,875)           -             -      (40,625)
   Shares issued for
    investment in joint venture   1,000,000   1,137,500           -           -           -            -             -    1,137,500
   Proceeds from private
    placement of preferred stock 
    net of issuance costs                 -           -     648,648   1,009,000           -             -            -    1,009,000
   Shares to be issued for
    services                              -           -           -           -           -       160,875            -      160,875
   Payment of stock
    subscription receivable               -           -           -           -     125,000             -            -      125,000
   Set up bad debt reserve                -           -           -           -     187,875             -            -      187,875
   Net loss                               -           -           -           -           -             -   (2,551,825)  (2,551,825)
                                 ----------  ----------     -------  ----------   ---------   ----------    ----------   ----------
BALANCE, SEPTEMBER 30, 1997       7,535,942  $6,955,482     648,648  $1,009,000   $(100,000)   $ 160,875   $(6,345,616) $ 1,679,741
                                 ==========  ==========     =======  ==========   =========   ==========   ===========  ===========
 </TABLE>
 
 The accompanying notes are an integral part of these financial statements.  

                                      F-4
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Years ended September 30,
                                                                      ----------------------------------------------
                                                                                           1996
                                                                           1997        (As restated)         1995
                                                                      --------------   -------------     ----------- 
<S>                                                                   <C>              <C>               <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                               $(2,551,825)    $(3,228,198)      $(430,055)
 Adjustments to reconcile net loss to net cash
   used in operating activities:
      Common stock issued for services                                       785,236       1,315,209         162,250
      Common stock to be issued for services                                  53,625         585,000               -
      Related party note payable issued for services                          63,750               -               -
      Increase in reserves                                                   493,833               -               -
      Depreciation and amortization                                           71,461          31,056           2,662
      Changes in operating assets and liabilities:
        (Increase) decrease in:
          Restricted cash                                                   (129,809)              -               -
          Accounts receivable                                                (12,266)        (14,582)              -
          Inventory                                                           35,324         (35,324)              -
          Mortgage loans held for sale                                    (7,092,238)              -               -
          Prepaid expenses and other assets                                 (350,297)         (2,951)         (1,177)
        Increase in:
          Accounts payable                                                   316,937         217,867             349
          Accrued expenses                                                   121,858          46,637           1,449
                                                                         -----------     -----------       ---------
 
NET CASH USED IN OPERATING ACTIVITIES                                     (8,194,411)     (1,085,286)       (264,522)
                                                                         -----------     -----------       ---------
 
CASH FLOWS FROM INVESTING ACTIVITIES
 Purchases of property and equipment                                        (377,240)        (96,846)         (6,720)
 Payment for land purchase                                                         -               -         (10,000)
 Purchases of intangible assets                                             (113,736)              -               -
 Loans made on notes receivable - officers                                  (227,600)              -               -
 Loans made on notes receivable                                             (112,707)              -         (14,000)
 Loans made on related party receivable                                      (36,525)        (74,798)        (29,092)
 Proceeds from sale of land held for investment                              800,000               -               -
                                                                         -----------     -----------       ---------
 
NET CASH USED IN INVESTING ACTIVITIES                                        (67,808)       (171,644)        (59,812)
                                                                         -----------     -----------       ---------
 
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds on line of credit, net                                           7,029,738              -                -
 Proceeds from issuance of notes payable                                           -        268,893          355,776
 Payments under capital lease obligations                                    (30,821)       (17,300)               -
 Payments on borrowings                                                     (154,777)       (38,253)               -
 Proceeds from sale of common stock                                          278,438      1,017,914                -
 Proceeds from related party borrowings                                       66,655              -                -
 Proceeds from preferred stock private placement (net of issuance costs)   1,009,000              -                -
 Proceeds from common stock subscribed                                       125,000              -                -
                                                                         -----------     -----------       ---------
 
NET CASH PROVIDED BY FINANCING ACTIVITIES                                  8,323,233       1,231,254         355,776
                                                                         -----------     -----------       ---------
 
NET INCREASE (DECREASE) IN CASH                                               61,014         (25,676)         31,442
 
CASH, BEGINNING                                                                  395          26,071          (5,371)
                                                                         -----------     -----------       ---------

CASH, ENDING                                                             $    61,409     $       395       $  26,071
                                                                         ===========     ===========       ========= 
</TABLE>

 The accompanying notes are an integral part of these financial statements.  

                                      F-5
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Organization and Nature of Operations

     EMB Corporation (formerly called Pacific International, Inc.) (the
     "Company") was incorporated under the laws of the State of Hawaii on May 5,
     1960. Effective December 16, 1995, the Company acquired the net assets of
     Sterling Alliance Group, Ltd ("SAG") which included 100% ownership in
     Electronic Mortgage Banc, Ltd. ("EMB") and land held for sale. For
     financial statement purposes the transaction has been recorded as a
     recapitalization of SAG and the issuance of shares for the net assets of
     the Company due to the fact that SAG provides substantially all of the
     historic and on-going operations (See Note B). The historical and on-going
     financial statements primarily represent the assets, liabilities and
     operations which were acquired from SAG.

     The Company has an interactive software system for the origination and
     processing of mortgage loans which it calls Video Interactive Mortgage
     Process ("VIP"). This system has been linked to the ProShare video personal
     conferencing 200 software developed by Intel Corporation that provides
     direct teleconferencing and interaction between prospective mortgage
     borrowers and mortgage lenders. The Company licenses its mortgage software
     system to real estate brokers, builders, credit unions, mortgage brokers
     and others. The Company also independently originates and processes
     mortgage loans, and intends to engage in the secondary placement of real
     estate mortgages. The Company has sales offices located in the western,
     southeastern, and southern regions of the United States.

     Basis of Consolidation

     The consolidated financial statements include the accounts of EMB
     Corporation and its subsidiary company (together, "the Company") after
     elimination of material intercompany accounts and transactions.

     Basis of Accounting

     The Company's policy is to use the accrual method of accounting and to
     prepare and present financial statements which conform to generally
     accepted accounting principles.

     Significant Estimates

     Management uses estimates and assumptions in preparing financial
     statements. Those estimates and assumptions affect the reported amounts of
     assets and liabilities, the disclosure of contingent assets and
     liabilities, and reported revenues and expenses. Significant estimates used
     in preparing these financial statements include the valuation allowance for
     deferred tax assets, reserves for interest receivable relating to the note
     receivable and the common stock subscribed, deferred loan origination
     costs, and discounted value of restricted stock issued for services and
     investment in joint venture. It is at least reasonably possible that a
     change in the estimates will occur in the near term.



A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

     Cash

                                      F-6
<PAGE>

                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     Cash includes cash on hand and cash in checking and savings accounts. The
     balance, at times, may exceed federally insured limits. At September 30,
     1997 the Company exceeded the insured limits by an immaterial amount.

     Mortgage Loans Held for Sale

     Mortgage loans held for sale represent the Company's security interest in
     mortgage loans funded on their Imperial Warehouse Lending Group, Inc. line
     of credit, which have not yet been purchased by ICI Funding (ICI), in
     accordance with their Master Repurchase Agreement. (See Note K). Such
     purchases are typically made within 10 days from the date the Company funds
     a loan.

     Mortgage loans held for sale are stated at lower of cost or market
     determined on an aggregate loan basis. Market value for mortgage loans
     covered by investor commitments is based on commitment prices. Mortgage
     loans held for sale include deferred loan origination costs of $62,750 and
     $0 at September 30, 1997 and 1996, respectively. Credit is granted to
     individuals located throughout the United States. The loans are
     collateralized and secured by first deeds on real property. The interest
     rates on these mortgage loans are at market, which generally ranges from
     7.0% to 9.5%.

     Mortgage Servicing Rights

     Included with the mortgage loans that are held for sale is the mortgage
     servicing rights which are sold with the mortgage loans.

     Inventory

     Inventory is stated at the lower of cost or market, cost being determined
     on the first-in, first-out (FIFO) method. Inventory consists of mortgage
     loan processing and teleconferencing software and equipment. As of
     September 30, 1997 the inventory was written off as the equipment and
     software were determined to be worthless.

     Property and Equipment

     Property and equipment is stated at cost, and depreciated using the
     straight-line method over the estimated useful lives of the assets, which
     range from five to ten years. In the year of acquisition of property and
     equipment, one-half year's depreciation is taken regardless of the actual
     date placed into service. Maintenance and repairs are charged to operations
     as incurred, and major improvements are capitalized. Upon retirement, sale,
     or other disposition, the related cost and accumulated depreciation are
     eliminated from the respective accounts and any gain or loss on disposition
     is reflected in operations.

     Intangible Assets

     Intangible assets subject to amortization include the design and copyright
     of the corporate logo and computer software. The logo design and copyright
     is amortized on a straight-line basis over twenty years, and the computer
     software is amortized on a straight-line basis over five years.



A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

                                      F-7
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Loan Origination Fees

     Loan origination fees and costs are shared with the brokers who bring the
     loan to the Company. The Company's portion of the loan origination fee is
     included in the loan production revenue when the loan is sold.

     Revenue Recognition

     Origination fees, service release fees and other fees, net of direct costs,
     are deferred and recognized at the time the loan is sold.

     Revenue and Cost Recognition - Land Held for Sale

     The Company expects that it will from time to time hold real estate for
     sale. Land acquisition costs have been capitalized and they will be charged
     to earnings when the related revenue is recognized. Other costs incurred in
     connection with the land are charged to earnings when incurred.

     Deferred Commitment Fees

     Deferred commitment fees, included in Prepaid Expenses and Other, consist
     of fees paid to permanent investors to ensure the ultimate sale of loans.
     Fees paid to permanent investors are recognized as an adjustment to the
     sales price when the loans are sold.

     Advertising

     The Company expenses advertising costs as incurred. Advertising expenses
     included in general and administrative expenses were $18,043, $3,085, and
     $512, for the fiscal years ended September 30, 1997, 1996, and 1995,
     respectively.

     Income Taxes

     Income taxes, are provided for using the liability method of accounting in
     accordance with Statement of Financial Accounting Standards No. 109 (SFAS
     109), "Accounting for Income Taxes." A deferred tax asset or liability is
     recorded for all temporary differences between financial and tax reporting
     and net operating loss carryforwards. Deferred tax expense (benefit)
     results from the net change during the year of deferred tax assets and
     liabilities.

     Per Share Information

     Net loss per common share amounts are computed by dividing net loss by the
     weighted average number of common and common equivalent shares outstanding
     in the period. Common stock equivalents consist of warrants granted. For
     the net loss per common share calculation there were no dilutive common
     stock equivalents.


A.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     Stock-Based Compensation

     The Company accounts for stock-based compensation in accordance with
     Statement of Financial Accounting

                                      F-8
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."
     During the year ended September 30, 1997, the Company issued shares of its
     restricted stock, valued at $101,278, to officers and employees for
     services rendered. During the years ended September 30, 1997, 1996 and
     1995, the Company issued shares of its restricted stock, valued at
     $1,456,903, $1,279,460, and $155,250, respectively, to unrelated parties
     for services rendered. The value of the shares was based on the fair value
     of the stock determined by market prices, discounted for the stock
     restriction.

     Financial Statement Reclassifications

     Certain amounts reflected in the consolidated financial statements for the
     years ended September 30, 1996 and 1995 have been reclassified to conform
     to the presentation for the year ended September 30, 1997.

B.   RECAPITALIZATION:

     Effective December 16, 1995, the Company acquired the net assets of
     Sterling Alliance Group, Ltd. for 3,375,000 shares of the Company's common
     stock.

     The Company previously did not have an operating business and, accordingly,
     has treated the transaction as a recapitalization of SAG and recorded the
     transaction at historical cost. Accordingly, the net assets acquired were
     accounted for in a manner similar to a pooling of interest.

C.   PREPAID EXPENSES AND OTHER :

     Prepaid expenses and other are summarized as follows:

<TABLE>
<CAPTION>
                                         September 30,  September 30,
                                             1997           1996     
                                         -------------  -------------
     <S>                                 <C>            <C>          
                                                                     
     Deferred commitment fees            $     193,917  $           -
     Other                                      24,524              -
                                         -------------  -------------
                                                                     
     Total prepaid expenses and other    $     218,441  $           - 
                                         =============  ============= 
</TABLE>

D.   NOTES RECEIVABLE - OFFICERS:

     The Company has notes receivable from officers totaling $227,600 at
     September 30, 1997. These notes bear interest at 7.0% per annum and are
     payable in one installment including interest in January 1998 and September
     1998. During 1997, interest income on these notes was $10,909.

E.   RESTATEMENT:

     An error, resulting in the understatement of net loss, common stock to be
     issued, operating expenses and retained deficit in the Company's previously
     issued financial statements for the year ended September 30, 1996, has
     resulted in the restatement of those financial statements. The changes to
     retained deficit as of September 30, 1996 and the related statement of
     operations for the year then ended are summarized as follows:

                                                       Retained

                                      F-9
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                         Deficit      Net Loss   
                                                      ------------  ------------ 
        <S>                                           <C>           <C>          
        As previously reported, September 30, 1996    $(3,208,791)  $(2,643,198) 
                                                                                 
        Omission of stock for services transaction       (585,000)     (585,000) 
                                                      -----------   -----------  
                                                                                 
        As restated, September 30, 1996               $(3,793,791)  $(3,228,198) 
                                                      ===========   ===========   
</TABLE>

     The income tax effect of this error was to increase the deferred income tax
     asset and the valuation allowance $234,600 at September 30, 1996.

F.   PROPERTY AND EQUIPMENT:

     Property and equipment are summarized as follows:

<TABLE>                                                      
<CAPTION>                                                    
                                         September 30,  September 30, 
                                             1997           1996      
                                         -------------  ------------- 
        <S>                              <C>            <C>           
        Machinery and equipment          $     363,041  $     112,532 
        Furniture & fixtures                   142,552         71,317 
        Leasehold improvements                  55,496              - 
                                         -------------  ------------- 
                                                                      
                                               561,089        183,849                
        Less accumulated depreciation           98,097         34,486 
                                         -------------  ------------- 
                                                                      
        Property and equipment, net      $     462,992  $     149,363 
                                         =============  =============  
</TABLE>

G.   LAND HELD FOR SALE:

     SAG acquired approximately five acres of undeveloped land in Riverside
     County, California on February 24, 1995 from Rancho Brisa Corp., an
     unrelated third party. SAG paid $10,000 cash, and issued 8,250 shares of
     their common stock valued at $4.00 per share as consideration. The land was
     subsequently collateralized against a $65,000 note payable (See Note L).

     SAG also acquired approximately 61 acres of undeveloped land with water
     producing rights and three wells in Monterey County, California on December
     11, 1995 from Golden River Corp., an unrelated third party. Each well can
     produce approximately 900,000 gallons of water per 24 hour period and the
     water supply is replenished annually from the run-off of the surrounding
     mountains. SAG issued 200,000 shares valued at $4.00 per share of its
     common stock as consideration. This land was sold on December 30, 1996 to
     an unrelated party for $4,000,000. The Company received a down payment of
     $800,000 and a note receivable for $3,200,000 with interest at 12% per
     annum. The Company has reported this sale on the deposit method, recovering
     the initial cost of the land with the down payment. Future payments will be
     recognized as income when received (see Note H).


H.   NOTE RECEIVABLE:

     Note receivable at September 30, 1997, consists of $3,200,000 due from the
     sale of the Monterey Land for $4,000,000. The note is secured by the
     property and payable in nine annual payments of $422,867 commencing
     December 1997, including interest at 12% per annum, with a final payment of
     remaining principal and any accrued interest due December 2006.

     In accordance with Statement of Financial Accounting Standards No. 66 (SFAS
     66), "Accounting for Sales of Real Estate", the Company has provided for
     the recognition of profit based on the Deposit Method and, accordingly, has

                                     F-10
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     recorded a Deferred Gain of $3,200,000 as of September 30, 1997 (see Note
     G).

I.   INTANGIBLE ASSETS:

     Intangible assets are summarized as follows:

<TABLE>
<CAPTION>
                                                 September 30,  September 30,
                                                      1997           1996     
                                                 -------------  -------------
        <S>                                      <C>            <C>          
        Logo and copyrights                      $      87,371  $           -
        Computer software                               26,365              -
                                                 -------------  -------------
                                                                     
                                                       113,736              -
        Less accumulated amortization                    7,851              -
                                                 -------------  -------------
                                                                     
        Intangible assets, net                   $     105,885  $           -
                                                 =============  ============= 
</TABLE>

J.   OTHER ASSETS:

     Other assets are summarized as follows:  

<TABLE>
<CAPTION>
                                                  September 30,  September 30, 
                                                       1997          1996      
                                                  -------------  -------------  
        <S>                                       <C>            <C>  
        Investment in joint venture               $   1,137,500  $           - 
        Interest receivable, net of allowance            15,146              - 
        Deposits - other                                 26,755          4,128 
        Restricted cash                                 129,809              - 
        Less: current portion, restricted cash          (34,000)             - 
                                                  -------------  ------------- 
                                                                               
        Total other assets                        $   1,275,210  $       4,128 
                                                  =============  =============  
</TABLE>

     Investment in joint venture relates to the Company's 50% interest in an
     international joint venture to further its real estate mortgage business
     throughout Europe, Australia and New Zealand. The Company contributed
     1,000,000 restricted common shares to fulfill its investment. The
     investment, which was acquired August 29, 1997, is valued at 65% of the
     stock's market value per management's estimate of a reasonable discount. As
     of December 3, 1997, the Company's capital contribution was being held in
     escrow pending finalization of incorporation. However, as of September 30,
     1997, the joint venture has commenced operations.

J.   OTHER ASSETS: (CONTINUED)

     Restricted cash reflects monies held in a certificate of deposit pursuant
     to the terms of the Company's lease agreement for its corporate office
     space. These monies are being held by the landlord as security for the
     Company's adherence to the terms, covenants and conditions of the lease.
     The agreement stipulates that $34,000 will be released beginning April 1998
     and each year thereafter, provided the Company isn't in default under the
     lease. The remaining restricted cash relates to an agreement the Company
     has with ICI wherein the Company is required to fund two percent of loan
     balances which are being financed by the ICI warehouse credit line but
     purchased by another investor. This account is used to fund the Company's
     share of these loans.

K.   WAREHOUSE LINE OF CREDIT:

                                     F-11
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The Company has a $3,000,000 line-of-credit with Imperial Warehouse Lending
     Group, Inc. (IWLGI) which can be used solely for the purpose of funding
     mortgage loans. Borrowings bear interest at Bank of America's prime + .5%.
     The line is secured by a personal guarantee and the original mortgage
     notes. The Company must maintain an average daily balance of $1,500,000. As
     of September 30, 1997 the outstanding balance was $7,029,738, $4,029,738 in
     excess of the lending limit. The Company has recorded a corresponding
     asset, Mortgage Loans Held For Sale, representing the Company's security
     interest in the underlying properties. The line of credit expired September
     26, 1997. Since that date, IWLGI has accommodated the Company's credit
     needs pending a formal extension of the agreement.

L.   NOTES PAYABLE:

<TABLE>
<CAPTION>
 
     Notes payable are summarized as follows:
                                                                               September 30,          September 30,  
                                                                                   1997                    1996      
                                                                               -------------          ------------     
     <S>                                                                       <C>                    <C>            
     Note payable due to Frederic R. Weeth, interest at 10%,                                                         
     no established repayment schedule, note past due, principal                                                     
     and any unpaid interest due on demand, unsecured                             $ 24,375              $ 26,250    
                                                                                                                  
     Note payable due to Thomas J. Donahue, interest at 10%                                                       
     no established repayment schedule, note past due, principal                                                  
     and any unpaid interest due on demand, unsecured                               24,375                26,250   
                                                                                                                  
     Note payable to Howard C. Kuhle, interest at 12%, interest                                                   
     only payable monthly, principal and any unpaid interest due                                                  
     March 1998, secured by deed of trust on Riverside County                                                     
     land                                                                           65,000                65,000   
                                                                                                                  
     Note payable to Baronin Enterprises, Inc., interest at 8%,                                                   
     principal and any unpaid interest due on demand                                50,000   
                                                                                                                  
     Note payable to Havon Funding, L.P., interest at 10.5%, 24                                                   
     monthly payments of $480 including interest, unsecured, final                                                
     payment including any unpaid interest due November 1998                        21,191                     -   
                                                                                                                  
     Various notes payable to unrelated parties, no established                                                   
     repayment schedule, unsecured, non-interest-bearing                           109,700               191,293   
                                                                               -------------          ------------     
                                                                                                                  
                                                                                   244,641               358,793   
                                                                                                                  
       Less current portion                                                        227,487               293,793  
                                                                               -------------          ------------     
                                                                                                                  
       Notes payable, net of current portion                                      $ 17,154              $ 65,000  
                                                                               =============          ============
</TABLE>

L.   NOTES PAYABLE: (CONTINUED)

     Aggregate maturities required on long-term debt at September 30, 1997 are
     as follows:

<TABLE> 
          <S>                       <C>  
          1998                      $227,487
          1999                        17,154
          Thereafter                       -
                                    --------

                                    $244,641
                                    ========
</TABLE> 

                                     F-12
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

M.   RELATED PARTY TRANSACTIONS:

     Related party receivable at September 30, 1997 and 1996 consists of non-
     interest bearing, unsecured amounts due on demand from a related
     corporation of $166,212 and $129,687, respectively.

     Related party payable at September 30, 1997 consists of loans (portion non-
     interest bearing, due on demand, balance interest at 7% per annum, due
     March 1998, all amounts unsecured) made to the Company by a
     director/officer and amounts due (unsecured, account payable) to an entity
     owned by another director for consulting services of $130,405 and $48,357,
     respectively.

N.   INCOME TAXES:

     As discussed in Note A, the Company accounts for income taxes in accordance
     with SFAS 109.

     Provisions for income taxes are summarized as follows:

<TABLE>
<CAPTION>
                                                    Year ended September 30, 
                                                    ------------------------
                                                       1997    1996   1995 
                                                      ------  ------  -----
          <S>                                         <C>       <C>     <C>  
          Current income taxes                        $1,600  $1,600  $ 800
          Deferred income taxes                            -       -      -
                                                      ------  ------  -----
                                                                           
          Provision for income taxes                  $1,600  $1,600  $ 800
                                                      ======  ======  ===== 
</TABLE>

                                     F-13
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

N.   INCOME TAXES: (CONTINUED)

     As a result of adopting SFAS 109, the Company has recognized deferred tax
     assets for the tax effects of temporary differences for the years ended
     September 30, 1997, 1996 and 1995 as follows:

<TABLE>
<CAPTION>
                                           Year ended September 30,
                                       -----------------------------------
                                                    1996
                                         1997   (As restated)       1995
                                       -------  ------------     ---------
     <S>                          <C>           <C>              <C> 
     Deferred tax assets:
       Net operating losses        $ 2,212,800   $ 1,354,600      $ 120,000
       Deferred gain                   277,100             -              -
       Reserves                        213,800             -              -
                                   -----------   -----------      ---------
 
     Gross deferred tax assets       2,703,700     1,354,600        120,000
     Valuation adjustment           (2,703,700)   (1,354,600)      (120,000)
                                   -----------   -----------      ---------
 
          Net deferred tax assets  $         -   $         -      $       -
                                   ===========   ===========      =========
</TABLE>

     The net change in the valuation allowance from September 30, 1997 to 1996
     was $1,349,100 and $1,234,600 from September 30, 1996 to 1995.

     The Company has net operating loss carryforwards remaining of approximately
     $4,700,000. The regular net operating loss carryforwards, which are
     approximately the same as the alternative net operating loss carryforwards,
     if not utilized, will expire as follows:

<TABLE>
<CAPTION>
                                                         Federal      State
                                                       ----------  ----------
          <S>                                          <C>         <C>
          2000                                         $        -  $1,314,000
          2001                                                  -     958,000
          2009                                            100,000           -
          2010                                            200,000           -
          2011                                          2,500,000           -
          2012                                          1,900,000           -
                                                       ----------  ----------
 
                                                       $4,700,000  $2,272,000
                                                       ==========  ==========
</TABLE>

O.   COMMITMENTS AND CONTINGENCIES:

     Operating Leases

     The Company leases its office facilities under operating leases from
     unrelated third parties which expire at various dates, ranging from one to
     five years. Rental expense for the years ended September 30, 1997, 1996 and
     1995 was $155,022, $90,132 and $0, respectively.

     Minimum future rental payments under the lease agreements are summarized as
     follows:

<TABLE>
               <S>                                       <C>
               1998                                      $333,400
               1999                                       335,700
               2000                                       357,200
               2001                                       262,200
               2002                                       131,100
                                                       ----------

                                                       $1,419,600
                                                       ==========
</TABLE> 

                                     F-14
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



O.   COMMITMENTS AND CONTINGENCIES: (CONTINUED)

     The noncancelable operating leases provide that the Company pays for
     property taxes, insurance and certain other operating expenses applicable
     to the leased premises.

     Capital Leases

     The Company acquired part of its equipment and furniture under capital
     lease obligations. The economic substance of the capital lease agreements
     is that the Company finances the acquisition by making monthly payments
     over a thirty-six month period. The assets are reflected as part of
     property and equipment. The following is an analysis of the book value of
     the leased assets included in property and equipment as of:

<TABLE>
<CAPTION>
                                            September 30,   September 30,
                                                1997            1996
                                            -------------  --------------
          <S>                               <C>            <C>
 
          Cost                              $ 75,949       $ 75,949
 
          Accumulated depreciation           (36,382)       (23,450)
                                            --------       --------
 
             Net Book Value                 $ 39,567       $ 52,499
                                            ========       ========
</TABLE>

     The future minimum lease payments under capitalized leases and the present
     value of the net minimum lease payments are as follows:

<TABLE> 
<CAPTION> 
       Year ending September 30,
       -------------------------
       <S>                                              <C>
               1998                                     $ 28,998
               1999                                        2,916
                                                        --------
 
                                                          31,914
 
               Less amount representing interest          (4,086)
                                                        --------
 
                                                          27,828
 
               Less current portion of capital lease     (24,467)
                                                        --------
 
               Long-term capital lease obligations      $  3,361
                                                        ========
</TABLE>

     Contingencies

     The Company is involved in certain claims and legal proceedings in which
     monetary damages and other relief are sought.  The Company is vigorously
     contesting these claims. However, these claims are preliminary, and their
     ultimate outcome cannot presently be predicted. In any event, it is the
     opinion of management that any liability of the Company for claims or
     proceedings will not materially affect its financial position.



P.   SUPPLEMENTAL CASH FLOW INFORMATION:

                                     F-15
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Supplemental disclosures of cash flow information are summarized as
     follows:

<TABLE>
<CAPTION>
                                                                 Years ended September 30,
                                                          -------------------------------------
                                                              1997        1996       1995
                                                           ------------  ---------  ----------
     <S>                                                   <C>           <C>        <C>
     Cash paid for interest and income taxes:
         Interest                                          $   18,506    $ 52,232   $ 2,164
 
         Income taxes                                      $    1,600    $      -         -
 
     Noncash investing and financing activities:
         Capital lease obligations incurred                $        -    $ 57,881   $18,068
 
         Common stock issued for land                      $        -    $800,000   $33,000
 
         Common stock issued for related party
            payable                                        $        -    $232,018   $     -
 
         Common stock issued for investment in
            joint venture                                  $1,137,500    $      -   $     -
</TABLE>

Q.   SHAREHOLDERS' EQUITY:

     The Company amended its Articles of Incorporation on May 21, 1996, which
     authorized the issuance of 35,000,000 shares of capital stock; 30,000,000
     shares are no par value common stock and 5,000,000 shares are preferred
     stock. The preferred stock may be divided into and issued in one or more
     series. As of September 30, 1996 there were no shares of preferred stock
     issued or outstanding.

     On September 27, 1996 the Company effectuated a one for four (1:4) reverse
     stock split. The effect of this event has been retroactively applied for
     financial statement presentation on the statement of stockholders' equity
     (deficit).

     Common stock to be issued relates to remuneration in the form of common
     stock, wherein the liability is accruable as of the balance sheet date but
     the stock has not been issued.

R.   PREFERRED STOCK:

     In August 1997, the Company designated 1,066,666 shares of its authorized
     preferred stock as Convertible Preferred Stock, Series A (the "Convertible
     Preferred"). The Company sold a total of 648,648 shares of Convertible
     Preferred (at a price of $1.85 per share) in a private placement that was
     consummated in August 1997. As additional consideration, the Company issued
     warrants to purchase 150,000 shares of the Company's common stock at an
     initial exercise price of $1.85 per share. The Convertible Preferred has a
     stated value of $1.85 and is entitled to receive cumulative dividends at an
     annual rate of $.148 per share, payable quarterly when and if declared by
     the Board of Directors and is convertible, at any time at the option of the
     holder, into shares of the Company's common stock at a conversion price
     equal to the lesser of (a) $1.85 per share or (b) 75% of the average
     closing bid price of the Common Stock during the five trading days
     immediately preceding such conversion. In the event of any noticed
     conversion of the Convertible Preferred at a conversion price of less than
     $1.125 per common share then the Company may, at its option, redeem the
     shares of the Convertible Preferred, in whole or in part, at an amount
     equal to 117% of the purchase price of the holder's Convertible Preferred



R.   PREFERRED STOCK: (CONTINUED)

                                     F-16
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     plus an amount equal to accrued and unpaid dividends, if any, to (and
     including) the date fixed for redemption, whether or not earned or
     declared. Each share of the Convertible Preferred is entitled to vote on
     any matter submitted to the shareholders as if the Convertible Preferred
     had been converted into common stock, and each share has a liquidation
     preference equal to $2.16.

S.   STOCK OPTION, SAR AND STOCK BONUS PLAN:

     On April 29, 1996 the Board of Directors approved the "EMB Corporation 1996
     Stock Option, SAR and Stock Bonus Plan." Options and SAR's may be granted
     to employees and independent consultants. No options and SAR's shall be
     exercisable within six months from date of grant or more than ten years
     after date of grant. The option price of stock options shall in no event be
     less than 85%, and for incentive stock options shall in no event be less
     than 100% of the "fair market value" of the stock on the date of grant.

     The Company has reserved a total of 250,000 shares of common stock for
     issuances under the plan. As of September 30, 1997, no shares have been
     granted under the plan.

T.   COMMON STOCK WARRANTS:

     The following table summarizes common stock warrant activity during the
     years ended September 30, 1997 and 1996:

<TABLE>
<CAPTION>
 
                                                       For the years ended
                                                           September 30,
                                                     -----------------------
                                                        1997          1996
                                                     ---------      --------
          <S>                                        <C>            <C> 
          Beginning balance                            108,750             -
          Issued                                       286,125       108,750
          Exercised                                   (182,375)            -
          Expired                                            -             -
                                                      --------       -------
 
          Ending Balance                               212,500       108,750
                                                      ========       =======
</TABLE>

     As of September 30, 1997, the exercise price of outstanding warrants range
     from $1.85 - $2.00 and the expiration dates range from March 1998 to August
     2000.

U.   RETIREMENT PLAN:

     The Company adopted a 401(k) retirement plan effective August 1, 1997. As
     of the adoption date, the plan covers all employees who are at least 21
     years of age. Thereafter, an employee must have four months of service and
     be at least 21 years of age to be eligible. Under the plan, the employees
     may contribute up to 15% of their compensation. The Company holds the right
     to make a discretionary contribution. There was no Company contribution for
     the year ended September 30, 1997.



V.   SIGNIFICANT CUSTOMER:

                                     F-17
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     A significant source of revenue for the Company is derived from the resale
     of retail mortgage loans to a single national mortgage lender. The Company
     sold approximately 90% of its mortgage loans to this one lender for the
     year-ended September 30, 1997. There is no receivable balance due from the
     lender at September 30, 1997. The line of credit which has been used to
     fund these mortgage loans expired on September 26, 1997. The loss of this
     line of credit and/or the loss of the national mortgage lender would have a
     material adverse affect on the Company's ability to continue in business.

W.   FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The following disclosure of estimated fair values of financial instruments
     as of September 30, 1997 and 1996 is made by the Company using available
     market information and appropriate valuation methodologies. However,
     considerable judgment is required to interpret market data to develop the
     estimates of fair value. Accordingly, the estimates presented herein are
     not necessarily indicative of the amounts the Company could realize in a
     current market exchange.

<TABLE>
<CAPTION>
 
                                      September 30, 1997     September 30, 1996
                                     ----------------------  --------------------
                                      Carrying   Estimated   Carrying  Estimated
                                       Amount    Fair Value   Amount   Fair Value
                                     ----------  ----------  --------  ----------
     <S>                             <C>         <C>         <C>       <C>
 
     Assets
     ------
 
     Accounts receivable             $    8,890  $    8,890  $ 14,582    $ 14,582
     Mortgage loans held for sale     7,092,238   7,092,238         -           -
     Notes receivable                 3,554,307   3,554,307    14,000      14,000
 
     Liabilities
     -----------
 
     Accounts payable                   539,488     539,488   195,374     195,374
     Bank overdraft                           -           -    27,177      27,177
     Notes payable                      244,641     244,641   358,793     358,793
     Warehouse line of credit         7,029,738   7,029,728         -           -
</TABLE>

X.   COMMON STOCK SUBSCRIBED:

     Common stock subscribed represents the Company's issuance of common stock
     to three unrelated parties in exchange for notes receivable. The notes are
     unsecured, bear interest at rates ranging from 9% to 10% and are due in
     January and February 1998. The Company has fully allowed for two of the
     notes as they were non-performing over the original term of the note.

                                     F-18
<PAGE>
 
                        EMB CORPORATION AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Y.   SUBSEQUENT EVENTS:

     In November 1997, the Company entered into a stock purchase agreement
     whereby it has agreed to acquire all of the issued and outstanding capital
     stock of Investment Consultants, Inc. ("Sellers"), a Colorado corporation.
     In exchange for acquiring all of the issued and outstanding capital stock
     of Sellers, the Company will issue 400,000 shares of its common stock (the
     "Shares"). If, as of the close of the business day eighteen months
     following closing of this transaction, the aggregate fair market value of
     the Shares is less than $2,000,000 the Sellers may elect one of two
     options. Sellers may either elect: (1) that additional common shares are
     issued equivalent to the difference between the sum of $2,000,000 and the
     aggregate fair market value of the Shares, or (2) to rescind the
     transaction, returning the parties to their respective positions prior to
     consummation of the proposed transaction.

     In November 1997, the Company entered into a stock purchase agreement
     whereby it has agreed to purchase all of the outstanding shares of capital
     stock of Preferred Holding Group, Inc. ("PHG"), a Colorado corporation. As
     consideration for acquiring all of the issued and outstanding capital stock
     of PHG, the Company will issue 100,000 shares of its common stock.

                                     F-19
<PAGE>
 
<TABLE> 
<CAPTION> 
                               INDEX TO EXHIBITS
                               -----------------

=========================================================================================

                                                                             SEQUENTIAL
NO.      EXHIBIT                                                              PAGE NO.
-----------------------------------------------------------------------------------------
<S>      <C>                                                                 <C>  
 10(k)   Stock Purchase Agreement dated November 1, 1997, regarding
         acquisition of Investment Consultants, Inc.

-----------------------------------------------------------------------------------------

 10(l)   ICI Master Commitment to purchase loans under ConformPlus
         program dated October 21, 1997.
-----------------------------------------------------------------------------------------

 10(m)   ICI Master Commitment to purchase second deed trust mortgage
         deeds dated September 12, 1997.
-----------------------------------------------------------------------------------------

 10(n)   ICI Master Commitment to purchase jumbo and conforming
         residential mortgages dated September 4, 1997.
-----------------------------------------------------------------------------------------

 10(o)   Master agreement for sale of mortgages with ContiMortgage
         Corporation.
-----------------------------------------------------------------------------------------

 10(p)   Sale agreement for purchase of mortgage loans with the
         Mortgage Authority, Inc. dated April 3, 1997.
-----------------------------------------------------------------------------------------

 10(q)   Mortgage loan Seller/Servicer Agreement with First Union
         National Bank of North Carolina dated March 16, 1997.
-----------------------------------------------------------------------------------------

 10(r)   Mortgage Purchase Agreement with Resource Bancshares Mortgage
         Group, Inc. dated March 10, 1997.
-----------------------------------------------------------------------------------------

 10(s)   Stock Purchase Agreement with Linda K. Gregg dated November 1,
         1997, regarding acquisition of Preferred Holding Group,
         Incorporated.
-----------------------------------------------------------------------------------------

 23.1*   Consent of Harlan & Boettger.
-----------------------------------------------------------------------------------------

 27.*    Financial Data Schedule.
=========================================================================================
</TABLE>

                                      28