If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ¨

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

 

CALCULATION OF REGISTRATION FEE

Title Of Each Class Of Securities To Be Registered	Amount To Be Registered	Proposed Maximum Offering Price Per Share(1)	Proposed Maximum Aggregate Offering Price(2)	Amount Of Registration Fee
Common stock, par value $0.001 per share per share	5,610,000	$0.10	$561,000	$60.03
TOTAL	5,610,000	$0.10	$561,000	$60.03

 

(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the “Securities Act”). For the purposes of this table, we have used the last reported sale price at June 20, 2006.

(2)

2,812,500 shares included herein are being distributed to the Class A common stockholders of iVoice, Inc. (“iVoice”). No consideration will be received by iVoice in consideration of such distribution. 937,500 shares included herein are being offered for sale by iVoice and 1,860,000 shares included herein are being offered for sale by Cornell Capital Partners, LP. Accordingly, the value of the shares being registered is estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(b) under the Securities Act.

                   

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

 

SUBJECT TO COMPLETION, DATED JUNE 26, 2006

 

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Subject to Completion, Dated June 26, 2006

PROSPECTUS

EMERGE CAPITAL CORP.

5,610,000 Shares of Common Stock

This prospectus (this “Prospectus”) relates to the registration of (a) 1,860,000 shares of common stock of Emerge Capital Corp. (formerly known as NuWave Technologies, Inc. and herein referred to as “Emerge Capital” or the “Company”) that may be offered for sale from time to time by Cornell Capital Partners, LP (“Cornell Capital”), (b) 937,500 shares of common stock of Emerge Capital that may be offered for sale from time to time by iVoice, Inc. (“iVoice”) and (c) 2,812,500 shares of common stock of Emerge Capital that will be distributed by dividend by iVoice to all of the Class A common stockholders of iVoice. Emerge Capital is not selling any shares of common stock in this offering and therefore will not receive any proceeds from this offering. All costs associated with this registration will be borne by Emerge Capital.

 

Brokers and dealers effecting transactions in these shares should confirm that the shares are registered under applicable state law or that an exemption from registration is available.

 

Class A common stockholders will be required to pay income tax on the value of the shares of Emerge Capital common stock received by you in connection with the iVoice distribution.

 

Our common stock is quoted on the Over-the-Counter Bulletin Board maintained by the NASD under the symbol “EMGC.OB”. On June 20, 2006, the last reported sale price of our common stock was $0.10 per share.

 

THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.

 

PLEASE REFER TO “RISK FACTORS” BEGINNING ON PAGE 7.

 

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED ON THE ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

 

Liquidity And Capital Resources

 

At March 31, 2006, the Company had working capital of $938,455 including $98,452 of restricted cash. Working capital is net of a computed liability for the fair value of derivatives of $850,718, which will only be realized on the conversion of the derivatives, or settlement of the debentures. The Company at its option can force conversion of $1,700,000 of convertible debentures into the Company's common stock at maturity date.

 

On May 5, 2005, the Company issued a $250,000 debenture to Cornell Capital and on July 20, 2005, the Company issued a $150,000 debenture to Cornell Capital. These debenture obligations were released on February 3, 2006 pursuant to that certain Stock Purchase Agreement, by and between the Company and Cornell Capital.

 

On November 11, 2005, Corporate Strategies entered into a stock purchase agreement (the “SPA”) pursuant to which Corporate Strategies purchased from Mr. Robert P. Farrell and Mr. Joseph W. Donohue, Jr., each a shareholder of Sagamore Holdings, Inc. (“Sagamore”), and such shareholders sold to Corporate Strategies, in the aggregate, 70,600,000 shares of common stock, par value $0.001 per share, of Sagamore in exchange for One Hundred Dollars ($100). Prior to the purchase, such shareholders owned 88,250,000 shares of common stock of Sagamore and upon execution of the SPA, Corporate Strategies acquired approximately seventy percent (70%) of the total outstanding common stock of Sagamore as of the date of the Agreement. The Company has no current or future requirements to provide capital to Sagamore.

 

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At December 31, 2005, the Company had a working capital deficit of $119,132 including $378,399 of unrestricted cash. The deficit includes a computed liability for the fair value of derivatives of $836,628, which will only be realized on the conversion of the derivatives, or settlement of the debentures. The Company at its option can force conversion of $1,700,000 of convertible debentures into the Company’s common stock at maturity.

 

On February 3, 2006, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Cornell Capital pursuant to which the Company sold to Cornell Capital one hundred (100) shares of common stock, par value $0.001 per share, of Lehigh Acquisition Corp., a Nevada corporation (“Lehigh”), which constitutes one hundred percent (100%) of the issued and outstanding capital stock of Lehigh, for total proceeds of approximately $5,948,000 including cash of $93,000, repayment of $4,881,000 promissory notes and $400,000 convertible debenture to Cornell, and payment of $574,000 of payables. The transaction resulted in a gain of approximately $3,042,000 in February, 2006.

 

On February 11, 2006, Corporate Strategies entered into a securities purchase agreement with Elite Flight Solutions, Inc., a Delaware corporation (“Elite”), effective as of December 31, 2005, pursuant to which Elite purchased from Corporate Strategies (a) 1,000 shares of the issued and outstanding Class A common stock of AIM American Mortgage, Inc., a Texas corporation (“AIM”), representing approximately eighty-five percent (85%) of the issued and outstanding common stock of AIM and (b) 554.57262 shares of Series A Preferred stock of AIM, representing one hundred percent (100%) of the issued and outstanding preferred stock of AIM. Elite purchased the shares of AIM Class A common stock and Series A Preferred stock referenced above in consideration of the issuance to Corporate Strategies of a secured convertible debenture in the principal amount of $500,000. The secured convertible debenture is due and payable on December 31, 2010 and accrues interest at twelve percent (12%) per year. The secured convertible debenture is secured by substantially all of the assets of Elite; however, the Company has fully reserved the debenture.

 

On February 21, 2006, the Company purchased Two Hundred Seventy-Two and 278/1000 (272.278) shares of Series C preferred stock. In lieu of cash, the Company issued a Promissory Note in the amount of Two Hundred Forty Thousand Dollars ($240,000). The Promissory Note will be paid over a period of sixty (60) months at an eight percent (8%) annual interest rate, resulting in monthly payments of Four Thousand Eight Hundred Thirty-Four and 11/100 Dollars ($4,834.11).

 

On March 31, 2006, the Company redeemed ten (10) shares of Series C preferred stock. The Company paid Fifteen Thousand Dollars ($15,000) as consideration for such redemption.

 

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USE OF PROCEEDS

 

Emerge Capital will receive no proceeds from the Distribution of the 2,812,500 shares of our common stock in this Registration Statement to the Class A common stockholders of iVoice. This Prospectus also relates to 1,860,000 shares of our common stock that may be offered and sold from time to time by Cornell Capital and 937,500 shares of our common stock that may be offered and sold from time to time by iVoice. Therefore, there will be no proceeds to us from the sale of shares of common stock in this offering.

 

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DETERMINATION OF OFFERING PRICE

 

We determined the offering price of $0.10 based upon the price of the last sale of our common stock to investors at June 20, 2006. The price of the last sale was determined by what we found could attract investors to invest in our Company.

 

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DILUTION

 

The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders.

 

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SELLING AND DISTRIBUTING SECURITY HOLDERS

 

The following table presents information regarding the selling and distributing shareholders. A description of the selling and distributing shareholders’ relationship to Emerge Capital and how the selling and distributing shareholders acquired the shares to be sold and distributed in this offering is detailed in the information immediately following this table.

 

SELLING/DISTRIBUTING SHAREHOLDERS	SHARES BENEFICIALLY OWNED BEFORE OFFERING	PERCENTAGE OF OUTSTANDING SHARES BENEFICIALLY OWNED BEFORE OFFERING(1)	SHARES TO BE SOLD IN THE OFFERING	SHARES TO BE DISTRIBUTED IN THE OFFERING	PERCENTAGE OF SHARES BENEFICIALLY OWNED AFTER OFFERING
Cornell Capital Partners, LP	1,860,000	7.27%	1,860,000	--	0%
iVoice, Inc.	3,750,000	14.66%	937,500	2,812,500	0%
TOTAL	5,610,000	21.93%	2,797,500	2,812,500	0%

(1)

Applicable percentage of ownership is based on 25,585,816 shares of common stock outstanding as of June 20, 2006, together with securities exercisable or convertible into shares of common stock within sixty (60) days of June 20, 2006. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of June 20, 2006 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

The following information contains a description of the selling and distributing shareholders’ relationship to Emerge Capital and how the selling and distributing shareholders acquired the shares to be sold and distributed in this offering. No selling or distributing shareholder has held a position or office, or had any other material relationship, with Emerge Capital, except as follows:

 

Shares Acquired In Transactions With Emerge Capital

 

·

Cornell Capital Partners, LP. Cornell Capital is an investor of Emerge Capital and owns 1,860,000 shares of common stock pursuant to that certain Merger Agreement, dated August 31, 2005 as described below. All investment decisions of Cornell Capital are made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of Yorkville Advisors, LLC, makes the investment decisions on behalf of Yorkville Advisors LLC.

 

·

Merger Transaction. On August 31, 2005, the Company entered into a merger agreement (the “Merger Agreement”) with Strategies Acquisition Corp., a wholly-owned subsidiary of the Company (then “SPV” and now “Corporate Strategies”), Corporate Strategies, Inc. (“Corporate Strategies”) and the shareholders of Corporate Strategies listed therein, whereby SPV merged with and into Corporate Strategies, with Corporate Strategies remaining as the surviving corporation and continuing its corporate existence under the laws of the State of Delaware as a wholly-owned and chief operating subsidiary of the Company (the “Merger”). The separate existence of SPV has ceased. Pursuant to the terms of the Merger Agreement, the Company issued one (1) share of its common stock to each holder of Corporate Strategies Class A common stock in exchange for two (2) shares of Corporate Strategies Class A common stock, par value $0.001 per share. Prior to the Merger, Cornell Capital owned 3,720,000 shares of Corporate Strategies Class A common stock and, pursuant to the Merger, received 1,860,000 shares of our common stock. These 1,860,000 shares are being registered in this offering.

 

·

iVoice, Inc. iVoice is an affiliate shareholder of Emerge Capital, holding immediately prior to the Distribution 15.25% of the total outstanding shares of our common stock. All investment decisions of iVoice are made by Mr. Jerry Mahoney. A description of how iVoice acquired the shares set forth below.

 

·

Purchase of Corporate Strategies Class A Common Stock. On June 29, 2004, Corporate Strategies, the now wholly-owned and chief operating subsidiary of the Company, entered into an agreement with iVoice for the sale of 7,500,000 shares of Corporate Strategies Class A common stock for $250,000. Such 7,500,000 shares have been exchanged for 3,750,000 shares of our common stock pursuant to that certain Merger Agreement described below.

 

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·

Merger Agreement. On August 31, 2005, the Company entered into a merger agreement (the “Merger Agreement”) with Strategies Acquisition Corp., a wholly-owned subsidiary of the Company (then “SPV” and now “Corporate Strategies”), Corporate Strategies, Inc. (“Corporate Strategies”) and the shareholders of Corporate Strategies listed therein, whereby SPV merged with and into Corporate Strategies, with Corporate Strategies remaining as the surviving corporation and continuing its corporate existence under the laws of the State of Delaware as a wholly-owned and chief operating subsidiary of the Company (the “Merger”). The separate existence of SPV has ceased. Pursuant to the terms of the Merger Agreement, the Company issued one (1) share of its common stock to each holder of Corporate Strategies Class A common stock in exchange for two (2) shares of Corporate Strategies Class A common stock, par value $0.001 per share. Prior to the Merger, iVoice owned 7,500,000 shares of Corporate Strategies Class A common stock and, pursuant to the Merger, received 3,750,000 shares of our common stock. iVoice is distributing seventy-five percent (75%) of these shares to its Class A common stock shareholders, or 2,812,500 shares, in this offering and the remaining 937,500 shares, which may be sold from time to time by iVoice, are also being registered in this offering.

 

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PLAN OF DISTRIBUTION

 

Introduction

 

On June __, 2006, the Board of Directors of iVoice declared a pro rata Distribution payable to the holders of record of outstanding iVoice Class A common stock on the Record Date. The Distribution consists of an aggregate of 2,812,500 Emerge Capital Shares and iVoice Class A common stockholders will receive their pro rata share based on the percentage of shares of iVoice Class A common stock owned on the Record Date. We currently anticipate that the Distribution will be effected near the effective date of the Registration Statement. The Record Date and date of Distribution may change based on the timing of the effectiveness with the SEC of the Registration Statement of which this Prospectus is a part.

 

As a result of the Distribution, seventy-five percent (75%) of the outstanding shares of our common stock previously held by iVoice immediately prior to the Distribution will be distributed pro rata to iVoice Class A common stockholders. Immediately following the Distribution, iVoice and its subsidiaries will own, with the exception of the 937,500 shares being registered and offered for sale by iVoice in this Prospectus, zero (0) shares of our common stock. The Emerge Capital Shares will be distributed by book entry. Instead of stock certificates, each iVoice Class A common stock shareholder that is a record holder of iVoice Class A common stock shares will receive a statement of such shareholder’s book entry account for the Emerge Capital Shares distributed to such shareholder. Account statements reflecting ownership of the Emerge Capital Shares will be mailed shortly after the date of Distribution. Emerge Capital Shares should be credited to accounts with stockbrokers, banks or nominees of iVoice Class A common stockholders that are not record holders after the effective date of the Distribution.

 

Emerge Capital was incorporated as NuWave Technologies, Inc. in Delaware on July 17, 1995. Emerge Capital’s principal executive offices are located at 109 North Post Oak Lane, Suite 422, Houston, Texas 77024, and our telephone number is (713) 621-2737. 

 

Reasons For The Distribution

 

The Board of Directors and management of iVoice believe that the Distribution is in the best interests of iVoice and the iVoice Class A common stockholders. iVoice believes that the Distribution will benefit Class A common stockholders because it will provide such holders a financial benefit in the form of free-trading shares of Emerge Capital at no cost to the shareholder, except for applicable federal and state income taxes, and the flexibility of either retaining such free-trading shares or the freedom to sell such shares to receive the cash proceeds, or a combination of both.  

 

Emerge Capital’s Board of Directors and management believe that the Distribution is in the best interests of Emerge Capital and its shareholders because the Distribution will result in an increase of our shareholder base by 740%, which not only broadens our shareholder base but could also improve our stock’s liquidity and increase investor appeal.

 

Manner Of Effecting The Distribution

 

The Distribution will be made to iVoice Class A common stockholders on a pro rata basis based on the percentage of outstanding shares of iVoice Class A common stock owned on the Record Date. An aggregate of 2,812,500 Emerge Capital Shares will be distributed to iVoice Class A common stockholders. Therefore, if you owned ten percent (10%) of the total number of Class A common stock of iVoice on the Record Date, you will receive 281,250 shares of Emerge Capital common stock. The Emerge Capital Shares to be distributed will constitute 11.44% of the total outstanding Emerge Capital Shares immediately after the Distribution.

 

The Emerge Capital Shares will be fully paid and non-assessable and the holders thereof will not be entitled to preemptive rights. See the Section entitled “Description of Securities” beginning on page 31.

 

On the date of Distribution, the Distribution Agent identified herein below will begin distributing certificates representing our common stock to iVoice Class A common stockholders. You will not be required to make any payment or take any other action to receive your shares of our common stock. If you are not a record holder of iVoice stock because your shares are held on your behalf by your stockbroker or other nominee, your Emerge Capital shares should be credited to your account with your stockbroker or nominee after the effective date of the Registration Statement. After the Distribution, shareholders may request stock certificates from Emerge Capital’s transfer agent instead of participating in the book entry system.

 

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No fractional Emerge Capital Shares will be issued. If you own a fractional share of Emerge Capital common stock as of the Record Date, you will receive the next higher whole number of Emerge Capital Shares in the Distribution. No iVoice Class A common stock shareholder will receive less than one hundred (100) shares of our common stock in the Distribution.

 

No iVoice Class A common stockholder will be required to pay any cash or other consideration for the Emerge Capital Shares received in the Distribution, or to surrender or exchange iVoice shares in order to receive Emerge Capital Shares. The Distribution will not affect the number of, or the rights attaching to, outstanding Emerge Capital shares. No vote of iVoice Class A common stockholders is required or sought in connection with the Distribution, and iVoice Class A common stockholders will have no appraisal rights in connection with the Distribution.

 

In order to receive Emerge Capital Shares in the Distribution, iVoice Class A common stockholders must be shareholders of iVoice at the close of business on the Record Date.

 

Results Of The Distribution

 

After the Distribution, Emerge Capital expects to have approximately eight hundred forty (840) holders of record of Emerge Capital common stock, compared to approximately one hundred (100) holders of record immediately prior to the Distribution, an increase of approximately 740%. The Distribution will not affect the number of outstanding shares of common stock of Emerge Capital or any rights of iVoice Class A common stockholders.

 

Listing And Trading Of The Emerge Capital Shares

 

Neither iVoice nor Emerge Capital makes recommendations on the purchase, retention or sale of shares of Emerge Capital common stock or Emerge Capital Shares. You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor.

 

If you do decide to purchase or sell any iVoice or Emerge Capital shares, you should make sure your stockbroker, bank or other nominee understands whether you want to purchase or sell iVoice common stock or Emerge Capital Shares, or both. The following information may be helpful in discussions with your stockbroker, bank or other nominee.

 

Our shares of common stock trade on the Over-The-Counter Bulletin Board under the symbol “EMGC.OB”. The Emerge Capital Shares distributed to iVoice Class A common stockholders will be freely transferable, except for Emerge Capital Shares received by persons who may be deemed to be affiliates of Emerge Capital under the Securities Act of 1933, as amended (the “Securities Act”). Persons who may be deemed to be affiliates of Emerge Capital after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with Emerge Capital and may include certain directors, officers and significant shareholders of Emerge Capital. Persons who are affiliates of Emerge Capital will be permitted to sell their Emerge Capital Shares only pursuant to an effective Registration Statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act and the provisions of Rule 144 thereunder.

 

There can be no assurance as to whether the Emerge Capital Shares will continue to be actively traded or as to the prices at which the Emerge Capital Shares will trade. iVoice Class A common stockholders who receive Emerge Capital Shares may decide that they do not want shares in Emerge Capital and may sell their Emerge Capital Shares following the Distribution. If Emerge Capital shareholders sell large numbers of shares of Emerge Capital common stock over a short period of time, or if investors anticipate large sales of Emerge Capital common stock over a short period of time, this could adversely effect the trading price of the Emerge Capital common stock.

 

Prices for Emerge Capital Shares will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, Emerge Capital’s results of operations, what investors think of Emerge Capital and our industry, the amount of dividends that Emerge Capital pays (if any), changes in economic conditions in our industry and general economic and market conditions.

 

In addition, the stock market often experiences significant price fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded. Market fluctuations could have a material adverse impact on the trading price of the Emerge Capital Shares.

 

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Federal Income Tax Consequences Of The Distribution

 

The following discussion summarizes the material United States Federal income tax consequences resulting from the Distribution. This discussion is based upon the United States Federal income tax laws and regulations now in effect and as currently interpreted by courts or the Internal Revenue Service, and does not take into account possible changes in such tax laws or such interpretations, any of which may be applied retroactively.

 

The following summary is for general information only and may not be applicable to shareholders who received their shares of iVoice stock pursuant to an employee benefit plan or who are not citizens or residents of the United States or who are otherwise subject to special treatment under the Internal Revenue Code (the “Code”). Each shareholder’s individual circumstances may affect the tax consequences of the Distribution to such shareholder. In addition, no information is provided with respect to tax consequences under any applicable foreign, state or local laws. Consequently, each iVoice Class A common stock shareholder is advised to consult his, her and its own tax advisor as to the specific tax consequences of the Distribution and the affect of possible changes in tax laws.

 

This Distribution does not qualify as a tax-free distribution under Section 355 of the Code. The corporate-level tax would be based upon the excess of the fair market value of the Emerge Capital Shares on the date of Distribution, over iVoice’s adjusted tax basis for such shares on such date. Each iVoice stockholder who receives Emerge Capital Shares in the Distribution would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of such shares on the date of Distribution. Stockholders that are corporations may be subject to additional special provisions dealing with taxable distributions, such as the dividends received deduction and the extraordinary dividend rules.

 

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO YOU, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.

 

Reasons For Furnishing This Document

 

This document is being furnished to provide information to iVoice Class A common stockholders who will receive Emerge Capital Shares in the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of iVoice or Emerge Capital. Neither iVoice nor Emerge Capital will update the information contained in this document except in the normal course of their respective public disclosure practices. However, this document will be amended if there is any material change in the terms of the Distribution.

 

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LEGAL PROCEEDINGS

 

The Company is not currently involved in any material legal proceedings. The Company may become involved in litigation, from time to time, in the ordinary course of business.

 

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

 

The Company is not aware of any legal proceedings in which any Director, executive officer, affiliate or any owner of record or beneficial owner of more than five percent (5%) of any class of voting securities of the Company, or any associate of any such Director, executive officer or affiliate of the Company or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

 

The following table sets forth the names and ages of the current Directors and executive officers of the Company and the positions held by each person at the Company. The executive officers of the Company are elected annually by the Board. The Directors serve one (1) year terms until their successors are elected. The executive officers serve terms of one (1) year or until their death, resignation or removal by the Board.

 

Name	Age	Position(s)
Timothy J. Connolly	53	Director/Vice Chairman of the Board, Chief Executive Officer
Fred S. Zeidman	59	Director/Chairman of the Board
William Chris Mathers	47	Chief Financial Officer

 

There are no family relationships among any of the Directors or executive officers of the Company. Except as provided herein, none of the Company’s Directors or executive officers is a Director of any company that files reports with the SEC. None of the Company’s Directors have been involved in any bankruptcy or criminal proceeding (excluding traffic and other minor offenses), and none have been enjoined from engaging in any business during the past five (5) years.

 

Set forth below is a brief description of the background and business experience of each of the Company’s existing Directors and executive officers for the past five (5) years:

 

Timothy J. Connolly has served as Chief Executive Officer of the Company since August 31, 2005, and has served as a Director of the Company effective October 27, 2005. Prior to that, Mr. Connolly has served and continues to serve as Chief Executive Officer of Corporate Strategies, Inc. since 2000. Mr. Connolly has been actively engaged in the development of companies for over twenty (20) years, and has been the Chairman, President or CEO of numerous private and public companies. He is currently Vice Chairman of the Board of Directors and Chief Executive Officer of Corporate Strategies, Inc., as well as the Chairman and a Director of CSI Business Finance, Inc. He is also an elected official, serving as the President and Chairman of the Board of Weston Municipal Utility District for the last twenty (20) years. Mr. Connolly has been a principal or consultant in transactions over the last twenty (20) years that total in excess of $500 million. He is particularly skilled in the areas of short and long term strategic planning, capital formation, mergers and acquisitions, marketing, sales strategy and crisis resolution. Mr. Connolly is also a nationally syndicated business journalist on both Business Talk Radio Network and Cable Radio Network.

 

Fred S. Zeidman has served as a Director of the Company effective October 27, 2005. He was appointed Chairman of the United States Holocaust Memorial Council by President George W. Bush in March 2002. The Council, which includes fifty-five Presidentially-appointed members and ten (10) members from the U.S. Congress, is the governing board of the United States Holocaust Memorial Museum. A prominent Houston-based business and civic leader, Mr. Zeidman is Chairman of the Board of Seitel, Inc. and Chairman of the Board of Corporate Strategies, Inc. In 2004 he joined Greenberg Traurig as Senior Managing Director of Governmental Affairs. Mr. Zeidman also currently serves as a Director of Prosperity Bank in Houston. Mr. Zeidman holds a Bachelor’s degree from Washington University in St. Louis, and a Master’s in Business Administration from New York University.

 

William Chris Mathers has served as CFO and Financial Consultant to numerous public and private companies, including Seitel (OTCBB: SELA), Nexus Nano Electronics and CSI Business Finance, Inc. (OTCBB: CSIB). From January 1994 through January 2000, Mr. Mathers served as Chief Financial Officer of InterSystems, Inc., a publicly traded company on the American Stock Exchange. From 2000 through 2006, Mr. Mathers served as a contract CFO for Futures Commissions Officers. Mr. Mathers brings substantial experience in complex GAAP and SEC reporting issues, as well as experience in start-up organizations. Mr. Mathers is also a Certified Public Accountant and began his career in the audit department of the accounting firm of Price Waterhouse. Mr. Mathers is a 1981 graduate of Southwestern University in Georgetown, Texas.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The tables below set forth information with respect to the beneficial ownership of our common stock and Series B preferred stock as of June 20, 2006 for (a) any person who we know is the beneficial owner of more than five percent (5%) of our outstanding common stock and Series B preferred, (b) each of our directors and executive officers and (c) all of our directors and officers as a group. Other than the persons identified below, no person owned beneficially more than five percent (5%) of each of the Company’s common stock and Series B preferred. With the exception of the Company’s 254 non-voting shares of Series C preferred stock, there are no other classes or series of capital stock outstanding. As of June 20, 2006, the Company had 25,585,816 shares of common stock and 100,000 shares of Series B preferred issued and outstanding.

 

(A) Security Ownership of Certain Beneficial Owners

 

TITLE OF CLASS	NAME AND ADDRESS OF BENEFICIAL OWNER	AMOUNT OF DIRECT OWNERSHIP	AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP	TOTAL OF DIRECT AND BENEFICIAL OWNERSHIPS	PERCENTAGE OF CLASS(5)
Common	Michael O. Sutton 10806 Briar Branch Lane Houston, Texas 77024	11,500,000	28,764,157(1)	40,264,157	74.08%
Common	Timothy J. Connolly 109 North Post Oak Lane, Suite 422 Houston, Texas 77024	47,500	402,741,347(2)	402,788,847	94.04%
Common	Jan Carson Connolly 8602 Pasture View Lane Houston, Texas 77024	--	402,788,847(3)	402,788,847	94.04%
Common	iVoice, Inc. 750 Highway 34 Matawan, NJ 07747	--	3,750,000(4)	3,750,000	14.66%
Common	Gerald Holland 22 Coult Lane Old Lyme, CT 07601	--	2,250,000(4)	2,250,000	8.79%
Common	Cornell Capital Partners, LP 101 Hudson Street, Suite 3701 Jersey City, New Jersey 07302	--	1,860,000(4)	1,860,000	7.27%

(1)	Includes 28,674,157 shares which may be issued upon conversion of the 6,666 shares of Series B preferred beneficially owned by Mr. Sutton.

 

(2)

Includes 342,317,631 shares of common stock which may be issued upon conversion of 79,331 shares of Series B preferred beneficially owned by Mr. Connolly and 60,423,716 shares of common stock which may be issued upon conversion of 14,603 shares of Series B preferred beneficially owned by his spouse.

 

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(3)

Includes 47,500 shares of common stock owned by Ms. Connolly’s spouse, 60,423,716 shares of common stock which may be issued upon conversion of 14,003 shares of Series B preferred beneficially owned by Ms. Connolly and 342,317,631 shares of common stock which may be issued upon conversion of 79,331 shares of Series B preferred beneficially owned by spouse.

 

(4)

These shares represent the approximate number of shares underlying convertible debentures at an assumed price of $0.08 per share (i.e. eighty percent (80%) of a recent five (5) day average price of $0.10 per share), subject to an ownership limitation of nine and nine-tenths percent (9.9%) contained in the convertible debentures. Because the conversion price will fluctuate based on the market price of the Company’s stock, the actual number of shares to be issued upon conversion of the debentures may be higher or lower.

 

(5)

Applicable percentages of ownership are based on 25,585,816 shares of common stock and 100,000 shares of Series B preferred outstanding on June 20, 2006 for each shareholder. The Series B preferred shall, on an as converted basis, convert to ninety five percent (95%) of the issued and outstanding common stock as of the date of August 2005 merger. Beneficial ownership is determined in accordance within the rules of the SEC and generally includes voting of investment power with respect to the securities. Shares subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of June 20, 2006 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

(B) Security Ownership of Management

 

TITLE OF CLASS	NAME AND ADDRESS OF BENEFICIAL OWNER	AMOUNT OF DIRECT OWNERSHIP	AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP	TOTAL OF DIRECT AND BENEFICIAL OWNERSHIPS	PERCENTAGE OF CLASS(1)
Common	Timothy J. Connolly 109 North Post Oak Lane, Suite 422 Houston, Texas 77024	47,500	402,741,347(2)	402,788,847	94.04%
Common	Fred S. Zeidman 109 North Pot Oak Lane Suite 422 Houston, TX 77024	--	--	--	0%
Common	William Chris Mathers 109 North Post Oak Lane Suite 422 Houston, TX 77024	--	--	--	0%
Common	ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (3 PERSONS)	47,500	402,741,347	402,788,847	94.04%

(1)

Applicable percentages of ownership are based on 25,585,816 shares of common stock and 100,000 shares of Series B preferred outstanding on June 20, 2006 for each shareholder. The Series B preferred shall, on an as converted basis, convert to ninety-five percent (95%) of the issued and outstanding common stock as of the date of merger. Beneficial ownership is determined in accordance within the rules of the SEC and generally includes voting of investment power with respect to the securities. Shares subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of June 20, 2006 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

(2)

Includes 342,317,631 shares of common stock which may be issued upon conversion of 79,331 shares of Series B preferred beneficially owned by Mr. Connolly and 60,423,716 shares of common stock which may be issued upon conversion of 14,603 shares of Series B preferred beneficially owned by his spouse.

 

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DESCRIPTION OF SECURITIES

 

The current authorized capital stock of our Company consists of Nine Hundred Million (900,000,000) shares of common stock, par value $0.001 per share and Two Million (2,000,000) shares of preferred stock. As of June 20, 2006, 25,585,816 shares of common stock, One Hundred Thousand (100,000) shares of Series B preferred and Two Hundred Fifty Four (254) shares of Series C preferred stock were issued and outstanding. The following description is a summary of the capital stock of our Company and contains the material terms of our voting capital stock. Additional information can be found in our Certificate of Incorporation (as amended) and our Bylaws.

 

Common Stock

 

On June 20, 2006, there were 25,585,816 shares of common stock issued and outstanding. Each share of common stock entitles the holder to one (1) vote on each matter submitted to a vote of our shareholders, including the election of Directors. There is no cumulative voting. Subject to preferences that may be applicable to any outstanding preferred stock, our Shareholders are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors. Shareholders have no preemptive, conversion or other subscription rights. There are no redemption or sinking fund provisions related to the common stock. In the event of liquidation, dissolution or winding up of the Company, our Shareholders are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.

 

Preferred Stock

 

The Company is authorized to issue Two Million (2,000,000) shares of preferred stock, of which 100,000 shares of Series B preferred and Two Hundred Fifty Four (254) shares of Series C preferred stock are issued and outstanding as of June 20, 2006. There are no shares of Series A preferred stock issued and outstanding. As a class, the holders of the Company’s Series B preferred shall, collectively, be entitled to cast a number of votes equal ninety-five percent (95%) of the total issued and outstanding voting stock of the Company on all matters submitted to the shareholders for approval, which votes shall be distributed among the holders of Series B preferred on a pro rata basis based upon the number of shares of Series B preferred held by such respective holders. The holders of shares of the Series B preferred shall be entitled to vote on all matters on which the common stock shall be entitled to vote. Holders of Series B preferred shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of the Company. With respect to the payment of dividends and other distributions on the capital stock of the Company, including the distribution of the assets of the Company upon liquidation, the Series B preferred Stock shall be pari passu with the common stock of the Company on an as converted basis, and junior to all other series of preferred stock. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series B preferred held by each holder could be converted), shall be disregarded.

 

The Series C preferred shares have no voting rights.

 

Options

 

No options are outstanding as of the date of this Prospectus.

 

Effective January 3, 2006, the Company adopted the Emerge Capital Corp. 2005 Stock Incentive Plan (the “Plan”). As of the date of this Prospectus, no options have been granted under the Plan. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (a) providing key people with incentives to improve shareholder value and to contribute to the growth and financial success of the Company, and (b) enabling the Company to attract, retain and reward the best-available persons. The Plan permits the granting of stock options (including incentive stock options qualifying under Code Section 422 and nonqualified stock options), stock appreciation rights, restricted or unrestricted share awards, phantom stock, deferred share units, performance awards, other stock-based awards, or any combination of the foregoing.

 

Warrants

 

The Company has outstanding warrants to purchase a total of 215,100 shares of common stock. Warrants for 200,000 shares are at an exercise price of $1.00 per share. These warrants were issued to two (2) former officers for prior services provided to The Company. The warrants are exercisable over a five (5) year period which expires in September 2008. The remaining 15,100 warrants to purchase common stock are at a weighted average exercise price of $62.549 per share.

 

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Convertible Debentures

 

Cornell Capital May 6, 2004 Convertible Debenture

 

On May 6, 2004, Corporate Strategies, Inc., the wholly-owned and chief operating subsidiary of the Company (“CSI”), entered into a Secured Debenture Agreement with Cornell Capital Partners, LP (“Cornell Capital”), pursuant to which CSI sold $400,000 of convertible notes due May 5, 2007 (the “May Notes”). The May Notes bear interest at five percent (5%), which is accrued until maturity on May 6, 2007. The May Notes are convertible, at the option of the holder, into common stock of CSI at a price of $0.18 per share, subject to an ownership limitation of 4.99% of the outstanding stock of CSI, standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the lowest closing bid price for the five (5) trading days prior to conversion. CSI has the right to repurchase the May Notes at one hundred twenty percent (120%) of the face amount.

 

Cornell Capital June 24, 2004 Convertible Debenture

 

On June 24, 2004, CSI entered into a Secured Debenture Agreement with iVoice, Inc. (“iVoice”) pursuant to which CSI sold $500,000 of convertible notes due June 24, 2007 (the “May II Notes”). The May II Notes were subsequently assigned to Cornell Capital. The May II Notes bear interest at five percent (5%), which is accrued until maturity on June 24, 2007. The May II Notes are convertible, at the option of the holder, into common stock of CSI at a price of $0.114 per share, subject to an ownership limitation of 4.99% of the outstanding stock of CSI, standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the lowest closing bid price for the five (5) trading days prior to conversion. CSI has the right to repurchase the May II Notes at one hundred twenty percent (120%) of the face amount.

 

Cornell Capital September 28, 2004 Convertible Debenture

 

On September 28, 2004, CSI entered into a Secured Debenture Agreement with Cornell Capital pursuant to which CSI sold $400,000 of convertible notes due September 28, 2007 (the “September Notes”). The September Notes bear interest at five percent (5%), which is accrued until maturity on September 28, 2007. The September Notes are convertible, at the option of the holder, into common stock of CSI at a price of $0.084 per share, subject to an ownership limitation of 4.99% of the outstanding stock of CSI, standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the lowest closing bid price for the five (5) trading days prior to conversion. CSI has the right to repurchase the September Notes at one hundred twenty percent (120%) of the face amount.

 

Cornell Capital April 6, 2005 Convertible Debenture

 

On April 6, 2005, CSI entered into a Secured Debenture Agreement with Cornell Capital pursuant to which the Company sold $400,000 of convertible notes due April 6, 2008 (the “April Notes”). The April Notes bear interest at five percent (5%), which is accrued until maturity on April 6, 2008. The April Notes are convertible, at the option of the holder, into common stock of CSI at a price of $0.108 per share, subject to an ownership limitation of 4.99% of the outstanding stock of CSI, standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the lowest closing bid price for the five (5) trading days prior to conversion. CSI has the right to repurchase the April Notes at one hundred twenty percent (120%) of the face amount.

 

Holland December 8, 2003 Secured Convertible Debentures

 

On December 8, 2003, the Company entered into a Secured Debenture Agreement with five investors (Holland et. al) pursuant to which the Company sold $135,000 of five percent (5%) convertible notes due December 8, 2005 (the “December Notes”). The December Notes bear interest at five percent (5%), which is accrued until maturity on December 8, 2005. The December Notes are convertible, at the option of the holder, into common stock of the Company at a price of $0.216 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the lowest daily volume weighted average price (“VWAP”) for the five (5) trading days prior to conversion. The holder has the right to cause the December Notes to be converted into common stock of the Company. The Company has the right to repurchase the December Notes at one hundred ten percent (110%) of the face amount. The December Notes are unsecured general obligations of the Company and are subordinated to all other indebtedness of the Company unless other indebtedness is expressly made subordinate to the December Notes. The December Notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007.

 

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Holland December 22, 2003 Secured Convertible Debentures

 

On December 22, 2003, the Company entered into a Secured Debenture Agreement with two (2) investors (Holland et. al) pursuant to which the Company sold $250,000 of convertible notes due December 22, 2005 (the “December II Notes”). The December II Notes bear interest at five percent (5%), which is accrued until maturity on December 22, 2005. The December II Notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.168 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the VWAP for the five (5) trading days prior to conversion. The holder has the right to cause the December II Notes to be converted into common stock. The Company has the right to repurchase the December II Notes at one hundred ten percent (110%) of the face amount. The December II Notes are unsecured general obligations of the Company and are subordinated to all other indebtedness of the Company unless other indebtedness is expressly made subordinate to the December II Notes The December II Notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007. As of the date of the Registration Statement, one (1) holder has converted $54,000 of the principal amount of these December II Notes into shares of the Company ’ s common stock.

 

Saporito Convertible Debenture

 

On January 29, 2004, the Company entered into a Secured Debenture Agreement with Joanna Saporito pursuant to which the Company sold $100,000 of convertible notes due January 29, 2006 (the “January Notes”). The January Notes bear interest at five percent (5%) which is accrued until maturity on January 29, 2006. The January Notes are convertible, at the option of the holder, into common stock of the Company at a price of $0.156 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the VWAP for the five (5) trading days prior to conversion. The holder has the right to cause the January Notes to be converted into common stock of the Company. The Company has the right to repurchase the January Notes at one hundred ten percent (110%) of the face amount. The January Notes are unsecured general obligations of the Company and are subordinated to all other indebtedness of the Company unless other indebtedness is expressly made subordinate to the January Notes. The January Notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007.

 

Viola Convertible Debenture

 

On October 12, 2004, the Company entered into a Secured Debenture Agreement with Mary-Ellen Viola pursuant to which the Company sold $100,000 of convertible notes due October 12, 2006 (the “October Notes”). The October Notes bear interest at five percent (5%), which is accrued until maturity on October 12, 2006. The October Notes are convertible, at the option of the holder, into common stock of the Company at a price of $0.078 per share, subject to an ownership limitation of 9.99% of the outstanding stock of the Company, standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on eighty percent (80%) of the VWAP for the five (5) trading days prior to conversion. The Company has the right to repurchase the October Notes at one hundred ten percent (110%) of the face amount.

 

Anti-Takeover Effects Of Provisions Of The Certificate Of Incorporation (As Amended), Bylaws And Delaware Law

 

Authorized and Unissued Stock

 

The authorized but unissued shares of our common stock and preferred stock are available for future issuance without the approval of our shareholders. These additional shares may be utilized for a variety of corporate purposes including but not limited to future public or direct offerings to raise additional capital, corporate acquisitions and employee incentive plans. The issuance of such shares may also be used to deter a potential takeover of the Company that may otherwise be beneficial to our shareholders by diluting the shares held by a potential suitor or issuing shares to a shareholder that will vote in accordance with the desires of the Board of Directors. A takeover may be beneficial to shareholders because, among other reasons, a potential suitor may offer shareholders a premium for their shares of stock compared to the then-existing market price.

 

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Transfer Agent and Registrar

 

American Stock Transfer & Trust Co. is the transfer agent and registrar of our common stock. Their address is 59 Maiden Lane, Plaza Level, New York, New York 10038, and their telephone number is (718) 921-8293.

 

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INTEREST OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest exceeding $50,000, directly or indirectly, in the Company or any of its parents or subsidiaries. Nor was any such person connected with the Company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

The financial statements included in this Prospectus for the year ended December 31, 2005 and 2004 have been audited by Thomas Leger & Co., L.L.P., of Houston, Texas and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

 

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DISCLOSUERE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to directors, officers or persons controlling the Company pursuant to provisions of the State of Nevada, the Company has been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

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DESCRIPTION OF PROPERTY

 

Emerge Capital maintains its headquarters in Houston, Texas through a five (5) year lease effective February, 2005 which provides 2,644 square feet of office space. Emerge Capital believes that its property is adequate and suitable for Emerge Capital’s current needs.

 

At the time of the August 2005, Merger the Company acquired a residential property consisting of land and a residential building in Jersey City, New Jersey for a total purchase price of $122,000. The purchase price was paid with $113,000 in cash and $9,000 in the form of a deposit. The property was sold in December, 2005 for $165,000 and the Company took a mortgage note in the amount of $148,500 due December 1, 2006 secured by a mortgage on the property.

 

Also at the time of the Merger, Emerge Capital, through its wholly owned-subsidiary Lehigh Acquisition Corp. (“Lehigh”), acquired a five (5) acre parcel of undeveloped acreage in Cranford, New Jersey. Emerge Capital intended to develop the property into a 55 year old and over residential community. In February 2006, the Company sold Lehigh to Cornell Capital Partners LP for total proceeds of approximately $5,948,000, including cash of $93,000, repayment of $4,881,000 promissory notes and $400,000 in convertible debentures to Cornell Capital and payment of $574,000 of payables. The transaction resulted in a gain of approximately $3,042,000 in February 2006.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Concentration of Transactions with Cornell Capital

 

At December 31, 2005, $2,100,000 of the convertible debentures and $4,881,274, of secured notes payable are owed to a single creditor, Cornell Capital.

 

Cornell Capital was the principal lender to NuWave both before and after the August Merger.

 

Cornell Capital acquired Lehigh Acquisition Corp., formerly a wholly-owned subsidiary of NuWave, in February 2006. Lehigh owns the land held for development and sale reflected in the financial statements. Proceeds from the sale of $5,948,407 reduced indebtedness to Cornell Capital by $5,281,274.

 

Cornell Capital has significant relationships with affiliated companies, both as a purchaser and lender.

 

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Emerge Capital’s common stock, par value $0.001 per share, is traded on the Over-the-Counter Bulletin Board (OTCBB) Market under the symbol EMGC.OB. The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The following table sets forth the range of high and low closing bid prices for our common stock as reported on the OTCBB during each of the quarters presented. The quotations set forth below are inter-dealer quotations, without retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions.

 

		BID PRICE PER SHARE
		HIGH	LOW
	Three Months Ended March 31, 2003(2)	$0.014	$0.003
	Three Months Ended June 30, 2003(2)	$0.007	$0.002
	Three Months Ended September 30, 2003(2)	$0.300	$0.010
	Three Months Ended December 31, 2003(2)	$0.190	$0.110
	Three Months Ended March 31, 2004(2)	$0.180	$0.090
	Three Months Ended June 30, 2004(2)	$0.160	$0.040
	Three Months Ended September 30, 2004(2)	$0.085	$0.065
	Three Months Ended December 31, 2004(2)	$0.070	$0.065
	Three Months Ended March 31, 2005(2)	$0.065	$0.080
	Three Months Ended June 30, 2005(2)	$0.095	$0.020
	Three Months Ended September 30, 2005(1)	$0.180	$0.050
	Three Months Ended December 31, 2005	$0.230	$0.060
	Three Months Ended March 31, 2006	$0.097	$0.080

_________________________

(1)	The August 2005 Merger by and among NuWave Technologies, Inc. and Corporate Strategies and its shareholders took place on August 31, 2005. Any common stock data transactions which occurred prior to the date of the Merger pertain to NuWave Technologies, Inc.

 

(2)	On July 21, 2003, NuWave Technologies, Inc. effected a 1:50 reverse stock split, as previously approved by shareholders. All closing sales prices above have been restated retroactively for the effect of the reverse stock split.

 

As of June 20, 2006, there were approximately one hundred (100) holders of record of the Company’s common stock. This number does not include beneficial owners of the common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

 

The Company has never declared or paid any cash dividends on its common shares. In August of 2005, Corporate Strategies entered into a share exchange agreement whereby it exchanged all of the common stock of its subsidiary, CSI Business Finance, Inc. for 100,000 restricted shares of Series A convertible preferred stock of Health Express USA, Inc. (HEXS.OB) - subsequently renamed CSI Business Finance Inc. (CSIB.OB). The preferred stock shares acquired in this transaction were distributed to the shareholders of Corporate Strategies in the form of a dividend.

 

The Company currently intends to retain any future earnings to finance the growth and development of its business and future operations, and therefore does not anticipate paying any cash dividends in the foreseeable future.

 

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Securities Authorized for Issuance under Equity Compensation Plans

 

On December 13, 2005, the Emerge Capital Corp. 2005 Stock Incentive Plan (the “Plan”) was adopted and approved by shareholders. On a calendar year basis, an amount of shares of common stock equivalent to fifteen percent (15%) of the fully diluted shares outstanding on January 2 of any such calendar year (without taking into account outstanding Awards as defined in the Plan at the end of the prior calendar year) may be allocated, at the discretion of the Administrator, to be granted as Awards under the Plan, less Awards outstanding at the end of the prior calendar year. In no event shall the number of shares which may be allocated as Awards under the Plan be less than Ten Million (10,000,000) shares of common stock for a given calendar year. As of the date of this Prospectus, there are no outstanding options.

 

On June 5, 2006 the Company, pursuant to the Plan issued 500,000 free-trading shares to its employees. Additionally, 1,250,000 shares (500,000 of which are restricted) were issued to consultants during the second quarter of 2006.

 

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EXECUTIVE COMPENSATION

 

The following table sets forth the annual and long-term compensation for services paid to our executive officer in all capacities for the fiscal year ended December 31, 2005. No other executive officer received compensation exceeding $100,000 during the year ended December 31, 2005.

 

SUMMARY COMPENSATION TABLE

		Annual Compensation			Long-Term Compensation
Name and Principal Position(s)	Year	Salary ($)	Bonus ($)		Other Annual Compensation ($)	Restricted Stock Award(s) ($)	Securities Underlying Options (#s)	All Other Compensation ($)
Mr. Timothy J. Connolly, Chief Executive Officer (1)	2005	$ 265,000	$20,000		$12,000	--	--	--

(1)	Mr. Timothy J. Connolly has served as Chief Executive Officer of the Company since August 31, 2005.

 

Stock Options

 

On December 13, 2005, the Emerge Capital Corp. 2005 Stock Incentive Plan (the “Plan”) was adopted and approved by shareholders. The purpose of the Plan is to promote the long-term growth and profitability of the Company by (a) providing key people with incentives to improve shareholder value and to contribute to the growth and financial success of the Company, and (b) enabling the Company to attract, retain and reward the best-available persons. The Plan permits the granting of stock options (including incentive stock options qualifying under Code Section 422 and nonqualified stock options), stock appreciation rights, restricted or unrestricted share awards, phantom stock, deferred share units, performance awards, other stock-based awards, or any combination of the foregoing. On a calendar year basis, an amount of shares of common stock equivalent to fifteen percent (15%) of the fully diluted shares outstanding on January 2 of any such calendar year may be allocated, at the discretion of the Administrator, to be granted as awards under the Plan, less awards outstanding at the end of the prior calendar year.

 

For the years ended December 31, 2003, 2004 and 2005, no options have been granted.

 

Employment Agreements

 

On September 1, 2004, Corporate Strategies entered into a five (5) year employment agreement, effective June 1, 2004, with Timothy J. Connolly to serve as Chief Executive Officer and director of Corporate Strategies. The agreement has a renewal provision and provides for an annual salary and bonus upon attaining certain performance criteria set by the board of directors. The agreement also provides certain anti-dilution provisions in return for an extension of lock-up of the Chief Executive Officer’s shares until December 31, 2007 and for certain other fringe benefits.

 

On September 1, 2004, Corporate Strategies entered into a three (3) year employment agreement with Fred Zeidman to serve as President and a director of Corporate Strategies. The agreement has a renewal provision and provides for an annual salary and bonus upon attaining certain performance criteria set by the board of directors and certain fringe benefits. In addition, Mr. Zeidman receives fifty percent (50%) of all consulting fees from companies directly provided by or supervised by him.

 

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HOW TO GET MORE INFORMATION

 

We have filed with the SEC a Registration Statement on Form SB-2 under the Securities Act with respect to the securities offered by this Prospectus. This Prospectus, which forms a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, as permitted by the rules and regulations of the SEC. For further information with respect to us and the securities offered by this Prospectus, reference is made to the Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document that we have filed as an exhibit to the Registration Statement are qualified in their entirety by reference to the to the exhibits for a complete statement of their terms and conditions. The Registration Statement and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549-0213. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

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CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On November 2, 2005, the Company engaged Thomas Leger & Co., L.L.P. (“Thomas Leger”) as its independent registered public accounting firm to audit the Company’s financial statements. The Company did not consult Thomas Leger on any matters described in Item 304(a)(2)(i) or (ii) of Regulation S-B during the Company’s two (2) most recent fiscal years or any subsequent interim period prior to engaging Thomas Leger.

 

Effective November 2, 2005, the Company dismissed Weiser LLP (“Weiser”) as its independent registered public accounting firm. Weiser’s report on the Company’s financial statements for the past two (2) fiscal years, which includes Weiser’s sole report for the fiscal year ended December 31, 2004, did not contain an adverse opinion or a disclaimer of opinion, and was not qualified as to uncertainty, audit scope, or accounting principles; however, the report included an explanatory paragraph wherein Weiser expressed substantial doubt about the Company’s ability to continue as a going concern. This change of independent registered public accountants was approved by the Company’s Board of Directors on November 2, 2005.

 

During the Company’s most recent two (2) fiscal years, which includes Weiser’s sole report on the Company’s financial statements for the fiscal year ended December 31, 2004, as well as the subsequent interim period through November 2, 2005, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.

 

During the Company’s most recent two (2) fiscal years, which includes Weiser’s sole report on the Company’s financial statements for the fiscal year ended December 31, 2004, as well as the subsequent interim period through November 2, 2005, Weiser did not advise the Company of any of the matters identified in Item 304(a)(1)(iv)(B) of Regulation S-B.

 

On July 2, 2004, the Company had engaged Weiser as its principal accountant to audit the Company’s financial statements. The Company did not consult Weiser on any matters described in paragraph (a)(2)(i) or (ii) of Item 304 of Regulation S-B during the Registrant’s two (2) most recent fiscal years or any subsequent interim period prior to engaging Weiser LLP.

 

Effective on June 30, 2004, the Company dismissed Marcum & Kliegman LLP as its independent registered public accounting firm. Marcum & Kliegman LLP’s report on the Company’s financial statements for the fiscal year ended 2003 did not contain an adverse opinion or a disclaimer of opinion and was not qualified as to uncertainty, audit scope, or accounting principles; however, the report was modified to include an explanatory paragraph wherein Marcum & Kliegman LLP expressed substantial doubt about the Company’s ability to continue as a going concern. Marcum & Kliegman LLP’s dismissal was recommended and approved by the Company’s Board. During the fiscal year ended 2003, as well as the subsequent interim period through June 30, 2004, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. Marcum & Kliegman LLP did not advise the Company of any of the matters identified in paragraph (a)(1)(B), (a) (1) (C), (D) or (E) of Item 304 of Regulation S-B.

 

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

 

	Pages
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF EMERGE CAPITAL CORP. FOR THE THREE (3) MONTHS ENDED MARCH 31, 2006 AND 2005
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2006	F-1
Unaudited Condensed Consolidated Statements of Operations for the three (3) months ended March 31, 2006 and 2005	F-2
Unaudited Condensed Consolidated Statements of Cash Flows for the three (3) months ended March 31, 2006 and 2005	F-3
Unaudited Notes to Condensed Consolidated Financial Statements	F-4 - F-8
	Pages
CONSOLIDATED FINANCIAL STATEMENTS OF EMERGE CAPITAL CORP. FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Report of Independent Registered Public Accounting Firm - Thomas Leger & Co., L.L.P.	F-9
Consolidated Balance Sheet as of December 31, 2005	F-10
Consolidated Statements of Operations for the years ended December 31, 2005 and 2004	F-11
Consolidated Statement of Changes in Shareholders’ Deficit for the years ended December 31, 2005 and 2004	F-12 - F-13
Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004	F-14 - F-15
Notes to Consolidated Financial Statements	F-16 - F-34

F-i

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 2006 (Unaudited)

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	531,537
Restricted cash			98,452
Purchased accounts receivable			84,765
Other accounts receivable (net of allowance for bad debts of $78,737)			183,910
Notes receivable			227,004
Note receivable due from affiliate			162,295
Receivable due from affiliate			166,091
Investment in marketable securities			1,156,793
Deferred financing costs			86,076
Prepaid expense			107,041
Total current assets			2,803,964
NONCURRENT ASSETS
Fixed assets, net			71,132
Total noncurrent assets			71,132
TOTAL ASSETS		$	2,875,096
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable		$	302,868
Accrued liabilities			25,927
Convertible debentures--net of $357,621 discount			183,117
Notes payable			164,509
Accrued interest payable			49,298
Unearned income			264,250
Derivative liability			850,718
Due to clients			24,822
Total current liabilities			1,865,509
NONCURRENT LIABILITIES
Convertible debentures--net of $198,339 discount			1,501,661
Note payable			190,963
Accrued interest payable			132,189
Total noncurrent liabilities			1,824,813
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ DEFICIT
Preferred Stock, par value $.01, 2,000,000 shares authorized:
Series A Convertible Preferred Stock, noncumulative, $.01 par value; 400,000 shares authorized; none issued
Series B Convertible Preferred Stock, 100,000 shares authorized; 100,000 shares issued and outstanding; no liquidation or redemption value			1,000
Series C Preferred Stock; liquidation preference of $378,000 redeemable at $1,500 per share at Company option, cumulative dividends of $120 per share per year, non-voting, par value $.01, 1,000 shares authorized, 254 shares issued and outstanding			3
Common stock, $.001 par value; 900,000,000 shares authorized; 23,835,816 shares issued and outstanding			23,836
Additional paid-in capital			529,015
Retained deficit			(1,369,080	)
Total shareholders’ deficit			(815,226	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT		$	2,875,096

 

See accompanying notes to these condensed consolidated financial statements.

 

F-1

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended March 31
			2006			2005
REVENUE
Discount income		$	9,668		$	59,232
Consulting revenue			171,250			75,000
Marketable securities gain			664,615			127,017
Fee income			20,000			--
Total revenue			865,533			261,249
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits			146,540			106,388
Advertising			26,565			9,170
Business development, travel and entertainment			19,030			29,631
Rent			18,858			14,631
Depreciation and amortization			6,163			3,494
Professional fees			134,468			63,203
Other			27,869			43,652
Total general and administrative expenses--net of allocation to affiliated entities--$24,796 for 2006 and $20,333 for 2005			379,493			270,169
OPERATING INCOME (LOSS)			486,040			(8,920	)
OTHER (INCOME) EXPENSE
Interest expense			31,384			19,410
Interest expense-derivatives			81,491			17,837
Net change in fair value of derivative liabilities			182,653			148,547
Debt extinguishment			(94,365	)		--
Other expense			11,501			--
Other income			(16,268	)		(39,951	)
Interest income			(17,508	)		--
Gain on sale of subsidiary--Note 6			(3,042,406	)		--
Total other (income) expense			(2,863,518	)		145,843
Income (loss) before income tax			3,349,558			(154,763	)
INCOME TAX PROVISION
Current income tax expense (benefit)			--			--
Deferred income tax expense			--			83,795
Total income tax provision (benefit)			--			83,795
INCOME (LOSS) FROM CONTINUING OPERATIONS			3,349,558			(238,558	)
LOSS FROM DISCONTINUED OPERATIONS			4,687			53,888
NET INCOME (LOSS)			3,344,871			(292,446	)
Preferred dividends paid			12,348			15,156
INCOME (LOSS) APPLICABLE TO COMMON SHARES		$	3,332,523		$	(307,602	)
Basic income (loss) per share:
Income (loss) from continuing operations		$	0.14		$	--
Loss from discontinued operations			--			--
		$	0.14		$	--
Diluted income (loss) per share:
Income (loss) from continuing operations		$	0.01		$	--
Loss from discontinued operations			--			--
		$	0.01		$	--
Basic average shares outstanding			23,735,816			66,630,000
Diluted average shares outstanding			490,271,170			66,630,000

 

See accompanying notes to these condensed consolidated financial statements.

 

F-2

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Three Months Ended March 31
			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	3,344,871		$	(292,442	)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities			(3,290,583	)		308,221
Net cash provided by operating activities			54,288			15,779
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets			(5,418	)		(84,496	)
Cash received for sale of subsidiary			93,396			--
Proceeds from sale of investments			23,220			--
Net cash provided by (used in) investing activities			111,198			(84,496	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable			--			(73,809	)
Preferred dividends paid			(12,348	)		(15,156	)
Net cash used in financing activities			(12,348	)		(88,965	)
Net cash provided by operating activities of discontinued operations			--			98,988
Net cash used in investing activities of discontinued operations			--			(26,517	)
Net cash provided by financing activities of discontinued operations			--			750
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			153,138			(84,461	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			378,399			391,143
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	531,537		$	306,682
SUPPLEMENTAL INFORMATION
Interest paid		$	--		$	4,217
Taxes paid		$	9,882		$	--
Redemption and purchase of preferred stock:
Decrease in accounts receivable		$	15,000		$	43,500
Increase in notes payable		$	240,000		$	--
Decrease in paid-in capital		$	243,498		$	25,337
Sale of subsidiary:
Assets sold		$	2,906,001		$	--
Liabilities assumed by buyer		$	5,855,011		$	--

 

See accompanying notes to these condensed consolidated financial statements.

 

F-3

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EMERGE CAPITAL CORP. AMD SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the condensed consolidated financial position of Emerge Capital Corp. (“Emerge”) and “Subsidiaries” as of March 31, 2006 and their condensed consolidated results of operations and cash flows for the three months ended March 31, 2006 and the three months ended March 31, 2005. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year ending December 31, 2006.

 

As used herein, the “Company” refers to Emerge or Emerge together with its subsidiaries. The Company’s fiscal year ends on December 31st.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission for interim financial statements. The unaudited condensed consolidated financial statements and the notes thereto in this report should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 (the “10-KSB”).

 

On August 31, 2005, NuWave Technologies, Inc. (“NuWave”) entered into a merger agreement (the “Agreement”) with Corporate Strategies, Inc. (“Corporate Strategies”) and the shareholders of Corporate Strategies. The Company was subsequently renamed Emerge.

 

As a result of the merger, former shareholders of Corporate Strategies collectively own 100% of the Company’s Series B Convertible Preferred Stock (“the Series B Preferred”). Upon conversion of the Series B Preferred into common shares, the common shares issued upon conversion shall be equal to ninety-five percent (95%) of the issued and outstanding stock of the Company (calculated on a fully diluted basis as of the date of the merger).

 

The Series B Preferred shareholders and the holders of the common stock vote together and the Series B Preferred shall be counted on an “as converted” basis, thereby giving the Series B Preferred shareholders control of the Company. The transaction is being accounted for as a reverse acquisition since control of the merged group has passed to the shareholders of the acquired company (Corporate Strategies).

 

The Company primarily provides business restructuring, turnaround execution and business development advisory services for emerging and re-emerging public and private companies.

 

The Company owned Aim American Mortgage, Inc. (“Aim”) from February 18, 2003 through December 31, 2005. Aim is engaged in residential mortgage brokerage activities. The consolidated financial statements of the Company include the results of the operations of Aim through December 31, 2005. Aim was sold on December 31, 2005 and has been reflected in discontinued operations in the financial statements.

 

On October 22, 2004, the Company formed CSI Business Finance, Inc. (“CSIBF”), a corporation organized under the laws of the state of Texas, for the purpose of engaging in equipment leasing and other business finance activities. The consolidated financial statements of the Company include the results of operations of CSIBF for the period from October 22, 2004 (inception) through August 31, 2005, the date CSIBF was distributed to shareholders. The results are presented in discontinued operations.

 

Lehigh Acquisition Corp. (“Lehigh”) was a subsidiary of NuWave and is treated as if it was acquired August 31, 2005, the date of merger. Lehigh was sold on February 3, 2006. The interim financial statements include the operations of Lehigh from September 1, 2005 through February 3, 2006. The results are presented in discontinued operations.

 

F-4

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EMERGE CAPITAL CORP. AMD SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION (continued)

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated.

 

Since Corporate Strategies is the surviving entity of the reverse merger, the financial statements include the results of operations since the merger (August 31, 2005) for NuWave and its consolidated subsidiaries, and the operations of Corporate Strategies since its inception.

 

NOTE 2 - INCOME (LOSS) PER COMMON SHARE

 

Basic net income (loss) per common share is computed by dividing the net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period.

 

Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding adjusted for the dilutive effects of the assumed issuance of potentially dilutive securities. The number of shares issuable upon the conversion of the outstanding Series B Preferred and secured convertible debentures that was used in the fully diluted earnings per share computation for the quarter ended March 31, 2006 was 466,535,354. There were no potentially dilutive shares at March 31, 2005.

 

The following is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share for March 31, 2006. The adjustments were the same for both income from continuing operations and income applicable to common shares.

 

			Continuing Operations			Applicable to Common Shares
Income		$	3,349,558		$	3,332,523
Less effect of derivatives			218,785			218,785
Income (numerator)		$	3,568,343		$	3,551,308
Shares—basic			23,735,816			23,735,816
Effect of convertible debentures			12,319,034			12,319,034
Effect of conversion of Series B Preferred			454,216,320			454,216,320
Shares--diluted (denominator)			490,271,170			490,271,170
Per share amount:
Basic		$	0.14		$	0.14
Diluted		$	0.01		$	0.01

 

F-5

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EMERGE CAPITAL CORP. AMD SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 - RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company has restated its consolidated balance sheet, consolidated statements of operations and cash flows for the year ended December 31, 2004 and interim periods during 2004 and 2005 from the amounts previously reported. The restatements include adjustments to (a) correct the accounting for convertible debentures to recognize the effects of derivatives, (b) remove the beneficial conversion feature previously recorded for the convertible debentures, and (c) recognize the effects those changes had on recording the merger at August 31, 2005. The Company is required to reissue and restate the Form10-QSB previously issued as of September 30, 2005 and for the three and nine months then ended, and the information included therein should not be relied on.

 

NOTE 4 - CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS

 

The Convertible Debentures issued from 2003 through 2005 have been accounted for in accordance with SFAS 133 and EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”.

 

The Company identified the following instruments with imbedded derivatives requiring evaluation and accounting under the relevant guidance applicable to financial derivatives:

 

Cornell Debenture issued 5/6/04 in the face amount of $400,000
Cornell Debenture issued 6/24/04 in the face amount of $500,000
Cornell Debenture issued 9/28/04 in the face amount of $400,000
Cornell Debenture issued 4/6/05 in the face amount of $400,000
Holland et. al. Debentures issued 12/8/03 in the face amount of $135,000
Holland et. al. Debentures issued 12/22/03 in the face amount of $250,000
Saporito Debenture issued 1/29/04 in the face amount of $100,000
Viola Debenture issued 10/12/04 in the face amount of $100,000
Cornell Debentures issued 5/5/05 in the face amount of $250,000
Cornell Debenture issued 7/20/05 in the face amount of $150,000

 

These embedded derivatives have been bifurcated from their respective host debt contracts and accounted for as derivative liabilities in accordance with EITF 00-19 and SFAS No. 133.

 

The embedded derivatives are marked-to-market each reporting period with changes in fair value recorded to the Company’s income statement as “Net change in fair value of derivative liabilities”. The Company has utilized a third party valuation firm to fair value the embedded derivatives using a layered discounted probability-weighted cash flow approach.

 

The fair value of the derivative liabilities are subject to the changes in the trading value of the Company’s common stock, as well as other factors. As a result, the Company’s financial statements may fluctuate from quarter-to-quarter based on factors, such as the price of the Company’s stock at the balance sheet date and the amount of shares converted by debenture holders. Consequently, our financial position and results of operations may vary from quarter-to-quarter based on conditions other than our operating revenues and expenses.

 

On February 3, 2006, as part of the sale of Lehigh, the Cornell Debentures for $250,000 issued 5/5/05 and $150,000 issued 7/20/05 were cancelled. The resulting gain on extinguishment of $94,365 has been included in debt extinguishment income.

 

NOTE 5 - SEGMENT REPORTING

 

The Company had four segments: business services (which consists of turnaround execution services, management restructuring services, and business development services) which was continuing at December 31, 2005, and mortgage brokerage, previously through its 85% owned subsidiary, Aim American Mortgage, Inc. which was sold on December 31, 2005; equipment leasing and business finance, through its wholly owned subsidiary, CSI Business Finance, Inc. which was distributed to the shareholders of Corporate Strategies effective August 31, 2005; and real estate development through its wholly owned subsidiary , Lehigh which was sold in February 2006. The mortgage brokerage, equipment leasing and real estate development segments are treated as discontinued operations in the financial statements.

 

F-6

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EMERGE CAPITAL CORP. AMD SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 - SEGMENT REPORTING (continued)

 

The Company primarily provides business restructuring, turnaround execution and business development advisory services for emerging and re-emerging public companies

 

The Company’s operations are conducted in the United States.

 

						DISCONTINUED OPERATIONS
			BUSINESS SERVICES			REAL ESTATE			MORTGAGE BROKERAGE			EQUIPMENT LEASING
Three months ended March 31, 2006:
Revenue		$	865,533		$	--		$	--		$	--
Income (Loss) before income tax		$	3,349,558		$	--		$	--		$	--
Segment assets		$	2,875,096		$	--		$	--		$	--
Three months ended March 31, 2005:
Revenue		$	261,249		$	--		$	256,733		$	40,034
Income (Loss) before income tax		$	(154,759	)	$	--		$	(65,626	)	$	11,738
Segment assets		$	2,002,215		$	--		$	308,144		$	338,136

 

NOTE 6 - SALE OF LEHIGH ACQUISITION CORP.

 

In February 2006, the Company sold its wholly-owned subsidiary, Lehigh, to Cornell Capital Partners, LP (“Cornell”)for total proceeds of $5,948,407 including the assumption of $4,881,274 promissory notes, $400,000 of convertible debentures, $573,737 of accrued expense and interest and cash of $93,396. The transaction resulted in a gain of $3,042,406.

 

NOTE 7. - INCOME TAXES

 

The gain from sale of the subsidiary discussed in Note 6 is a non-taxable transaction under the Internal Revenue Code.

 

F-7

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EMERGE CAPITAL CORP. AMD SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 - REPURCHASE OF PREFERRED STOCK

 

On February 21, 2006, the Company agreed to repurchase 272.278 shares of the Company’s Series C preferred stock for a promissory note of $240,000. The note bears interest at 8% and is payable in monthly installments of approximately $4,800 until paid in full.

 

F-8

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FRIM

 

To the Shareholders

 

Emerge Capital Corp. (formerly Nuwave Technologies, Inc.) and Subsidiaries
Houston, Texas

 

We have audited the accompanying consolidated balance sheet of Emerge Capital Corp. (formerly Nuwave Technologies, Inc.) and Subsidiaries as of December 31, 2005 and the related consolidated statements of operations, changes in shareholders’ deficit, and cash flows for the years ended December 31, 2005 and 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over-all consolidated financial statement presentation. We believe that our audit provides 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 Emerge Capital Corp. (formerly Nuwave Technologies, Inc.) and Subsidiaries as of December 31, 2005, and the consolidated results of their operations and their cash flows for the years ended December 31, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Thomas Leger & Co., L.L.P.

Thomas Leger & Co., L.L.P.

April 8, 2006

Houston, Texas

F-9

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2005

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	378,399
Restricted cash			98,452
Purchased accounts receivable			90,005
Other accounts receivable (net of allowance for bad debts of $138,737)			85,628
Notes receivable			246,500
Note receivable-due from affiliate			344,282
Investment in marketable securities			605,692
Deferred financing costs			100,689
Prepaid expense			26,287
Total current assets			1,975,934
NONCURRENT ASSETS
Land held for development and sale			2,883,095
Investments			14,819
Fixed assets, net			71,877
Total noncurrent assets			2,969,791
TOTAL ASSETS		$	4,945,725
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable		$	308,278
Accrued liabilities			190,930
Convertible debentures - net of $9,781 discount			90,219
Notes payable			354,953
Accrued interest payable			184,798
Unearned income			46,000
Derivative liability			836,628
Due to clients			83,260
Total current liabilities			2,095,066
NONCURRENT LIABILITIES
Convertible debentures - net of $701,868 discount			1,883,132
Secured notes payable			4,615,858
Accrued interest payable			309,918
Total noncurrent liabilities			6,808,908
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ DEFICIT
Preferred Stock, par value $.01, 2,000,000 shares authorized:
Series A Convertible Preferred Stock, noncumulative, $.01 par value; 400,000 shares authorized; none issued			--
Series B Convertible Preferred Stock, 100,000 shares authorized; 100,000 shares issued and outstanding; no liquidation or redemption value			1,000
Series C Preferred stock; liquidation preference of $804,000 redeemable at $1,500 per share at Company option, cumulative dividends of $120.00 per share per year, non-voting, par value $.01, 1,000 shares authorized, 536 shares issued and outstanding			5
Common stock, $.001 par value; 140,000,000 shares authorized; 22,710,816 shares issued and outstanding			22,711
Additional paid-in capital			719,638
Retained deficit			(4,701,603	)
Total shareholders’ deficit			(3,958,249	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT		$	4,945,725

 

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

F-10

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31
			2005			2004
REVENUE
Discount income		$	153,108		$	185,226
Consulting revenue			183,000			153,270
Marketable securities gain			80,600			323,613
Fee income			174,900			--
Total revenue			591,608			662,109
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits			516,496			182,646
Advertising			58,622			42,949
Business development, travel and entertainment			134,465			65,986
Rent			71,819			25,252
Depreciation and amortization			20,232			13,976
Professional fees			366,754			249,845
Bad debt			78,787			388,000
Other			99,548			128,892
Total general and administrative expenses - 2005 is net of $38,000 allocation to an affiliated entity			1,346,723			1,097,546
OPERATING LOSS
			(755,115	)		(435,437	)
OTHER (INCOME) EXPENSE
Minority interest			--			(16,230	)
Interest expense			192,543			45,281
Interest expense-derivatives			232,423			36,514
Net change in fair value of derivative liabilities			108,357			(131,860	)
Debt modification gain			(392,017	)		--
Other expense			43,014			--
Other income			(24,657	)		(19,185	)
Interest income			(36,909	)		(27,166	)
Recovery of bad debts			(169,456	)		(115,000	)
Gain on sale of property			(28,625	)		--
Merger expense			3,434,943			--
Total other income			3,359,616			(227,646	)
Loss before income tax			(4,114,731	)		(207,791	)
INCOME TAX PROVISION
Current income tax expense (benefit)			(50,570	)		10,000
Deferred income tax expense			--			33,157
Total income tax provision (benefit)			(50,570	)		43,157
NET LOSS FROM CONTINUING OPERATIONS			(4,064,161	)		(250,948	)
DISCONTINUED OPERATIONS
Loss from discontinued operations net of $61,020 gain from disposition			(157,082	)		(230,853	)
NET LOSS			(4,221,243	)		(481,801	)
Preferred dividends paid			60,196			72,086
LOSS APPLICABLE TO COMMON SHARES		$	(4,281,439	)	$	(553,887	)
Basic and diluted loss per share
Loss from continuing operations		$	(0.20	)	$	(0.02	)
Loss from discontinued operations			(0.01	)		(0.01	)
		$	(0.21	)	$	(0.03	)
Basic and diluted average shares outstanding			20,863,605			19,940,000

 

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

F-11

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

For the Years Ended December 31, 2005 and 2004

		Series A Preferred Stock						Class A Common Stock						Class B Common Stock
			Shares			Amount			Shares			Amount			Shares			Amount
Balance, December 31, 2003			766		$	1			--		$	--			45,000,000		$	45,000
Redemption of preferred stock			(167	)		--			--			--			--			--
Issuance of stock			--			--			14,880,000			14,880			6,750,000			6,750
Net loss			--			--			--			--			--			--
Preferred dividends paid			--			--			--			--			--			--
Balance, December 31, 2004			599			1			14,880,000			14,880			51,750,000			51,750
Exchange of Class B common stock for Class A common stock			--			--			25,000,000			25,000			(8,333,333	)		(8,333	)
Recapitalization through reverse merger and acquisition of Nuwave Technologies, Inc.			(570	)		(1	)		(39,880,000	)		(39,880	)		(43,416,667	)		(43,417	)
Distribution of CSI Business Finance, Inc. preferred stock to shareholders			--			--			--			--			--			--
Redemption of preferred stock			(29	)		--			--			--			--			--
Net Loss			--			--			--			--			--			--
Preferred dividends paid			--			--			--			--			--			--
Balance, December 31, 2005			--		$	--			--		$	--			--		$	--

																					Additional
		Series B Preferred						Series C Preferred						Common Stock							Paid-in
			Shares			Amount			Shares			Amount			Shares			Amount			Capital
Balance, December 31, 2003			--		$	--			--		$	--			--		$	--		$	628,788
Redemption of preferred stock			--			--			--			--			--			--			(145,471	)
Issuance of stock			--			--			--			--			--			--			257,985
Net loss			--			--			--			--			--			--			--
Preferred dividends paid			--			--			--			--			--			--			--
Balance, December 31, 2004			--			--			--			--			--			--			741,302
Exchange of Class B common stock for Class A common stock			--			--			--			--			--			--			(16,667	)
Recapitalization through reverse merger and acquisition of Nuwave Technologies, Inc.			100,000			1,000			570			6			22,710,816			22,711			51,046
Distribution of CSI Business Finance, Inc. preferred stock to shareholders			--			--			--			--			--			--			(1,000	)
Redemption of preferred stock			--			--			(34	)		(1	)		--			--			(55,043	)
Net Loss			--			--			--			--			--			--			--
Preferred dividends paid			--			--			--			--			--			--			--
Balance, December 31, 2005			100,000		$	1,000			536		$	5			22,710,816		$	22,711		$	719,638

F-12

---

			Retained
			Deficit			Total
Balance, December 31, 2003		$	96,000		$	769,789
Redemption of preferred stock			--			(145,471	)
Issuance of stock			--			279,615
Net loss			(481,801	)		(481,801	)
Preferred dividends paid			(72,086	)		(72,086	)
Balance, December 31, 2004			(457,887	)		350,046
Exchange of Class B common stock for Class A common stock			--			--
Recapitalization through reverse merger and acquisition of Nuwave Technologies, Inc.			--			(8,535	)
Distribution of CSI Business Finance, Inc. preferred stock to shareholders			37,723			36,723
Redemption of preferred stock			--			(55,044	)
Net Loss			(4,221,243	)		(4,221,243	)
Preferred dividends paid			(60,196	)		(60,196	)
Balance, December 31, 2005		$	(4,701,603	)	$	(3,958,249	)

 

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

F-13

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31
		2005			2004

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(4,221,243	)	$	(481,801	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			20,232			32,329
Amortization of deferred expenses			132,801			55,296
Minority interest			--			(16,230	)
Loss from discontinued operations			218,102			--
Non-cash merger expenses			3,420,633			--
Non-cash expense for redemption of preferred stock			39,457			75,529
Non-cash interest expense-derivatives			232,423			36,514
Net change in fair value of derivative liability			108,357			(131,860	)
Non-cash debt modification gain			(392,017	)		--
Non-cash gain on sale of land			(25,776	)		--
Non-cash gain on sale of subsidiary			(61,020	)		--
Non-cash income			--			(6,653	)
Non-cash deferred taxes			--			33,157
(Increase) decrease in assets:
Purchased accounts receivable			491,269			(262,001	)
Other accounts receivable			42,382			(87,903	)
Notes receivable			(2,298	)		(80,913	)
Deferred tax asset			(28,110	)		--
Prepaid and other			(13,176	)		(17,683	)
Investment in marketable securities			295,623			(296,693	)
Deferred expenses			--			(28,917	)
Increase (decrease) in liabilities:
Accounts payable			(7,012	)		(51,363	)
Accrued liabilities			(135,852	)		31,064
Margin loans			(466,986	)		392,891
Unearned income			46,000			--
Current tax liability			--			(30,945	)
Due to clients			61,799			(62,996	)
Accrued interest			226,721			--
Net cash used in operating activities			(17,691	)		(899,178	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets			(78,097	)		(78,392	)
Cash received in merger			35,853			--
Cash distributed at sale of subsidiary			(130,161	)		--
Purchase of minimum lease payments receivable			--			(253,422	)
Purchase of debentures			--			(86,285	)
Redemption of investments			--			1,181
Net cash used in investing activities			(172,405			(416,918	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable			--			(215,006	)
Proceeds from note payable			--			279,352
Net proceeds from sale of convertible debentures			335,000			1,135,000
Net proceeds from issuance of common stock			--			270,000
Purchase of stock from minority interest			1,000			(7,500	)
Proceeds from issuance of stock to minority interest			--			10,917
Preferred dividends paid			(60,196	)		(72,086	)
Net cash provided by financing activities			275,804			1,400,677

 

F-14

---

 

		Year Ended December 31
		2005			2004

NET INCREASE IN CASH AND CASH EQUIVALENTS			85,708			84,581
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			391,143			306,562
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	476,851		$	391,143
SUPPLEMENTAL INFORMATION
Interest paid		$	10,977		$	44,916
Taxes paid			--			40,945
Redemption of preferred stock:
Decrease in accounts receivable			94,500			221,000
Decrease in paid-in capital			55,043			145,471
Acquired in merger:
Assets			3,128,348			--
Liabilities			6,456,805			--
Merger expenses			3,328,457			--
Assets of discounted operations			490,720			--
Liabilities of discounted operations			136,133			--
Non-cash liabilities acquired in merger			6,456,805			--
Capitalized interest			123,636			--
Increase in deferred expenses			--			165,000
Additional minority investment			--			17,584
Decrease in paid-in capital:
For change in par value			--			10,300
For cost of registration statement and issuance of common stock			--			85,714
Marketable securities exchanged for debentures			--			248,715
Common stock issued for services			19,800			--
Reserve for bad debts			78,787			388,000

 

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

F-15

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 1 - DESCRIPTION OF MERGER, NATURE OF OPERATIONS AND CONSOLIDATION

 

On August 31, 2005, NuWave Technologies, Inc. ( “NuWave” or “the Company”) entered into a merger agreement (the “Agreement”) with Corporate Strategies, Inc. (“Corporate Strategies”) and the shareholders of Corporate Strategies (“Shareholders”). The Company was subsequently renamed Emerge Capital Corp. The transaction is being accounted for as a reverse acquisition since control of the merged group has passed to the shareholders of the acquired company (Corporate Strategies).

 

Pursuant to the terms of the Agreement, the Company issued one (1) share of its common stock (“Common Stock”), par value $0.001 per share, to each holder of Corporate Strategies Class A common stock in exchange for two (2) shares of Corporate Strategies Class A common stock, par value $0.001 per share. Second, the Company issued one (1) share of the Company’s Series C preferred stock (“Series C Preferred”), par value $0.01 per share, to each holder of Corporate Strategies Series A preferred stock for one (1) share of Corporate Strategies Series A preferred stock, par value $0.001 per share.

 

The Company issued and delivered shares of its Series B convertible Preferred stock (“Series B Preferred”) to each holder of Corporate Strategies Class B common stock so that effectively upon conversion of the Series B Preferred into common shares, the common shares issued upon conversion shall be equal to ninety-five percent (95%) of the issued and outstanding stock of the Company (calculated on a fully diluted basis as of the date of the Merger, following the issuance of all the Merger Consideration (as such term is defined in the Agreement) and after giving effect to such conversion, but not including any shares of Common Stock issuable upon conversion of any then outstanding Company convertible debentures ). Therefore, the Merger Consideration for the Common Stock, Series C Preferred and Series B Preferred was the Corporate Strategies Class A common, Series A preferred and Class B common, respectively. The number of shares issued to the Shareholders in connection with the Merger was based upon a determination by the Company’s Board of Directors (the “Board”).

 

The Series B Convertible Preferred Stockholders and the holders of the common stock vote together and the Preferred Stock shall be counted on an “as converted” basis, thereby giving the Preferred Shareholders control of the Company.

 

NATURE OF OPERATIONS AND ORGANIZATION

 

The Company primarily provides business restructuring, turnaround execution and business development advisory services for emerging and re-emerging public and private companies.

 

The Company owned Aim American Mortgage, Inc. (“Aim”), from February 18, 2003 to December 31, 2005. Aim engaged in residential mortgage brokerage activities. The consolidated financial statements of the Company include the results of the operations of Aim through December 31, 2005. Aim was sold on December 31, 2005 and has been reflected in discontinued operations in the financial statements.

 

On October 22, 2004, the Company formed CSI Business Finance, Inc. (“CSIBF”), incorporated in Texas, for the purpose of engaging in equipment leasing and other business finance activities. The consolidated financial statements of the Company include the results of operations of CSIBF for the period from October 22, 2004 (inception) to August 31, 2005, the date CSIBF was distributed to shareholders. The results are presented in discontinued operations.

 

CONSOLIDATION AND PRESENTATION

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated.

 

Since Corporate Strategies is the surviving entity of the reverse merger, the financial statements include the results of operations since the merger (August 31, 2005) for NuWave and its consolidated subsidiaries, and the operations of Corporate Strategies since its inception. The statement of operations for the year ended December 31, 2004 is that of Corporate Strategies.

 

F-16

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

REVENUE RECOGNITION

 

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104. Revenue is recognized at the date a formal arrangement exists, the price is fixed or determinable, the delivery is complete, no other significant obligation of the Company exists and collectibility is reasonably assured.

 

Revenues from sales of real estate are recorded when title is conveyed to the buyer, adequate cash payment has been received and there is no continued involvement .The subsidiary holding real estate was sold in February 2006.

 

Commission income from the brokering of loans is recognized when all of the services required to be performed for such revenues have been completed. Incremental direct costs include credit reports appraisal fees, document preparation fees, wire fees, filing fees, and commissions, and are included in operating expenses, net of reimbursements. The mortgage brokerage subsidiary was sold in December 2005, and the results are included in discontinued operations.

 

Discount income from purchased receivables represents a percentage of the purchase invoice. The discount percentage earned is determined by the number of days the invoice is outstanding.

 

Consulting revenue is recognized as services are performed.

 

Marketable securities gains (losses) is both trading gains or losses and the change in market value of the trading securities owned by the Company, including related puts and calls, in accordance with Financial Accounting Standard 115 “Accounting for Certain Investments in Debt and Equity Securities.”

 

Lease agreements, under which the Company recovers substantially all its investment from the minimum lease payments are accounted for as finance leases. At lease commencement, the Company records a minimum lease payment receivable and unearned lease income. The remaining unearned income is recognized as revenue over the term of receivables using the interest method. The leasing subsidiary was distributed to shareholders in August 2005, and the results are included in discontinued operations.

 

USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

For purposes of the consolidated statement of cash flows, the Company considers all short-term securities purchased with a maturity date of three months or less to be cash equivalents.

 

COLLECTIBILITY OF ACCOUNTS AND NOTES RECEIVABLE

 

The accounts and notes receivable are reviewed monthly for aging and quarterly credit evaluation of the customer’s financial condition to determine collectibility. Write-offs or an increase in the allowance for doubtful accounts are made based on this evaluation. The allowance for doubtful accounts was approximately $138,000 at December 31, 2005 .

 

The purchased accounts receivable have a related liability on the Company’s financial statements called “Due to Clients.” This liability includes an amount which represents the difference between the face amount of the invoices purchased and the amount paid by the Company for the invoice. This amount effectively serves as an additional allowance for doubtful accounts since it can be used to offset the customer’s uncollected purchased account receivable balances.

 

F-17

---

 

EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

FIXED ASSETS

 

Fixed assets are stated at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease.

 

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.

 

LAND HELD FOR DEVELOPMENT AND SALE

 

Land held for development and sale is stated at the seller’s historical cost basis, plus the costs of improvements. The subsidiary holding the land was sold in February 2006.

 

INTEREST CAPITALIZATION

 

The Company follows SFAS No. 34, “Capitalization of Interest Costs”, which provides for the capitalization of interest as part of the historical cost of acquiring certain assets. Interest is capitalized on assets that require a period of time to get them ready for their intended use, such as real estate development projects. Interest is capitalized from the period activities begin, such as planning and permitting, until such time as the project is complete. Interest costs include interest recognized on obligations having explicit rates, as well as the amortization of discounts that result from imputing interest on convertible debentures over the life of the obligation. Interest is capitalized on only the net book value of the land and improvements, net of the discount recorded on the acquisition of the land. Interest on specific borrowings associated with the land, that are in excess of its net book value are expensed as incurred. Capitalized interest on land held for development and sale for the four months since the merger was $39,158.

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

The Company periodically assesses the recoverability of long-lived assets, including property and equipment and land held for development and sale, when there are indications of potential impairment, based on estimates of undiscounted future cash flows. The amount of impairment is calculated by comparing anticipated discounted future cash flows with the carrying value of the related asset. In performing this analysis, management considers such factors as current results, trends, and future prospects, in addition to other economic factors.

 

DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivatives are accounted for in accordance with SFAS 133 and EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock

 

FAIR VALUE DISCLOSURE AT DECEMBER 31, 2005

 

The carrying value of cash, notes and accounts receivable, accounts payable, accrued liabilities and notes payable are reasonable estimates of their fair value because of short-term maturity.

 

F-18

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

INCOME TAXES

 

The Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually. Deferred tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will assure full realization. Income tax expense is the current tax payable or refundable for the period plus or minus the net change in the deferred tax assets and liabilities.

 

ADVERTISING

 

Advertising costs are expensed as incurred. Advertising expense on continuing operations was $58,622 and $42,949 for the years ended December 31, 2005 and 2004, respectively.

 

NET LOSS PER SHARE

 

Basic income (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted average of common shares outstanding during the year. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is anti-dilutive, thereby reducing the loss or increasing the income per share.

 

RECLASSIFICATIONS

 

The accompanying consolidated financial statements for prior years contain certain reclassifications to conform with current year presentation.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In April 2005, the Securities and Exchange Commission amended the effective date of Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (`SFAS 123R”), from the first interim or annual period after June 15, 2005 to the beginning of the next fiscal year that begins after June 15, 2005. SFAS 123R requires that the cost of all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values. That cost will be recognized as an expense over the vesting period of the award. Pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. In addition, the Company will be required to determine fair value in accordance with SFAS 123R. The Company does not expect that SFAS 123R will have a material impact on its consolidated financial statements.

 

In May 2005, the Financial Accounting Standards Board (`FASB”) issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3”(`SFAS 154”), which is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 applies to all voluntary changes in accounting principles, and changes the accounting and reporting requirements for a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets to be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 carries forward without change the guidance in APB 20 for reporting the correction of an error in previously issued financial statements, a change in accounting estimate and a change in reporting entity, as well as the provisions of SFAS 3 that govern reporting accounting changes in interim financial statements. The Company does not expect that SFAS 154 will have a material impact on its consolidated financial statements.

 

F-19

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29” (“SFAS No. 153”). Previous guidance regarding the accounting for nonmonetary assets was based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. This previous guidance, however, included certain exceptions to that principle, SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are generally effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 will have a material impact on its consolidated financial statements.

 

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 is an interpretation of FAS No. 143, Asset Retirement Obligations, and relates to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The adoption of FIN 47, effective December 31, 2005, did not have an effect on the Company’s consolidated results of operations or financial position.

 

NOTE 3 - RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company has restated its consolidated balance sheet, consolidated statements of operations and cash flows for the year ended December 31, 2004 and interim periods during 2004 and 2005 from the amounts previously reported. The restatements include adjustments to (a) correct the accounting for convertible debentures to recognize the effects of derivatives, (b) remove the beneficial conversion feature previously recorded for the convertible debentures, and (c) recognize the effects those changes had on recording the merger at August 31, 2005.

 

 

CONSOLIDATED STATEMENT OF OPERATIONS

		For the Year Ended December 31, 2004
		Previously Reported			Increases (Decreases)			As Restated
Merger Expenses		$	370,894		$	(325,000	)	$	45,894
Interest expense -derivatives			--			36,514			36,514
Net change in fair value of derivative liability			--			(131,860	)		(131,860	)
Total restatements		$	370,894		$	(420,346	)	$	(49,452	)
Net loss		$	(974,233	)	$	(420,346	)	$	(553,887	)
Basic and diluted loss per share		$	(0.02	)				$	(0.01	)
Weighted average common shares used in computing basic and diluted loss per share			57,736,557						57,736,657

 

F-20

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 4 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

 

Financial instruments, which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts and notes receivable and marketable securities. The Company maintains its cash accounts in a high quality FDIC insured bank in Texas and in money market brokerage accounts. The Company’s accounts receivables consist of purchased receivables for consulting from companies located in the United States. The Company performs ongoing credit evaluations of its customers’ financial conditions to ensure collections and minimize losses. The Company reduces its credit risk relating to marketable securities through diversification of marketable securities held.

 

 

		2005			2004
Customer A			26	%		13	%
Customer B			10	%		--

 

No other customers accounted for more than 10% of revenue during the year.

 

NOTE 5 - CONCENTRATION OF TRANSACTIONS WITH CORNELL CAPITAL PARTNERS, L. P.

 

At December 31, 2005, $2,100,000 of the convertible debentures and $ 4,881,274, of secured notes payable are owed to a single creditor, Cornell Capital Partners, L.P (“Cornell”).

 

Cornell was the principal lender to Nuwave both before and after the merger.

 

A wholly owned subsidiary, Lehigh Acquisitions was sold to Cornell in February 2006. Lehigh owns the land held for development and sale reflected in the financial statements. Proceeds from the sale of $5,556,356 reduced indebtedness to Cornell by $5,281,274.

 

Cornell has significant relationships with affiliated companies, both as a purchaser and lender.

 

NOTE 6 - PURCHASED ACCOUNTS RECEIVABLE

 

The Company purchases accounts receivable balances from clients and typically pays less than the face value of the balance at the time a receivable is purchased. Any amounts collected by the Company in excess of the amounts paid for the purchased accounts receivable less fees earned and required reserves are remitted to client. Such excess amounts may be applied to offset uncollected account balances. Any remaining excess amounts are recorded in the balance sheet as due to clients.

 

NOTE 7 - FIXED ASSETS

 

Fixed assets consisted of the following at December 31, 2005:

 

Computer equipment		$	37,799
Furniture and fixtures			61,094
Leasehold improvements			38,752
Intangible			5,000
			142,645
Less accumulated depreciation			(70,768	)
Fixed assets, net		$	71,877

 

Depreciation expense for the years ended December 31, 2005 and 2004 was $20,232 and $13,976, respectively.

 

F-21

---

 

EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 8 - INVESTMENT IN MARKETABLE SECURITIES

 

Investments in marketable securities primarily include shares of common stock in various companies. The investments are considered trading securities, and accordingly any changes in market value are reflected in the consolidated statement of operations. At December 31, 2005 and 2004, the Company had unrealized gains (losses) of $27,930 and ($25,319), respectively, related to marketable securities held on those dates. These unrealized losses are included in the consolidated statements of operations for the respective years.

 

Investments include shares of common stock in companies which do not have a readily determinable fair market value and are accounted for using the cost method. Once a quarter, the financial statements, operations and any other information needed to evaluate these investments are reviewed to determine if an impairment needs to be recorded.

 

NOTE 9 - NOTE RECEIVABLE DUE FROM AFFILIATE

 

A note receivable from CSI Business Finance, Inc was entered into on July 1, 2005. The original note of $320,034 is adjusted monthly for net receivable/payable transactions, bears interest at 12%, and is payable on June 30, 2006 or upon demand by Emerge.

 

NOTE 10 - NOTES PAYABLE

 

On November 20, 2002, the Company obtained an unsecured revolving line of credit of $100,000 at prime plus 2% with an open maturity date. At December 31, 2005, the prime rate was 7.25% and amount borrowed was $89,537. At December 31, 2005, all payments under the terms of the note were current.

 

As a result of the merger with NuWave at August 31, 2005, the Company acquired the following notes payable:

 

$1,400,000 note payable, secured by land, due in January 2010 (paid in February 2006 - see Note 23 - Subsequent events.)
$3,481,274 secured by land, due in December 2008 (paid in February 2006 - see Note 23 - Subsequent events.)

 

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS

 

The Convertible Debentures issued from 2003 through 2005 have been accounted for in accordance with SFAS 133 and EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”

 

The Company has identified the following instruments have derivatives requiring evaluation and accounting under the relevant guidance applicable to financial derivatives:

 

Cornell Debenture issued 5/6/04 in the face amount of $400,000
Cornell Debenture issued 6/24/04 in the face amount of $500,000
Cornell Debenture issued 9/28/04 in the face amount of $400,000
Cornell Debenture issued 4/6/05 in the face amount of $400,000
Holland et. al. Debentures issued 12/8/03 in the face amount of $135,000
Holland et. al. Debentures issued 12/22/03 in the face amount of $250,000
Saporito Debenture issued 1/29/04 in the face amount of $100,000
Viola Debenture issued 10/12/04 in the face amount of $100,000
Cornell Debentures issued 5/5/05 in the face amount of $250,000
Cornell Debenture issued 7/20/05 in the face amount of $150,000

 

The Company has identified the above debentures have embedded derivatives. These embedded derivatives have been bifurcated from their respective host debt contracts and accounted for as derivative liabilities in accordance with EITF 00-19. When multiple derivatives exist within the Convertible Notes, they have been bundled together as a single hybrid compound instrument in accordance with SFAS No. 133 Derivatives Implementation Group Implementation Issue No. B-15, “Embedded Derivatives: Separate Accounting for Multiple Derivative Features Embedded in a Single Hybrid Instrument.”

 

F-22

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

The embedded derivatives within the Convertible Notes have been recorded at fair value at the date of issuance; and are marked-to-market each reporting period with changes in fair value recorded to the Company’s income statement as “Net change in fair value of derivative liabilities.” The Company has utilized a third party valuation firm to fair value the embedded derivatives using a layered discounted probability-weighted cash flow approach.

 

The fair value of the derivative liabilities are subject to the changes in the trading value of the Company’s common stock, as well as other factors. As a result, the Company’s financial statements may fluctuate from quarter-to-quarter based on factors, such as the price of the Company’s stock at the balance sheet date and the amount of shares converted by note holders. Consequently, our financial position and results of operations may vary from quarter-to-quarter based on conditions other than our operating revenues and expenses.

 

CORNELL 5/06/04 CONVERTIBLE DEBENTURE

 

On May 6, 2004, Corporate Strategies entered into a Secured Debenture agreement with Cornell Capital Partners LP, pursuant to which the Company sold $400,000 of convertible notes due May 5, 2007.

 

The notes bear interest at 5%, which is accrued until maturity on May 5, 2007. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.18 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest closing bid price for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 120% of the face amount. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach.

 

CORNELL 6/24/04 CONVERTIBLE DEBENTURE

 

On June 24, 2004, Corporate Strategies entered into a Secured Debenture agreement with I-Voice, pursuant to which the Company sold $500,000 of convertible notes due May 1, 2007. The notes were subsequently assigned to Cornell Capital Partners, L.P.

 

The notes bear interest at 5%, which is accrued until maturity on May 1, 2007. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.114 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest closing bid price for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 120% of the face amount. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair value using a layered discounted probability-weighted cash flow approach

 

CORNELL 9/28/04 CONVERTIBLE DEBENTURE

 

On September 28, 2004, Corporate Strategies entered into a Secured Debenture agreement with Cornell Capital Partners, L.P., pursuant to which the Company sold $400,000 of convertible notes due September 28, 2007.

 

F-23

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

The notes bear interest at 5%, which is accrued until maturity on September 28, 2007. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.084 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest closing bid price for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 120% of the face amount. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach.

 

CORNELL 4/06/05 CONVERTIBLE DEBENTURE

 

On April 6, 2005, Corporate Strategies entered into a Secured Debenture agreement with Cornell Capital Partners, L.P., pursuant to which the Company sold $400,000 of convertible notes due April 6, 2008.

 

The notes bear interest at 5%, which is accrued until maturity on April 6, 2008. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.108 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest closing bid price for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 120% of the face amount. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach.

 

HOLLAND ET. AL. 12/08/03 SECURED CONVERTIBLE NOTES

 

On December 8, 2003, NuWave entered into a Secured Debenture agreement with five investors (Holland et. al) pursuant to which NuWave sold $135,000 of 5% convertible notes due December 8, 2005.

 

The notes bear interest at 5%, which is accrued until maturity on December 8, 2005. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.216 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest daily volume weighted average price (“VWAP”) for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock. The Company has the right to repurchase the Notes at 110% of the face amount. The notes are unsecured general obligations of the Company and are subordinated to all other indebtedness of the Company unless the other indebtedness is expressly made subordinate to the notes. The notes were acquired by the Company effective August 31, 2005 as part of the reverse merger between NuWave and the Corporate Strategies. The notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach. The modification was determined to be substantial and the Company accounted for the modification as an extinguishment of debt, under EITF 96-19 and recorded the replacement note. The single compound embedded derivative liability was valued using the same methodology for the replacement note.

 

F-24

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

HOLLAND ET. AL. 12/22/03 SECURED CONVERTIBLE NOTES

 

On December 22, 2003, NuWave entered into a Secured Debenture agreement with two investors (Holland et. al) pursuant to which Nuwave sold $250,000 of convertible notes due December 22, 2005.

 

The notes bear interest at 5%, which is accrued until maturity on December 22, 2005. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.168 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest daily volume weighted average price (“VWAP”) for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock. The Company has the right to repurchase the Notes at 110% of the face amount. The notes are unsecured general obligations of the Company and are subordinated to all other indebtedness of the Company unless the other indebtedness is expressly made subordinate to the notes. The notes were acquired by the Company effective August 31, 2005 as part of the reverse merger between NuWave and Corporate Strategies The notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and valued using a layered discounted probability-weighted cash flow approach. The modification was determined to be substantial and the Company accounted for the modification as an extinguishment of debt under EITF 96-19, and recorded the replacement note. The single compound embedded derivative liability was valued using the same methodology for the replacement note.

 

SAPORITO CONVERTIBLE DEBENTURE

 

On January 29, 2004, NuWave entered into a Secured Debenture agreement with Joanna Saporito pursuant to which NuWave sold $100,000 of convertible notes due January 29, 2006.

 

The notes bear interest at 5%, which is accrued until maturity on January 29, 2006. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.156 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest daily volume weighted average price (“VWAP”) for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock. The Company has the right to repurchase the Notes at 110% of the face amount. The notes are unsecured general obligations of the Company and are subordinated to all other indebtedness of the Company unless the other indebtedness is expressly made subordinate to the notes. The notes were acquired by the Company effective August 31, 2005 as part of the reverse merger between NuWave Technologies and Corporate Strategies. The notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach. The modification was determined to be substantial and the Company accounted for the modification as an extinguishment of debt under EITF 96-19, and recorded the replacement note. The single compound embedded derivative liability was valued using the same methodology .

 

VIOLA CONVERTIBLE DEBENTURE

 

On October 12, 2004, NuWave Technologies entered into a Secured Debenture agreement with Mary-Ellen Viola pursuant to which NuWave sold $100,000 of convertible notes due October 12, 2006.

 

F-25

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

The notes bear interest at 5%, which is accrued until maturity on October 12, 2006. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.078 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion price may be adjusted downward to a lower price per share based on 80% of the lowest closing bid price for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 9.99% of the outstanding stock. The Company has the right to repurchase the Notes at 110% of the face amount. The notes were acquired by the Company effective August 31, 2005 as part of the reverse merger between NuWave and Corporate Strategies. The conversion feature, reset provision and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach.

 

CORNELL 5/5/05 CONVERTIBLE DEBENTURE

 

On May 5, 2005, NuWave entered into a Secured Debenture agreement with Cornell Capital Partners LP, pursuant to which NuWave sold $250,000 of convertible notes due December 1, 2005.

 

The notes bear interest at 12%, which is accrued until maturity on December 1, 2005. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.084 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 120% of the face amount. The notes were acquired by the Company effective August 31, 2005 as part of the reverse merger between NuWave Technologies and Corporate Strategies. The notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007. The conversion feature and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach. The modification was determined to be substantial and the Company accounted for the modification as an extinguishment of debt under EITF 96-19, and recorded the replacement note. The single compound embedded derivative liability was valued using the same methodology. This debenture obligation was released on February 3, 2006 pursuant to that certain Stock Purchase Agreement, by and between the Company and Cornell Capital.

 

CORNELL 7/20/05 CONVERTIBLE DEBENTURE

 

On July 20, 2005, NuWave entered into a Secured Debenture agreement with Cornell Capital Partners LP, pursuant to which NuWave sold $150,000 of convertible notes due February 15, 2006.

 

The notes bear interest at 12%, which is accrued until maturity on February 15, 2006. The notes are convertible, at the option of the holders, into common stock of the Company at a price of $0.066 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 120% of the face amount. The notes were acquired by the Company effective August 31, 2005 as part of the reverse merger between NuWave Technologies and Corporate Strategies. The notes were amended on November 30, 2005 to defer the maturity date to January 31, 2007. The conversion feature and the Company’s optional early redemption right have been bundled together as a single compound embedded derivative liability, and fair valued using a layered discounted probability-weighted cash flow approach. The modification was determined to be substantial and the Company accounted for the modification as an extinguishment of debt under ITF 96-19, and recorded the replacement note. The single compound embedded derivative liability was valued using the same methodology. This debenture obligation was released on February 3, 2006 pursuant to that certain Stock Purchase Agreement, by and between the Company and Cornell Capital.

 

F-26

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

DERIVATIVE VALUATIONS

 

The fair value model utilized to value the various embedded derivatives in the convertible notes, comprises multiple probability-weighted scenarios under various assumptions reflecting the economics of the Convertible Notes, such as the risk-free interest rate, expected Company stock price and volatility, likelihood of conversion and or redemption, and likelihood default status and timely registration. At inception, the fair value of this single compound embedded derivative was bifurcated from the host debt contract and recorded as a derivative liability which resulted in a reduction of the initial notional carrying amount of the Convertible Notes (as unamortized discount which will be amortized over the term of the note under the effective interest method).

 

 

Summary of Derivative Values

		Derivative Liabilities-Value as of:
Convertible Note		At Inception			12/31/2004			8/31/2005 merger			11/30/2005 modification			12/31/2005
Holland et. al. Debentures issued 12/8/03 (A)		$	N/A		$	N/A		$	110,919		$	112,350		$	111,267
Holland et. al. Debentures issued 12/22/03 (A)			N/A			N/A			210,460			210,751			206,050
Saporito Debenture issued 1/29/04 (A)			N/A			N/A			82,330			83,222			83,322
Cornell Debentures issued 5/6/04 (B)			120,329			28,946			N/A			N/A			70,327
Cornell Debentures issued 6/24/04 (B)			56,117			34,619			N/A			N/A			76,821
Cornell Debentures issued 9/28/04 (B)			55,921			36,942			N/A			N/A			75,570
Viola Debenture issued 10/12/04 (A)			N/A			N/A			14,881			N/A			73,920
Cornell Debentures issued 4/6/05 (B)			134,717			N/A			N/A			N/A			116,753
Cornell Debentures issued 5/5/05 (A)			N/A			N/A			4,810			44,698			11,221
Cornell Debenture issued 7/20/05 A)			N/A			N/A			2,122			41,384			11,370
Total														$	836,628

 

(A) NuWave

DEBT DISCOUNTS

 

For the period from inception of the Convertible Notes through each balance sheet date, the amortization of unamortized discount on the Convertible Notes has been classified as interest expense in the accompanying statement of operation. The following table summarizes the debt discount as of December 31, 2004 and 2005 from the amortization of the embedded derivatives for each convertible note:

 

F-27

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 11 -CONVERTIBLE DEBENTURES - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

SUMMARY OF DEBT DISCOUNT

 

		Debt Discount
Convertible Note		12/31/2004			12/31/2005
Holland et. al. Debentures issued 12/8/03(A)		$	N/A		$	108,776
Holland et. al. Debentures issued 12/22/03(A)			N/A			204,279
Saporito Debenture issued 1/29/04(A)			N/A			80,575
Cornell Debentures issued 5/6/04 (B)			97,558			59,205
Cornell Debentures issued 6/24/04(B)			46,851			28,507
Cornell Debentures issued 9/28/04(B)			51,444			33,501
Viola Debenture issued 10/12/04 (A)			N/A			9,781
Cornell Debentures issued 4/6/05(B)			N/A			106,577
Cornell Debentures issued 5/5/05(A)			N/A			41,699
Cornell Debenture issued 7/20/05(A)			N/A			38,749
Total:					$	711,649

(A) NuWave

(B) Corporate Strategies

 

Year Ending December 31,		Amount
2006		$	454,953
2007			2,463,995
2008			4,174,543
2009			308,274
2010			254,046
			7,655,811
Less: unamortized debt discount			(711,649	)
Total notes payable and convertible debentures		$	6,944,162

NOTE 12 - DEBT EXTINGUISHMENT

 

The Company accounts for modifications to debt instruments based on the accounting guidance found in EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Several of the convertible notes were modified in November, 2005 to extend the maturity to January 31, 2007. Upon modification, each of the convertible notes were tested for extinguishment under the guidance of EITF 96-19. The modification was determined to be substantial for the following notes and the Company accounted for the modification as an extinguishment of debt and recorded the following gains/(losses):

 

F-28

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 12 - DEBT EXTINGUISHMENT (CONTINUED)

 

Summary of Debt Extinguishment

Convertible Note		Gain on Extinguishment
Holland et. al. Debentures issued 12/8/03		$	113,268
Holland et. al. Debentures issued 12/22/03			194,414
Saporito Debenture issued 1/29/04			68,571
Cornell Debentures issued 5/5/05			7,071
Cornell Debenture issued 7/20/05			8,692
Total		$	392,017

NOTE 13 - DESCRIPTION OF CAPITAL STOCK

 

The current authorized capital stock of the Company consists of Nine hundred Million (900,000,000) shares of Common Stock, par value $0.001 per share, One Hundred Thousand (100,000) shares of convertible Series B Preferred, par value $0.01 per share and One Thousand (1,000) non-voting shares of Series C Preferred, par value $0.01 per share. As of December 31, 2005, 22,710,816 shares of Common Stock, One Hundred Thousand (100,000) shares of Series B Preferred and 536.199 shares of Series C preferred stock were issued and outstanding. The following description is a summary of the capital stock and contains the material terms of voting capital stock.

 

Each share of Common Stock entitles the holder to one (1) vote on each matter submitted to a vote of our shareholders, including the election of Directors. There is no cumulative voting. Subject to preferences that may be applicable to any outstanding preferred stock, Shareholders are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors. Shareholders have no preemptive, conversion or other subscription rights.

 

The Company is authorized to issue two million (2,000,000) shares of preferred stock. As a class, the holders of the Company’s Series B Preferred shall, collectively, be entitled to cast a number of votes equal to ninety-five percent (95%) of the total issued and outstanding voting stock of the company on all matters submitted to the shareholders for approval, which votes shall be distributed among the holders of Series B Preferred on a pro rata basis based upon the number of shares of Series B Preferred held by such respective holders. The holders of shares of the Series B Preferred shall be entitled to vote on all matters on which the common stock shall be entitled to vote. The series c preferred shares have no voting rights, except as required under Delaware general corporation law.

 

NOTE 14 - WARRANTS

 

At December 31, 2005 warrants were outstanding to purchase 200,000 shares of the Company’s common stock for $1.00 per common share. The warrants expire in September 2008.

 

NOTE 15 - STOCK OPTIONS

 

On December 13, 2005, the Emerge Capital Corp. 2005 Stock Incentive Plan (the Plan) was adopted and approved by shareholders. On a calendar year basis, an amount of shares of Common Stock equivalent to the greater of 10 million common shares or fifteen percent (15%) of the fully diluted shares outstanding on January 2 of any such calendar year may be allocated, at the discretion of the Administrator, to be granted as awards under the Plan, less awards outstanding at the end of the prior calendar year. There are no outstanding options at December 31, 2005.

 

F-29

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 16 - COMMITMENTS AND CONTINGENCIES

 

EMPLOYMENT CONTRACTS

 

On September 1, 2004, the Company entered into a five year employment agreement, effective June 1, 2004, with Tim Connolly, Chief Executive Officer and Vice Chairman of the Board. The agreement has a renewal provision and provides for an annual salary and bonus upon attaining certain performance criteria set by the board of directors. The agreement also provides certain anti-dilution provisions in return for an extension of lock-up of the Chief Executive Officer’s shares until December 31, 2007 and for certain other fringe benefits.

 

On September 1, 2004, Corporate Strategies entered into a three year employment agreement with Fred Zeidman, Chairman of the Board. The agreement has a renewal provision and provides for an annual salary and bonus upon attaining certain performance criteria set by the board of directors and certain fringe benefits; in addition, Mr. Zeidman receives 50% of all consulting fees from companies directly provided by or supervised by him.

 

LEASES

 

The Company leases its office space under operating leases. Rental expense under operating leases for continuing operations aggregated $71,819 and $25,252 for the years ended December 31, 2005 and 2004, respectively. Effective February 10, 2005, the Company entered into a new five year lease in and moved the Company’s headquarters there, with AIM remaining in the other leased area. AIM was sold in December 2005 and assumed the lease on the area they occupy.

 

Future minimum payments under non-cancelable operating leases for continuing operations with initial or remaining terms of one year or more consist of the following at December 31, 2005:

 

		Operating Leases
2006		$	84,652
2007			73,591
2008			74,032
2009			74,032
2010			8,058
Total minimum lease payments		$	314,365

NOTE 17 - STANDBY EQUITY DISTRIBUTION AGREEMENT

 

Emerge entered into a Standby Equity Distribution Agreement “SEDA” with Cornell under which the Company may, at its discretion, periodically sell to Cornell registered shares of the Company’s common stock for a total purchase price of up to $30 million. For each share of common stock purchased under the SEDA, Cornell will pay Emerge 99% of the volume weighted average price on the Over-the-Counter Bulletin Board or other principal market on which its common stock is traded for the 5 days immediately following the notice date. Further, Cornell will retain a fee of 10% of each advance under the SEDA. Pursuant to the terms of the SEDA, the Company is restricted from raising capital from the sale of securities at a price less than the market price of the Company’s common stock on the date of issuance or granting additional security interests in the Company’s assets.

 

The amount of each advance is limited to a maximum draw down of $1,000,000 every 7 trading days up to a maximum of $4,000,000 in any 30-day period. The amount available under the SEDA is not dependent on the price or volume of the Company’s common stock. The Company’s ability to request advances is conditioned upon the Company having enough shares of common stock registered pursuant to the SEC rules and regulations. In addition, the Company may not request advances if the shares to be issued in connection with such advances would result in Cornell owning more than 9.9% of the Company’s outstanding common stock.

 

F-30

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 18 - RELATED PARTY TRANSACTIONS

 

Emerge and Business Finance are two separate public entities that are under common control. This common control has the potential for altering operating results or financial position in a manner significantly different from those that would have been obtained if the entities were autonomous. Common management has developed certain controls to minimize potential conflicts by segregating types of transactions between the two entities, and limiting transactions between the two entities to those contractually permitted.

 

BROKERAGE FEES

 

The Company has an arrangement whereby it introduces prospective financing clients to CSI Business Finance (Finance), a related party; if a transaction is consummated, the Company earns a fee which is paid by the customer. For the four months since the spin-off of Finance, such fees have totaled $175,000.

 

ALLOCATION OF OPERATING EXPENSES

 

The Company performs certain administrative and management functions for Finance. Based on an estimation of efforts expended, Finance was allocated approximately $38,000 since the spin-off in August 2005.

 

NOTE 19 - INCOME TAXES

 

The following table sets forth a reconciliation of the statutory federal income tax for the year ended December 31, 2005 and 2004:

 

Loss before taxes		$	(4,271,813	)	$	(438,644	)
Income tax benefit computed at statutory rates		$	(1,452,416	)	$	(149,139	)
Permanent differences, nondeductible expenses			47,608			29,407
Increase in valuation allowance			173,247			113,900
Net increase in fair value of derivative liability net of amortization of discount and debt modification gain			(17,420	)		(32,417	)
Gain on sale of subsidiary			118,048			--
Merger expense			1,062,767			--
Net operating loss allocable to a subsidiary that was sold			96,668			--
Increase in deferred liability			--			13,807
Other			22,068			(18,715	)
Tax (Liability) Benefit		$	50,570		$	(43,157	)

The Company will file a consolidated tax return with its subsidiaries.

 

DEFERRED INCOME TAXES

 

 

F-31

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 19 - INCOME TAXES (CONTINUED)

 

DEFERRED TAX ASSET

 

Conversion to cash basis for tax reporting purposes		$	16,121
Net operating loss			100,108
Valuation allowance			(287,147	)
Unrealized loss on security transactions			153,222
Accrued interest			10,656
Reserve for bad debts			26,787
Deferred tax asset			19,747
DEFERRED TAX LIABILITY
Fixed asset tax basis difference			19,747
Net deferred tax asset (liability)		$	--

The Company has a net operating loss carry forward estimated at $294,000 which expires in 2026. The loss may be limited under Internal Revenue Code section 382.

 

NOTE 20 - SEGMENT REPORTING

 

The Company had four segments: business services (which consists of turnaround execution services, management restructuring services, and business development services) and real estate development which were continuing at December 31, 2005, and mortgage brokerage, previously through its 85% owned subsidiary, Aim American Mortgage, Inc., (Aim was sold on December 31, 2005), and equipment leasing and business finance, through its wholly owned subsidiary, CSI Business Finance, Inc. (which was distributed to the shareholders of CSI effective August 31, 2005.) The mortgage brokerage and equipment leasing and business finance segments are treated as discontinued operations in the financial statements.

 

The Company primarily provides business restructuring, turnaround execution and business development advisory services for emerging and re-emerging public companies.

 

The Company evaluates segment performance and allocates resources based on several factors, of which revenue and income before federal income tax are the primary financial measures. The accounting policies of the reportable segments are the same as those described in the footnote entitled “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements.

 

F-32

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 20 - SEGMENT REPORTING (CONTINUED)

 

The Company’s operations are conducted in the United States.

 

								Discontinued Operations
		Business			Real			Mortgage			Equipment
		Services			Estate			Brokerage			Leasing(1)
Year ended December 31, 2004 Revenue		$	662,109		$	--		$	1,145,025		$	6,653
Interest expense/(income)			54,629			--			(8,654	)		--
Income (Loss) before income tax			(207,791	)		--			(233,078	)		2,875
Segment assets			1,921,509			--			412,855			338,223
Additions to long-term assets			9,681			--			34,391			34,320
Depreciation and amortization			13,976			--			17,400			953
Year ended December 31, 2005 Revenue		$	591,608		$	--		$	932,330		$	--
Interest expense/(income)			347,581			43,428			(3,358	)		6,371
Loss before income tax, merger expense and discontinued operations			(665,542	)		(14,426	)		--			--
Loss from discontinued operations									(268,053	)		(38,791	)
Segment assets			1,913,194			3,032,531			--			--
Additions to long-term assets			78,097			--			--			--
Depreciation and amortization			20,232			--			--			--

 

(1)	Amounts presented for December 31, 2004 are for the period from October 22, 2004 (inception) to December 31, 2004

 

NOTE 21 - CONSULTING SERVICES CONTRACTS

 

The Company enters into contracts to provide strategic consulting services, including general business development, mergers, acquisitions, management advisory, and restructuring services. There were four such contracts at December 31, 2005. The contracts generally provide for a base payment of $6,000 - 12,000 per month, which may be payable in stock, with additional fees for consulting services beyond a preset amount. Some contracts include warrants or success fees.

 

NOTE 22 - SAGAMORE TRANSACTIONS

 

 

NOTE 23 - SUBSEQUENT EVENTS - UNAUDITED

 

In February 2006, the Company sold its 100% owned subsidiary Lehigh to Cornell for total proceeds of approximately $5,556,000 including cash of $93,000, repayment of $ 4,881,000 promissory notes and $400,000 convertible debenture to Cornell, and payment of $182,000 of payables. The transaction resulted in a gain of approximately $1,155,000 in February 2006.

 

F-33

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EMERGE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 And 2004

NOTE 23 - SUBSEQUENT EVENTS - UNAUDITED (CONTINUED)

 

On February 21, 2006, the Company agreed to repurchase 272.278 shares of the Company’s Series C Preferred stock for a promissory note of $240,000. The note bears interest at 8% and is payable in monthly installments of approximately $4,800 until paid in full.

 

NOTE 24 - PRO FORMA STATEMENT OF OPERATIONS

 

The unaudited condensed consolidated statement of operations for the year ended December 31, 2005 and 2004 is presented as if the merger exchange had taken place at December 31, 2004 and 2003. The unaudited condensed consolidated statement of operations is provided for informational purposes only and does not purport to represent what the consolidated results of operations would have been had the merger, in fact, occurred on those dates and is presented for illustrative purposes only. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable.

 

December 31, 2005		Emerge Capital Corp. For the year Ended December 31, 2005(c)			January - August 2005 NuWave Transactions			Adjustment			Proforma
Revenue		$	591,608		$	--		$	--		$	591,608
General and administrative expense			1,346,723			673,045			(497,568	)(a)		1,522,200
Other (income) expense			3,359,616			22,512			(21,619	)(a)		3,354,475
									(6,034	)(b)
Tax benefit			(50,570	)		--			--			(50,570	)
Net loss from continuing operations		$	(4,064,161	)	$	(695,557	)	$	(525,221	)	$	4,234,497

(a) To eliminate expenses that do not relate to on-going operations.

(b) To record the amortization of debt discount and net change in fair value of derivative liabilities.

December 31, 2004		Emerge Capital Corp. For the year Ended December 31, 2004			Nuwave Technologies, Inc. For the year ended December 31, 2004			Adjustment			Proforma
Revenue		$	1,947,972		$	--		$	--		$	1,947,972
General and administrative expense			2,488,081			740,669			(475,789	)(a)		5,653,961
Other (income) expense			318,231			22,512			2,901,000	(b)		595,961
						(355,280	)		632,811	(a)
Tax Provision (benefit)			43,807			(49,590	)		49,590	(a)		43,807
Net loss from continuing operations		$	(902,147	)	$	(335,799	)	$	(3,107,612	)	$	(4,345,558	)

(a) To eliminate expenses that do not relate to on-going operations.

(b) Recording merger expense.

 

F-34

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

II-8

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