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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
January 20, 2000
Date of Report
(Date of Earliest Event Reported)
RHOMBIC CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Suite 901, 1212 Howe Street
Vancouver, British Columbia V6Z 2M9
(Address of principal executive offices)
(604) 683-4864
(604) 683-4814 (fax)
Registrant's telephone number
EMERALD ACQUISITION CORPORATION
1504 R Street, N.W.
Washington, D.C. 20009
Former name and former address
Nevada 0-28375 86-0824125
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
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CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Reorganization (the
"Acquisition Agreement") dated January 18, 2000, Rhombic Corporation, ("Rhombic"
or the "Company"), a Nevada corporation, acquired all the outstanding shares of
common stock of Emerald Acquisition Corporation ("Emerald"), a Delaware
corporation, from the shareholders thereof in an exchange for an aggregate of
200,000 shares of common stock of Rhombic (the "Acquisition"). As a result,
Emerald became a wholly-owned subsidiary of Rhombic.
The Acquisition was approved by the unanimous consent of the Board of
Directors of Rhombic on January 18, 2000. The Acquisition was effective on
January 20, 2000. The Acquisition is intended to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
Prior to the Acquisition, Rhombic had 33,741,100 shares of common stock
issued and outstanding and 33,941,100 shares issued and outstanding following
the Acquisition.
<PAGE>
Upon effectiveness of the Acquisition, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, Rhombic
became the successor issuer to Emerald for reporting purposes under the
Securities Exchange Act of 1934.
A copy of the Acquisition Agreement is filed as an exhibit to this Form
8-K and is incorporated in its entirety herein. The foregoing description is
modified by such reference.
(b) The following table contains information regarding the
shareholdings of Rhombic's current directors and executive officers and those
persons or entities who beneficially own more than 5% of its common stock
(giving effect to the exercise of the warrants held by each such person or
entity which are exercisable within 60 days of this Current Report):
<TABLE>
<CAPTION>
Number of shares of Percent of
Common Stock Beneficially Common Stock
Name Owned Beneficially Owned (1)
- ---- ----- ----------------------
<S> <C> <C>
R.G. Krushnisky 4,375,000 12.9%
Chief Executive Officer, Director
Suite 901, 1212 Howe Street
Vancouver, British Columbia
Canada V6Z 2M9
William Larry Owen (2) 3,229,500 9.5%
President, Director
Suite 901, 1212 Howe Street
Vancouver, British Columbia,
Canada V6Z 2M9
Albert Golusin 225,000 *
Chief Financial Officer, Director
10641 North 44 Street,
Phoenix, Arizona 85028
Stanley Porayko 200,000 *
Director
P.O. Box 1765
Vegreville, Alberta
Canada T9C 1S8
Total shares owned by Directors and 8,029,500 23.6%
Officers of the Company (4 persons)
Durham Technology Corporation (3) 6,000,000 17.6%
#2, Commercial Central Square
Alofi, Niue Island
New Zealand
Rockford Technology Corporation(4) 2,045,500 6.08%
4873 Delta Street
Delta, British Columbia, Canada
</TABLE>
*Less than 1%.
(1) Based upon 33,941,100 outstanding shares of common stock.
<PAGE>
(2) Includes 229,500 shares owned by Rarerock Explorations, Ltd. a
corporation controlled by Mr. Owen and who may be deemed the beneficial
owner of the shares held by it.
(3) A Niue Island (New Zealand overseas territory) corporation primarily
engaged in marketing of new technologies. The Rhombic shares are held
in escrow and cannot be sold or hypothecated until Rhombic generates a
net income of at least $.01 per share in any year. Albert Golusin and
R.G. Krushnisky are each 10% shareholders of Durham Technology
Corporation.
(4) Messrs. Owen and Porayko, directors of Rhombic, are two of the
directors of Rockford Technology Corporation but do not own controlling
interest.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Acquisition Agreement
was negotiated between Emerald and Rhombic. In evaluating the Acquisition,
Emerald used criteria such as the value of assets of Rhombic, Rhombic's ability
to recognize merchantability of a technology or invention, Rhombic's ability to
compete in the technology transfer markets, the unique nature of Rhombic's
products and developing technologies, Rhombic's current and anticipated business
operations, and Rhombic's management's experience and reputation in the
technology transfer market. In evaluating Emerald, Rhombic placed a primary
emphasis on Emerald's status as a reporting company under Section 12(g) of the
Securities Exchange Act of 1934 and Emerald's facilitation of Rhombic's becoming
a reporting company under the Act.
(b) The Company intends to strengthen its position in the technology
development and transfer line of business by researching and developing its
existing portfolio of acquired technologies to achieve commercial viability as
well as continuing to search for innovative and commercially viable technologies
throughout the world.
BUSINESS
Company
Rhombic Corporation ("Rhombic" or the "Company"), is a
development-stage company incorporated under the laws of the State of Nevada on
February 26, 1987, as the predecessor company which was acquired by Rhombic
Corporation on November 24, 1994. The Company is currently headquartered in
Vancouver, British Columbia, Canada.
The Company is in the development stage and its efforts, since
inception, have been primarily focused on research and development of its
portfolio of acquired technologies. The Company's main objective is to research
and develop both its own and acquired technologies in order to make them
commercially marketable and capitalize on their commercial applications. The
Company contracts its development work with the University of Missouri or joint
venture partners. Other non-contract development work, such as the Rhombic
Explorer, is being self-funded by the Company.
The Company has two wholly owned subsidiaries, Rockford Technology
Associates, Inc. ("Rockford") and Nanophase Diamond Technologies, Inc.
("Nanophase").
By assignment from the University of Illinois of September 5, 1995
filed with the Patent and Trademark Office, Rockford owns a patent for the
Inertial Electrostatic Confinement and Neutron Monitor technology. On June 27,
1996, Rockford entered a licensing agreement with Daimler Benz Aerospace and the
University of Illinois by which it is entitled to receive a long term royalty on
all IEC sales throughout the world including North America and may engage in
direct marketing of the technology in North America without restriction. In
return, Rockford assigned to Daimler Benz Aerospace its right, title and
interest to the Inertial Electrostatic Confinement technology for development
and commercialization by Daimler Benz Aerospace.
Nanophase owns the Diamond Film Forced Diffusion technology.
<PAGE>
As a technology transfer and development start-up company, Rhombic has
limited finances and requires additional funding in order to accomplish its
growth objectives and development of products and marketing of its technologies.
There is no assurance that the Company will be able to secure any or all funding
necessary for such growth and expansion. There is also no assurance that even if
the Company obtains adequate funding to complete any contemplated acquisition,
such acquisition will succeed in enhancing the Company's business and will not
ultimately have an adverse effect on the Company's business and operations.
The Company intends to make future acquisitions of commercially
promising technologies that fit the Company's general technology acquisition
criteria. However, currently, the Company does not have a fixed source of
capital to finance such acquisitions. In this respect, the Company intends to
accomplish its acquisition plans by exchange of the Company stock. There is no
assurance that the Company will be able to arrange for such acquisitions or as
to the trading price or liquidity of the Company's common stock. Low trading
price or poor liquidity of the Company's common stock may adversely affect the
Company's ability to engage in future acquisitions and to accomplish its growth
objectives.
Technologies
Rhombic's current portfolio of technologies includes (1) Inertial
Electrostatic Confinement and Neutron Monitor, (2) Diamond Film Forced
Diffusion, (3) Nuclide Battery, (4) Diamond-reinforced Flywheel Battery, (5)
Disperse Composite Material, (6) Active Engine ("Rhombic Explorer"), (7) Ultra
Violet (Excimer) Lamp, and (8) FaxKey technology. All of these technologies have
been acquired by Rhombic in exchange for shares of its common stock from
different parties including research companies and individual inventors
throughout the world. In certain cases, as part of the acquisition of the
technology, the Company has agreed to pay royalty fees based on sales, when and
if any such sales occur.
These technologies are in the development phase. The Company has a
license agreement for development of the Inertial Electrostatic Confinement
technology but the Company is seeking joint venture partners or others to effect
commercialization of its other technologies. There is no assurance that Company
will be able to locate a joint venturer to develop any or all of these
technologies. In addition, there is no assurance that even if a joint venture
partner is found that any of these technologies will ever result in marketable
or viable products.
1. Inertial Electrostatic Confinement ("IEC"). The IEC device is a
large, negatively charged grid ionizing the gas inside a spherical vacuum
chamber. The positive ions produced by this plasma are attracted toward the
central cathode (negative electrode). Since the grid is mostly transparent, most
of the ions will pass through the grid toward the center of the device, rather
than collide with the grid. At the center, many of the ions will collide with
each other. If the gas consists of fusionable fuels (tritium, deuterium,
helium-3), then some of the collisions will result in fusion and release of
energy. Increasing the number of fusion reactions would increase the energy
output of a fusion reactor, or would increase the number of valuable fusion
products produced (neutrons, helium-3). Potentially the IEC device may become a
source of energy. Currently, however, the IEC device does not produce as much
energy as is used to operate it.
A related device utilizing the principle described above is Neutron
Monitoring detector. This device monitors the speed and frequency of passing
neutrons to assess the quality of alloy. Some practical applications of this
technology may include detection of impurities in high quality alloys, mineral
quality analysis in coal, cement and similar industries, detection contraband at
airports, bus stops, train stations, and detection of nonmetallic antipersonnel
land mines.
2. Diamond Film Forced Diffusion. Rhombic's negative type diamond
technology, referred to as "Forced Diffusion," has been successfully created in
a former Soviet Republic laboratory to create functional integrated circuits.
This technology consists of diffusing different elements into diamond film,
producing diamond with electronic properties greatly superior to those of
silicon, the material currently used for computer chips. This technology allows
for the exponential decrease of the space required for a computer microchip.
Such diamond film is considerably more
<PAGE>
heat and radiation resistant extending the life of the electronic circuitry.
Harder cutting tools and abrasives, diamond televison and computer monitor
screens, sensor, bearing and radar screens are among a number of potential
commercial applications of this technology.
3. The Nuclide Battery. The nuclide battery produces energy from the
breakdown of unstable isotopes of a number of basic elements such as krypton,
strontium, and cesium. The battery's intended purpose is to provide a generation
of constant energy for both manned and unmanned space flights.
4. Diamond-reinforced Flywheel Battery. The diamond-reinforced flywheel
battery operates on a principle of using diamond layers instead of carbon
filters to increase the power density of electro-mechanical energy storage for
batteries used in automobiles or other storage systems. This concept is based on
the rupture stress measure for present polycrystalline diamond. An increase in
storage capacity may result in the development of a satisfactory method for
storing large amounts of electrical energy both for portable applications, such
as automobiles and satellites, and fixed appliances, such as electric power load
leveling from the individual house to the utility level.
5. Disperse Composite Material. The manufacturing of extremely fine
dispersed materials with a homogeneous interior and an additional coating which
utilizes plasma processing of high efficiency. Plasma deposition consists of
filling a working chamber with a plasma producing gas which is excited to
plasma, and injecting of the dispersed (dusty) base material as well as the one
or other components of the coating material being in the gas or vapor phase. A
special application of this method and apparatus is the manufacturing of
coatings which leads to a conversion of long lived radio nuclides (mostly from
nuclear reactors) into stable nuclides or the elimination of plutonium by
transmutation into uranium. The material added to the plasma for production the
coatings (on glass or similar carrier materials) is then one or in a sequence
further mentioned host metals as well as charges of the long time radio nuclides
for transmutation, preferably into the surfaces or in interfaces. Applications
of this technology may include semiconductor and microchip industries, as well
as consumer electronics, high-tech navigational tools, etc.
6. Active Engine ("Rhombic Explorer"). This technology consists of an
Internet browser, developed by Peter Weicker, of British Columbia, Canada. The
advantages of this Internet browser include automated and quick-paced Web
searching. The search engine supports nested statements and boolean logical
operations which will enable users to construct search statements of large size
and complexity while searching the Web.
7. Ultra Violet (Excimer) lamp. This device consists of a
microwave-driven ultra violet light source and solid-state laser. This laser
provides an efficient, compact and tunable solid-state laser. The laser has the
capability of illumination at varying wavelengths. Excimer lamps can be used for
dry cleaning and etching in the production of semiconductors. It is also
suitable for effective ozone production. The shorter the wavelength, the higher
the energy it can generate. Potential applications of this technology include
greenhouse plant light as well as curing semiconductor wafer boards.
8. FaxKey technology. This technology consists of a combination of
hardware and software device that offers a high level of security in sending and
receiving facsimile messages. By the insertion of a personal key, only the
intended recipient may retrieve the faxed message.
Current Operations
The competition in the technology proliferation and transfer market is
highly intense and is based on product and technology recognition and
acceptance, novelty and marketability of an invention, price, and sales
expertise. The Company has placed its primary emphasis on product development,
dependability and commercial viability of its acquired technologies. Management
is currently determining the expenses involved to develop its existing
technologies into commercial applications. To date, the Company has not
generated any revenues from any of its acquired technologies and is currently
operating at a loss. None of the technologies have been developed to
commercialization. The Company is not able to determine an approximate date for
commercialization at this time. No assurances can be
<PAGE>
given that any of the Company's technologies will ever be developed to a point
of usefulness or, if developed, that any will be commercially feasible.
For the twelve months ended December 31, 1997, the Company did not
incur any development costs. The IEC technology was being developed by Daimler
Benz Aerospace at no cost to the Company during the year. For the twelve months
ended December 31, 1998, Daimler Benz Aerospace continued developing the IEC
technology at no cost to the Company during the year. The Company spent
CN$17,500 in developing the "Active Engine " technology. For the twelve months
ended December 31, 1999, Daimler Benz Aerospace continued developing the IEC
technology at no cost to the Company during the year. The Company spent
additional CN$42,500 in developing the "Active Engine" technology. During this
time, the Company paid the University of Missouri CN$124,500 and independent
laboratories CN$7,700 for research and development on four applications of the
"Forced Diffusion" technology.
The Company requires additional funding to achieve its growth
objectives. If the Company does not receive additional funding, it will not be
able to pursue the intended marketing plan and, in such case, may not be able to
successfully conduct its operations. There is no assurance that the Company will
be successful in marketing any of its technologies or in generating any
meaningful revenues from operations.
Marketing
The Company's primary business focus is placed upon the
commercialization of advanced technologies and commercial products resulting
therefrom. The Company anticipates that microchip, computer, satellite and space
industries will be the primary markets for the Company's products and
technologies. The Company has limited experience in marketing of products and
services in these fields and intends to rely on licensing and joint venture
opportunities with multinational companies for the marketing and sale of its
technologies. The Company also has little experience marketing products of a
consumer nature. There is no assurance that the Company will be successful in
developing a market for any of its products or that it will gain any market
recognition and acceptance.
Trademarks and Patents
The Company has spent a total of CN$35,107 in patent procurement costs
for its technologies with CN$11,100, CN$11,507, and CN$12,500 spent in 1997,
1998, and 1999, respectively. The Company has filed patent applications in
several jurisdictions including Canada, Japan, Korea, and the United States.
Currently, through Nanophase, the Company holds a patent to the "Forced
Diffusion" technology, United States Patent No. 5,597,762 granted on January 28,
1997. As part of the licensing agreement with Daimler Benz Aerospace, Rockford
transferred its patent to the IEC technology. All other patent applications
filed by the Company are pending approval. There is no assurance that any of
these patents will be granted or if granted that the Company will be able to
defend against any infringement of such patents.
Property
As the Company is not producing any products at present, it has no
lease or physical facilities commitments. The Company's executive office in
Vancouver, British Columbia, Canada, is provided by Owen & Associates on a
month-to-month basis. The monthly rent for this executive space is included in
CN$7,500 monthly payment to Owen & Associates.
On June 21, 1999, the Company accepted a proposal from the University
of Missouri to use its laboratory facilities, technical equipment and personnel
to develop selected projects using the Company's "Forced Diffusion" technology.
Employees
The Company currently has no employees.
<PAGE>
Litigation
There is no current outstanding litigation in which the Company is
involved and the Company is unaware of any pending actions or claims against it.
During November 1999, Rhombic settled a two year dispute with the
management of Rockford Technology Corporation ("Rockford"). Rhombic asserted
that the management of Rockford was selling the shares of the Company that
Rockford owned in violation of Rule 144 and were not using the proceeds for the
benefit of Rockford. The dispute was settled by Rhombic purchasing 2,900,000
Rockford shares for $300,000 and taking over control of the Board of Directors
of Rockford.
Description of Securities
The Company has an authorized capitalization of 70,000,000 shares of
Common Stock, $.001 par value per share, of which 33,941,100 shares are issued
and outstanding, and 1,000,000 shares of Preferred Stock, $.001 par value per
share, of which no shares are issued and outstanding. The Company has no
outstanding debt.
MARKET FOR THE COMPANY'S SECURITIES
The Company has been a non-reporting publicly traded company with
certain of its securities exempt from registration under the Securities Act of
1933. The Company's common stock is traded on the NASD OTC Bulletin Board under
the symbol NUKE. The Nasdaq Stock Market has implemented a change in its rules
requiring all companies trading securities on the NASD OTC Bulletin Board to
become reporting companies under the Securities Exchange Act of 1934.
Rhombic acquired all the outstanding shares of Emerald to become
successor issuer to it pursuant to Rule 12g-3 in order to comply with the
Eligibility Rule for the OTC Bulletin Board.
The following table represents the trading history of the Company
common stock:
<TABLE>
<CAPTION>
Date Open High Low Close Volume
- ---- ---- ---- --- ----- ------
<S> <C> <C> <C> <C> <C>
May 99 0.625 0.6562 0.5938 0.6406 46,600
Jun 99 0.6562 0.7031 0.5938 0.6562 141,100
Jul 99 0.625 0.6562 0.4688 0.4844 79,100
Aug 99 0.4531 0.6406 0.4531 0.5781 67,600
Sep 99 0.6406 0.7344 0.4531 0.4688 152,100
Oct 99 0.4688 0.5156 0.4688 0.50 120,600
Nov 99 0.4844 2.0312 0.4844 1.9375 535,700
Dec 99 1.9688 4 1.875 3.9062 495,700
</TABLE>
Management
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
R.G. Krushnisky 39 Chairman, Chief Executive Officer and Director
William Larry Owen 79 President, Director
Albert Golusin 45 Chief Financial Officer, Director
Stanley Poreyko 64 Secretary, Director
</TABLE>
<PAGE>
R.G. Krushnisky, Chief Executive Officer and Director of the Company.
Mr. Krushnisky served as past President of Rockford Technology Corporation which
owns the Diamond Film Forced Diffusion technology. Since 1984, Mr. Krushnisky
has been the President of International Laser Games, Ltd., a British Columbia,
Canada, coin-operated arcade machinery business. Mr. Krushnisky is a graduate of
the United States International University at San Diego with a Bachelor Science
degree in Business and International Commerce.
William Larry Owen, President of the Company. In 1963, Mr. Owen was a
founder of a New World Jade Company. From 1982 to 1985, Mr. Owen was the
President of International Phasor Telecom, a computer security firm. Mr. Owen
received a Bachelor of Arts degree from Pepperdine University of California, and
Masters of Education degree from the University of Southern California.
Albert Golusin, Chief Financial Officer, is a Certified Public
Accountant in Phoenix, Arizona. Since 1993, Mr. Golusin has been in private
practice as an accounting consultant to public companies. He has also served as
a controller for Glenayre Electronics, a NASDAQ company, from 1984 - 1991. From
1983 to 1984, Mr. Golusin worked for Kenneth Leventhal & Company. From 1979 to
1981, Mr Golusin worked for the international accounting firm of Grant Thornton
& Company. Mr. Golusin graduated from Brigham Young University in 1978.
Stanley Porayko, Secretary and Director of the Company, and a Director
of the Company's wholly-owned subsidiary, Rockford Technology Associates. Mr.
Porayko is a self-employed rancher from Alberta, Canada. He was a founder of the
huge jade deposit on Ogden Mountain, British Columbia, and a director of Yugold
Mines. Mr. Porayko graduated from Ryerson Institute of Technology in 1957.
Executive Compensation
William Larry Owen, President of the Company, is compensated by Owen &
Associates which has an agreement with the Company to provide office and
administrative support for $7,500 a month. Mr. Owen received 3,000,000 shares of
the common stock of the Company for services rendered in 1999. The 3,000,000
shares are held in escrow until the Company has received certain revenue
amounts.
Albert Golusin, Chief Financial Officer and Director of the Company,
provides his services on a part-time basis and is compensated primarily with
shares of the Company. In 1999, Mr. Golusin received $50,000 in cash for payment
of expenses, auditing costs of the Company and compensation. In 1998, he
received $10,000 in cash as compensation. Mr. Golusin received 100,000, 50,000
and 50,000 shares of common stock at deemed values of $20,000, $7,500 and $7,500
for the services rendered in 1997, 1998 and 1999, respectively.
R.G. Krushnisky, Chairman, Chief Executive Officer and Director of the
Company, provides his consulting services on a part-time basis and is
compensated with shares of the Company.
Stanley Porayko, Secretary and Director of the Company, provides his
consulting services on a part-time basis and is compensated with shares of the
Company. Mr. Poreyko received 100,000 shares for secretarial services rendered
in 1998 at a deemed value of $15,000.
Currently, the Company does not provide any benefits to any of its
employees. There are no current plans to pay cash or stock dividends on the
Company's stock.
RISK FACTORS
The Company has no Revenues and is Currently Operating at a Loss. The
Company has not received any revenues to date and is operating at a loss. The
Company will need to raise additional capital through the placement of its
securities or from debt or equity financing. If the Company is not able to raise
such financing or obtain alternative sources of funding, management will be
required to curtail operations. There is no assurance that the Company will be
able to continue to operate if additional sales of its securities cannot be
generated or other sources of financing located.
<PAGE>
Limited History of Operations. The Company has only a limited history
of operations. The Company operations are subject to the risks and competition
inherent in the establishment of a relatively new business enterprise in a
highly competitive field of technology transfer. There can be no assurance that
future operations will be profitable. Revenues and profits, if any, will depend
upon various factors, including market acceptance of its products and
technologies, market awareness, its ability to promptly and accurately recognize
a marketable technology or invention, dependability of an advertising and
recruiting network, and general economic conditions. There is no assurance that
the Company will achieve its expansion goals and the failure to achieve such
goals would have an adverse impact on it.
The Company May Need Additional Financing. Future events, including the
problems, delays, expenses and difficulties frequently encountered by startup
companies may lead to cost increases that could make the Company's source of
funds insufficient to fund the Company's proposed operations. The Company may
seek additional sources of capital, including an additional offering of its
equity securities, an offering of debt securities or obtaining financing through
a bank or other entity. The Company has not established a limit as to the amount
of debt it may incur nor has it adopted a ratio of its equity to a debt
allowance. If the Company needs to obtain additional financing, there is no
assurance that financing will be available, from any source, or that it will be
available on terms acceptable to the Company, or that any future offering of
securities will be successful. The Company could suffer adverse consequences if
it is unable to obtain additional capital when needed.
Trademark Protection and Proprietary Marks. The Company has obtained
one patent and several pending patents and trademarks as a result of its
acquisitions. There is no assurance that the Company will be able to prevent
competitors from using the same or similar names, marks, concepts or appearances
or that it will have the financial resources necessary to protect its marks
against infringing use.
The Company's Technologies and Inventions May become Obsolete. Patent
review is usually a lengthy, tedious and expensive process that may take months
or, perhaps, several years to complete. With the current rate of technology
development and its proliferation throughout the world, those inventions may
become commercially obsolete during or after the patent review. There is no
assurance that the Company's technologies, acquired or developed, may not become
obsolete and remain commercially viable.
The Company May Fail to Obtain Patent Protection in Various
Jurisdictions. The Company has filed patent applications in several
jurisdictions, including Japan, Korea, and the United States. The filing process
is usually a costly and time-consuming undertaking requiring proper legal
counsel under the laws of the jurisdiction where patent protection is sought.
There is no assurance that those patent protection filings were properly and
timely made. There is also no assurance that upon review, those applications may
not be rejected for lack of novelty or any other bases sufficient to reject a
pending patent application in any of those jurisdictions.
Commercial Viability of the Company's Current Technologies. The Company
was organized to identify, assess, acquire and capitalize on technologies
introduced and developed by scientists throughout the world. These technologies
are new and in their research and development stage. Generally, it requires a
substantial time and resource effort to bring be able to both recognize a
commercially successful technology or invention at an early stage and conduct a
successful marketing campaign to sell this technology or invention. There is no
assurance that all or any of the Company's research and development efforts will
result in commercially viable final products.
The Company May Fail to Generate Sufficient Interest in Acquired
Technologies. The Company must undertake substantial effort to educate the
buying public, consumers and businesses, in the U.S. and worldwide, as to the
Company's products and technologies. There is no assurance that the Company will
be able to generate interest in and to create and maintain steady demand for its
products over time.
Reliance on Future Technology Acquisitions Strategy. The Company
expects to continue to rely on technology acquisitions as a primary component of
its growth strategy. It regularly engages in evaluations of potential target
candidates, including evaluations relating to acquisitions that may be material
in size and/or scope. There is no assurance that the Company will continue to be
able to identify potentially successful companies that provide suitable
<PAGE>
acquisition opportunities or that the Company will be able to acquire any such
companies on favorable terms. Also, acquisitions involve a number of special
risks including the diversion of management's attention, assimilation of the
personnel and operations of the acquired companies, and possible loss of key
employees. There is no assurance that the acquired companies will be able to
successfully integrate into the Company's existing infrastructure or to operate
profitably. There is also no assurance given as to the Company's ability to
obtain adequate funding to complete any contemplated acquisition or that any
such acquisition will succeed in enhancing the Company's business and will not
ultimately have an adverse effect on the Company's business and operations.
Possible Inability to Finance Acquisitions. In transactions in which
the Company agrees to make an acquisition for cash, it will have to locate
financing from third-party sources such as banks or other lending sources or it
will have to raise cash through the sale of its securities. There is no
assurance that such funding will be available to the Company when required to
close a transaction or if available on terms acceptable to the Company.
Technologies Involving Substantial Risk of Environmental Hazard. The
Company's technologies involve a substantial risk of environmental hazard in the
production processes. There is no assurance that the Company will be able to
contain the environmental hazards of the production. There is also no assurance
that the Company will have sufficient resources to meet the clean-up and
possible litigation costs that may be involved in a case of environmental
disaster.
Loss of the Company Key Employees May Adversely Affect Growth
Objectives. The Company's success in achieving its growth objectives depends
upon the efforts of William Larry Owen, President of the Company, and other top
Company management members. Their international experience and industry-wide
contacts significantly benefit the Company. The loss of the services of any of
these individuals may have a material adverse effect on the Company business,
financial condition and results of operations. There is no assurance that the
Company will be able to maintain and achieve its growth objectives should it
lose any or all of these individuals' services.
Failure to Attract Qualified Personnel. A change in labor market
conditions that either further reduces the availability of employees or
increases significantly the cost of labor could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's business growth is dependent upon its ability to attract and retain
qualified research personnel, administrators and corporate management. There is
no assurance that the Company will be able to employ a sufficient number of
qualified training personnel in order to achieve its growth objectives.
Issuance of Future Shares May Dilute Investors Share Value. The
Certificate of Incorporation of the Company authorizes the issuance of
70,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
future issuance of all or part of the remaining authorized common or preferred
stock may result in substantial dilution in the percentage of the Company's
common stock held by the its then existing shareholders. Moreover, any common
stock issued in the future may be valued on an arbitrary basis by the Company.
The issuance of the Company's shares for future services or acquisitions or
other corporate actions may have the effect of diluting the value of the shares
held by investors, and might have an adverse effect on any trading market for
the Company's common stock.
Penny Stock Regulation. The Company's common stock is deemed to be a
penny stock. Penny stocks generally are equity securities with a price of less
than $5.00 per share other than securities registered on certain national
securities exchanges or quoted on the Nasdaq Stock Market, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system. The Company's securities may be subject to
"penny stock rules" that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule prescribed by the Commission relating to the penny
stock market. The broker-dealer also must
<PAGE>
disclose the commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information on the limited
market in penny stocks. Consequently, the "penny stock rules" may restrict the
ability of broker-dealers to sell the Company's securities. The foregoing
required penny stock restrictions will not apply to the Company's securities if
such securities maintain a market price of $5.00 or greater. There can be no
assurance that the price of the Company's securities will reach or maintain such
a level.
Computer Systems Redesigned for Year 2000. Many existing computer
programs use only two digits to identify a year in such program's date field.
These programs were designed and developed without consideration of the impact
of the change in the century for which four digits will be required to
accurately report the date. If not corrected, many computer applications could
fail or create erroneous results by or following the year 2000 (the "Year 2000
problem"). Many of the computer programs containing such date language problems
have been corrected by the companies or governments operating such programs. The
Company's operations are dependent upon the properly functioning computer
equipment which may fail because of such Year 2000 problems. The Company does
not know what steps, if any, have been taken by any of its business partners in
regard to the Year 2000 problems. The Company's operations will be severally
curtailed if one or more of its business partners were to suffer Year 2000
problems. Furthermore, it is impossible to predict if the basic utilities
serving the Company will continue uninterrupted.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, the Company has become the successor issuer
to Emerald for reporting purposes under the Securities Exchange Act of 1934.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The sole officer and director of Emerald Acquisition Corporation
resigned as an officer and director of Emerald effective upon completion of the
Acquisition.
ITEM 7. FINANCIAL STATEMENTS
The financial statements for Rhombic Corporation are filed herewith.
<PAGE>
RHOMBIC CORPORATION
(A Development Stage Company)
December 31, 1999 and 1998
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEET AS OF DECEMBER 31, 1999 F-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 F-4
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998 F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of
Rhombic Corporation:
We have audited the accompanying consolidated balance sheet of Rhombic
Corporation (a Development Stage Company) as of December 31, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1999. These
financial statements are the responsibility of Rhombic's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rhombic
Corporation as of December 31, 1999, and the consolidated results of its
operations and cash flows for each of the two years in the period ended December
31, 1999, in conformity with generally accepted accounting principles.
As disclosed in Note 1, the accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
Company has experienced material operating losses and has yet to commence
significant revenue producing operations. Ultimate realization of material
investments in technologies is uncertain. These and other conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
/s/ King, Weber & Associates, P.C.
- -----------------------------------
Tempe, Arizona
March 30, 2000
F-2
<PAGE>
RHOMBIC CORPORATION
CONSOLIDATED BALANCE SHEET
(A Development Stage Company)
December 31, 1999
================================================================================
ASSETS
CURRENT ASSETS:
Cash $ 557,553
Due from related parties 3,793
Receivables 15,103
Prepaid expenses 200,000
-----------
Total Current Assets 776,449
-----------
OTHER ASSETS:
Investments 217,756
Licensing Agreements and Technologies 1,529,850
Patents 53,981
-----------
Total assets $ 2,578,036
===========
LIABILITIES
CURRENT
Accounts Payable $ 42,400
-----------
STOCKHOLDERS' EQUITY - NOTE 9
Preferred stock, $.001 par value,
1,000,000 shares authorized, none issued
Common stock, $.001 par value, 70,000,000
shares authorized, 33,741,100 issued and
outstanding 33,741
Additional paid-in capital 4,580,750
(Deficit) accumulated during the development stage (2,078,855)
-----------
Total stockholders' equity 2,535,636
-----------
Total liabilities and stockholders' equity $ 2,578,036
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
RHOMBIC CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Cummulative from
November 21, 1994
For the 12 months ended (Inception) to
1999 1998 December 31, 1999
-------------------------------------------------------------
<S> <C> <C> <C>
Royalty income $ 3,138 $ 2,591 $ 5,729
Interest income 9 - 1,184
------------ ------------ ------------
3,147 2,591 6,913
EXPENSES
Research and development expense 189,174 1,682 179,281
Legal & accounting 113,971 106,733 317,866
Transfer Agent Expenses 11,000 5,760 22,655
Consulting, related party 90,000 90,000 307,000
Consulting 551,726 352,728 947,899
Other general & administrative 88,206 90,673 311,067
------------ ------------ ------------
Total Expenses 1,044,077 647,576 2,085,768
NET (LOSS) $ (1,040,930) $ (644,985) $ (2,078,855)
============ ============ ============
NET LOSS PER SHARE:
Basic $ (0.03) $ (0.04)
============ ============
Diluted $ (0.03) $ (0.04)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 29,774,607 16,367,199
============ ============
Diluted 29,774,607 16,367,199
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
RHOMBIC CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Additional During
--------------------------- Paid-In Development
Shares Amount Capital Stage Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 13,140,600 $ 13,141 $ 1,023,248 $ (392,940) $ 643,449
Shares issued in a private placement 2,665,834 2,666 397,209 399,875
Shares issued for services 985,666 985 393,387 394,372
Acquisition of technology 350,000 350 174,650 175,000
Shares issued under escrow agreement 9,000,000 9,000 (9,000) 0
Net loss for the year ended December 31, 1998 (644,985) (644,985)
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 26,142,100 26,142 1,979,494 (1,037,925) 967,711
Shares issued in a private placement 3,705,000 3,705 727,295 731,000
Fair value of options granted 436,980 436,980
Exercise of stock options 2,774,000 2,774 696,726 699,500
Shares issued for services 280,000 280 103,745 104,025
Acquisition of technology 840,000 840 636,510 637,350
Net loss for the year ended December 31, 1999 (1,040,930) (1,040,930)
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 33,741,100 $ 33,741 $ 4,580,750 $(2,078,855) $ 2,535,636
========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
RHOMBIC CORPORATION
(A Devlopment Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
================================================================================
<TABLE>
<CAPTION>
Cummulative from
for the years ended November 21, 1994
December 31, (Inception) to
1999 1998 December 31, 1999
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income for the period $(1,040,930) $ (644,985) $(2,078,855)
Adjustments to reconcile net
cash used by operations:
Common stock issued for services 104,025 394,372 600,331
Fair value of options granted 436,980 - 436,980
(Increase) decrease in due from related parties 47,477 (101,921) (3,793)
(Increase) decrease in accounts receivable (7,762) (2,386) (15,103)
(Increase) decrease in prepaid expenses (200,000) - (200,000)
Increase (decrease) in accounts payable 21,732 (18,788) 42,400
----------- ----------- -----------
Net Cash (Used) by Operating Activities (638,478) (373,708) (1,218,040)
FINANCING ACTIVITIES
Proceeds from private placements 731,000 399,875 1,347,830
Proceeds from exercise of stock options 699,500 - 699,500
----------- ----------- -----------
Cash provided from financing activities 1,430,500 399,875 2,047,330
----------- ----------- -----------
INVESTING ACTIVITIES
Cost of patents (31,373) (11,507) 53,981
Investment in Rockford Technologies (207,756) - 207,756
Investment in marketable securities - (10,000) 10,000
----------- ----------- -----------
Cash used in investment activities (239,129) (21,507) 271,737
----------- ----------- -----------
Increase in cash 552,893 4,660 557,553
Cash at beginning of period 4,660 - -
----------- ----------- -----------
Cash at end of period $ 557,553 $ 4,660 $ 557,553
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for licensing agreements $ 438,600 $ 101,250 $ 1,529,850
and technologies =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
RHOMBIC CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR YEARS ENDED DECEMBER 31, 1999 AND 1998
Note 1 - ORGANIZATION AND BASIS OF PRESENTATION
Rhombic Corporation (the "Company"), has acquired rights to certain
technologies and intends to further develop, determine commercial applications
and market these technologies. Since its inception, the Company had directed
most of its efforts toward identifying and acquiring technologies, primarily
from universities in the United States or entities related to those
universities. The Company's primary office is located in Vancouver, British
Columbia. However, the majority of the Company's assets, liabilities and
expenses relate to operations in the United States.
The Company has acquired 100% of the issued and outstanding shares of
Nanophase Diamond Technologies, Inc. and Rockford Technology Associates, Inc.
Theses entities had no significant operations nor any significant assets or
liabilities at the time of acquisition other than specific technology rights.
These entities are included in the consolidated financial statements of the
Company.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has had material
operating losses and has had to rely on offerings of its common stock to obtain
sufficient cash to meet its operating expenses. The Company has yet to generate
substantive revenue. Also, there can be no assurances that the technologies
owned by the Company will be successful or that the book value of the
investments in technologies will be realized. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The Company
intends to determine commercial applications for technologies that it owns or
has licensed. However, there can be no assurances that the Company will be able
to generate profitable operations. The financial statements do not include any
adjustments relating to the recoverability and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Intellectual Property and Technologies
Technologies have been acquired through the issuance of shares of the
Company's common stock and cash. These technologies are valued at the estimated
fair market value of the stock issued at the time of purchase. The value of the
common stock is determined by the trading value of the shares at and near the
date of the transaction less a 25% discount to that trading value due to
restrictions on those securities. All stock issued in those transactions
contains regulatory restrictions, and in some cases contractual restrictions, on
transferability. Prior to January 1, 1998, the value of the common shares was
estimated on the basis of recent private placements of the Company's common
stock. Because the stock was thinly traded in those earlier years, management
believed that the cash price of the shares in those offerings was a better
measurement of the fair market value. Management periodically analyzes the
values of the technologies for impairment. The purchase price of the
technologies will be amortized over the estimated useful lives when revenue
begins to be generated from these assets.
F-7
<PAGE>
Cash and Equivalents
The Company considers cash to be all short-term, highly liquid
investments that are readily convertible to known amounts of cash and have
original maturities of three months or less.
Stock-Based Compensation
Statements of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, ("SFAS 123") established accounting and disclosure
requirements using a fair-value based method of accounting for stock-based
employee compensation. The Company periodically issues options to consultants
and members of the Board of Directors. The estimated value of these options is
determined in accordance with SFAS No. 123 and expensed as the granted options
vest to the grantees.
Income Taxes
The Company accounts for income taxes under the liability method
pursuant to the Statement of Financial Accounting Standards No. 109 ("SFAS
109"), Accounting for Income Taxes. Deferred taxes arise from temporary
differences, due to differences between accounting methods for tax and financial
statement purposes.
Loss Per Share
Net loss per share is calculated using the weighted average number of
shares of common stock outstanding during the year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
Financial instruments consist primarily of cash, investments in closely
held entities and obligations under accounts payable and accrued expenses. The
carrying amounts of cash, accounts receivable, accounts payable notes payable
and accrued expenses approximate fair value because of the short term maturity
of those instruments. The Company has not determined the fair value of certain
of its investments due to the lack of marketability and liquidity of those
investments and the common management of one such investee.
Investments
The Company accounts for its approximately 15% interest in Rockford
Technologies, Inc. under the cost method. The Company also has a minority
ownership in Peabodies Coffee, Inc. which is recorded under the cost method. The
investment in Peabodies is recorded at its cost which approximates the market
value on the basis of trading values at December 31, 1999.
F-8
<PAGE>
Foreign Currency Translation
The functional currency of the Company is the U. S. dollar. Certain of
the Company's assets, liabilities and expenses are denominated in Canadian
dollars. Transactions denominated in Canadian dollars are translated to U.S.
dollars using an average exchange rate applicable for the month in which the
transactions occur. Assets and liabilities denominated in Canadian dollars are
translated to U.S. dollars at the exchange rate existing at the balance sheet
date. Foreign exchange transaction gains and losses have been immaterial.
Note 3 - INTELLECTUAL PROPERTY AND TECHNOLOGIES
The Company has entered into numerous agreements having acquired
certain rights to various complex technologies which it intends to further
develop, with the assistance of strategic partners, for commercial applications.
Or, it may sell or license these rights and transfer the control of such to the
buyer or licensee. The acquisitions of these technologies have occurred since
1997. The technologies include titles such as; Nuclear Battery, Radio Nuclide
Battery, Inertial Electrostatic Confinement, Diamond Film Electromechanical
Battery and Disperse Composite Material. There has yet to be proven profitable
commercial applications for these technologies. The Company works with U.S.
universities and their professors to further develop these technologies through
funding of research projects. In most cases, the rights to the technologies were
acquired from the universities, or from the professors or inventors to the
extent they had rights to the technologies. The consideration given by the
Company for the most part was shares of the Company's common stock. The value of
the shares given was the basis for the recorded value of the purchases (Note 1).
The Company periodically analyzes the investments in these technologies for
impairment. The stage in which these technologies are in make estimation of
value or determination of impairment a difficult task. The Company has only one
such technology for which there is a commercial strategic partner. However,
there have been no substantive revenues yet generated from that arrangement. The
Company has determined that there is no evidence that the book values of these
technologies are impaired until it has been determined that there is no likely
commercial application or one that will produce adequate cash flow to support
those values. The Company believes that due to the early stage in which the
technologies are developing that such a determination would not be possible at
December 31,1999. The Company is funding further research and is more actively
marketing or seeking strategic partners for the technologies. However, any
change in estimates of impairment may have a significant effect on the financial
condition and results of operations of the Company.
Note 4 - LOSS PER SHARE
Outstanding options to purchase common stock were not considered in the
calculation for diluted earnings per share for the years ended December 31, 1999
and 1998 because the effect of their inclusion would be antidilutive. A
reconciliation of the numerator and denominator of the basic and diluted per
share computations for the loss from continuing operations is as follows:
F-9
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---- ----
Per Per
Loss Shares share Loss Shares share
---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net (Loss) $(1,040,930) $(644,985)
Basic Loss Per Share
Loss available to common
stockholders $(1,040,930) 29,744,607 $(0.03) $(644,985) 16,367,199 $(0.04)
Effect of dilutive securities N/A N/A
Diluted Loss Per Share $(0.03) $(0.04)
</TABLE>
Options to purchase 250,000 shares of common stock were outstanding at
December 31, 1999, and were excluded from the computation of diluted loss per
share because the effect of their inclusion would be anti-dilutive. There were
no potentially dilutive securities outstanding at December 31, 1998.
Note 5 - INVESTMENTS
The Company has invested in the common stock of two entities.
<TABLE>
<CAPTION>
Estimated fair value
Available for sale securities Description Cost at December 31, 1999
- ----------------------------- ----------- ---- --------------------
<S> <C> <C> <C>
100,000 shares of Peabody's
Coffee, Inc $ 10,000 $ 10,000
Other
2,900,000 shares of Rockford
Technologies, Inc. 207,756 207,756
--------- ---------
Totals $ 217,756 $ 217,756
========= =========
</TABLE>
The estimated fair value of Peabodies was estimated based on the quoted
trading price of the security at December 31, 1999. There was no material
difference from the original cost.
The Company acquired 2,900,000 shares of Rockford Technologies, Inc.
("Rockford") in the year ended December 31, 1999 for $207,756 as part of a legal
settlement with Rockford. The 2,900,000 shares represents an approximate 15 %
interest in Rockford. As part of that settlement, members of the Company's Board
of Directors assumed half of the Board seats of Rockford. Rockford had no
material operations in the year ended December 31,1999. The Company's management
intends to assist Rockford in launching its operations. The Company will
periodically review the recorded value of its investment in Rockford for
impairment. The Company believes there is no impairment at December 31, 1999 of
its investment in Rockford since the investment was made in November 1999 and
that management believes that Rockford will commence operations in the year
2000. Accounts receivable at December 31, 1999 includes $11,862 due from
Rockford.
F-10
<PAGE>
Note 6 - RELATED PARTY TRANSACTIONS
The Company pays fees to an entity owned by its President. The fees are
paid for certain management and administrative functions performed by that
entity on behalf of the Company. Fees paid to this entity were $90,000 each in
the years ended December 31, 1999 and 1998. The Company also pays consulting
fees to other members of its Board of Directors and officers. Fees paid to these
individuals as a group were $ 47,200 and $ 18,500 during the years ended
December 31, 1998 and 1999, repectively.
Note 7 - STOCK OPTIONS
The Company issues stock options periodically to consultants and
members of the Board of Directors. The Company has adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The options granted in the year ended December 31, 1999, were
granted to other than employees, the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", does not apply. Accordingly, compensation cost has been recognized
for the stock options granted to other than employees.
Under the provisions of SFAS No. 123, the number of fully vested
options granted of 3,144,000 options for the year ended December 31, 1999 were
used to determine compensation cost. The value of options charged to expense
during the year ended December 31, 1999 was $436,980.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
years ended December 31:
1999
----
Dividend yield None
Volatility 1.60
Risk free interest rate 5.75%
Expected asset life 1 year
The Board of Directors authorized the granting of 3,144,000 options
during the year ended December 31, 1999. The price of the options granted
pursuant to these grants is not to be less than 100 percent of the fair market
value of the shares on the date of grant. The options expire one year from date
of grant and are immediately vested.
F-11
<PAGE>
The summary of activity for the Company's stock options is presented
below:
Weighted
Average
Exercise
1999 Price
---- -----
Options outstanding at beginning of year 0 N/A
Granted 3,144,000 $ 0.42
Exercised (2,894,000) $ 0.26
Terminated/Expired 0 N/A
Options outstanding at end of year 250,000 $ 2.30
Options exercisable at end of year 250,000 $ 2.30
Options available for grant at end of year 0
Price per share of options outstanding $1.50 - $3.00
Weighted average remaining contractual lives 10 months
Weighted Average fair value of options granted
during the year $0.14
Note 8 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. No deferred tax
liabilities existed at December 31, 1999.
Deferred tax assets totaling $900,557 were offset by an equal valuation
allowance. The valuation allowance was provided due to the uncertainty of future
realization of federal and state net operating loss carryforwards that give rise
to all of the deferred tax asset. The Company has federal and state net
operating loss carryforwards of $2,079,000 at December 31, 1999. The deferred
federal loss carryforwards expire in 2010 through 2019 and state loss
carryforwards expire 2000 through 2004.
Income taxes for years ended December 31:
1999 1998
---- ----
Current Benefit $ 437,191 $ 270,894
Deferred Benefit (Provision) (437,191) (270,894)
---------- ----------
Net income tax provision $ - 0 - $- - 0 -
========== ==========
The income tax benefit of $437,191 generated for the year ended
December 31, 1999 was offset by an equal increase in the valuation allowance.
The total increase in the valuation allowance for the year ended December 31,
1999 was $437,191. The income tax benefit of $270,894 generated for the year
ended December 31, 1998 was offset by an equal increase in the valuation
allowance. The total increase in the valuation allowance for the year ended
December 31, 1998 was $270,894. The valuation allowance was increased due to
uncertainties as to the Company's ability to generate sufficient taxable income
to utilize the net operating loss carryforwards.
A reconciliation for the differences between the effective and
statutory income tax rates is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C> <C> <C>
Federal statutory rates $(353,196) (34)% $(219,925) (34)%
State income taxes (83,274) ( 8)% (51,599) ( 8)%
Valuation allowance for operating
loss carryforwards 437,274 42% 270,894 42%
--------- --- --------- ---
Effective rate $ - 0 - 0% $ - 0 - 0%
========= === ========= ===
</TABLE>
F-12
<PAGE>
Note 9 - STOCKHOLDERS' EQUITY
The Company issues common stock as compensation to consultants and to
acquire technologies. During the years ended December 31, 1999 and 1998 the
Company issued 840,000 and 350,000 shares of its common stock respectively to
acquire new technologies. The value of those transactions was determined based
upon the trading value of the Company's common stock at the time of the
transactions.
In the year ended December 31, 1998, the Company entered into an
agreement granting 9,000,000 shares to three of the Company's officers and
directors and a consultant. The shares were placed in escrow and cannot be
released to the individuals and the consultant until the Company meets certain
operating milestones and profitability. The shares are presented as issued and
outstanding and are included in the loss per share calculation. However, no
value or cost has been associated with those shares. Expense will be recognized
at the time the shares become earned and are released from escrow to the
individuals and consultant.
Note 10 - CREDIT RISK AND OTHER CONCENTRATIONS
The Company has historically relied upon cash raised in private placements
of the Company's common stock for working capital. At times, the Company
maintains cash balances at banks that exceed insured limits. At December
31, 1999, bank balances exceeded those limits by $ 516,000.
NOTE 11 - LEGAL SETTLEMENTS
In the year ended December 31, 1999, the Company entered into an
agreement with a plaintiff in claims filed against the Company. The Company was
named as a defendant in a claim filed by Rockford Technologies, Inc. in1998. The
Company filed various counter claims. The matter was being heard in the Canadian
courts. The parties reached a settlement in the year ended December 31,1999. The
settlement called for numerous remedies, including CD$300,000 cash payable by
Rhombic to Rockford. In return, the Company received 2,900,000 shares of
Rockford and it also obtained 50% of the seats on the board of directors of
Rockford. The Company incurred settlement costs, including its own legal fees,
of $63,310 and $98,721 in the years ended December 31, 1999 and 1998,
respectively.
Note 12 - PREPAID EXPENSES
Prepaid expenses at December 31, 1999 includes advances of $ 150,000
paid for professional fees related to the merger transaction with Emerald
Acquisition Corporation (Note 14). The remaining balance was for accounting and
auditing fees.
Note 13 - COMMITMENTS
The Company's acquisition agreements for technologies generally contain
requirements to pay royalties to the sellers when revenue is generated from
those technologies. At December 31, 1999, the Company had no royalties payable.
The Company periodically enters into agreements with third parties,
primarily U.S. universities, to fund research projects related to its
technologies. At December 31, 1999, there were no long-term commitments under
such arrangements.
F-13
<PAGE>
Note 14 - SUBSEQUENT EVENT
Pursuant to an Agreement and Plan of Reorganization dated January 18, 2000,
Rhombic acquired all the outstanding shares of common stock of Emerald
Acquisition Corporation ("Emerald"), a Delaware corporation, from the
shareholders thereof in an exchange for an aggregate of 200,000 shares of common
stock of Rhombic ("the Acquisition"). As a result, Emerald became a wholly-owned
subsidiary of Rhombic.
Prior to the Acquisition, Rhombic had 33,741,100 shares of common stock issued
and outstanding and 33,941,100 shares issued and outstanding following the
Acquisition.
The Acquisition was approved by the unanimous consent of the Board of Directors
of Rhombic on January 18, 2000. The Acquisition was effective on January 20,
2000. Upon effectiveness of the Acquisition, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, Rhombic
elected to become the successor issuer to Emerald for reporting purposes under
the Securities Exchange Act of 1934 and elected to report under the Act
effective January 20, 2000.
* * * * * *
F-14
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
EXHIBITS
2.1. Agreement and Plan of Reorganization between Rhombic Corporation and
Emerald Acquisition Corporation.
*3.1. Articles of Incorporation of Rhombic Corporation.
*3.2. By-Laws of Rhombic Corporation.
*27.1. Financial Data schedule.
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*To be filed by amendment
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to the Current Report on Form 8-K
to be signed on its behalf by the undersigned hereunto duly authorized.
RHOMBIC CORPORATION
By_______________________________
William Larry Owen
President
Date: April __, 2000
