-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MEA9rc1302ZLsZ53Ff/r7xwBpn3Alyz2yFE7NXQhP/LqYHw4u4yyi/kRaYe1X+Gp tWIlFCqbVzkgVSfzgFQmmw== 0000950005-98-000631.txt : 19980803 0000950005-98-000631.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950005-98-000631 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980515 ITEM INFORMATION: FILED AS OF DATE: 19980729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ISONICS CORP CENTRAL INDEX KEY: 0001023966 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 770338561 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-12531 FILM NUMBER: 98673036 BUSINESS ADDRESS: STREET 1: 4010 MOORPACK AVENUE STREET 2: SUITE 119 CITY: SAN JOSE STATE: CA ZIP: 95117 BUSINESS PHONE: 4082600155 MAIL ADDRESS: STREET 1: 4010 MOORPACK AVENUE STREET 2: SUITE 119 CITY: SAN JOSE STATE: CA ZIP: 95117 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Amendment No. 1 To FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 15, 1998 ISONICS CORPORATION (Exact name of registrant as specified in its charter) California (State or other jurisdiction of incorporation) 001-12531 77-0338561 (Commission File No.) (IRS Employer Identification No.) 4010 Moorpark Avenue, Suite 119 San Jose, California 95117 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (408) 260-0155 1 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired. The Financial Statements required by this item are submitted in a separate section beginning on page F-1 of this Amendment No. 1 to Current Report on Form 8-K/A and are incorporated by reference herein: PAGE Report of Independent Certified Public Accountants ........ F-1 Balance Sheets as of April 30, 1997 and April 29, 1998 .... F-2 Statements of Operations for the Years Ended April 30, 1997 and April 29, 1998 ........................................ F-3 Statement of Shareholders' Equity for the Years Ended April 30, 1997 and April 29, 1998 ......................... F-4 Statements of Cash Flows for the Years Ended April 30, 1997 and the April 29, 1998 ............................... F-5 Notes to Financial Statements ............................. F-6 (b) Pro Form Financial Information. The following unaudited pro forma combined condensed statement of operations assumes that the acquisition of all of the outstanding capital stock of International Process Research Corporation, a Colorado corporation ("Interpro"), took place as of the beginning of the year ended April 30, 1998 and combines the audited statements of operations of Isonics Corporation, a California corporation, for the year ended April 30, 1998 with Interpro's audited statement of operations for the year ended April 29, 1998. The pro forma combined condensed statement of operations is not necessarily indicative of the operating results which would have been achieved had the Acquisition been consummated as of the beginning of the year ended April 30, 1998 and should not be construed as representative of future operations. 2 Isonics Corporation PRO FORMA STATEMENT OF OPERATIONS Year ended April 30, 1998 (In thousands, except for per share data) (Unaudited)
International Process Total Isonics Research Pro Forma Pro Forma Corporation Corporation Adjustments Amounts ----------- ----------- ----------- ------- Net revenues.............................................. $ 6,783 $ 2,708 $ (181) (1) $ 9,310 275 (2) Cost of revenues.......................................... 4,662 1,759 (181) (1) 6,515 --------- --------- --------- --------- Gross margin................................... 2,121 949 (275) 2,795 Operating expenses: Selling, general and administrative.................... 1,342 812 (1) (3) 2,147 (6) (2) Research and development............................... 811 157 (6) (4) 962 --------- --------- --------- --------- Total operating expenses....................... 2,153 969 (13) 3,109 Operating loss............................................ (32) (20) (262) (314) Interest expense, net..................................... (145) (20) - (165) --------- --------- --------- --------- Loss before income taxes.................................. (177) (40) (262) (479) Income tax (expense) benefit.............................. 314 14 - 328 --------- --------- --------- --------- Net income (loss)......................................... $ 137 $ (26) $ (262) $ (151) ========= ========= ========= ========= Net income (loss) per share - basic....................... $ 0.03 $ (0.03) ========= ========= Shares used in computing per share information............ 5,039 354 (5) 5,393 ========= ========= ========= Net income (loss) per share - diluted..................... $ 0.02 $ (0.03) ========= ========= Shares used in computing per share information............ 6,469 (1,076) 5,393 ========= ========= =========
3 Isonics Corporation NOTES TO PRO FORMA STATEMENT OF OPERATIONS (Unaudited) On April 30, 1998, Isonics Corporation (the "Company") acquired all of the outstanding common stock of International Process Research Corporation dba Colorado Minerals Research Institute ("Interpro") a contract research and development organization specializing in metallurgical, mineral processing, and environmental test work and consultancy services. The purchase price was paid in 353,982 shares of the Company's common stock with a fair market value of $708,000. Transaction costs were $70,000. No goodwill was recognized upon completing the transaction. The accompanying pro forma statement of operations is presented in accordance with Article 11 of Regulation S-X. No pro forma balance sheet is presented as the assets and liabilities of Interpro are included in the April 30, 1998 balance sheet of the Company. The Company's historical results of operations will include Interpro commencing May 1, 1998. The pro forma statement of operations for the year ended April 30, 1998 includes the following adjustments to reflect the consummation of the transaction as if it had occurred at the beginning of fiscal 1998: 1. To eliminate intercompany revenues and cost of revenues. 2. To adjust depreciation expense to reflect the fair value of assets acquired. 3. To adjust salaries paid to Interpro's management to amounts to be paid under new employment agreements. 4. To eliminate management fee paid to Interpro's parent company. 5. To increase the number of common shares used in the per share calculation for the common stock issued in the acquisition for basic earnings per share and eliminate common stock equivalents from diluted earnings per share as they are anti-dilutive given the pro forma net loss. The adjustments do not give effect to any potential benefits that might have been realized through the combination of operations and are not necessarily indicative of the consolidated results which would have been reported if the acquisition of Interpro had actually occurred at the beginning of the year ended April 30, 1998. 4 (c) Exhibits. Exhibit No. Description ----------- ----------- 2.1* Stock Purchase Agreement, dated as of April 30, 1998, among Isonics Corporation, a California corporation, Metallurgy International, Inc., a Nevada corporation, and International Process Research Corporation, a Colorado Corporation (the Disclosure Schedule has been omitted as permitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"), but will be furnished supplementally to the SEC upon request). 2.2* Escrow Agreement, dated as of May 15, 1998, among Isonics Corporation, a California corporation, Metallurgy International, Inc., a Nevada corporation, Robert H.Cuttriss (as Agent), and Colorado Business Bank, as Escrow Agent. 99.1* Press release announcing the execution of the Purchase Agreement. 99.2* Press release announcing the consummation of the Acquisition. * Previously filed with Isonics' Current Report on Form 8-K (File No. 001-12531), dated May 15 and filed May 27, 1998. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ISONICS CORPORATION Dated: July 28, 1998 By: /s/ James Alexander ------------------------------------- James Alexander President and Chief Executive Officer 6 Report of Independent Certified Public Accountants Board of Directors International Process Research Corporation dba Colorado Minerals Research Institute We have audited the accompanying balance sheets of International Process Research Corporation dba Colorado Minerals Research Institute ("CMRI") as of April 30, 1997 and April 29, 1998, and the related statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CMRI as of April 30, 1997 and April 29, 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. GRANT THORNTON LLP San Jose, California July 1, 1998 F-1 International Process Research Corporation dba Colorado Minerals Research Institute BALANCE SHEETS (In thousands, except share amounts)
ASSETS April 30, April 29, 1997 1998 -------- --------- CURRENT ASSETS Cash and cash equivalents $ 188 $ 6 Accounts receivable Billed, net of allowance of $63 in 1997 and $45 in 1998 203 530 Unbilled, net of allowance of $8 in 1997 and $85 in 1998 72 14 Prepaid expenses and other assets 17 38 Deferred income taxes 99 113 -------- --------- Total current assets 579 701 PROPERTY AND EQUIPMENT, net 90 357 OTHER ASSETS - 43 -------- --------- $ 669 $ 1,101 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 38 $ 51 Accounts payable 106 374 Accounts payable - related party 26 - Accrued liabilities 264 337 -------- --------- Total current liabilities 434 762 LONG-TERM LIABILITIES 146 276 COMMITMENTS - - SHAREHOLDERS' EQUITY Common stock, no par value, 5,000,000 shares authorized, 4,590,909 outstanding in 1997 and 1998 80 80 Retained earnings (deficit) 9 (17) -------- --------- 89 63 -------- --------- $ 669 $ 1,101 ======== ========= The accompanying notes are an integral part of these statements.
F-2 International Process Research Corporation dba Colorado Minerals Research Institute STATEMENTS OF OPERATIONS (In thousands) Year Ended ---------------------- April 30, April 29, 1997 1998 -------- --------- Revenues $ 2,372 $ 2,708 Cost of revenues 1,536 1,759 -------- --------- Gross margin 836 949 Operating expenses: Selling, general and administrative 674 812 Research and development 133 157 -------- --------- Total operating expenses 807 969 Operating income (loss) 29 (20) Interest income 7 2 Interest expense (19) (22) -------- --------- Total interest expense, net (12) (20) -------- --------- Income (loss) before income taxes 17 (40) Income tax (expense) benefit (6) 14 -------- --------- NET INCOME (LOSS) $ 11 $ (26) ======== ========= The accompanying notes are an integral part of these statements. F-3 International Process Research Corporation dba Colorado Minerals Research Institute STATEMENT OF SHAREHOLDERS' EQUITY Years ended April 30, 1997 and April 29, 1998 (In thousands, except share amounts)
(Accumulated Common Stock Deficit) Total ------------------------ Retained Shareholders' Shares Amount Earnings Equity ----------- --------- ----------- ----------- Balance at May 1, 1996 4,590,909 $ 80 $ (2) $ 78 Net income - - 11 11 ----------- --------- ----------- ----------- Balance at April 30, 1997 4,590,909 80 9 89 Net loss - - (26) (26) ----------- --------- ----------- ----------- Balance at April 29, 1998 4,590,909 $ 80 $ (17) $ 63 =========== ========= =========== =========== The accompanying notes are an integral part of this statement.
F-4 International Process Research Corporation dba Colorado Minerals Research Institute STATEMENTS OF CASH FLOWS (In thousands)
Year Ended ---------------------- April 30, April 29, 1997 1998 -------- --------- Cash flows from operating activities: Net income (loss) $ 11 $ (26) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 24 43 Deferred income taxes 6 (14) Changes in operating assets and liabilities: Accounts receivable 146 (269) Prepaid expenses (7) (21) Accounts payable (81) 242 Accrued liabilities 20 73 -------- --------- Net cash provided by operating activities 119 28 Cash flows from investing activities: Purchases of property and equipment (5) (310) Acquisition costs - (43) -------- --------- Net cash used in investing activities (5) (353) Cash flows from financing activities: Principal payments on long-term debt (59) (170) Borrowings on long-term debt - 313 -------- --------- Net cash (used in) provided by financing activities (59) 143 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 55 (182) Cash and cash equivalents, beginning of year 133 188 -------- --------- Cash and cash equivalents, end of year $ 188 $ 6 ======== ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 19 $ 20 Taxes - - Non-cash investing and financing activities: Equipment acquired under capital lease obligations $ 30 $ - The accompanying notes are an integral part of these statements.
F-5 International Process Research Corporation dba Colorado Minerals Research Institute NOTES TO FINANCIAL STATEMENTS April 30, 1997 and April 29, 1998 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization International Process Research Corporation, dba Colorado Minerals Research Institute (the "Company") is a contract research and development organization specializing in metallurgical, mineral processing, and environmental test work and consultancy services. The Company is a wholly owned subsidiary of Metallurgy International, Inc. Cash Equivalents Cash equivalents consist of money market investments and certificates of deposit with an original maturity of less than ninety days. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and trade accounts receivable. Cash equivalents are maintained with high quality institutions and are regularly monitored by management. The Company extends credit to customers from various geographic areas and varying in size. The Company performs ongoing credit evaluations of its customers' financial condition and occasionally requires advances on work to be performed. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over three to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term. Income Taxes The Company accounts for income taxes using an asset and liability approach for financial accounting and reporting purposes. Revenue Recognition Revenue from research contracts is recognized ratably as services are performed and costs are incurred. Research and Development Research and development expenses include costs and expenses associated with the design and development of new products and services. F-6 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates in Financial Statements In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Values of Financial Instruments The fair value of cash and equivalents approximates carrying value due to the short maturity of such instruments. The fair value of long-term debt approximates carrying value based on terms available for similar instruments. NOTE 2 - SALE OF COMPANY On April 30, 1998, all of the Company's outstanding common stock was sold to Isonics Corporation. The sales price of approximately $708,000 was paid in stock of the acquiring company. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands): April 30, April 29, 1997 1998 --------- --------- Equipment and office furniture $ 165 $ 456 Leasehold improvements 47 66 --------- --------- 212 522 Less accumulated depreciation and amortization (122) (165) --------- --------- $ 90 $ 357 ========= ========= F-7 NOTE 4 - ACCRUED LIABILITIES Accrued liabilities consist of the following (in thousands):
April 30, April 29, 1997 1998 --------- --------- Compensation $ 129 $ 154 Customer advances 65 76 Other 70 107 --------- --------- $ 264 $ 337 ========= ========= NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following (in thousands): April 30, April 29, 1997 1998 --------- --------- Bank term loan $ - $ 147 Revolving line of credit 125 159 Capital leases 59 21 --------- --------- 184 327 Less current portion (38) (51) --------- --------- $ 146 $ 276 ========= ========= Maturities of long-term debt as of April 29, 1998 are as follows (in thousands): 1999 $ 51 2000 199 2001 40 2002 37 --------- $ 327 =========
The term loan is collateralized by certain equipment and bears interest at 9.5%. Principal and interest payments of $3,800 are due in forty eight monthly payments ending February 2002. The revolving line of credit is collateralized by all of the Company's assets. Borrowings under the line of credit bear interest at the bank's base rate (8.5% at April 30, 1998) plus 1.0%. Borrowings are limited to 75% of the Company's eligible trade accounts receivable as contractually defined. Interest payments are due monthly. The credit arrangement prohibits the payment of any cash dividends without prior bank approval and requires the Company to meet certain financial covenants, including minimum tangible net worth and maximum leverage ratio. Subsequent to year end, the line of credit was amended to increase the defined borrowing base from $160,000 to $350,000 and the maturity date of the line of credit was extended to July 1999. The entire balance is included as long-term debt on the balance sheet. F-8 NOTE 6 - INCOME TAXES Deferred tax assets are comprised of the following (in thousands):
April 30, April 29, 1997 1998 --------- --------- Deferred tax assets Accruals and reserves deductible in future periods $ 88 $ 85 Net operating loss carryforwards 11 28 --------- --------- $ 99 $ 113 ========= ========= Income tax benefit (expense) consists of the following (in thousands): 1997 1998 --------- --------- Current Federal $ - $ - State - - --------- --------- - - Deferred Federal (5) 12 State (1) 2 --------- --------- (6) 14 --------- --------- Income tax (benefit) expense $ (6) $ 14 ========= =========
At April 29, 1998, the Company has $80,000 of net operating loss carryforwards for state and federal purposes available through 2003 and 2113, respectively. The statutory federal income tax rate does not differ from the effective tax rate. F-9 NOTE 7 - LEASES At April 30, 1998, equipment with a cost of $101,000 and accumulated amortization of $38,000 has been acquired under capital leases. The Company rents its facilities under an operating lease expiring in July 2000. Rent expense for the facilities was approximately $100,000 for the years ended April 30, 1997 and 1998. Future minimum annual operating and capital lease commitments are as follows (in thousands): April 29, --------------------- Operating Capital --------- --------- 1999 $ 100 $ 19 2000 100 3 2001 17 - --------- --------- $ 217 22 ========= Amount representing interest (1) --------- Present value of minimum lease payments 21 Current portion (18) --------- Long-term portion $ 3 ========= NOTE 8 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) profit sharing plan for employees who have completed one year of service. The Company is required to make a matching contribution equal to 50% of the employee's contribution, up to 6% of annual compensation. Employees are fully vested in employer contributions. The Company's matching contributions were approximately $13,000 and $19,000 for the years ended April 30, 1997 and April 29, 1998, respectively. Contributions in excess of the required matching amount are discretionary. The Company did not make a voluntary contribution for 1997 or 1998. NOTE 9 - RELATED PARTY TRANSACTION During the year ended April 29, 1998, the Company paid Metallurgy International, Inc. a management fee of $6,000. At April 30, 1997, the Company had a payable of $6,000 to Metallurgy International Pty., a shareholder of Metallurgy International, Inc., for an advance on the purchase of equipment. The debt was repaid during the year ended April 29, 1998. At April 30, 1997, the Company had a payable of $20,000 to Metallurgy International, Inc. which was associated with Metallurgy International Inc.'s purchase of the Company. The debt was repaid during the year ended April 29, 1998. F-10 -----END PRIVACY-ENHANCED MESSAGE-----