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
<PAGE>
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
<PAGE>
<TABLE>
Isonics Corporation
PRO FORMA STATEMENT OF OPERATIONS
Year ended April 30, 1998
(In thousands, except for per share data)
(Unaudited)
<CAPTION>
International
Process Total
Isonics Research Pro Forma Pro Forma
Corporation Corporation Adjustments Amounts
----------- ----------- ----------- -------
<S> <C> <C> <C> <C>
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
========= ========= =========
</TABLE>
3
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
International Process Research Corporation
dba Colorado Minerals Research Institute
BALANCE SHEETS
(In thousands, except share amounts)
<CAPTION>
ASSETS
April 30, April 29,
1997 1998
-------- ---------
<S> <C> <C>
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
======== =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
F-2
<PAGE>
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
<PAGE>
<TABLE>
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)
<CAPTION>
(Accumulated
Common Stock Deficit) Total
------------------------ Retained Shareholders'
Shares Amount Earnings Equity
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== ========= =========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
International Process Research Corporation
dba Colorado Minerals Research Institute
STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended
----------------------
April 30, April 29,
1997 1998
-------- ---------
<S> <C> <C>
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 $ -
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<CAPTION>
April 30, April 29,
1997 1998
--------- ---------
<S> <C> <C>
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
=========
</TABLE>
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
<PAGE>
<TABLE>
NOTE 6 - INCOME TAXES
Deferred tax assets are comprised of the following (in thousands):
<CAPTION>
April 30, April 29,
1997 1998
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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
<PAGE>
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
