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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: December 1, 1999
ISONICS CORPORATION
(Name of small business issuer as specified in its charter)
CALIFORNIA 001-12531 77-0338561
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State of Commission File IRS Employer
Incorporation Number Identification No.
5906 MCINTYRE STREET, GOLDEN, COLORADO 80403
Address of principal executive offices
303-279-7900
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Telephone number, including
Area code
NOT APPLICABLE
Former name or former address if changed since last report
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ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
GENERAL. On December 1, 1999, Isonics Corporation ("Isonics" or the
"Company") completed a sale of its depleted zinc ("DZ") business to
Eagle-Picher Technologies, LLC for $8.2 million dollars, including $1.5
million to be paid over a period of three years, which amount is subject to
certain contingencies. Isonics received $6,730,303 from Eagle-Picher at the
closing, of which approximately $1,150,570 was used to pay certain accrued
liabilities. DZ is used to prevent corrosion in nuclear power plants.
Corrosion is a cause of high radiation fields in nuclear power plants and can
result in radiation exposure to workers. DZ also reduces environmental
cracking in certain kinds of nuclear reactors which, if not controlled, can
require extremely costly repairs or possibly result in premature shutdown and
de-commissioning of the facility.
The Agreement executed between Isonics and Eagle-Picher provides for:
(1) Isonics' sale of the DZ Business to Eagle-Picher for a purchase price
including approximately $6,700,000 in cash plus three additional payments of
$500,000 over a three year period, (2) for Eagle-Picher's sale to Isonics of
200 kilograms of silicon-28 in consideration for a 42 month warrant grant to
Eagle-Picher for the purchase of 4,000,000 shares of Isonics common stock at
a purchase price of $3.75 per share. The Warrant is subject to a
registration rights agreement.
Related to, but separate from, the sale of the depleted zinc business,
Isonics contemporaneously signed a ten year supply agreement by which Isonics
will have the exclusive right to purchase quantities of isotopically pure
silicon-28, silicon-29 and silicon-30 and a non-exclusive right to purchase
quantities of carbon-12 and carbon-13 produced by Eagle-Picher from its pilot
plant under construction in Oklahoma for a ten-year period. The Supply
Agreement locks in what Isonics believes is a favorable purchase price for
the isotopes. As partial consideration for the exclusivity provisions,
Isonics agreed to pay Eagle-Picher a fee equal to 3% of the net revenues from
all sales made by Isonics of products incorporating silicon-28, silicon-29 or
silicon-30 supplied by Eagle-Picher. The ability of Eagle-Picher to produce
isotopes meeting the specifications of the supply agreement is contingent
upon Eagle-Picher successfully bringing its Oklahom-based facilities online
as scheduled in March of 2000.
In addition, Isonics will purchase 200 kilograms of silicon-28 from
Eagle-Picher in consideration of a warrant to purchase 4,000,000 shares of
Isonics common stock exercisable by Eagle-Picher for $3.75 per share through
May 30, 2003. Isonics granted Eagle-Picher certain registration rights
related to the shares of its common stock issuable upon exercise of the
warrant. Eagle-Picher has an obligation to deliver the silicon-28 during
calendar year 2000 or, if it fails to do so, it will reduce the warrant
proportionately. One of the properties of isotopically pure silicon-28 is
its high thermal conductivity, which Isonics is currently developing for
semiconductor applications.
Isonics is an advanced materials and technology company which develops
and commercializes products based on enriched stable isotopes. Stable
isotopes can be thought of as ultra-ultra pure materials. This high degree
of purification provides enhanced performance properties compared to normal
materials. Stable isotopes have commercial uses in several areas,
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including energy; research, medical diagnostics, and drug development;
product tagging and stewardship; semiconductors; lasers; and optical
materials.
Except for historical information contained herein, this document
contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve known and
unknown risks and uncertainties that may cause the Company's actual results
or outcomes to be materially different from those anticipated and discussed
herein. Further, the Company operates in industries where securities values
may be volatile and may be influenced by regulatory and other factors beyond
the Company's control. Other important factors that the Company believes
might cause such differences are discussed in the risk factors detailed in
the Company's 10-KSB for the year ended April 30, 1999 filed with the
Securities and Exchange Commission, which include the Company's cash flow
difficulties, dependence on significant customers, and rapid development of
technology, among other risks. In assessing forward-looking statements
contained herein, readers are urged to carefully read all cautionary
statements contained in the Company's filings with the Securities and
Exchange Commission.
INFORMATION REQUIRED BY ITEM 701 OF REGULATION S-B.
SECURITIES SOLD. The sale described in the preceding paragraphs
occurred on December 1, 1999. The securities sold consists of one restricted
warrant ("Warrant") to purchase 4,000,000 shares of restricted common stock
exercisable in whole or in part issued at an exercise price of $3.75 per share.
UNDERWRITERS AND OTHER PURCHASERS.
No underwriters, agents, or placement agents participated in the private
placement.
The warrant was issued to a single accredited investor as consideration
for the purchase of assets.
The Warrant was issued in consideration for the purchase of 200
kilograms of silicon-28 pursuant to an Asset Purchase Agreement executed
between Isonics and Eagle-Picher.
The transactions were exempt from registration under the Securities Act
of 1933, as amended by reason of Sections 4(2) and 4(6) of the Securities Act
of 1933.
Terms of conversion or exercise are as follows:
The Warrant granted to Eagle-Picher may be exercised to purchase 4,000,000
shares of restricted common stock issued on a warrant-for-share basis with
the Company's common stock (subject to dilution adjustment) for a purchase
price of $3.75 per share through the expiration date, May 30, 2003
The Company also entered into a registration rights agreement relating to
the shares of common stock underlying the Warrant.
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The Company intends to use the 200 kilograms of silicon-28 from the
issuance of the Warrant for the continued development and commercialization
of silicon-28 wafers for the semiconductor industry.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial statements of businesses acquired. NOT APPLICABLE.
Pro forma financial statements. INCLUDED HEREWITH.
Exhibits (incorporated from the initial filing):
Asset Purchase Agreement
Form of Warrant
Form of Registration Rights Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 21st day of January 2000.
ISONICS CORPORATION
By: /s/ James E. Alexander
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James E. Alexander
President and Chief Executive Officer
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Isonics Corporation
Pro Forma Balance Sheet (in $000)
October 31, 1999
<TABLE>
<CAPTION>
(Unaudited) Proforma
October 31,1999 Adjustments October 31,1999
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<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 313 $ 5,376 (1) $ 5,689
Accounts receivable (Net of allowance of $82) 1,870 - 1,870
Notes receivable 500 (2) 500
Inventories 1,741 (1,511)(3) 230
Prepaid expenses and other current assets 184 184
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Total current assets $ 4,108 $ 8,473
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LONG-TERM ASSETS:
Property and equipment, net $ 885 $ (95)(4) $ 790
Goodwill, net 3,264 (118)(4) 3,146
Notes receivable from shareholders 135 (135)(5) -
Notes receivable 1,000 (2) 1,000
Other assets 55 (23)(4) 32
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Total long-term assets $ 4,339 $ 4,968
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TOTAL ASSETS $ 8,447 $13,441
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and line of credit $ 460 $ (460)(6) $ -
Notes payable to related parties 354 354
Accounts payable 2,095 2,095
Accrued liabilities 973 973
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Total Liabilities $ 3,882 $ 3,422
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SHAREHOLDERS' EQUITY:
Class A Preferred Stock--no par value. 10,000,000 $ 2,745 $ 2,745
shares authorized; 1,830,000 shares outstanding
Common stock--no par value. 20,000,000 shares 6,952 9,720 (7) 16,672
authorized; 6,607,760 shares issued and outstanding
Notes receivable from shareholders (485) (485)
Accumulated deficit (4,647) (4,266)(8) (8,913)
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Total shareholders' equity $ 4,565 $10,019
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,447 $13,441
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Notes to the Pro Forma Balance Sheet.
(1) Net cash received from the sale of the depleted zinc business after
payment of sale related items.
(2) Note receivable for remainder of purchase price payable in three annual
installments of $500,000 each.
(3) Depleted zinc inventory held as of October 31, 1999. All depleted zinc
inventory was sold in the transaction.
(4) Write-off of net book value of assets sold or disposed of in the
transaction.
(5) Bonuses issued to shareholders for sale of business.
(6) Line of credit repaid with transaction proceeds as certain depleted zinc
assets were collateral for borrowings.
(7) Value of warrants issued to Eagle-Picher in the transaction.
(8) Loss on sale of depleted zinc business, net of taxes, issuance of
warrants, and pro forma adjustments.
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Isonics Corporation
Pro Forma Income Statements ($000)
For the Year ended April 30, 1999, and the Six Months ended October 31, 1999
<TABLE>
<CAPTION>
Year ended April 30, 1999 Six months ended October 31, 1999
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Actual Adjustments Pro Forma Actual Adjustments Pro Forma
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<S> <C> <C> <C> <C> <C> <C>
Revenues $ 16,998 $ 5,959 (1) $ 11,039 $ 7,544 $ 2,572 (1) $ 4,972
Cost of revenues 13,375 4,648 (1) 8,727 5,868 2,006 (1) 3,862
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Gross margin $ 3,623 $ 1,311 $ 2,312 $ 1,676 $ 566 $ 1,110
Operating expenses:
SG&A $ 3,643 $ 138 (2,3,4) $ 3,505 $ 1,830 $ 73 (2,3,4) $ 1,757
R&D 1,155 - 1,155 332 - 332
Restructuring 691 - 691 66 - 66
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Total operating expenses $ 5,489 $ 138 $ 5,351 $ 2,228 $ 73 $ 2,155
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Operating loss $ (1,866) $ 1,173 $ (3,039) $ (552) $ 493 $ (1,045)
Other income (expense):
Interest income $ 36 $ - $ 36 $ 50 $ - $ -
Interest expense (575) (100) (5,6) (475) (225) (35)(5,6) -
Foreign currency gain (loss) 55 - 55 - - -
Other income - - - 112 - -
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Total other income (expense), net $ (484) $ (100) $ (384) $ (63) $ (35) $ -
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Loss before taxes $ (2,350) $ 1,073 $ (3,423) $ (615) $ 458 $ (1,045)
Income tax expense (benefit) 171 30 (1) 141 - - (1) -
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Net income (loss) $ (2,521) $ 1,043 $ (3,564) $ (615) $ 458 $ (1,045)
</TABLE>
Notes to Pro Forma Income Statements
(1) Adjustment to reduce net revenue, cost of revenues, and income taxes
related to the depleted zinc business.
(2) Reduction of salary expense attributable to employees assigned solely to
the depleted zinc business, $50,000 and $25,000.
(3) Reduction of amortization expense of goodwill associated with the purchase
of the depleted zinc business from Isoserve, $79,000 and $39,000.
(4) Reduction of depreciation expense associated with assets sold with the
depleted zinc business, $9,000 and $9,000.
(5) Reduction in interest expense resulting from pay down of borrowing for
which certain depleted zinc business assets provided collateral, $72,000
and $18,000
(6) Reduction in interest expense resulting from pay down of borrowing for
which the loan origination fees had been amortized, $28,000 and $17,000.
