UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 16, 2004
------------------
IONATRON, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-14015 77-0262908
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
3590 East Columbia Street, Tucson, Arizona 85714
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (520) 628-7415
--------------
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets
On September 16, 2004, Ionatron, Inc. (the "Company") completed the
acquisition of substantially all of the assets and assumed liabilities for
warranty claims and other accrued expenses of North Star Research Corporation
("North Star"), a New Mexico corporation engaged in the business of designing
and manufacturing a broad range of high voltage equipment for the defense,
aerospace, semi-conductor, and medical industries.
As consideration for North Star's assets, the Company paid $700,000,
issued 199,063 shares of the Company's common stock. The stock is valued at
$1,700,000, which is $8.54 per share and is based on the average closing sale
price for Ionatron common stock for September 8th, 9th and 10th in accordance
with the Asset Purchase Agreement, which approximates the value at September 16,
2004. The transaction was effected through a newly-formed subsidiary, North Star
Research Acquisition Corp., a Delaware corporation, and was funded through cash
on hand.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
North Star Research Corporation
Financial
Page No.
Report of Independent Auditors F-1
Balance Sheets as of September 30, 2004 and
December 31, 2003 F-2
Statements of Income and Retained Earnings
for the nine months ended September 30, 2004
and the year ended December 31, 2003 F-4
Statement of Cash Flows for the nine months
ended September 30, 2004 and the year
ended December 31, 2003 F-5
Notes to Financial Statements F-7
(b) Pro Forma Financial Information
ACQUISITION OF NORTH STAR RESEARCH CORPORATION
Introduction PF-1
Pro Forma Statements of Operations for
the year ended December 31, 2003 PF-2
Pro Forma Statements of Operations for the nine
months ended September 30, 2004 PF-3
(c) Exhibits
23.1 Consent of BDO Seidman, LLP
2
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 thereunto duly authorized.
IONATRON, INC.
(Registrant)
By: /s/ Thomas Dearmin
-----------------------------------
Thomas Dearmin
Chief Executive Officer, President
and Chief Financial Officer
Date: December 1, 2004
3
(a) Financial Statements of Business Acquired
Independent Auditors' Report
Board of Directors
North Star Research Corporation
Albuquerque, New Mexico
We have audited the accompanying balance sheets of North Star Research
Corporation (the "Company") as of September 30, 2004 and December 31, 2003 and
the related statements of income and retained earnings, and cash flows for the
nine month period ended September 30, 2004 and for the year ended December 31,
2003. 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 auditing standards generally accepted
in the United States of America. 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.
As described in Note 11, the financial statements referred to above are intended
to present the historical financial position and results of operations of North
Star Research Corporation prior to the sale of the Company and accordingly
purchase accounting adjustments have not been applied in the preparation of the
accompanying financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North Star Research Corporation
at September 30, 2004 and December 31, 2003, and the results of its operations
and its cash flows for the nine month period ended September 30, 2004 and for
the year ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Los Angeles, California
November 12, 2004
F-1
NORTH STAR RESEARCH CORPORATION
BALANCE SHEETS
September 30, 2004 and December 31, 2003
ASSETS
September 30, December 31,
2004 2003
---------- ----------
Current Assets
Cash and cash equivalents $1,135,135 $ 214,498
Accounts receivable
Contracts 244,331 298,498
Unbilled receivables 71,000 --
Other -- 1,440
Costs and estimated earnings in excess of
billings on uncompleted contracts 40,297 116,289
Prepaid expenses -- 6,687
Income taxes receivable -- 12,000
---------- ----------
Total current assets 1,490,763 649,412
---------- ----------
Property and Equipment
Scientific equipment 91,301 85,474
Office equipment 57,973 54,374
---------- ----------
Total, at cost 149,274 139,848
Less accumulated depreciation and amortization 117,258 109,181
---------- ----------
Total property and equipment 32,016 30,667
---------- ----------
Total assets $1,522,779 $ 680,079
========== ==========
See Notes to Financial Statements.
F-2
NORTH STAR RESEARCH CORPORATION
BALANCE SHEETS (CONTINUED)
September 30, 2004 and December 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2004 2003
---------- ----------
Current Liabilities
Accounts payable $ 40,641 $ 184,131
Accrued liabilities 6,422 7,733
Billings in excess of costs and estimated
earnings on uncompleted contracts 15,498 12,624
Warranty reserves 41,206 60,831
Customer deposits 19,500 17,411
Provision for losses on uncompleted contracts -- 25,843
Income taxes payable 72,440 50
Due to Ionatron, Inc. 200,000 --
Advance on sale of assets 700,000 --
Lawsuit settlement payable -- 135,000
Deferred income taxes 9,300 1,600
---------- ----------
Total current liabilities 1,105,007 445,223
Long-Term Liabilities
Deferred income taxes 7,200 500
---------- ----------
Total liabilities 1,112,207 445,723
---------- ----------
Commitments and Contingencies
Stockholders' Equity
Common stock, no par value; 500,000
shares authorized, 1,100
shares issued and outstanding 4,587 4,587
Contributed capital 5,440 5,440
Retained earnings 400,545 224,329
---------- ----------
Total stockholders' equity 410,572 234,356
---------- ----------
Total liabilities and stockholders' equity $1,522,779 $ 680,079
========== ==========
See Notes to Financial Statements
F-3
NORTH STAR RESEARCH CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
Nine Months Ended September 30, 2004
and Year Ended December 31, 2003
Nine Months Ended Year Ended
September 30, 2004 December 31, 2003
---------- ----------
Revenues Earned $2,137,961 $3,311,710
Cost of Revenues Earned 1,568,510 2,711,814
---------- ----------
Gross profit 569,451 599,896
Selling, General and Administrative Expenses 313,510 507,966
---------- ----------
Income from operations 255,941 91,930
---------- ----------
Other Income
Interest income 54 242
Miscellaneous income 7,061 27,153
---------- ----------
Total other income 7,115 27,395
---------- ----------
Income before income taxes 263,056 119,325
Provision for Income Taxes 86,840 18,200
---------- ----------
Net income 176,216 101,125
========== ==========
Retained earnings, beginning of year 224,329 123,204
---------- ----------
Retained earnings, end of period $ 400,545 $ 224,329
========== ==========
See Notes to Financial Statements.
F-4
NORTH STAR RESEARCH CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2004 and
Year Ended December 31, 2003
Nine Months Ended Year Ended
September 30, 2004 December 31, 2003
----------- -----------
Cash Flows From Operating Activities
Collections from contracts $ 2,202,059 $ 2,987,929
Contract costs paid and selling, general and
administrative expenses paid (2,192,525) (3,003,791)
Interest received 54 242
Income taxes received (paid) 11,950 (12,000)
Other income received 8,525 26,128
----------- -----------
Net cash provided (used) by operating activities 30,063 (1,492)
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment (9,426) (21,845)
----------- -----------
Net cash used by investing activities (9,426) (21,845)
----------- -----------
Cash Flows From Financing Activities
Working capital loan from Ionatron, Inc. 200,000 --
Advance on sale of assets 700,000 --
Contributed capital -- 5,440
----------- -----------
Net cash provided by financing activities 900,000 5,440
----------- -----------
Net increase (decrease) in cash 920,637 (17,897)
Cash and cash equivalents, beginning of year 214,498 232,395
----------- -----------
Cash and cash equivalents, end of period $ 1,135,135 $ 214,498
=========== ===========
See Notes to Financial Statements
F-5
NORTH STAR RESEARCH CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
Nine Months Ended September 30, 2004 and
Year Ended December 31, 2003
Nine Months Ended Year Ended
September 30, 2004 December 31, 2003
--------- ---------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 176,216 $ 101,125
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 8,077 8,843
Deferred income taxes 14,400 18,200
Changes in operating assets and liabilities
Contracts receivable 54,167 122,688
Unbilled receivables (71,000) --
Other receivables 1,440 2,375
Costs and estimated earnings in excess of
billings on uncompleted contracts 75,992 (58,911)
Prepaid expenses 6,687 3,274
Prepaid income taxes 12,000 (12,000)
Accounts payable (143,490) 157,028
Accrued liabilities (1,311) (27,173)
Warranty reserves (19,625) 48,174
Customer deposits 2,089 (281,177)
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,874 (106,381)
Provision for losses on uncompleted contracts (25,843) 25,843
Income taxes payable 72,390 --
Deferred gain on sale of assets -- (3,400)
Lawsuit settlement payable (135,000) --
--------- ---------
Net cash provided (used) by operating activities $ 30,063 $ (1,492)
========= =========
See Notes to Financial Statements.
F-6
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. North Star Research Corporation (Company) was incorporated
in the State of New Mexico in 1986. The Company evolved from research and
development (R&D) to manufacturing and R&D for a variety of government and
commercial customers around the world. During the period from 2001 to 2004, the
major business of the Company was the manufacture of custom high voltage
equipment, including particle accelerators, generators, transformer driven pulse
generators and DC power supplies. Work in high voltage probe/driver manufacture
and X-ray system development is also performed. This equipment was generally
found by others to be difficult to build and the Company often builds equipment
considered to be impossible, too risky, or nearly impossible by other vendors.
Work is performed on cost plus fixed fee, fixed price, and cost plus percentage
markup ("variable fee") contract basis. Contract length varies, but typically
averages less than a year. In addition, the Company produces a small amount of
standardized products. If there are long-term advantages for the Company, the
Company will also take work on specification. Milestone and interim payments are
often used to help fund the work.
The Company has know-how, patents pending, and patents in the areas of
accelerator development, high voltage power supplies, X-ray technology, pulse
generator fabrication and fault tolerance, and surface modification
technologies. Applications of the Company's products are in the areas of
semiconductor manufacturing, X-ray inspection for security and non-destructive
testing, laser power systems, diamond coating manufacture, surface hardening,
medical sterilization, and rapid prototyping.
The Company's corporate headquarters are located in Albuquerque, New Mexico.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
Revenue and Cost Recognition. Sales of standardized products are recognized on
delivery.
F-7
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from "fixed price" and cost plus fixed fee and variable fee contracts is
recognized on the percentage-of-completion method. Under this method, individual
contract revenues earned is measured by the percentage relationship that
contract cost incurred bears to management's estimate of total contract cost.
For fixed-price and cost plus fixed fee and variable fee contracts, the amount
of revenues recognized is that portion of the total contract amount that the
actual cost expended bears to the anticipated final total cost based on current
estimates of cost to complete the project (cost-to-cost method). It is not
related to the progress billings to customers. However, when it becomes known
that the anticipated final total cost will exceed the contract amount, the
excess of cost over the contract amount is immediately recognized as a loss on
the contract. Recognition of profit commences on an individual project only when
cost to complete the project can reasonably be estimated and after there has
been some meaningful performance achieved on the project. Changes in job
performance, job conditions, and estimated profitability, and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.
Contract costs include all direct material, labor costs, subcontractor and
indirect costs which are related to contract performance, such as indirect
salaries, workers' compensation insurance, equipment depreciation, payroll taxes
and insurance. General and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Claims and change orders are not
recorded and recognized until such time as they have been accepted.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed
(underbillings). The liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized (overbillings). Costs related to work that has been completed but is
not yet fully billed, is classified as "unbilled receivables."
Cash and Cash Equivalents. For purposes of the statements of cash flows, the
Company considers all highly liquid investments with a maturity of three months
or less to be cash equivalents.
Contracts Receivable. Contracts receivable are carried at original invoice
amount less an estimate made for doubtful receivables based on a review of all
outstanding amounts on a monthly basis. Management determines the allowance for
doubtful accounts by identifying troubled accounts and by using historical
experience applied to an aging of accounts. Contracts receivable are written off
when deemed uncollectible. Recoveries of contracts receivable previously written
off are recorded when received. A contract receivable is considered past due if
any portion of the receivable is outstanding for more than 90 days. Interest is
not charged on past due amounts. Management considers accounts receivable to be
fully collectible and based on history of bad debts, no allowance for doubtful
accounts is considered necessary.
F-8
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment. Property and equipment are carried at cost. Depreciation
of property and equipment is determined using the straight-line method for
financial statement purposes at rates based on the following useful lives:
Scientific equipment 7-10 years
Office equipment 5-7 years
Income Taxes. Construction revenues and costs are reported for federal and state
income tax purposes by the percentage-of-completion method, based on actual
billings and costs to date. Deferred income taxes are provided for timing
differences between financial and taxable income as follows:
Method of computing percentage-of-completion
Depreciation expense due to different methods of calculation
Provision for loss on contracts in process allowable for tax
Advertising Costs. Non direct-response advertising costs, amounting to $4,280
for the nine months ended September 30, 2004 and $4,219 for the year ended
December 31, 2003, were expensed as incurred.
NOTE 2. CONCENTRATIONS OF RISK
The Company, in the ordinary course of business, maintains bank balances in
excess of FDIC insurance limits. The Company mitigates this risk by maintaining
funds in highly reputable institutions.
NOTE 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
Nine Months Year
Ended Ended
9/30/2004 12/31/2003
---------- ----------
Costs incurred on uncompleted contracts $1,013,200 $1,669,062
Estimated earnings 402,231 281,066
---------- ----------
1,415,431 1,950,128
Less billings to date 1,390,632 1,846,463
---------- ----------
Total $ 24,799 $ 103,665
========== ==========
F-9
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
(CONTINUED)
Included in the accompanying balance sheets under the following captions:
Nine Months Year
Ended Ended
9/30/2004 12/31/2003
--------- ---------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 40,297 $ 116,289
Billings in excess of costs and estimated
earnings on uncompleted contracts (15,498) (12,624)
--------- ---------
Total $ 24,799 $ 103,665
========= =========
NOTE 4. SIGNIFICANT CONTRACTS
During the nine months ended September 30, 2004 and the year ended December 31,
2003, the Company derived approximately 27.6% and 47.6%, respectively, of its
revenues, directly or as a subcontractor, from contracts with the United States
Government. These contracts accounted for $914,320 and $1,018,366 of revenue in
2004 and 2003, and $140,223 and $186,545 of outstanding accounts receivable as
of September 30, 2004 and December 31, 2003, respectively.
NOTE 5. INCOME TAXES
The components of income tax provision (benefit) are as follows:
Nine Months Year
Ended Ended
9/30/2004 12/31/2003
-------- --------
Deferred taxes
Beginning balance $ 2,100 $(16,100)
Amount added to deferred income taxes 14,400 18,200
-------- --------
$ 16,500 $ 2,100
======== ========
Current expense
Current year
Federal $ 62,621 $ --
State 9,819 --
-------- --------
72,440 --
Amount added to deferred income taxes 14,400 18,200
-------- --------
Provision for income taxes $ 86,840 $ 18,200
======== ========
F-10
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 5. INCOME TAXES (CONTINUED)
The income tax expense differs from the normal federal (34%) and state (4.8%)
tax rates because of graduated tax rates (surtax exemption).
Deferred tax liabilities are individually classified as current and noncurrent
based on the classification of the assets or liabilities they represent. Short
term deferred income taxes primarily relate to the method of computing
percentage-of-completion. Long term deferred income taxes primarily relate to
fixed assets.
NOTE 6. PROFIT SHARING PLAN
The Company adopted a Simplified Employee Pension (SEP) Plan in 1993. All
employees who have worked for the Company for at least one year are eligible to
participate in the Plan. The Company determines the employer contribution at the
end of each year. However, for the nine months ended September 30, 2004, since
North Star sold most of its assets and business to Ionatron, Inc. (see Note 11),
and most employees went with Ionatron, the SEP contribution was calculated and
paid through the sale date of September 15, 2004. The total employer
contributions for the nine months ended September 30, 2004 and the year ended
December 31, 2003 were $53,824 and $84,400 respectively. These amounts are
included in selling, general and administrative expenses.
NOTE 7. RELATED PARTY TRANSACTIONS
In October 2002, the Company entered in to an agreement to sell the high voltage
probe manufacturing business to North Star High Voltage Corp., a corporation
owned by the majority shareholders of the Company. The purchase price of $25,000
was to be paid in equal annual installments of $3,400 with the first payment to
be made before December 31, 2003. The agreement was deemed null and void by both
parties in 2004. The payment of $3,400 received in 2003 is included in
contributed capital.
In April 2003, the Company entered into an agreement to sell the thyratron
driver manufacturing business to North Star High Voltage Corp. The purchase
price of $15,000 was to be paid in equal annual installments of $2,040 with the
first payment to be made before December 31, 2003. The agreement was deemed null
and void by both parties in 2004. The payment of $2,040 received in 2003 is
included in contributed capital.
In April 2003, the Company entered in to an agreement to supply materials and
labor for the production of high voltage probes and thyratron drivers for North
Star High Voltage, Corp. for a fee that includes the cost of materials and labor
plus an overhead charge, a general and administrative charge and a 10% fee. In
addition, the Company bills the entire sales amount to North Star High Voltage,
Corp. customers. North Star High Voltage, Corp. bears the credit risk by
guaranteeing payment to the Company of its fee. Upon collection of amounts due,
the Company remits the net difference between the sales price and its fee to
North Star High Voltage Corp. Amounts paid to North Star High Voltage Corp. were
$69,021 and $19,856 for the nine months ended September 30, 2004 and the year
ended December 31, 2003, respectively.
F-11
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 8. COMMITMENTS AND CONTINGENCIES
Contracts. Costs charged to U.S. Government contracts are subject to annual
audits by the Defense Contract Audit Agency. A final indirect rate proposal
based on actual costs for the year ended December 31, 2003, was submitted in
August 2004 by the Company and has not yet been approved as of the date of this
report. It is management's opinion that the results of the indirect rate
submission will not have any material effect on the Company's financial
position, results of operations and its cash flows.
Operating Leases. The Company conducts its operations in leased facilities on a
three-year lease which expired August 31, 2004. The existing agreement has since
been extended on a month-to-month basis.
On February 4, 2003, the Company entered into a 36-month operating lease for a
vehicle for $424 per month. The Company is responsible for taxes and other
operating expenses. The rental amounts of $3,816 and $4,664 for the nine months
ended September 2004 and the year ended December 31, 2003, respectively, are
included in selling, general and administrative expenses.
The minimum future rental payments under these operating leases for the years
ended September 30, are as follows:
2005 $ 5,088
2006 1,696
-----------
Total $ 6,784
===========
NOTE 9. LAWSUIT SETTLEMENT
In November 2002, the New Mexico Environment Department filed a lawsuit seeking
injunctive relief and assessing civil penalties resulting from an accident and
violations of the Radiation Protection Act. The violations occurred between
October 1999 and January 2000. On May 28, 2004 the parties entered into a
consent decree to settle the matter for the Company's payment of a civil penalty
of $135,000. The expense was accrued and reflected in the 2002 income statement.
The penalty was paid in 2004.
F-12
NORTH STAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 10. PATENTS, TRADEMARKS AND COPYRIGHTS
The Company, since its inception, has acquired various patents in relation to
its development and manufacturing processes. The cost of developing these
patents was expensed in the year incurred as project costs.
NOTE 11. SALE OF ASSETS AND LIABILITIES
On September 15, 2004, the Company sold substantially all of its assets to North
Star Research Acquisition Corp., a subsidiary of Ionatron, Inc. for $700,000
cash, $1.7 million in securities, and assumption of certain liabilities related
to the assets purchased. Revenue and expenses have been recorded through
September 30, 2004 for ease in preparing these financial statements. The
$700,000 cash paid to the Company is reported on the balance sheets as the
liability, "Advance on sale of assets." These financial statements are intended
to present the historical financial position and results of operations of North
Star Research Corporation prior to the sale of the Company to Ionatron, Inc. and
accordingly purchase accounting adjustments have not been applied in the
preparation of these financial statements.
On September 16, 2004, Ionatron, Inc. provided $200,000 in working capital cash
to fund operations through September 30, 2004. For purposes of these financial
statements, the cash received is reported on the balance sheets as the
liability, "Due to Ionatron, Inc."
NOTE 12. WARRANTY RESERVES
The Company maintains a warranty reserve for time and material charges incurred
subsequent to product delivery on products sold within the past year. The amount
of the reserve is re-evaluated throughout the year.
Warranty
Reserves
---------
Balance 12/31/02 $ 12,656
Product warranty accruals 179,560
Adjustments and time and materials costs
charged to warranty reserve (131,385)
---------
Balance 12/31/03 60,831
Product warranty accruals 34,924
Adjustments and time and materials costs
charged to warranty reserve (54,549)
---------
Balance 9/30/04 $ 41,206
=========
F-13
(b) Pro Forma Financial Information
Introduction:
CONDENSED PRO FORMA FINANCIAL INFORMATION FOR THE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2003 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 2004
The following unaudited Condensed Pro Forma Statements of Operations (the "Pro
Forma Financial Statements") are based on historical financial statements of the
Ionatron, Inc.(the "Company") and North Star Research Corporation ("North Star")
after giving effect to the Company's purchase of substantially all of the assets
of North Star and assumption of liabilities for warranty claims and other
accrued expenses.
The Pro Forma Financial Statements were prepared as if the transaction has
occurred as of January 1, 2003 for the Statements of Operations. The Pro Forma
Financial Statements are not necessarily indicative of the future results of
operations of the Company after the purchase of North Star's net assets, or of
the results of operations of the Company had the purchase of North Star's net
assets occurred on the dates indicted above or been in effect for the period
presented. The Consolidated Statement of Position as of September 30, 2004 was
included in the September 30, 2004 10-Q filing.
The Pro Forma Adjustments are based upon available information and upon certain
assumptions the Company believes are reasonable. The Pro Forma Financial
Statements and accompanying notes should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and other
financial information pertaining to the Company, and related notes thereto,
included in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 and historical financial statements and other financial
information pertaining to North Star included in this Form 8-K/A and in
previously filed Form 8-K.
PF-1
Ionatron, Inc. and North Star Research Corporation
Pro Forma Consolidated Financial Statements
Statement of Operations for the year ended December 31, 2003
(Unaudited)
Research Corp.
Ionatron, Inc. North Star Pro Forma
A A Adjustments Pro Forma
------------ ------------ ------------ ------------
Revenues $ 383,273 $ 3,311,710 $ (49,107)B $ 3,645,876
Cost of revenue 356,822 2,711,814 (49,107)B 3,019,529
------------ ------------ ------------ ------------
Gross profit 26,451 599,896 -- 626,347
General and administrative 1,681,174 507,966 -- 2,189,140
Selling and marketing 239,847 -- -- 239,847
Research and development 1,151,350 -- -- 1,151,350
------------ ------------ ------------ ------------
Total operating expenses 3,072,371 507,966 -- 3,580,337
Operating income (loss) (3,045,920) 91,930 -- (2,953,990)
Other (expense) income
Miscellaneous income -- 27,153 -- 27,153
Interest (expense) income (196,189) 242 -- (195,947)
Amortization expense -- -- (86,200)D (86,200)
------------ ------------ ------------ ------------
Total other (196,189) 27,395 (86,200) (254,994)
Income before income
taxes (3,242,109) 119,325 (86,200) (3,208,984)
Income taxes -- (18,200) 18,200 C --
------------ ------------ ------------ ------------
Net loss $ (3,242,109) $ 101,125 $ (68,000) $ (3,208,984)
============ ============ ============ ============
Net loss per share -
basic and diluted $ (0.07) $ (0.07)
Weighted average number
of shares outstanding,
basic and diluted 48,452,249 199,063 E 48,651,312
Notes to Statement of Operations for the year ended December 31, 2003
A. Represents the historical results of operation for the year ended at
December 31, 2003.
B. To eliminate inter-company revenue and cost of revenue.
C. To eliminate tax provision.
D. To reflect the amortization of patent, contractual backlog and technical
know-how intangible assets.
E. To reflect the issuance of shares of common stock in the acquisition as of
January 1, 2003.
PF-2
Ionatron, Inc. and North Star Research Corporation
Pro Forma Consolidated Financial Statements
Statement of Operations for the nine months ended September 30, 2004
(Unaudited)
Research Corp.
Ionatron, Inc. North Star Pro Forma
A A Adjustments Pro Forma
------------ ------------ ------------ ------------
Revenues $ 4,734,996 $ 2,137,961 $ (216,664)B $ 6,656,293
Cost of revenue 4,422,996 1,568,510 (216,664)B 5,774,842
------------ ------------ ------------ ------------
Gross profit 312,000 569,451 -- 881,451
General and administrative 2,491,097 313,510 -- 2,804,607
Selling and marketing 344,897 -- -- 344,897
Research and development 512,793 -- -- 512,793
------------ ------------ ------------ ------------
Total operating expenses 3,348,787 313,510 -- 3,662,297
Operating income (loss) (3,036,787) 255,941 -- (2,780,846)
Other (expense) income
Miscellaneous income -- 7,061 -- 7,061
Interest (expense) income (129,366) 54 -- (129,312)
Amortization expense -- -- (36,900)D (36,900)
------------ ------------ ------------ ------------
Total other (129,366) 7,115 (36,900) (159,151)
Income before income Taxes (3,166,153) 263,056 (36,900) (2,939,997)
Income taxes -- (86,840) 86,840 C --
------------ ------------ ------------ ------------
Net loss $ (3,166,153) $ 176,216 $ 49,940 $ (2,939,997)
============ ============ ============ ============
Net loss per share -
basic and diluted $ (0.05) $ (0.05)
Weighted average number
of shares outstanding,
basic and diluted 63,383,784 188,892 E 63,572,676
Notes to Statement of Operations for the nine months ended September 30, 2004
A. Represents the historical results of operation for the nine months ended
September 30, 2004.
B. To eliminate inter-company revenue and cost of revenue.
C. To eliminate tax provision.
D. To reflect the amortization of patent and technical know-how intangible
assets.
E. To reflect the issuance of shares of common stock in the acquisition as of
January 1, 2003.
PF-3