<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-33129
[BARRINGER TECH LOGO]
2,000,000 SHARES
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being
offered by Barringer Technologies Inc. ("Barringer" or the "Company"). On March
30, 1998, the last sale price of the Common Stock as reported on the Nasdaq
National Market was $12 3/8 per share. See "Price Range of Common Stock." As of
the date of this Prospectus, the Common Stock is traded on the Nasdaq National
Market under the symbol "BARR."
----------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share.................................... $12.00 $0.72 $11.28
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Total(3)..................................... $24,000,000 $1,440,000 $22,560,000
============================================================================================================
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated offering expenses of $500,000, payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $27,600,000, $1,656,000 and $25,944,000,
respectively. See "Underwriting."
----------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about April 3, 1998.
BANCAMERICA ROBERTSON STEPHENS PACIFIC GROWTH EQUITIES, INC.
The date of this Prospectus is March 30, 1998
<PAGE> 2
Graphic Description
Front Inside Cover
Photo 1 is a map of the world showing the number of IONSCANS installed on each
continent under the heading "BARRINGER IONSCAN(R) THE WORLD LEADER IN
TRACE DETECTION*"
Photo 2 is a photograph of an operator in training utilizing the Company's
CD-ROM training software. The caption reads as follows: "To enhance the
efficiency of IONSCAN(R) use, Barringer has developed a computer-based
multimedia training package for operators. This CD-ROM software
provides training for operators in the key elements of trace detection
methods and IONSCAN(R) functions.
Photo 3 is a photograph of an airport security agent inspecting passenger
luggage with an IONSCAN(R). The caption reads as follows: "The
IONSCAN(R) Model 400 provides drug and explosive detection capability.
In order to enhance passenger safety and security, a guard examines a
carry-on item for traces of explosives at an airport screening station."
<PAGE> 3
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING (THE "OFFERING") OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Forward-Looking Statements.................................. 6
Risk Factors................................................ 6
Use of Proceeds............................................. 13
Price Range of Common Stock................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Selected Consolidated Financial Data........................ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Business.................................................... 23
Management.................................................. 33
Certain Transactions........................................ 40
Principal Stockholders...................................... 42
Description of Capital Stock................................ 45
Shares Eligible for Future Sale............................. 49
Underwriting................................................ 50
Legal Matters............................................... 52
Experts..................................................... 52
Additional Information...................................... 52
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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"IONSCAN(R)" is a registered trademark and "GAMMATRACE(TM)" is a trademark
of the Company.
The Company was founded in September 1967. The Company's headquarters are
located at 219 South Street, Murray Hill, New Jersey 07974 and its telephone
number is (908) 665-8200.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its independent
certified public accountants and intends to make available to such stockholders
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year.
----------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
THE PRICE OF THE COMPANY'S COMMON STOCK PURCHASE WARRANTS ("WARRANTS"),
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK OR THE WARRANTS ON THE NASDAQ STOCK
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus, including the information under "Risk
Factors."
THE COMPANY
Barringer Technologies Inc. ("Barringer" or the "Company") is the world's
leading manufacturer (based on units sold) of high sensitivity equipment used
for detecting and identifying trace amounts of plastic and other explosives and
illegal drugs. The Company designs and produces products that employ a
proprietary application of ion mobility spectrometry ("IMS") technology that can
detect and identify targeted compounds in amounts smaller than one-billionth of
a gram in approximately six seconds. The Company's objective is to leverage its
position as the world's leading provider of trace detection systems in its core
markets and to become a leading supplier of other advanced technology security
solutions. The Company intends to achieve this objective by further penetrating
its existing markets, leveraging its IMS technology for new applications,
pursuing strategic relationships and acquisitions and expanding its sales and
marketing capabilities.
The Company's current principal product, the IONSCAN(R), is a portable
desktop system used in explosives detection and drug interdiction applications.
As of December 31, 1997, the Company had sold over 700 units (including 335
during 1997) in 39 countries. The Company's revenues have grown from $2.8
million for the year ended December 31, 1992 to $22.7 million for the year ended
December 31, 1997, representing a compounded annual growth rate of 51.8% over
the last five years.
The markets for the Company's IONSCAN(R) currently include aviation
security, other transport security, facilities protection, forensics, military,
corrections, customs and law enforcement. The Company's customers include the
Federal Aviation Administration (the "FAA"), the U.S. Air Force, the U.S. Coast
Guard, the U.S. Drug Enforcement Agency (the "DEA") and the Federal Bureau of
Investigation (the "FBI"), as well as customs agencies in France, Canada,
Australia and Japan and various prison facilities in the U.S. and elsewhere. The
IONSCAN(R) is also installed at over 40 airports and transportation centers in
countries throughout the world, including Gatwick Airport and Heathrow Airport
in the United Kingdom, John F. Kennedy International Airport and Chicago O'Hare
International Airport in the United States and Kuala Lumpur Airport in Malaysia,
as well as the Eurotunnel. The Company believes that its principal competitive
advantages are the detection capability, reliability, versatility, cost
effectiveness, ease of use and portability of the IONSCAN(R). These advantages
enable the IONSCAN(R) to be used both in lieu of and in conjunction with bulk
imaging technologies, such as enhanced x-ray and computer aided tomography
("CATSCAN").
The Company believes that many of the markets it serves are experiencing
substantial growth, principally in reaction to heightened safety concerns caused
by the threat of terrorism and growing public awareness of drug-related criminal
activity. The Company believes that the deployment of advanced detection
equipment, such as the IONSCAN(R), will continue to increase as the acceptance
of using such equipment to combat these concerns increases. In January 1998, the
Company received a $5.4 million order from the FAA as part of the FAA's publicly
announced intention to further deploy advanced detection technology at the
nation's larger airports. In addition, during 1997, the Company sold a number of
IONSCAN(R)s to the U.S. Air Force for use in securing certain U.S. Air Force
bases in the U.S. and abroad. Also in 1997, the Company sold $2.5 million of
IONSCAN(R)s to a correctional agency to assist in stemming the flow of illegal
drugs to inmates.
The Company markets its products through a direct sales organization
comprised of 18 sales people located at its headquarters in New Jersey and at
offices in Toronto, London, Paris and Kuala Lumpur. In addition, the Company
utilizes a network of 45 independent sales and service representatives located
in Europe, the Middle East, Africa, Asia, South America and Australia.
4
<PAGE> 5
THE OFFERING
Common Stock Offered..................... 2,000,000 shares
Common Stock to be Outstanding after the
Offering................................. 7,509,854 shares
Use of Proceeds.......................... To increase sales, marketing and
customer support capabilities; to
expand facilities; to pursue
possible acquisitions of, or
investments in, complementary
businesses, products or
technologies; and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol............ BARR
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
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YEAR ENDED DECEMBER 31,
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1993 1994 1995 1996 1997
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenues........................................ $7,770 $ 5,514 $ 6,374 $10,923 $22,689
Gross profit.................................... 3,840 1,414 2,773 5,560 13,681
Operating income (loss)......................... 541 (2,469) (886) 1,596 4,995
Income tax (provision) benefit.................. 153 (75) -- 391 371
Income (loss) from continuing operations........ 593 (2,633) (1,178) 2,059 5,754
Net income (loss)............................... 595 (2,565) (827) 2,059 5,754
Preferred stock dividends....................... (114) (108) (82) (39) (12)
Net income (loss) attributable to common
stockholders................................. 481 (2,673) (909) 2,020 5,742
Income (loss) per common share from continuing
operations (diluted)......................... $ 0.20 $ (0.97) $ (0.39) $ 0.46 $ 0.92
Net income (loss) per common share (diluted).... $ 0.20 $ (0.95) $ (0.28) $ 0.46 $ 0.92
Weighted average common shares outstanding
(diluted).................................... 2,570 2,827 3,283 4,440 6,257
</TABLE>
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DECEMBER 31, 1997
---------------------------
ACTUAL AS ADJUSTED(2)
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(Unaudited)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $19,664 $41,724
Current assets................................ 24,037 46,097
Total assets.................................. 25,608 47,668
Current liabilities........................... 4,373 4,373
Long-term liabilities......................... 121 121
Stockholders' equity.......................... 21,114 43,174
</TABLE>
- ----------------------
(1) Amounts for all periods ending prior to December 31, 1995 reflect Barringer
Laboratories Inc. ("Labco") as a discontinued operation. The Company sold a
portion of its equity interest in Labco in 1995 and the remainder of its
interest in 1996. See "Certain Transactions--Sale of Subsidiary."
(2) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered hereby and the application of the net proceeds therefrom. See
"Capitalization."
Unless otherwise indicated, all information herein has been adjusted to
give effect to the one-for-four reverse split of the Common Stock effected on
September 25, 1995 and assumes (i) no exercise of the Underwriters'
over-allotment option, and (ii) no exercise or conversion of outstanding
options, warrants and convertible securities which, as of February 1, 1998, were
exercisable for or convertible into an aggregate of 1,594,936 shares of Common
Stock.
5
<PAGE> 6
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Such statements include, but are not
limited to, the anticipated growth in the demand for the Company's products, the
Company's opportunities to increase sales through, among other things, the
development of new applications of and markets for the IONSCAN(R) technology,
the development and marketability of new products, the probability of the
Company's success in the sale of its products in current or future markets, the
potential effect of government regulations and directives changing security
requirements, the ability of the IONSCAN(R) to satisfy any certification
protocol adopted by the FAA or any other government agency, the amount and
timing of domestic and foreign government appropriations for the development and
deployment of advanced detection technology, the Company's liquidity and capital
requirements, the financial impact of possible acquisitions and the Company's
anticipated use of proceeds.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements contained herein. Important factors that could
contribute to such differences are set forth below under "Risk Factors,"
including, but not limited to, "Dependence on Government Procurement Policies,"
"Dependence on Large Orders; Customer Concentrations," "Dependence on IONSCAN(R)
and Market Acceptance," "Dependence on New Product Development; Technological
Advancement," "Limited Proprietary Technology," "Fluctuations in Operating
Results," "Competition," "Lengthy Sales Cycle," "International Business; Risk of
Change in Foreign Regulations; Fluctuations in Exchange Rates," "Dependence on
Limited Number of Suppliers," "Ability to Manage Rapid Growth" and "Risks
Associated with Acquisition Strategy."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information contained in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company, its business
and an investment in the Common Stock offered hereby.
DEPENDENCE ON GOVERNMENT PROCUREMENT POLICIES
The Company's business is dependent upon purchases of IONSCAN(R)s by
government agencies. Budgetary allocations for detection equipment are
dependent, in part, upon government policies that fluctuate from time to time in
response to political and other factors, including the public's perception of
the threat of airline bombings and other terrorist acts. The Company expects
that a substantial portion of current and anticipated purchases of advanced
detection equipment will continue to be made by government agencies with
appropriated funds. For instance, sales to the FAA constituted approximately
14.8% of the Company's revenues for the fiscal year ended December 31, 1997.
A reduction of funding for security efforts or drug interdiction could
materially and adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that funding for the purchase
of such equipment will be continued or as to the level of such funding. A
substantial amount of the funds appropriated to date have been and amounts
appropriated in the future will continue to be used to purchase equipment
utilizing other technologies, such as enhanced x-ray, CATSCAN and other bulk
imaging technologies. Accordingly, there can be no assurance as to the amount
that will ultimately be spent on the purchase of trace particle detection
equipment or as to the number of IONSCAN(R)s that will actually be purchased. In
addition, there can be no assurance that the Company's products will meet any
certification or other requirements that may be adopted by any government
agencies. See "Business--Government Regulation."
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATIONS
In any given fiscal year, the Company's revenues have principally
consisted, and the Company believes will continue to consist, of large orders
for multiple IONSCAN(R)s from a limited number of
6
<PAGE> 7
customers. While the number and identity of the Company's customers may vary
from period to period, the Company is nevertheless dependent upon these multiple
orders for a substantial portion of its revenues. There can be no assurance that
the Company will obtain such multiple orders on a consistent basis. During the
year ended December 31, 1997, approximately $8.3 million, or 36.7%, of the
Company's revenues were generated from sales to the Company's three largest
customers. During the year ended December 31, 1996, revenues from the Company's
three largest customers were approximately $2.8 million, or 25.5%, of the
Company's revenues. A significant portion of the Company's anticipated future
revenues are expected to result from orders from the FAA. The Company's
inability to obtain sufficient multiple orders or to expand its customer base
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON IONSCAN(R) AND MARKET ACCEPTANCE
The Company derives substantially all of its revenues from the sale of
IONSCAN(R)s. There can be no assurance that markets for the IONSCAN(R) or the
Company's other current or future products will develop as the Company expects
or that the Company will be able to capitalize on such market development.
Similarly, there can be no assurance that any markets that do develop will be
sustained. See "Business--Sales and Marketing."
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; TECHNOLOGICAL ADVANCEMENT
The Company's success is dependent upon its ability to continue to enhance
the IONSCAN(R) and to develop or acquire new products and technologies that
incorporate technological advances, keep pace with evolving industry standards
and respond to changing customer requirements. If the Company is unable to
develop and introduce new products or enhancements in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, financial condition and results of operations would be materially and
adversely affected. See "Business--Sales and Marketing" and "--Product
Development."
In addition, from time to time the Company or its present or potential
competitors may introduce new products, capabilities or technologies that have
the potential to replace, shorten the life spans of, or render obsolete the
Company's existing products. There can be no assurance that the Company will be
successful in convincing potential customers that the IONSCAN(R) is superior to
such other systems or products, that new systems with comparable or greater
performance, lower prices and faster or equivalent throughput will not be
introduced, or that, if such products are introduced, customers will not delay
or cancel existing or future orders for the IONSCAN(R). Announcements of
currently planned or other new products may cause customers to delay their
purchasing decisions in anticipation of such products, as occurred in late 1994
when the Company introduced the Model 400 IONSCAN(R). See
"Business--Competition." Such delays could have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED PROPRIETARY TECHNOLOGY
Certain of the technology used in the IONSCAN(R) is licensed by the Company
from the Canadian government pursuant to a license agreement that expires in
March 1999, subject to the Company's right to extend on a year-to-year basis
through March 2009. While the Company holds patents relating to certain
components, systems and techniques used in the IONSCAN(R) and while certain
other elements of the IONSCAN(R) are protected by other intellectual property
rights, the Company has no comprehensive patent or similar exclusive
intellectual property right covering the IONSCAN(R) in its entirety. In
addition, the basic IMS technology used by the Company is not proprietary and is
available in the public domain. Accordingly, present and potential competitors
could use such basic technology to duplicate the performance of the IONSCAN(R).
See "Business--Competition" and "--Patents, Trademarks and Proprietary Rights."
7
<PAGE> 8
FLUCTUATIONS IN OPERATING RESULTS
The Company's past operating results have been, and its future operating
results will be, subject to fluctuations resulting from a number of factors,
including: the timing and size of orders from, and shipments to, major
customers; budgeting and purchasing cycles of its customers; delays in product
shipments caused by customer requirements or the inability of customers to
accept shipments; the timing of enhancements to the IONSCAN(R) by the Company or
new products introduced by the Company or its competitors; changes in pricing
policies by the Company, its competitors or suppliers, including possible
decreases in average selling prices of the IONSCAN(R) in response to competitive
pressures; the proportion of revenues derived from competitive bid processes;
the mix between sales to domestic and international customers; market acceptance
of enhanced versions of the IONSCAN(R); the availability and cost of key
components; the availability of manufacturing capacity; and fluctuations in
general economic conditions. The Company also may choose to reduce prices or to
increase spending in response to competition or to pursue new market
opportunities, and may incur significant charges or expenses in connection with
acquisitions and strategic relationships, all of which may have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's revenues in any period are substantially derived from
sales of IONSCAN(R)s to a limited number of customers and such revenues are
recognized upon shipment. As a result, variations in the number of orders or the
timing of shipments may cause the Company's quarterly and annual operating
results to vary substantially. See "--Dependence on Large Orders; Customer
Concentrations" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Quarterly Results of Operations."
Moreover, government agencies and certain other customers expend unused
budgeted funds at the end of their respective fiscal years, causing the
Company's sales to be higher during such periods. Because the Company generally
recognizes substantially all of the revenue from a sale upon shipment, and
because the recognition of revenue from the sale of relatively few IONSCAN(R)s
may substantially impact the Company's profitability during any period, the
impact of these budgetary considerations on the delivery date of a relatively
few units could significantly affect the Company's quarterly results and the
predictability of such quarterly results.
COMPETITION
The Company competes with other entities, including Intelligent Detection
Systems Inc., Ion Track Instruments Inc. and Thermedics Detection Inc., a number
of which have significantly greater financial, marketing and other resources
than the Company. Principal competitive factors include selectivity (the ability
of an instrument to identify the presence of a particular substance),
sensitivity (the ability of an instrument to detect small amounts of a
particular substance), false alarm rate, price, marketing, ease of use and speed
of analysis. There can be no assurance that the Company will be able to continue
to compete successfully with its competitors or be able to compete with new
market entrants or in new markets that may develop.
The Company competes for government expenditures with equipment
manufacturers, such as InVision Technologies, Inc. and Vivid Technologies, Inc.,
utilizing other types of detection technologies, including enhanced x-ray,
CATSCAN and other bulk imaging technologies, as well as with manufacturers of
other IMS equipment and manufacturers using other trace particle detection
technologies, such as gas chromatography and chemiluminescence.
The Company also competes with the use of canines to locate the presence of
explosives or drugs.
As a result of recent government initiatives, the Company anticipates that
additional technologies, including improved IMS technologies, will be developed
and that new competitors will enter the Company's markets. The failure of the
Company to develop improvements or otherwise successfully compete in its markets
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Dependence on Government Procurement
Policies" and "Business--Competition" and "--Product Development."
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<PAGE> 9
LENGTHY SALES CYCLE
The Company's sales process is often protracted due to the lengthy approval
processes that typically accompany government expenditures. Typically, six to 12
months may elapse between a new customer's initial evaluation of the IONSCAN(R)
and the placement of an order. See "--Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Quarterly Results of Operations" and
"Business--Sales and Marketing."
INTERNATIONAL BUSINESS; RISK OF CHANGE IN FOREIGN REGULATIONS; FLUCTUATIONS IN
EXCHANGE RATES
The Company markets its products to customers outside of the U.S. and,
accordingly, is exposed to the risks of international business operations,
including unexpected changes in foreign and domestic regulatory requirements,
possible foreign currency controls, uncertain ability to protect and utilize its
intellectual property in foreign jurisdictions, currency exchange rate
fluctuations or devaluations, tariffs or other barriers, difficulties in
staffing and managing foreign operations, difficulties in obtaining and managing
vendors and distributors and potentially negative tax consequences.
International sales are subject to certain inherent risks including embargoes
and other trade barriers, staffing and operating foreign sales and service
operations and collecting accounts receivable. The Company is also subject to
risks associated with regulations relating to the import and export of high
technology products. The Company cannot predict whether, or to what extent,
quotas, duties, taxes or other charges or restrictions upon the importation or
exportation of the Company's products in the future will be implemented by the
U.S. or any other country. There can be no assurance that any of these factors
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
A portion of the Company's revenues and expenses are denominated in foreign
currencies. Fluctuations in currency exchange rates could adversely affect the
Company's profitability and could cause the Company's products to become
relatively more expensive to customers in a particular country, leading to fewer
sales or reduced selling prices in that country. As a result, the Company is
exposed to a certain degree of exchange rate risk. The Company generally does
not hedge its foreign exchange exposure. There can be no assurance that the
Company will not experience material losses in the future as a result of
currency fluctuations or that any such losses will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS
Certain key components used in the Company's products have been designed by
the Company, are manufactured pursuant to the Company's specifications and are
currently purchased from only one or a limited number of suppliers. The Company
currently does not have long-term agreements with these suppliers. Moreover, in
view of the high cost of many of these components, the Company does not maintain
significant inventories of some necessary components. Recently, the Company has
significantly increased its purchases of certain components to meet expected
demand for the IONSCAN(R). As a result, in certain circumstances, the Company
has had to enter into new supply relationships in order to satisfy its increased
demand for components and may be required to do so in the future. If the
Company's suppliers were to experience financial, operational, production or
quality assurance difficulties, the supply of components to the Company would be
reduced or interrupted. In the event that a supplier were to cease operations,
discontinue production of a component or withhold supply for any reason, the
Company might be unable to acquire certain components from alternative sources,
to find alternative third-party manufacturers or sub-assemblers, or to obtain
sufficient quantities of certain components, which could result in delays or
interruptions in product shipments, and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Manufacturing and Assembly."
9
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ABILITY TO MANAGE RAPID GROWTH
The Company has rapidly expanded its business operations as a result of
increased demand for the IONSCAN(R), which has placed significant demands on the
Company's manufacturing, management and working capital resources and operating,
management and financial control systems. Failure to maintain needed resources
or to enhance the Company's operating, management and financial control systems
as and when necessary, or difficulties encountered during such enhancements,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's future growth also will
depend on its ability to continue to improve and expand its engineering and
technical resources and to attract, retain and motivate key personnel. The
failure of the Company to increase its revenues sufficiently to compensate for
increased expenses resulting from current or future expansion, or the Company's
failure to otherwise adequately manage the growth of its business, would have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, there can be no assurance that the Company can
sustain its recent rapid growth.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
An element of the Company's strategy is to review acquisition prospects
that would complement the Company's existing product offerings, augment its
market coverage, enhance its technological capabilities or otherwise offer
growth opportunities. Although the Company has no present understandings,
commitments or agreements with respect to any material acquisition of any
business, products or technologies, the Company may make such acquisitions in
the future. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization expenses relating to goodwill and other intangible
assets, and the incurrence of significant charges or expenses relating to any
acquired business, any of which could materially and adversely affect the
Company's business, financial condition and results of operations. Acquisitions
entail numerous risks, including difficulties in the assimilation of acquired
businesses, products and technologies, diversion of management's attention from
other business concerns, risks of entering markets in which the Company has no
or limited prior experience and potential loss of key employees of acquired
organizations. The Company's management has limited experience in assimilating
acquired organizations. No assurance can be given as to the ability of the
Company to integrate successfully any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Other Products."
RETENTION OF AND DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in part, on its ability to retain the
services of its key personnel, including management and scientific employees,
who are and will continue to be instrumental in the development and management
of the Company's business. Although the Company has entered into employment
agreements with its Chief Executive Officer and certain of its other senior
executives, the loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company.
WARRANTY CLAIMS
The Company generally provides a one-year parts and labor warranty on each
IONSCAN(R), although from time to time the Company has provided extended
warranties. Although the Company has not experienced significant warranty
claims, there can be no assurance that such claims will not increase as the
Company's sales and product offerings increase. Increased warranty claims could
have a material adverse effect on the Company's business, financial condition
and results of operations.
10
<PAGE> 11
POTENTIAL PRODUCT LIABILITY INSURANCE LIMITS
The Company currently maintains product liability insurance in the amount
of $10.0 million per occurrence. The Company's insurance policy covers certain
claims and the cost of legal fees involved in the defense of such claims, which
are either covered under the policy or alleged in such a manner so as to invoke
the insurer's duty to defend the Company. The Company believes that, as it
distributes more products into the marketplace and expands its product lines,
its exposure to potential product liability claims and litigation may increase.
There can be no assurance that the Company's current level of insurance will be
sufficient to protect the business and assets of the Company from all claims,
nor can any assurance be given that the Company will be able to maintain its
existing coverage or obtain additional coverage at commercially reasonable
rates. Product liability losses in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 7,509,854 shares of Common Stock will be
outstanding (7,809,854 shares, if the Underwriters' over-allotment option is
exercised in full). All of the shares offered hereby will be freely tradable
unless acquired by affiliates of the Company. The remaining 5,509,854 shares
that will be outstanding upon completion of this Offering are freely tradable,
subject to the lock-up described below. An additional 1,594,936 shares of Common
Stock are issuable upon the exercise or conversion of outstanding stock options,
warrants and convertible securities outstanding as of February 1, 1998,
1,438,686 of which have been registered for resale by the holders thereof and
are, therefore, freely tradable and the balance of which are subject to
registration rights pursuant to which the holders thereof can cause the Company
to effect the registration of such shares for resale.
The Company cannot predict the effect, if any, that sales of additional
shares of Common Stock or the availability of shares for future sale will have
on the market price of the Common Stock. Sales in the public market of
substantial amounts of Common Stock (including shares issued upon the exercise
or conversion of outstanding options, warrants and convertible securities), or
the perception that such sales might occur, could adversely affect prevailing
market prices for the Common Stock. Such sales also may make it more difficult
for the Company to sell equity securities or equity related securities in the
future at a time and price that the Company deems appropriate. The holders of an
aggregate of 709,621 shares of Common Stock (including 534,550 shares issuable
upon the exercise or conversion of outstanding options, warrants and convertible
securities), have agreed with the Underwriters not to offer or sell, directly or
indirectly, or otherwise reduce their risk in, any securities of the Company for
a period of 90 days after the date of this Prospectus, subject to certain
exceptions, without the prior written consent of BancAmerica Robertson Stephens.
See "Shares Eligible For Future Sale."
UNALLOCATED PROCEEDS OF OFFERING
A significant portion of the estimated net proceeds of this Offering has
not been designated for specific uses. Accordingly, management of the Company
will have broad discretion with respect to the use of these funds. See "Use of
Proceeds."
VOLATILITY OF COMMON STOCK PRICE
Prior to this Offering, there have been significant fluctuations in the
trading price of the Common Stock. No assurance can be given that such
volatility will not continue following the completion of this Offering. See
"Price Range of Common Stock."
CERTAIN CHARTER PROVISIONS
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), contains provisions which require the favorable vote of the
holders of not less than 80.0% of the outstanding shares of Common Stock for the
approval of any merger, consolidation or other
11
<PAGE> 12
combination with, or sale, lease or exchange of all or substantially all of the
assets of the Company to, another entity holding more than 10.0% of the
Company's outstanding voting equity securities or any affiliate of such entity.
These provisions could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
The Board of Directors of the Company is empowered to issue shares of
preferred stock without stockholder action. The existence of this "blank check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise and may adversely affect the prevailing market price of the Common
Stock. The Company currently has no plans to issue additional shares of
preferred stock. In addition, Section 203 of the Delaware General Corporation
Law restricts certain persons from engaging in business combinations with the
Company. See "Description of Capital Stock."
12
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby (2,300,000 if the Underwriters' over-allotment
option is exercised in full) will be $22.1 million ($25.4 million if the
Underwriters' over-allotment option is exercised in full). The Company expects
to use the net proceeds to increase its sales, marketing and customer support
capabilities, to expand its facilities, to pursue possible acquisitions of, or
investments in, complementary businesses, products or technologies and for
general corporate purposes. From time to time, the Company evaluates potential
acquisitions of such businesses, products or technologies in the ordinary course
of business. The Company has no present understandings, commitments or
agreements with respect to any material acquisitions of, or investments in, any
such businesses, products or technologies. See "Risk Factors--Risks Associated
with Acquisition Strategy", "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "Business--Other Products."
Pending the foregoing uses, the Company intends to invest the net proceeds
to the Company from this Offering in short-term, interest bearing,
investment-grade securities.
PRICE RANGE OF COMMON STOCK
Since November 12, 1996, the Common Stock has been included in the Nasdaq
National Market under the symbol "BARR." Prior to that, the Common Stock was
quoted in the Nasdaq SmallCap Market under the same symbol. The following table
sets forth, for the periods indicated, the high and low bid quotations for the
Common Stock as reported on the Nasdaq National Market or the Nasdaq SmallCap
Market, as applicable. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
Fiscal 1996
First quarter.......................................... $ 9/16 $ 5/16
Second quarter......................................... 4 3/16 7/16
Third quarter.......................................... 13 7/8 2 7/8
Fourth quarter......................................... 10 5/8 6 5/8
Fiscal 1997
First quarter.......................................... $10 3/4 $ 8 1/8
Second quarter......................................... 15 9 3/8
Third quarter.......................................... 16 10 3/8
Fourth quarter......................................... 14 3/8 8 3/4
Fiscal 1998
First quarter (through March 30, 1998)................. $15 1/4 $11 5/8
</TABLE>
On March 30, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $12 3/8 per share. As of February 1, 1998, the
Company had approximately 1,000 stockholders of record.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Board of Directors currently intends to retain future earnings to support
its growth strategy and does not anticipate paying dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Board of Directors after taking into account various factors, including the
Company's financial condition, results of operations, current and anticipated
cash needs and plans for expansion. The Company is prohibited from paying cash
dividends on the Common Stock unless full cumulative dividends have been paid or
set aside for payment on its Class A Convertible Preferred Stock and Class B
Convertible Preferred Stock at an annual rate of $0.16 per share, which
dividends, at the option of the Company, are payable in cash or shares of Common
Stock. See "Description of Capital Stock."
13
<PAGE> 14
CAPITALIZATION
The following table sets forth, as of December 31, 1997, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the sale of the 2,000,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Stockholders' equity:
Convertible Preferred Stock, $1.25 par value; 1,000,000
shares authorized; none outstanding..................... $ -- $ --
Preferred Stock, $2.00 par value; 4,000,000 shares
authorized: 270,000 shares designated Class A
Convertible Preferred Stock; 45,146 shares outstanding
less discount of $35,000................................ 55,000 55,000
730,000 shares designated as Class B Convertible
Preferred Stock;
22,500 shares outstanding............................... 45,000 45,000
Common Stock, $0.01 par value; 20,000,000 shares
authorized; 5,495,354 shares issued and outstanding,
actual; 7,495,354 shares issued and outstanding, as
adjusted(1)............................................. 55,000 75,000
Additional paid-in-capital................................ 30,209,000 52,249,000
Accumulated deficit....................................... (8,780,000) (8,780,000)
Foreign currency translation.............................. (457,000) (457,000)
Less: Common Stock in treasury at cost, 31,000 shares..... (13,000) (13,000)
------------ ------------
Total stockholders' equity.............................. 21,114,000 43,174,000
------------ ------------
Total capitalization.................................. $ 21,114,000 $ 43,174,000
============ ============
</TABLE>
- ----------------------
(1) Excludes 1,609,436 shares of Common Stock issuable upon exercise or
conversion of options, warrants and convertible securities outstanding as of
December 31, 1997.
14
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth for the periods and at the dates indicated
certain financial data that should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein. The statements of operations data for the years ended December 31, 1995,
1996 and 1997 and the balance sheet data at December 31, 1996 and 1997 are
derived from the consolidated financial statements of the Company that have been
audited by BDO Seidman, LLP, independent certified public accountants, and are
included elsewhere in this Prospectus. The statements of operations data for the
years ended December 31, 1993 and 1994 and the balance sheet data at December
31, 1993, 1994 and 1995 are derived from audited consolidated financial
statements of the Company not otherwise contained herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenues.......................................... $7,770 $ 5,514 $ 6,374 $10,923 $22,689
Cost of revenues.................................. 3,930 4,100 3,601 5,363 9,008
------ ------- ------- ------- -------
Gross profit.................................... 3,840 1,414 2,773 5,560 13,681
------ ------- ------- ------- -------
Operating expenses:
Selling, general and administrative............. 3,117 3,352 3,305 3,734 7,971
Product development............................. 182 531 354 230 715
------ ------- ------- ------- -------
Total operating expenses...................... 3,299 3,883 3,659 3,964 8,686
------ ------- ------- ------- -------
Operating income (loss)........................... 541 (2,469) (886) 1,596 4,995
Other (expense) income, net....................... (101) (89) (292) 72 388
Income tax (provision) benefit.................... 153 (75) -- 391 371
------ ------- ------- ------- -------
Income (loss) from continuing operations.......... 593 (2,633) (1,178) 2,059 5,754
Income from operation held for sale............... 2 68 351 -- --
------ ------- ------- ------- -------
Net income (loss)................................. 595 (2,565) (827) 2,059 5,754
Preferred stock dividends......................... (114) (108) (82) (39) (12)
------ ------- ------- ------- -------
Net income (loss) attributable to common
stockholders.................................... $ 481 $(2,673) $ (909) $ 2,020 $ 5,742
====== ======= ======= ======= =======
Income (loss) per common share from continuing
operations (diluted).............................. $ 0.20 $ (0.97) $ (0.39) $ 0.46 $ 0.92
====== ======= ======= ======= =======
Net income (loss) per common share:
Basic........................................... $ 0.20 $ (0.95) $ (0.28) $ 0.55 $ 1.05
====== ======= ======= ======= =======
Diluted......................................... $ 0.20 $ (0.95) $ (0.28) $ 0.46 $ 0.92
====== ======= ======= ======= =======
Weighted average common shares outstanding:
Basic........................................... 2,570 2,827 3,283 3,695 5,456
Diluted......................................... 2,570 2,827 3,283 4,440 6,257
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Working capital..................................... $2,912 $ 652 $ 370 $14,271 $19,664
Current assets...................................... 7,000 5,067 3,672 16,624 24,037
Total assets........................................ 8,939 6,792 4,735 17,323 25,608
Current liabilities................................. 4,088 4,415 3,302 2,353 4,373
Long-term liabilities............................... 581 451 108 117 121
Stockholders' equity................................ 3,646 1,186 1,325 14,853 21,114
</TABLE>
- ----------------------
(1) Amounts for all periods ending prior to December 31, 1995 reflect Labco as a
discontinued operation. The Company sold a portion of its equity interest in
Labco in 1995 and the remainder of its interest in 1996. See "Certain
Transactions--Sale of Subsidiary."
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Barringer is the world's leading manufacturer (based on units sold) of high
sensitivity equipment used for detecting and identifying trace amounts of
plastic and other explosives and illegal drugs. The markets for the Company's
IONSCAN(R) currently include aviation security, other transport security,
facilities protection, forensics, military, corrections, customs and law
enforcement. The Company sold its first IONSCAN(R) in 1990 and, as of December
31, 1997, had sold over 700 units (including 335 during 1997). From 1991 to
1995, the Company incurred losses as its business continued to develop, except
during 1993 when the Company received a significant order for IONSCAN(R)s for
deployment at the Eurotunnel. In 1996, the Company achieved profitability
principally as a result of increased demand for and favorable market acceptance
of the IONSCAN(R). Prior to 1996, the Company sold most of its IONSCAN(R)s for
use in drug interdiction applications. However, in 1996, the Company's unit
sales were more evenly distributed between explosives detection and drug
interdiction applications. During the year ended December 31, 1997,
approximately 55.0% of the Company's unit sales were for explosives detection
applications primarily in the aviation security market. Approximately 14.8% of
the Company's 1997 revenues represented sales to the FAA. Management expects
that the aviation security market will continue to account for a substantial
portion of the Company's future revenues.
Revenues consist of (i) sales of IONSCAN(R)s, related accessories and
consumable supplies, maintenance, training, and billable repairs, (ii) sales of
other instruments and (iii) funded product development grants and contracts. For
the years ended December 31, 1997 and 1996, approximately 96.0% and 86.1%,
respectively, of the Company's consolidated revenues were derived from the sale
of IONSCAN(R)s and related revenues. Selling prices for the IONSCAN(R) typically
range from $50,000 to $80,000 per unit, depending principally on the
configuration of the unit and the purchaser's location. Profitability associated
with any given sale, and the Company's gross margin for any given quarter, may
vary substantially due to unit configuration, the geographic location of the
purchaser and whether sales prices include a distributor mark-up. The Company
recognizes revenues from the sale of IONSCAN(R)s upon shipment. Accordingly,
changes in delivery dates for relatively few IONSCAN(R)s from one quarter to
another may have a significant impact on the Company's quarterly results of
operations. See "Risk Factors--Dependence on Large Orders; Customer
Concentrations" and "--Fluctuations in Operating Results."
Substantially all of the Company's revenues are denominated in U.S.
dollars. However, the Company operates in several foreign countries, including
Canada, the United Kingdom, France and Malaysia and, in those instances, the
Company recognizes revenues and incurs expenses denominated in the local
currency. To date, the Company has not experienced significant losses as a
result of foreign currency fluctuations. The Company generally does not hedge
its foreign currency exposure. In addition, approximately 34.3% and 68.6% of the
Company's total revenues for the years ended December 31, 1997 and 1996,
respectively, were derived from non-U.S. sources. See "Risk
Factors--International Business; Risk of Change in Foreign Regulations;
Fluctuations in Exchange Rates."
The Company manufactures to a sales forecast in order to have inventory
available to meet anticipated demand promptly and historically has not
maintained a backlog of orders. However, depending on the size and timing of
customer orders, the Company may, from time to time, have a backlog of orders.
Management's sales forecast is determined by an analysis of a number of factors,
including, among other things, the customer's need, the availability of budgeted
funds, the status of equipment demonstrations, the status of any required
approvals, the effects of competition and the complexity of the customer's
procurement process. See "Business--Backlog."
In March 1998, the Company entered into a merger agreement and certain
related agreements with DigiVision, Inc. ("DigiVision"), a San Diego-based
developer of video enhancement products, and certain of its shareholders
pursuant to which the Company intends to acquire all of the
16
<PAGE> 17
outstanding capital stock of DigiVision for an aggregate cash purchase price of
approximately $750,000. See "Business--Other Products." The acquisition of
DigiVision will not be material to the Company. Accordingly, no separate
financial statements of DigiVision and no pro forma financial information
relating to the proposed acquisition have been included in this Prospectus.
However, upon consummation of the acquisition, the Company may record a one-time
charge to write-off certain technology and in-process research and development
to be acquired from DigiVision. Although management of the Company cannot
currently estimate the amount of the charge, it is expected that such charge
could represent a substantial portion of the purchase price, including costs
related to the acquisition. The final allocation of the purchase price will be
subject to the completion of due diligence procedures, including appraisals and
valuation analyses, as necessary. The Company's proposed acquisition of
DigiVision is subject to a number of significant conditions precedent. The
Company expects to consummate the acquisition in the first half of 1998.
However, no assurance can be given that the acquisition will occur or as to the
timing thereof.
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items from the
Company's consolidated statements of operations expressed as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. 100.0% 100.0% 100.0%
Cost of revenues.......................................... 56.5 49.1 39.7
----- ----- -----
Gross profit........................................... 43.5 50.9 60.3
----- ----- -----
Operating expenses:
Selling, general and administrative.................... 51.9 34.2 35.1
Product development.................................... 5.5 2.1 3.2
----- ----- -----
Total operating expenses............................. 57.4 36.3 38.3
----- ----- -----
Operating income (loss)................................... (13.9) 14.6 22.0
Other (expense) income, net............................... (4.6) 0.7 1.7
Income tax benefit........................................ -- 3.6 1.7
----- ----- -----
Income (loss) from continuing operations.................. (18.5) 18.9 25.4
Income from operation held for sale....................... 5.5 -- --
----- ----- -----
Net income (loss)......................................... (13.0) 18.9 25.4
Preferred stock dividends................................. (1.3) (0.4) --*
----- ----- -----
Net income (loss) attributable to common stockholders..... (14.3)% 18.5% 25.4%
===== ===== =====
</TABLE>
- ---------------
* Less than 0.1%.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1997 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1996
Revenues. For the fiscal year ended December 31, 1997, revenues increased
by $11.8 million, or 108%, to $22.7 million from $10.9 million for the fiscal
year ended December 31, 1996. Sales of IONSCAN(R)s and related products
increased by $12.3 million, or 131%, due to an increase of 156% in the number of
units sold, offset in part by a decline in average unit selling price. The
increase in unit sales was due to significant IONSCAN(R) sales to drug detection
markets, primarily to law enforcement agencies, and to a lesser extent,
increased sales to the aviation security market, primarily to the FAA. The
decrease in average selling prices resulted primarily from an increase in the
number of IONSCAN(R)s sold to U.S. government agencies, which typically are at
lower unit prices than sales to other customers. Sales of specialty instruments
decreased by approximately $697,000, or 85.2%, in 1997 as compared to 1996,
principally due to the completion in 1996 of a heavy water analyzer contract. As
sales of its IONSCAN(R)s have increased, the Company has placed less emphasis on
marketing its
17
<PAGE> 18
specialty instruments and anticipates that revenues from sales of such
instruments will continue to be insignificant to the Company's overall results.
Revenues derived from funded research and development increased by approximately
$146,000, or 20.8%, in 1997 as compared to 1996. Funded research and development
revenues increased as a result of the award by the FAA in March 1997 of a
$700,000 contract to design an automated luggage explosives detection system
utilizing the Company's trace detection technology. The first phase of this
project, which involves a proof of concept, is expected to be completed during
1998. Because of the increasing sales of IONSCAN(R)s, the Company believes that
revenues from funded research and development activities will continue to be
insignificant to the Company's overall results of operations.
Gross Profit. For the fiscal year ended December 31, 1997, gross profit
increased by $8.1 million, or 146%, to $13.7 million from $5.6 million in 1996.
As a percentage of revenues, gross profit increased to 60.3% in the fiscal
period ended December 31, 1997 from 50.9% in 1996. The improvement was primarily
attributable to larger, more efficient production runs of the IONSCAN(R) and a
related reduction in cost of materials due to higher volume purchases, coupled
with higher margins on international sales, offset in part by lower margins on
sales to U.S. government agencies. In addition, the Company has been able to
reduce its cost of materials as a result of higher volume purchases.
Selling, General and Administrative. For the fiscal year ended December
31, 1997, selling, general and administrative expenses increased by
approximately $4.2 million, or 114%, to $7.9 million from $3.7 million in 1996.
As a percentage of revenues, selling, general and administrative expenses
increased to 35.1% in 1997 from 34.2% in 1996. Selling and marketing expenses
increased by approximately $2.5 million, of which $1.6 million was due to
increased sales commissions attributable to a larger percentage of sales
originating through independent sales agents and distributors. The remaining
increase was attributable to the addition of sales and service personnel and
related costs to handle increased business volume. General and administrative
expenses increased by $1.7 million primarily as a result of increased payroll
and related costs and increased professional and consulting costs.
Product Development. For the fiscal year ended December 31, 1997, product
development expenses increased by $485,000, or 211%, to $715,000 from $230,000
in 1996. As a percentage of revenues, product development expenses increased to
3.2% (6.9% when combined with funded research and development) for the fiscal
year ended December 31, 1997 from 2.1% (8.5% when combined with funded research
and development) in 1996 as a result of a higher level of internally funded new
product development activity. Management expects to incur increased product
development expenses in future periods in connection with the enhancement of
existing products and the development of new products and applications.
Operating Income. For the fiscal year ended December 31, 1997, operating
income increased by $3.4 million, or 213%, to $5.0 million from $1.6 million in
1996. As a percentage of revenues, operating income increased to 22.0% from
14.6% in 1996. The increase is due to the greater operating leverage on higher
levels of revenue.
Other Income and Expense. For the fiscal year ended December 31, 1997,
interest expense decreased by $219,000, or 96.1%, to $9,000 from $228,000 in
1996 as a result of the repayment of indebtedness out of the net proceeds of the
Company's November 1996 public offering. Investment income for the fiscal year
ended December 31, 1997 was $450,000 as compared to $72,000 in 1996, primarily
as a result of the investment of a portion of the net proceeds from the
Company's November 1996 public offering.
Income Taxes. For the fiscal year ended December 31, 1997, the Company had
a net tax benefit of $371,000, composed of foreign taxes of $404,000, offset by
a $775,000 net deferred tax benefit. Such deferred tax benefit was due in part
to a reduction in the deferred tax valuation allowance as a result of changes in
management's estimates of the utilization of U.S. tax loss carryforwards caused
primarily by improved operating results. Management anticipates that further
deferred tax benefits will be recognized in 1998.
18
<PAGE> 19
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1996 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1995
Revenues. Revenues for the fiscal year ended December 31, 1996 increased
by $4.5 million, or 71.4%, to $10.9 million from $6.4 million for the fiscal
year ended December 31, 1995. Net sales of the IONSCAN(R) and related products
increased by approximately $4.9 million, or 93.5%, due to an increase of 134% in
the number of units sold offset in part by a decline in average unit selling
price. The increase in unit sales was due to increased sales of the Model 400
which was introduced in the first quarter of 1995. The decrease in average
selling prices resulted from increased sales of the Model 400 which had a lower
average selling price than the Model 350. Net sales of other instruments
increased by approximately $223,000, or 41.6%, in 1996 as compared to 1995,
principally due to work performed on a heavy water analyzer contract, which was
awarded to the Company in mid-1995 and completed in the first half of 1996. In
addition, net sales benefited from the sale of several other instruments. The
markets for heavy water analyzers and other instruments are limited, and
therefore management cannot predict whether the Company will receive any future
orders. Revenues derived from funded research and development decreased by
approximately $349,000, or 33.2%, in 1996 as compared to 1995. The reduced
revenues were attributable to the Company's contract with the Emergencies
Science Division, Environment Canada to design and build an airborne laser
fluorosensor system, a substantial portion of which was completed in 1995.
Gross Profit. Gross profit increased by $2.8 million, or 101%, to $5.6
million from $2.8 million for fiscal 1995. As a percentage of revenues, gross
profit increased to 50.9% from 43.5%. The improvement was primarily attributable
to higher margins on international sales, coupled with larger, more efficient
production runs of the IONSCAN(R) and related products. The sale at higher than
expected prices of several Model 350 units during the first six months of 1996,
the carrying value of which had been reduced in 1995, also contributed to the
improvement.
Selling, General and Administrative. Selling, general and administrative
expenses increased by approximately $429,000, or 13.0%, to $3.7 million from
$3.3 million for fiscal 1995. In 1995, the Company recognized an expense
decrease of $226,000 attributable to a negotiated reduction in professional fees
and $147,000 of additional expense reduction recognized on the termination of
the Company's Canadian Pension Plan as of December 31, 1993. Excluding these
items, selling, general and administrative expenses in 1996 increased by
$56,000, or 1.5%. As a percentage of revenues, selling, general and
administrative expenses decreased to 34.2% from 51.9%. The decrease as a
percentage of revenues was primarily attributable to spreading costs over
increased revenues. Selling expenses increased by $108,000, or 4.6%, in 1996 as
compared to 1995, primarily as a result of increased sales commissions on units
sold in the fourth quarter of 1996.
Product Development. Product development expenses decreased by
approximately $124,000, or 35.0%, to approximately $230,000 from $354,000 for
fiscal 1995. As a percentage of revenues, product development expenses decreased
to 2.1% from 5.5%. The level of product development at any time is primarily a
function of the availability of financial and personnel resources.
Other Income and Expense. Equity in earnings of Labco represents the
Company's share of Labco's operating results, in which the Company had a
non-controlling ownership during most of 1996. Prior to December 31, 1995, the
Company had a controlling interest in Labco, but from the first quarter of 1995
until the end of 1996, the Company presented Labco as an operation held for
sale. The Company's share of Labco's net income for 1996 was $117,000, as
compared to $258,000 for the same period in 1995 (where it is shown as Income
from operations under the caption "Operation held for sale"). The Company sold
its remaining interest in Labco in 1996. See "Certain Transactions--Sale of
Subsidiary."
In 1996, the Company earned investment income of $72,000.
Other expense, net of income, was $12,000 in 1996, as compared to $52,000
in 1995. In 1996, the Company recognized $44,000 of gains from trading
securities held for Canadian pension funding
19
<PAGE> 20
purposes, partially offset by miscellaneous expenses, including $43,000 of
foreign exchange losses realized in 1996. In 1995, the Company realized foreign
exchange losses of $79,000.
Income Taxes. For the year ended December 31, 1996, the Company had a net
tax benefit of $391,000 primarily due to a reduction in the deferred tax
valuation allowance as a result of changes in management's estimates of the
utilization of both U.S. and Canadian tax loss carryforwards caused primarily by
improved operating results.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data for the four fiscal quarters of 1996 and the four fiscal
quarters of 1997. This data is unaudited but, in the opinion of management,
reflects all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of this information in accordance with generally
accepted accounting principles. See Note 12 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $2,354 $2,658 $2,340 $3,571 $3,622 $5,816 $5,905 $7,346
Cost of revenues...................... 1,236 1,411 1,002 1,715 1,461 2,494 2,729 2,324
------ ------ ------ ------ ------ ------ ------ ------
Gross profit........................ 1,118 1,247 1,338 1,856 2,161 3,322 3,176 5,022
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Selling, general and
administrative.................... 809 832 919 1,174 1,295 1,905 1,668 3,103
Product development................. 17 40 34 139 175 163 164 213
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses.......... 826 872 953 1,313 1,470 2,068 1,832 3,316
------ ------ ------ ------ ------ ------ ------ ------
Operating income...................... 292 375 385 543 691 1,254 1,344 1,706
Other (expense) income, net........... (103) 0 33 142 79 105 88 116
Income tax benefit.................... -- -- 125 266 75 56 125 115
------ ------ ------ ------ ------ ------ ------ ------
Net income............................ $ 189 $ 375 $ 543 $ 951 $ 845 $1,415 $1,557 $1,937
====== ====== ====== ====== ====== ====== ====== ======
Net income per common share*:
Basic............................... $ 0.05 $ 0.10 $ 0.15 $ 0.22 $ 0.16 $ 0.26 $ 0.28 $ 0.35
====== ====== ====== ====== ====== ====== ====== ======
Diluted............................. $ 0.05 $ 0.10 $ 0.12 $ 0.18 $ 0.14 $ 0.22 $ 0.24 $ 0.31
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
* The total of each year's quarterly results may not equal the reported results
for the respective years.
The following table sets forth, as a percentage of revenues, certain
consolidated statements of operations data for the four fiscal quarters of 1996
and the four fiscal quarters of 1997.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............. 52.5 53.1 42.8 48.0 40.3 42.9 46.2 31.6
----- ----- ----- ----- ----- ----- ----- -----
Gross profit................ 47.5 46.9 57.2 52.0 59.7 57.1 53.8 68.4
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administrative............ 34.4 31.3 39.3 32.9 35.8 32.8 28.2 42.3
Product development......... 0.7 1.5 1.5 3.9 4.8 2.8 2.8 2.9
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses................ 35.1 32.8 40.8 36.8 40.6 35.6 31.0 45.2
----- ----- ----- ----- ----- ----- ----- -----
Operating income.............. 12.4 14.1 16.4 15.2 19.1 21.5 22.8 23.2
Other (expense) income, net... (4.4) 0.0 1.4 4.0 2.1 1.8 1.5 1.6
Income tax benefit............ -- -- 5.3 7.4 2.1 1.0 2.1 1.6
----- ----- ----- ----- ----- ----- ----- -----
Net income.................... 8.0% 14.1% 23.1% 26.6% 23.3% 24.3% 26.4% 26.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $2.0 million in 1997, and cash used in
operations was $1.4 million in 1996 and $711,000 in 1995. Cash provided by
operations in 1997 resulted primarily from net income of $5.8 million, partially
offset by increases in accounts receivable and inventories. Accounts receivable
increased as a result of higher sales, particularly during the month of
December. Inventories also increased as the Company acquired the materials
necessary to support increased IONSCAN(R) production. Cash used in operating
activities during 1996 resulted primarily from increases in accounts receivable
and inventory, which more than offset net income of $2.1 million for the year.
Cash used in operating activities during 1995 resulted primarily from the loss
of $827,000 recorded by the Company for 1995.
Net cash provided by investing activities was $639,000 in 1997, and net
cash used in investing activities was $3.9 million in 1996 and $58,000 in 1995.
Cash provided by investing activities in 1997 resulted primarily from the sale
of investments, partially offset by capital expenditures. Cash used in investing
activities during 1996 resulted primarily from the investment of a portion of
the net proceeds of the Company's November 1996 public offering, offset in part
by the receipt of $574,000 in connection with the Company's sale of its
remaining interest in Labco. Cash used in investing activities during 1995
resulted primarily from the purchase of equipment, which was partially offset by
the receipt of an additional $300,000 in connection with the sale of Labco.
Cash provided by financing activities was $315,000 in 1997, $10.6 million
in 1996 and $584,000 in 1995. Cash provided by financing activities during 1997
resulted primarily from the net proceeds of certain option and warrant
exercises, offset in part by the repayment of indebtedness. Cash provided by
financing activities in 1996 resulted primarily from the Company's November 1996
public offering, as well as the proceeds from the sale of $1.0 million of
convertible subordinated debentures, offset in part by the repayment of
indebtedness. Cash provided by financing activities in 1995 resulted primarily
from the receipt of net proceeds from the private placement of securities,
offset in part by the repayment of certain indebtedness.
The Company's capital expenditures in 1997 aggregated approximately $1.2
million. Such expenditures consisted primarily of software upgrades to various
manufacturing information systems, computer hardware modernization relating to
the Company's network system and the acquisition of additional equipment. The
Company believes that it will require approximately $1.0 million in additional
investment in tooling, equipment, and facility improvements to meet its
anticipated production levels for 1998.
In March 1998, the Company established a $5.0 million unsecured revolving
credit facility with Fleet Bank, N.A. (the "Bank") to be used for general
working capital purposes, including the issuance of standby letters of credit
(the "Facility"). Drawings under the Facility may not be used to fund
acquisitions unless approved in advance by the Bank. Amounts drawn under the
Facility bear interest at a variable rate per annum selected by the Company and
equal to either the Bank's prime rate less 0.75% or LIBOR (determined on the
basis of a 30-, 60- or 90-day interest period, as applicable) plus 2.0%. The
Facility expires on June 30, 1999, subject to renewal. The Facility is
guaranteed by the Company's primary U.S. subsidiary, Barringer Instruments Inc.
("BII"). Pursuant to the Facility, the Company and BII are required to comply
with certain customary covenants, including certain financial tests. In
addition, BII and the Company's Canadian subsidiary, Barringer Research Limited
("BRL"), have agreed not to pledge their assets to any other creditor without
the Bank's prior written consent.
The Company has substantial tax loss carryforwards to offset future tax
liabilities in the U.S.
As of December 31, 1997, the Company had cash and cash equivalents of
$8.2 million and marketable securities of $2.5 million. The Company believes
that its existing cash balances, marketable securities, income from operations
in future periods and the net proceeds from this Offering will be sufficient to
fund its working capital requirements for at least the next twelve months.
21
<PAGE> 22
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the periods presented herein.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain computer
programs may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activity.
Based on a recent internal assessment, the Company has determined that the
cost to modify its existing software and/or to convert to new software will not
be significant. However, if customers, suppliers or others with whom the Company
does business experience problems relating to the year 2000 issue, the Company's
business, financial condition or results of operations could be materially
adversely affected.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and will be effective for fiscal years beginning after
December 15, 1997. The Company will be reviewing this document to determine its
applicability to the Company, and has elected not to adopt early application.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which supercedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards
for the way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Because of
the relatively recent issuance of this standard, management has been unable to
fully evaluate the impact, if any, it may have on future financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
22
<PAGE> 23
BUSINESS
OVERVIEW
Barringer is the world's leading manufacturer (based on units sold) of high
sensitivity equipment used for detecting and identifying trace amounts of
plastic and other explosives and illegal drugs. The Company designs and produces
products that employ a proprietary application of IMS technology that can detect
and identify targeted compounds in amounts smaller than one-billionth of a gram
in approximately six seconds. The Company's principal product, the IONSCAN(R),
is a portable desktop system used in explosives detection and drug interdiction
applications. As of December 31, 1997, the Company had sold over 700 units
(including 335 during 1997) in 39 countries. The Company's revenues have grown
from $2.8 million for the year ended December 31, 1992 to $22.7 million for the
year ended December 31, 1997, representing a compounded annual growth rate of
51.8% over the last five years.
The markets for the Company's IONSCAN(R) currently include aviation
security, other transport security, facilities protection, forensics, military,
corrections, customs and law enforcement. The Company's customers include the
FAA, the U.S. Air Force, the U.S. Coast Guard, the DEA and the FBI, as well as
customs agencies in France, Canada, Australia and Japan and various prison
facilities in the U.S. and elsewhere. The IONSCAN(R) is also installed at over
40 airports and transportation centers in countries throughout the world,
including Gatwick Airport and Heathrow Airport in the United Kingdom, John F.
Kennedy International Airport and Chicago O'Hare International Airport in the
United States and Kuala Lumpur Airport in Malaysia, as well as the Eurotunnel.
The Company believes that its principal competitive advantages are the detection
capability, reliability, cost effectiveness, versatility, ease of use and
portability of the IONSCAN(R). These advantages enable the IONSCAN(R) to be used
both in lieu of and in conjunction with bulk imaging technologies, such as
enhanced x-ray and CATSCAN.
INDUSTRY BACKGROUND
The Company believes that there are numerous potential applications for its
trace detection technology. Currently, the principal applications are explosives
detection and drug interdiction.
Explosives Detection
In the past several years, a number of events have contributed to increased
public concern regarding the threat of terrorism and have focused government
attention on the limited effectiveness of currently deployed x-ray and metal
detection equipment and on the need for advanced explosives detection
technology. As a result, several advanced technologies have been adapted for use
in explosives detection applications. These technologies include bulk imaging
techniques, such as enhanced x-ray and CATSCAN, as well as trace detection
techniques, such as IMS, gas chromatography and chemiluminescence. Bulk imaging
techniques offer certain advantages over conventional x-ray technology, but are
generally expensive to deploy (as much as $1.0 million per installation), are
non-portable and generally reject a large number of objects as a result of
perceived anomalies that are later determined not to be explosives. By
comparison, trace detection equipment is capable of detecting and identifying
minute amounts of chemical substances and is generally more portable and less
expensive than bulk imaging equipment.
While implementation of advanced detection strategies has varied
significantly around the world, the Company believes that aviation authorities,
including the FAA and BAA plc, formerly the British Airport Authority (the
"BAA"), have generally recognized that no one detection technology provides a
complete solution to the problem of enhancing existing detection capabilities.
Consequently, trace detection technology is frequently deployed as a complement
to bulk imaging equipment to resolve anomalies identified by bulk detectors and
in applications where it is impractical to use the larger, less mobile bulk
imaging detectors, such as checking carry-on baggage. Trace detection technology
is also
23
<PAGE> 24
deployed in lieu of bulk imaging equipment in certain installations because of
its relatively low cost, particularly in smaller airports and in less developed
countries.
The development and deployment of advanced explosives detection technology
is being driven by recent government initiatives in the United States and
elsewhere in the world. For example, in response to the recommendations of the
White House Commission on Aviation Safety and Security (the "Gore Commission"),
in October 1996, the U.S. Congress appropriated $144 million for the procurement
of advanced explosives detection technology which the FAA is using to deploy
such technology in a limited number of the 400 busiest U.S. airports. In
addition, the BAA has installed enhanced detection technologies, including trace
detectors, in certain airports in Britain. Also, since the enactment of the
Aviation Security Act of 1990, the FAA has funded over $150 million for research
and development of advanced explosives detection technologies.
Trace detection technology has a broad range of other explosives detection
uses, including other transport security, facilities protection, forensics,
military and law enforcement. Government agencies, military forces and private
businesses have deployed trace detection equipment at facilities, such as the
World Trade Center, military bases, embassies and public utilities, such as
nuclear power plants, that are perceived as potential targets of terrorist
attacks. Law enforcement agencies, such as the FBI and the New York City Police
Department, and military forces also use trace detection technology for forensic
purposes. For example, the IONSCAN(R) was used in connection with the
investigations of the crash of TWA Flight 800 and the 1995 Oklahoma City
bombing.
Drug Interdiction
As a result of increased drug usage, a heightened public awareness of
drug-related criminal activity generally and the use of more sophisticated
techniques by drug traffickers, government agencies have increased their
spending on drug interdiction efforts. For example, in fiscal year 1996, the
U.S. government spent $1.3 billion on drug interdiction efforts. The use of
conventional x-ray scanning, random searches and canines has had limited success
in suppressing illegal drug trafficking. Accordingly, customs and law
enforcement agencies have increasingly turned to advanced detection technology
to assist in their drug detection and interdiction efforts. For example, the
U.S. Coast Guard has deployed trace detection equipment onboard its ships to
search vessels at sea for illegal drugs. Similarly, prisons in the U.S. and
elsewhere are employing trace detection equipment to reduce drug use.
THE BARRINGER ADVANTAGE
The Company believes that its implementation of IMS technology gives the
IONSCAN(R) a distinct competitive advantage over other detection techniques,
including bulk imaging and other trace detection technologies. The IONSCAN(R)
can detect and identify targeted compounds in amounts smaller than one-billionth
of a gram. Existing bulk imaging technologies, in contrast, search for anomalies
that might indicate the presence of explosive materials but are not presently
capable of identifying specific compounds or detecting the presence of
explosives with the same sensitivity as the IONSCAN(R). In addition, because
bulk imaging technologies attempt to identify anomalies present in an object,
they reject a significantly higher number of objects that do not contain
explosives than the IONSCAN(R).
The Company believes that the portability and low cost of the IONSCAN(R)
make the IONSCAN(R) particularly attractive to customers seeking a
cost-effective solution to their need for advanced detection technology. The
portability of the IONSCAN(R) allows customers to deploy the equipment where
needed. The low cost of the IONSCAN(R) relative to other existing detection
technologies allows customers in smaller installations and in less developed
countries to obtain advanced detection technology without having to incur the
significant capital expenses currently necessary to deploy bulk imaging
technologies.
24
<PAGE> 25
The Company believes that the IMS technology used in the IONSCAN(R) also
makes the IONSCAN(R) more versatile and easier to use than other detection
technologies. For example, an IONSCAN(R) can be readily used in either an
explosives detection or drug interdiction application without modification.
Currently, trace detectors utilizing other detection technologies, such as gas
chromatography, can only perform one such application.
In addition the IONSCAN(R) has demonstrated its reliability in field use.
For example, based on sampling data obtained from IONSCAN(R)s installed in U.S.
airports as of December 31, 1997, those IONSCAN(R)s have experienced a mean time
between failures in excess of 9,000 hours (based upon aggregate hours in
operation as of January 18, 1998). The Company believes the reliability of the
IONSCAN(R) provides the Company with a significant competitive advantage.
The Company believes that the advantages of the IONSCAN(R) have been
recognized by the Company's customers, as demonstrated by the sale of over 700
IONSCAN(R)s as of December 31, 1997.
GROWTH STRATEGY
The Company's objective is to maintain its position as the world's leading
provider of trace detection systems in its core markets and to become a leading
supplier of other advanced technology security solutions. The Company's strategy
for achieving this objective includes the following:
Further Penetrate Existing Markets. The Company sells its IONSCAN(R)
product in a variety of markets, including aviation security, other transport
security, facilities protection, forensics, military, corrections, customs and
law enforcement. The Company intends to extend its leadership in its existing
markets through continuous improvements to its IMS technology. In addition, the
Company intends to adapt its core IMS technology to expand its use in existing
markets. For example, the Company has received funding from the FAA for the
development of a document scanner for the purpose of passenger screening at
airports and an automated luggage screening system for the purpose of screening
checked luggage. See "--Product Development."
Leverage IMS Technology for New Applications. The Company believes that
the requirement for high-precision detection capability creates opportunities
for the Company's technology in applications other than explosives detection and
drug interdiction. Accordingly, the Company intends to develop products for new
applications such as quality monitoring, process control, and food and
perishable goods inspection. The Company believes that its IMS technology can
also be adapted to detect the presence of chemical and biological warfare
agents.
Pursue Strategic Relationships and Acquisitions. An important element of
the Company's growth strategy is to extend its existing technology and market
expertise to attain leadership in other security markets through strategic
relationships and acquisitions, such as the Company's recently announced OEM
arrangement with Exploranium G.S. Limited ("Exploranium") for the marketing and
sale of Exploranium's GAMMATRACE(TM) product line. See "--Other Products." As
these markets evolve and customers in both commercial and government segments
become more sophisticated, the Company believes the ability to offer a broader
scope of detection capability for use in various current and emerging
applications will become increasingly important. Moreover, the Company believes
that numerous security technologies exist that are complementary to its own
capabilities and for which the Company can provide enhanced access to
distribution, management, manufacturing and financial resources.
Expand Sales and Marketing Capabilities. The Company intends to continue
to expand its sales and marketing capabilities both domestically and
internationally to capitalize on opportunities in its existing markets for new
installations as well as on opportunities in new markets. The Company intends to
hire additional sales and customer service personnel in Europe, certain
republics of the former Soviet Union, and the Middle East. The Company recently
opened an office in Malaysia and is currently hiring sales and customer service
personnel to staff that office. Expanding its international
25
<PAGE> 26
sales and marketing presence will provide the Company with better access to
growing foreign markets and to its existing international customer base.
IONSCAN(R) TECHNOLOGY
The IONSCAN(R) is a portable, desktop system that utilizes a proprietary
implementation of IMS technology to analyze samples for the presence of targeted
chemical compounds in amounts smaller than one-billionth of a gram. An operator
collects samples, either by utilizing a hand-held suction device that contains a
special filter cartridge that collects the sampled matter or by swiping a cloth
or glove across the surface to be tested and then transferring the sampled
matter to the cartridge. After the sample has been collected, the filter
cartridge is placed onto a slide tray on the front of the IONSCAN(R) and
inserted into a heating chamber. The sample is then rapidly heated, causing the
sample to vaporize. The molecules contained in the vapors from the sample are
charged electrically, converting them into ions that are collected and then
propelled through a testing chamber containing a controlled mixture of calibrant
gases. The speed at which each ion travels through the testing chamber will vary
depending upon its molecular structure. The IONSCAN(R) measures the time of
flight of the ions through the testing chamber and, utilizing proprietary
software containing Company-developed detection algorithms, determines whether
the targeted chemicals are present and reports the results to the user. If
traces of any of the targeted chemical compounds are present, the IONSCAN(R)'s
alarm will ring, a red light on the IONSCAN(R) will flash and the screen will
display a list of the targeted substances that were detected. If no traces of
the targeted substances are detected, the IONSCAN(R) will display a green light.
The IONSCAN(R) analyzes a sample in approximately six seconds. Because the
IONSCAN(R)'s analysis takes place under high temperature, there is virtually no
residue from the sample and, under normal operating conditions, additional
sampling can take place almost immediately with no need to clean out the testing
chamber.
The Company also has developed the IONSCAN(R) Manager software for use in
conjunction with the IONSCAN(R). The IONSCAN(R) Manager provides the user with
enhanced graphic read-outs of test results enabling the user to view the data in
more detail. Utilizing this software, a user can view multiple test results at
the same time, switch back and forth between test results and highlight
particular areas of interest to obtain greater detail. This software also can be
used to print out or save data and to transfer test results onto a computer disk
for storage, transportation or other uses, such as manipulation in chemical
studies.
In addition, the Company has developed the Barringer Link software, which
allows a remote user to have access to the IONSCAN(R). Typically, this software
is used by the customer to select different testing algorithms for the
IONSCAN(R) or to troubleshoot problems with the unit. A customer has the
capability to test for a different set of chemical compounds by remotely
downloading the necessary algorithms onto its IONSCAN(R). For instance, if a
U.S. Coast Guard vessel on patrol needs the capability to test a suspect vessel
for a particular type of illegal drug, the required information can be
downloaded to its unit. In addition, the Barringer Link allows the Company or
the customer to run certain diagnostic programs to determine problems that may
have occurred within a particular unit and to correct certain software problems.
26
<PAGE> 27
CUSTOMERS
As of December 31, 1997, the Company had sold over 700 IONSCAN(R)s to
customers in 39 countries. The IONSCAN(R)s sold to date have been deployed for a
variety of purposes, including: aviation security, other transport security,
facilities protection, forensics, military, corrections, customs and law
enforcement. Prior to 1996, the Company sold most of its IONSCAN(R)s for use in
drug interdiction applications. However, in 1996, the Company's unit sales were
more evenly distributed between explosives detection and drug interdiction
applications. During the year ended December 31, 1997, approximately 55.0% of
the Company's unit sales were for explosives detection applications primarily in
the aviation security market. For the year ended December 31, 1997,
approximately $8.3 million or 36.7%, of the Company's revenues were generated
from sales to the Company's three largest customers, of which approximately
14.8% represented sales to the FAA. As of December 31, 1997, the IONSCAN(R) was
deployed in 21 airports in the United States.
The following is a list of representative IONSCAN(R) installations as of
December 31, 1997.
EXPLOSIVES DETECTION
<TABLE>
<CAPTION>
MARKET INSTALLATION
------ ------------
<S> <C>
Aviation Security Aeroporti di Roma, Italy
Charles DeGaulle, France
Chek Lap Kok Airport, Hong Kong
Chicago O'Hare International Airport
Dallas-Fort Worth International Airport
Gatwick Airport Ltd., UK
Heathrow Airport Ltd., UK
Juarez International Airport, Mexico
John F. Kennedy International Airport (New York)
Kuala Lumpur International Airport, Malaysia
Le Bouget International Airport, France
Manchester Airport plc, UK
Newark International Airport
Orly International Airport, France
Other Transport
Security Airmax, Inc. (Chicago)
Eurostar, UK
Societe Nationale Companie Maritime, France
Societe Nationale des Chemins de Fer Francais (Le Shuttle)
The Channel Tunnel Group Ltd. (Eurotunnel)
Facilities Protection Electricity de France
Gaz de France
New York World Trade Center
Ronald Reagan Federal Office Building
Forensics Department of Justice, Belgium
Federal Bureau of Investigation
Ministry of Defense, Italy
Ministry of Justice, Taiwan
Stadt Polizei Zurich, Switzerland
Military Aeronautica Militare, Italy
Comando Generale Arma Dei Carabinieri, Italy
Gendarmerie Nationale, France
Ministry of Defense, UK
U.S. Air Force
U.S. Army
U.S. Navy
</TABLE>
27
<PAGE> 28
DRUG INTERDICTION
<TABLE>
<CAPTION>
MARKET INSTALLATION
------ ------------
<S> <C>
Corrections California Department of Corrections
Correctional Service Canada
Departamento del Distrito Federal (Reclusiorios Prisiones
Federales), Mexico
Lafayette Parish Correctional Center (Louisiana)
Pendleton Correctional Facility (Indiana)
Pennsylvania Department of Corrections
Customs Australia Customs Service
Customs Bureau, Ministry of Finance, Japan
French Customs (Douanes)
HM Customs and Excise, UK
Korea Customs Service
Revenue Canada, Customs and Excise
U.S. Customs Service
Vietnam General Department of Customs
Law Enforcement Florida Public Housing Authorities
Harris County Parole Program (Texas)
Home Office, UK
Hong Kong Police
Japan Coast Guard
Ministero dell' Interno, Italy
New York Police Department
Police Nationale, France
Port Authority of New York and New Jersey
U.S. Coast Guard
U.S. Drug Enforcement Agency
U.S. National Guard
</TABLE>
OTHER PRODUCTS
In January 1998, the Company entered into an OEM arrangement with
Exploranium, a Canadian corporation engaged in the development and sale of
products which utilize gamma ray spectrometry to detect and identify radioactive
materials present in nuclear contraband. Pursuant to such arrangement, the
Company has the exclusive right to market and sell such products in the law
enforcement and security fields worldwide (subject to certain exceptions
relating to military applications). The products, which are marketed under the
GAMMATRACE(TM) name, range in size from a small, hand-held unit, which sells for
approximately $10,000, to large vehicle drive-through systems, which sell for
approximately $70,000. The products are manufactured for the Company by
Exploranium. The Company is marketing the GAMMATRACE(TM) product line through
its existing direct sales organization and its network of independent
representatives. See "Risk Factors -- Dependence on New Product Development;
Technological Advancement."
As discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview," the Company has entered into a
merger agreement and certain related agreements with DigiVision and certain of
its shareholders pursuant to which the Company intends to acquire all of the
outstanding capital stock of DigiVision. DigiVision, based in San Diego,
California, offers a range of real-time video enhancement technologies for use
in various medical, military, law enforcement and other applications.
28
<PAGE> 29
SALES AND MARKETING
The Company sells its products through a direct sales organization
comprised of 18 sales people located at its headquarters in New Jersey and at
offices in Toronto, London, Paris and Kuala Lumpur. In addition, the Company
utilizes a network of 45 independent sales and service representatives located
in Europe, the Middle East, Africa, Asia, South America and Australia. The
Company's sales and marketing efforts typically involve extensive customer
visits, demonstrations and field testing. Sales prospects generally are targeted
by the Company or its independent sales representatives, although the Company
also responds to requests for proposals.
Selling prices for the IONSCAN(R) typically range from $50,000 to $80,000
per unit, depending principally on the configuration of the unit and the
purchaser's location. Once a sale is consummated, the Company provides training
at a customer's location to teach operators how to use the IONSCAN(R), including
proper sampling techniques. The Company generally provides a one-year parts and
labor warranty on its IONSCAN(R) instruments, although from time to time the
Company has provided extended warranties. To date, the Company's warranty claims
experience has not been significant. See "Risk Factors--Warranty Claims."
The Company does not actively market its specialty instruments or its
contract research and development services. However, from time to time, the
Company responds to appropriate requests for proposals for such instruments and
services. Although sales of such instruments and services have been material to
the Company's historic results from time to time, as a result of the expected
increase in sales of the IONSCAN(R) and other products, management anticipates
that revenues from those activities will become increasingly less important to
the Company's overall results of operations.
For the year ended December 31, 1997, two of the Company's largest
customers accounted for more than 10.0% of the consolidated revenues of the
Company. Together these two customers accounted for an aggregate of 27.8% of the
Company's revenues for that period. For the year ended December 31, 1996, one
customer accounted for more than 10.0% of the consolidated revenues of the
Company. See "Risk Factors--Dependence on Large Orders; Customer
Concentrations."
BACKLOG
The Company measures its backlog of instrument revenues as orders for which
contracts or purchase orders have been signed, but that have not yet been
shipped and for which revenues have not yet been recognized. The Company
includes in its backlog only those customer orders that are scheduled for
delivery within the next 18 months. The Company typically ships its products
within three months of receiving an order. The Company follows the practice of
manufacturing to a sales forecast in order to have inventory available to meet
anticipated demand promptly. As a result, the Company has not historically
maintained a material backlog of orders for its instruments and, in the ordinary
course of business, intends to have sufficient inventory of IONSCAN(R)s on hand
to allow shipment upon receipt of an order. However, depending on the size and
timing of customer orders, the Company may, from time to time, have a backlog of
orders.
MANUFACTURING AND ASSEMBLY
The Company assembles IONSCAN(R)s from components supplied to it by various
suppliers and parts manufactured internally. Once the IONSCAN(R) is assembled,
the IONSCAN(R) is "burned in" for up to 400 hours using certain chemicals to
calibrate and tune the unit and to assure that it is functioning properly. After
successful completion of this procedure, the IONSCAN(R) is ready for shipment to
a customer.
Although many of the basic components of the IONSCAN(R), such as
chipboards, resistors, capacitors, liquid crystal displays and other similar
components, are readily available from a number of sources, the Company
typically purchases such components from single suppliers. A limited number of
components and sub-assemblies are manufactured for the Company, pursuant to the
Company's
29
<PAGE> 30
proprietary specifications, but the Company does not believe it is dependent on
any single source for these items. To date, the Company has not experienced any
material difficulty in obtaining any components or sub-assemblies. See "Risk
Factors--Dependence on Limited Number of Suppliers."
COMPETITION
The Company competes with other entities, including Intelligent Detection
Systems, Inc., Ion Track Instruments Inc. and Thermedics Detection Inc., a
number of which have significantly greater financial, marketing and other
resources than the Company. Principal competitive factors include selectivity
(the ability of an instrument to identify the presence of a particular
substance), sensitivity (the ability of an instrument to detect small amounts of
a particular substance), false alarm rate, price, marketing, ease of use and
speed of analysis. The Company believes that it competes effectively with
respect to each of these factors.
The Company competes for government expenditures with equipment
manufacturers, such as InVision Technologies, Inc. and Vivid Technologies, Inc.,
utilizing other types of detection technologies, such as enhanced x-ray and
CATSCAN, as well as with manufacturers of other IMS equipment and manufacturers
using other trace particle detection technologies, such as gas chromatography
and chemiluminescence. Because trace particle detection equipment is used in
certain instances to verify detection results obtained by bulk imaging systems,
the IONSCAN(R) and other trace particle detection products are often used in
conjunction with bulk imaging technologies. As a result of recent government
initiatives, the Company anticipates that additional technologies, including
improved IMS technologies, will be developed and that new competitors will enter
the Company's markets. See "Risk Factors--Dependence on Government Procurement
Policies" and "--Competition."
The Company also competes with the use of canines to locate the presence of
explosives or drugs. Although canines have a highly developed sense of smell and
are able to follow a trail, the Company believes that its IONSCAN(R) instruments
are more effective and cost-efficient than canines, because they can operate 24
hours a day, have greater selectivity than canines and can identify the
composition of the substance detected.
GOVERNMENT REGULATION
Although the Company's business is not subject to significant government
regulation, government regulation plays a large role in determining the demand
for the IONSCAN(R). In the U.S. and most foreign countries, the aviation
industry is highly regulated and authorities, such as the FAA in the U.S., have
the ability to recommend or mandate use of enhanced explosives detection
equipment.
The FAA is currently developing a certification protocol for trace particle
detection equipment. Once the protocol is adopted, the Company believes that
only instruments meeting the FAA certification requirements will be approved for
use by airlines subject to FAA regulation. Although the final protocol has yet
to be adopted, based on early versions of the testing criteria, as well as
discussions with representatives of the FAA, the Company believes that the
IONSCAN(R) will meet the FAA's certification requirements, although no assurance
can be given. The FAA has approved the IONSCAN(R) for screening of electronic
carry-on items, such as cellular telephones, tape recorders and laptop
computers. See "Risk Factors--Dependence on Government Procurement Policies."
PRODUCT DEVELOPMENT
The Company spent $1.6 million and $933,000 on research and development
activities for the years ended December 31, 1997 and 1996, respectively, of
which $849,000 and $703,000, respectively, were funded under various research
and development grants and contracts. Substantially all of the Company's
research and development activities have related to the development and
enhancement of the Company's IONSCAN(R) technology and the development of new
IONSCAN(R) products.
30
<PAGE> 31
The Company is currently working on a number of enhancements to its
existing IONSCAN(R) products that would enhance ergonomics, increase ease of
use, decrease size and weight, lower manufacturing costs and thereby provide
greater value to customers. For example, the Company is currently attempting to
develop a hand-held version of the IONSCAN(R).
Certain of the Company's new product development activities are described
below.
Document Scanner
The Company received a development grant from the FAA in October 1996 to
develop a document scanner that would scan boarding passes or other passenger
documents for the presence of explosives prior to boarding. The Company
delivered a prototype of the document scanner to the FAA in December 1996. The
Company expects to deliver additional document scanners to the FAA for beta
testing during 1998.
Automated Luggage System
The Company received a design grant from the FAA in March 1997 for the
design of an automated luggage system that would scan checked baggage for the
presence of drugs or explosives. The grant does not require the production of a
prototype at this time and no such prototype exists or is being built. However,
under the contract, the Company is required to develop a working design to
demonstrate proof of concept for delivery to the FAA during 1998.
There can be no assurance that the Company will successfully complete the
development of the products described above or that any such products would, if
successfully developed, achieve market acceptance or a significant level of
sales. See "Risk Factors--Dependence on New Product Development; Technological
Advancement."
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
Certain of the technology used in the IONSCAN(R) is licensed by the Company
from the Canadian government as described below. While the Company holds patents
relating to certain components, systems and techniques used in the IONSCAN(R)
and while certain other elements of the IONSCAN(R) are protected by other
intellectual property rights, the Company has no comprehensive patent or similar
exclusive intellectual property right covering the IONSCAN(R) in its entirety.
In addition, the basic IMS technology used in the IONSCAN(R) is not proprietary
and is available in the public domain. Accordingly, present and potential
competitors could use such basic technology to duplicate the performance of the
IONSCAN(R). See "Risk Factors--Limited Proprietary Technology."
The initial development of the IONSCAN(R) was funded in part by Transport
Canada and Revenue Canada. Pursuant to an agreement with the Canadian
government, the Company has a worldwide license to use certain unpatented
technology developed from such work and pays Revenue Canada a royalty equal to
1.0% of certain IONSCAN(R) sales. The initial term of this license agreement
expires on March 31, 1999. However, the Company has entered into an agreement
with Revenue Canada, pursuant to which the Company has obtained the right to
renew such licensing arrangement on a year-by-year basis for up to ten
additional years. Revenue Canada has retained the right to use the technology
and to produce products incorporating such technology although, to date, Revenue
Canada has not attempted to do so.
The Company believes that the IONSCAN(R) registered trademark has gained
recognition in the markets for the Company's products and is a valuable
trademark. In addition, the Company is seeking to register its GAMMATRACE(TM)
trademark.
31
<PAGE> 32
FACILITIES
The Company does not own any real property and currently conducts its
operations at the following leased premises:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE ANNUAL LEASE
LOCATION DESCRIPTION OF FACILITY FOOTAGE LEASE COST EXPIRATION
-------- ----------------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
219 South Street......... Corporate headquarters, 6,780 $158,000 September 1998
Murray Hill, New Jersey research, sales, customer
07974 support and assembly
1730 Aimco Boulevard..... Research, manufacturing 28,380 $ 76,000* September 2005
Mississauga, Ontario, and assembly, sales,
Canada L4W 1V1 customer support and
administrative
Village Fret BAT-3453.... Sales and customer 2,500 $ 40,000 February 2000
BP 10614-4 support
Rue du Te
95724, Roissy C.D.G.
France
Unit 3 at Manor Royal.... Sales and customer 1,560 $ 16,000 June 1998
Crawley, West Sussex support
England RH10 2QU
No. 21-1 Jalan 3176 D.... Sales and customer 1,000 $ 12,000 **
Desa Pandah support
55100 Kuala Lumpur
Malaysia
</TABLE>
- ----------------------
* Increases to $115,000 on September 1, 2000.
** Oral agreement terminable by either party upon thirty (30) days prior notice.
The Company is currently seeking to relocate its New Jersey operations to,
among other things, further its manufacturing and assembly capabilities. The
Company anticipates that it will seek to lease approximately 15,000 square feet
of space for those operations. Although the Company has no current agreements or
understandings with respect to the leasing of a particular location, the Company
believes that ample suitable space is available in the vicinity of its existing
operations at rental rates that are consistent with prevailing market rates.
EMPLOYEES
As of December 31, 1997, the Company had 119 full-time employees, of whom
58 were engaged in manufacturing, 28 were engaged in product development
activities and 33 were engaged in sales, service and general administration.
Eighteen of such persons have advanced degrees (including nine doctorates). None
of the Company's employees is represented by any union, and the Company
considers its relationships with its employees to be satisfactory.
LITIGATION
The Company is not a party to any material legal proceedings.
32
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the Company's
executive officers and directors as of February 1, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stanley S. Binder(1)........... 56 Chairman of the Board, Chief Executive Officer
and President
John H. Davies(1).............. 61 Executive Vice President and Director,
President and Chief Executive Officer of BRL
Richard S. Rosenfeld........... 51 Vice President-Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Kenneth S. Wood................ 45 Vice President and Secretary, President of BII
John D. Abernathy(1)(2)(3)..... 60 Director
Richard D. Condon(2)........... 62 Director
John J. Harte(1)(3)............ 56 Director
James C. McGrath(2)(3)......... 55 Director
</TABLE>
- ----------------------
(1) Member of Executive Committee.
(2) Member of Audit and Finance Committee.
(3) Member of Executive Compensation Committee.
Mr. Stanley S. Binder joined the Company in July 1989 and has served as
Chairman of the Board since February 1991, Chief Executive Officer since July
1990 and President since July 1989. Mr. Binder also is an independent general
partner in the Special Situations Fund III, L.P. ("SSF III"), a substantial
investor in the Company. See "Certain Transactions--General." Mr. Binder is
chairman of the New Jersey Council of the American Electronics Association and a
member of the Board of Directors of the American Electronics Association.
Mr. John H. Davies joined the Company in October 1967 and has served as
Executive Vice President of the Company since January 1992. Mr. Davies has been
the President and Chief Executive Officer of BRL since August 1989. Mr. Davies
has served as a director of the Company since February 1991.
Mr. Richard S. Rosenfeld, a certified public accountant, joined the Company
in January 1992 as Treasurer and Assistant Secretary. Since July 1993, he has
been Vice President-Finance and Chief Financial Officer of the Company.
Mr. Kenneth S. Wood joined the Company in April 1990 as Vice President of
Operations of BII. Since January 1992, he has served as Vice President of the
Company and the President of BII. He also has served as the Secretary of the
Company since March 1993. From July 1978 until April 1990, he was Program
Director for Lockheed Electronics, a company engaged in aerospace and defense
electronics.
Mr. John D. Abernathy, has served as a Director of the Company since
October 1993. Mr. Abernathy is a certified public accountant. Since January
1995, he has been Executive Director of the law firm of Patton Boggs, LLP. From
March 1994 to January 1995, he was an independent financial and management
consultant. From March 1991 to March 1994, he was the Managing Director of
Summit, Solomon & Feldesman, a law firm in dissolution since March 1993. From
July 1983 until June 1990, Mr. Abernathy was Chairman and Chief Executive
Partner of BDO Seidman, a public accounting firm. He also is a director of
Oakhurst Company, Inc., a distributor of automotive parts and accessories.
Mr. Richard D. Condon has served as a Director of the Company since
February 1992. Since January 1996, Mr. Condon has been a consultant to and
director of Amherst Process Instruments, Inc., a scientific instrumentation
company. From 1989 until December 1995, Mr. Condon was a consultant to
33
<PAGE> 34
and director of Analytical Technology, Inc., Boston, Massachusetts, a scientific
instrumentation company.
Mr. John J. Harte has served as a Director of the Company since 1986. He
was Vice President, Special Projects of the Company from 1991 until January
1997. He is a certified public accountant and, since 1978, has been Vice
President of Mid-Lakes Distributing Inc., a manufacturer and distributor of
heating and air conditioning parts and equipment located in Chicago, Illinois.
Mr. Harte also serves as a director of IBNET Inc., a global internet company.
Mr. James C. McGrath, has served as a Director of the Company since January
1994. Mr. McGrath is an international security consultant. Since July 1989, he
has been President of McGrath International, Inc., a management consulting firm
specializing in the security field.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Company's
Directors are elected by the holders of the Company's Common Stock, Class A
Convertible Preferred Stock and Class B Convertible Preferred Stock voting as a
single class. There are no family relationships among any of the directors or
executive officers.
Outside directors are entitled to an annual retainer of $3,000 per quarter
(plus a $500 quarterly fee for each committee chairperson) and a fee of $1,000
for each meeting attended and $500 for each committee meeting attended
(regardless of whether or not the committee meeting is held on the same day as a
meeting of the Board of Directors). Pursuant to a consulting agreement with the
Company which terminated as of December 31, 1997, in lieu of his annual
retainer, Mr. Harte had received a fee of $2,000 per month for services rendered
to the Company, and a fee of $1,000 for each meeting he attended in his capacity
as a director. See "Employment Agreements and Compensation Arrangements."
Pursuant to the terms of the Company's 1997 Stock Compensation Program (the
"Stock Compensation Program"), each director who has not been a full-time
employee of the Company or any subsidiary for at least the prior 12 months
receives an option to purchase 3,000 shares of Common Stock each year on the
earlier of (i) the date of the Company's annual meeting of stockholders, or (ii)
June 1. Options granted to such directors under the Stock Compensation Program
have an exercise price equal to the fair market value per share as of the date
of grant. See "--1997 Stock Compensation Program."
Under the Company's 1991 Directors Warrant Plan (the "1991 Warrant Plan"),
each non-employee director, upon election or appointment to the Board, was
offered 3,750 warrants, at $0.40 per warrant, each of which was exercisable
within five years to purchase one share of Common Stock at an exercise price
determined by the Board at the time the warrants were issued, but not less than
the current market price for the shares underlying the warrants. The 1991
Warrant Plan required each such new director to use his or her first quarterly
director's fee to pay the purchase price for such warrants. The Board of
Directors terminated the 1991 Warrant Plan effective May 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Executive Compensation Committee is comprised of Messrs.
Abernathy, Harte and McGrath. During the fiscal year ended December 31, 1996,
Mr. Harte was also the Vice President, Special Projects, of the Company.
Until November 1996, Mr. Harte was Chairman of the Board of Labco, and Mr.
Binder was a Director of Labco. Mr. Binder also served on the compensation
committee of Labco's Board of Directors. Except as described herein, no
executive officer of the Company and no member of the Compensation Committee is
a member of any other business entity that has an executive officer that sits on
the Company's Board or on the Executive Compensation Committee. In January 1996,
Mr. Binder received an option to purchase 10,000 shares of Labco common stock at
an exercise price equal to the fair market value of the Labco common stock on
the date of grant. For certain other transactions between Labco and the Company,
see "Certain Transactions--Sale of Subsidiary."
34
<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid to the President
and Chief Executive Officer and each other executive officer of the Company
whose total annual salary and bonus for the year ended December 31, 1997
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND FISCAL SALARY BONUS(1) OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS ($)(2)
------------------ ------ -------- -------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley S. Binder....... 1997 $200,000 $350,000 -- -- 87,500 -- $9,500
President and Chief 1996 171,491 63,000 -- -- 55,000 -- 2,925
Executive Officer 1995 171,491 -- -- -- 45,000 -- 5,940
John H. Davies*......... 1997 $136,440 $180,000 -- -- 34,000 -- $6,811
Executive Vice
President 1996 125,275 43,200 -- -- 38,250 -- 6,317
of the Company 1995 125,775 -- $12,149(3) -- 31,250 -- 6,317
Kenneth S. Wood......... 1997 $130,000 $170,000 -- -- 31,500 -- $8,480
President of Barringer 1996 111,815 39,600 -- -- 33,750 -- 2,199
Instruments, Inc. 1995 111,815 -- -- -- 26,250 -- 2,283
Richard S. Rosenfeld.... 1997 $107,500 $115,000 -- -- 27,300 -- $7,085
Vice President-
Finance, 1996 96,000 34,200 -- -- 27,500 -- 1,872
Chief Financial
Officer 1995 96,000 -- -- -- 22,500 -- 4,410
</TABLE>
- ----------------------
* Amounts converted to U.S. dollars at the average exchange rate for such
year.
(1) Represents amounts accrued pursuant to the Company's annual incentive
compensation plan.
(2) Represents amounts contributed by the Company pursuant to the Company's
tax-qualified 401(k) deferred compensation plan ("401(k) Plan"). In 1997,
the 401(k) Plan provided that the Company would make matching contributions
to the participants in the 401(k) Plan equal to 100% of the first 5.0% of a
participant's salary contributed. In 1996 and 1995, the 401(k) Plan provided
that the Company would make matching contributions to the participants in
the 401(k) Plan equal to 100% of the first 2.0% of a participant's salary
contributed and 50.0% of the next 5.0% of a participant's salary
contributed. Company contributions to the 401(k) Plan vest proportionately
over a five-year period, commencing at the end of the participant's first
year with the Company.
(3) The other annual compensation for Mr. John Davies represented the payment of
previously accrued and unpaid vacation pay.
Effective January 1, 1998, the Company adopted the Barringer Technologies
Inc. Supplemental Executive Retirement Plan (the "SERP Plan"). The SERP Plan
provides eligible participants with certain retirement benefits supplemental to
the Company's 401(k) Plan. Pursuant to the SERP Plan, the Company will make
annual contributions to the account of each participant equal to a variable
percentage of the participant's base salary and annual cash bonus depending on
the Company's achievement of certain performance targets. The actual percentage
contribution will be determined by the Executive Compensation Committee, subject
to certain parameters. A participant will become vested under the SERP Plan
after five years of participation therein. A participant may elect to receive
benefits under the SERP Plan commencing at age 60 and is entitled to receive
either a lump-sum payment of his or her account balances upon retirement or to
use the account balance to purchase an annuity. In the event of the termination
of a participant's employment under certain circumstances set forth in the SERP
Plan, the participant will be entitled to receive his or her account balance
whether or not the participant has become vested under the SERP Plan. Currently,
each of the Named Executive Officers participates in the SERP Plan.
35
<PAGE> 36
OPTION GRANTS
The following table summarizes certain information relating to the grant of
options to purchase Common Stock to each of the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR
NAME GRANTED(#)(2) FISCAL YEAR(3) BASE PRICE($/SH)
---- ------------- ---------------- ----------------
<S> <C> <C> <C>
Stanley S. Binder.............................. 50,000 32.5% $9.375
37,500 11.780
John H. Davies................................. 25,000 12.6 9.375
9,000 11.780
Kenneth S. Wood................................ 22,500 11.7 9.375
9,000 11.780
Richard S. Rosenfeld........................... 19,500 10.1 9.375
7,800 11.780
</TABLE>
- ----------------------
(1) The Company did not grant stock appreciation rights in 1997.
(2) Stock option grants were made in February and December 1997. Stock options
granted in the first tranche expire on February 28, 2007 and options granted
in the second tranche expire on December 22, 2007. Twenty-five percent of
each option grant is exercisable after the first anniversary of the date of
grant, 50.0% is exercisable after the second anniversary, 75% is exercisable
after the third anniversary and 100% is exercisable after the fourth
anniversary.
(3) Options covering a total of 268,900 shares of Common Stock were granted to
employees in 1997.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of stock options during 1997 and
unexercised options held by such Named Executive Officers as of December 31,
1997.
AGGREGATED OPTION EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS
SHARES AT YEAR-END(#) AT YEAR-END($)(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley S. Binder..... -- -- 54,500 133,000 $701,938 $907,813
John H. Davies........ -- -- 37,875 65,625 487,828 558,839
Kenneth S. Wood....... -- -- 32,625 58,875 420,609 491,496
Richard S.
Rosenfeld........... -- -- 27,250 50,050 350,969 413,022
</TABLE>
- ----------------------
(1) Based on a closing bid price of $14.375 per share for the Common Stock as of
December 31, 1997.
BRL maintained a defined benefit pension plan for its Canadian employees
that was terminated on December 31, 1993. Mr. Davies was a participant in that
plan. His projected annual benefit at age 65 has been set at approximately
$54,000, which amount may be subject to change only in response to changes in
the Canadian pension regulatory scheme.
36
<PAGE> 37
STOCK OPTION PLANS
1990 Option Plan
The Company maintained an option plan (the "1990 Option Plan") pursuant to
which the Company was authorized to grant options covering a total of 100,000
shares of Common Stock. As of December 31, 1996, options covering a total of
23,750 shares of Common Stock were outstanding thereunder and no further options
could be granted thereunder. All of such options expired in January 1997.
1997 Stock Compensation Program
In May 1997, the Company adopted the Stock Compensation Program in order to
promote the interests of the Company, its direct and indirect present and future
subsidiaries and its stockholders by providing eligible persons with the
opportunity to acquire an ownership interest, or to increase their ownership
interest, in the Company as an incentive to remain in the service of the
Company. The Stock Compensation Program authorizes the granting of incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares and stock bonus awards to employees and consultants of the
Company and its subsidiaries, including those employees serving as officers or
directors of the Company (the "Employee Plans"). The Stock Compensation Program
also authorizes automatic option grants to directors who are not otherwise
employed by the Company (the "Independent Director Plan"). In connection with
the Stock Compensation Program, 600,000 shares of Common Stock are reserved for
issuance, of which up to 500,000 shares may be issued under the Employee Plans
and up to 100,000 shares may be issued under the Independent Director Plan. The
Stock Compensation Program is administered by the Executive Compensation
Committee of the Board of Directors.
Options and awards granted under the Stock Compensation Program may have an
exercise or payment price as established by the Executive Compensation
Committee; provided that the exercise price of incentive stock options granted
under the Employee Plans may not be less than the fair market value of the
underlying shares on the date of grant. Options granted under the Independent
Director Plan must have an exercise price equal to the fair market value of the
underlying shares on the date of grant.
Unless otherwise provided at the date of grant, no option or award may vest
within one year of the date of grant and no option or award may be exercised
more than 10 years from the date of grant. Options granted under the Independent
Director Plan vest one year following the date of grant and expire if not
exercised on or before the fifth anniversary thereof. Unless otherwise specified
by the Executive Compensation Committee, options and awards (other than pursuant
to the Independent Director Plan) vest in four equal installments on the first,
second, third and fourth anniversaries of the date of grant. Vesting of any
option or award granted under the Stock Compensation Program may be accelerated
in certain circumstances, including upon the occurrence of a "Change in Control
Event" (as defined in the Stock Compensation Program).
Options and awards granted under the Stock Compensation Program are
nontransferable, except by will or by the laws of descent and distribution.
However, the Executive Compensation Committee may permit the recipient of a
non-incentive stock option granted under the Employee Plans and options granted
under the Independent Director Plan to transfer the option to a family member or
a trust created for the benefit of family members. During the lifetime of a
participant, an option may be exercised only by the participant or a permitted
transferee. In the event that a participant's employment or service terminates
as a result of death, all vested awards will be paid to the participant's estate
by the Company and the participant's estate or any permitted transferee will
have the right to exercise vested options for a period ending on the earlier of
the expiration dates of such options or one year from the date of death. If the
participant's employment or service terminates as a result of retirement or a
"disability" (as set forth in the Stock Compensation Program), all vested awards
will be paid to the participant by the Company and the participant or any
permitted transferee
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<PAGE> 38
will have the right to exercise vested options for a period ending on the
earlier of the expiration dates of such options or one year from the date of
termination. If the participant's employment or service terminates for cause,
all options and awards will automatically expire upon termination. If the
participant's employment or service terminates other than as a result of death,
disability, retirement or termination for cause, the participant will have the
right to collect all vested awards immediately and the participant or any
permitted transferee will have the right to exercise vested options for a period
ending on the earlier of the expiration dates of such options or awards or 30
days from the date of termination, subject to extension at the discretion of the
Administrator, or three months from the date of termination in the case of
options granted pursuant to the Independent Director Plan. In all cases, any
unvested options or awards will terminate as of the date of termination of
employment or service.
The Stock Compensation Program will terminate on February 28, 2007, unless
earlier terminated by the Board of Directors. No options or awards may be
granted under the Stock Compensation Program after its termination; however,
termination of the Stock Compensation Program will not affect the status of any
option or award outstanding on the date of termination.
Incentive stock options exercisable for an aggregate of 268,900 shares of
Common Stock have been granted to date under the Employee Plans. These options
expire 10 years after the date of grant and have a weighted average exercise
price of $10.57 per share. Such options are exercisable annually in 25%
increments beginning with the first anniversary of the date of grant. In
addition, pursuant to the terms of the Independent Director Plan, options
exercisable for an aggregate of 12,000 shares have been granted to the Company's
independent directors to date. These options become exercisable one year from
the date of grant, expire five years from the date of grant and have an exercise
price, subject to adjustment, of $13.875 per share.
Exercise Program
In connection with the options granted by the Company to its employees, the
Board of Directors has approved a stock option exercise program (the "Exercise
Program"). The Exercise Program permits all employees of the Company and its
subsidiaries who are granted stock options (pursuant to either qualified or
non-qualified plans) to finance the exercise of such options by causing the
Company to issue the shares underlying such options upon receipt by the Company
from the employee of a full-recourse demand note evidencing indebtedness to the
Company in an amount equal to the exercise price. Such loans, which are secured
by the underlying shares of Common Stock, are interest-free for one year from
the date on which the employee exercises his or her option, after which interest
accrues at the prime rate, which rate is changed monthly. The loans are repaid
with a portion of the proceeds from the sale of the Common Stock to be received
by the employees upon the exercise of their options. As of March 27, 1998,
Messrs. Binder and Wood were indebted to the Company in the amounts of
approximately $259,785 and $13,050, respectively, for loans made pursuant to the
Exercise Program. During 1997, the largest aggregate amount of indebtedness of
Messrs. Binder and Wood pursuant to such loans were approximately $255,199 and
$84,650, respectively. The rate of interest charged on each such loan during
1997 was the prime lending rate charged by Summit Bank.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
The Company has entered into a five-year employment agreement with Mr.
Binder, the President and Chief Executive Officer of the Company (the
"Employment Agreement"), effective January 1, 1998, pursuant to which Mr. Binder
receives a base salary of $250,000 per annum, subject to certain adjustments and
to periodic increases as determined by the board of directors. In addition, Mr.
Binder is entitled to receive up to a total of three special bonuses during the
term of the Employment Agreement, in the amount of $65,000, $65,000 and $70,000,
respectively, in the event that the Company's EBITDA (as defined in the
Employment Agreement), exceeds certain targeted amounts for any fiscal year
during the term of the Employment Agreement. Pursuant to the Employment
Agreement, Mr. Binder is also entitled to participate in the Company's cash
bonus plan and to participate in the SERP Plan adopted by the Company for
certain senior executives. Also, under the
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<PAGE> 39
terms of the Employment Agreement, Mr. Binder received stock options covering
50,000 shares of Common Stock having an exercise price of $11.78 per share
(equal to the fair market value on the date of grant). In the Employment
Agreement, the Company has agreed to maintain a $1.0 million term life insurance
policy for Mr. Binder's benefit. Mr. Binder is entitled to several perquisites,
including a car allowance and reimbursement for the cost of certain financial
planning services.
In the event that Mr. Binder's employment is terminated pursuant to a
Without Cause Termination, or Mr. Binder terminates his employment for Good
Reason (as such terms are defined in the Employment Agreement), Mr. Binder will
be entitled to a severance payment equal to 2.99 times his then-current base
salary and to certain other severance benefits. In addition, upon the occurrence
of a Change in Control Event (as such term is defined in the Employment
Agreement), Mr. Binder has the right to terminate his employment within 180
days, in which event the termination will be treated as a termination for Good
Reason with the effects specified above. In addition, the Company has agreed to
pay Mr. Binder additional amounts, if necessary, to pay any excise tax Mr.
Binder may become subject to in the event that any payment made to him under the
Employment Agreement constitutes an "excess parachute payment" within the
meaning of Section 209G of the Internal Revenue Code of 1986, as amended.
Pursuant to the Employment Agreement, Mr. Binder has agreed to certain
confidentiality, work-for-hire and non-competition covenants.
The Company has entered into employment agreements with Messrs. Wood and
Rosenfeld which run for a term of one year from November 1, 1996, subject to
automatic renewal unless either the employee or the Company gives the other
party to the employment agreement 90 days' prior written notice of non-renewal.
Pursuant to the employment agreements, Messrs. Wood and Rosenfeld received
annual base salaries of $130,000 and $107,500, respectively, for 1997 and will
receive annual base salaries of $150,000 and 125,000, respectively, for 1998,
subject to periodic increases at the discretion of the Board of Directors, and
are entitled to participate in any cash bonus plan maintained by the Company.
Both of the employment agreements provide, among other things, that, in the
event of a termination of employment by the Company without cause, or a
termination by the employee in certain circumstances following a "change in
control" of the Company, the employee will be entitled to receive certain
severance benefits (payable in equal monthly installments) determined on a
formula basis. Both of the employment agreements also contain certain
confidentiality and non-competition provisions which continue in effect
following the termination of the employee's employment by the Company.
Since 1991, the Company had been party to a Consulting Agreement with Mr.
Harte (the "Consulting Agreement") pursuant to which Mr. Harte received $2,000
per month as compensation. The Consulting Agreement was terminated as of
December 31, 1997.
INDEMNIFICATION OF THE DIRECTORS AND OFFICERS
The Certificate of Incorporation and the Company's by-laws, as amended
("By-laws"), provide that the Company shall, to the fullest extent permitted by
law, indemnify each person (including the heirs, executors, administrators and
other personal representatives of such person) against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such person in connection with any threatened, pending or
actual suit, action or proceeding (whether civil, criminal, administrative or
investigative in nature or otherwise) in which such person may be involved by
reason of the fact that he or she is or was a director or officer of the Company
or is serving any other incorporated or unincorporated enterprise in any of such
capacities at the request of the Company. Such provisions may provide
indemnification to the officers and directors of the Company for liability under
the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
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<PAGE> 40
CERTAIN TRANSACTIONS
GENERAL
For a description of certain transactions between Labco and the Company,
see "--Sale of Subsidiary" and "Management--Compensation Committee Interlocks
and Insider Participation."
For a description of certain indebtedness of the Named Executive Officers,
see "Management -- Stock Option Plans."
In July 1996, the Company sold to SSF III, which is controlled by Mr. Marxe
and of which Mr. Binder is an independent general partner with approximately a
0.01% interest in such partnership, and to the Special Situations Cayman Fund,
LP, an affiliate of SSF III (collectively, with SSF III, "SSF"), $450,000 in
principal amount of the Company's 6% Subordinated Convertible Debentures due
1997 (the "Debentures"). The Debentures bore interest at the rate of 6.0% per
annum, were convertible into shares of Common Stock at a conversion rate of
$2.75 and, pursuant to their terms, matured 30 days after the consummation of
the Company's November 1996 public offering, unless converted prior thereto.
Certain officers and directors of the Company purchased an additional $100,000
in aggregate principal amount of the Debentures. All of the Debentures were
converted into shares of Common Stock in December 1996.
Mr. Abernathy is currently the Executive Director of Patton Boggs, LLP, a
Washington, D.C. law firm. During 1997, the Company retained Patton Boggs, LLP
to represent the Company in various matters and has retained such firm in 1998.
SALE OF SUBSIDIARY
Prior to December 1995, the Company controlled Labco, a publicly traded
company that provides comprehensive laboratory-based analytical and consulting
services in the United States and Mexico, including environmental monitoring and
geochemical analysis for the hydrocarbon and mineral exploration industries. In
order to focus its resources on its core business and to increase working
capital, in December 1995 the Company entered into a Stock Purchase Agreement
with Labco (the "Stock Purchase Agreement") pursuant to which the Company sold
back to Labco 647,238 shares of Labco's common stock for an aggregate purchase
price of $809,000. The purchase price consisted of the cancellation of all
inter-company obligations and $300,000 in cash. After giving effect to the sale,
the Company continued to own 437,475 shares of Labco's common stock. However,
under the terms of the Stock Purchase Agreement, Labco retained an additional
88,260 shares of Labco common stock owned by the Company (the "Retained
Shares"), subject to the return of the Retained Shares to the Company upon Labco
meeting certain pre-tax earnings goals for 1996. The Company also agreed to
terminate all voting arrangements allowing it to vote shares of Labco common
stock not owned by it and agreed for a period of 24 months not to enter into any
such voting arrangements. See Note 2 of the Notes to Consolidated Financial
Statements.
In October 1996, the Company and Labco entered into a Termination Agreement
(the "Termination Agreement") pursuant to which Labco agreed to waive its right
of first refusal with respect to, and to terminate the other restrictions on,
the transfer of the Company's remaining Labco shares. The Company agreed that,
for a period of three months from the date of the Termination Agreement, it
would sell such shares at a price of at least $1.6875 per share (the "Target
Price") in a distribution in which it would not knowingly sell more than 75,000
shares to any one purchaser or group of related purchasers. Under the
Termination Agreement, for such three-month period, the Company agreed to sell
its Labco shares as provided above upon receipt of an offer to acquire such
shares at a price per share at least equal to the Target Price. The restrictions
described above also applied to any shares of Labco common stock issuable to the
Company upon the exercise of certain warrants held by the Company. Labco
registered the Company's Labco shares for resale pursuant to the Securities Act
to facilitate such sales.
In the Termination Agreement, the Company also agreed to surrender to Labco
the Retained Shares and to terminate all remaining inter-company arrangements.
In addition, upon the disposition by the Company of at least 250,000 of its
shares of Labco common stock, Messrs. Binder and Harte agreed to resign their
positions with Labco.
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<PAGE> 41
As of December 31, 1996, the Company had sold its entire interest in Labco
and, pursuant to the terms of the Termination Agreement, Messrs. Binder and
Harte had resigned their respective positions with Labco.
41
<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 1, 1998, the number of
shares of Class A Convertible Preferred Stock, Class B Convertible Preferred
Stock and Common Stock owned by each Named Executive Officer, each director and
all directors and executive officers as a group and any persons (including any
"group" as used in Section 13(d)(3) of the Exchange Act) known by the Company to
own beneficially 5% or more of such securities. As of February 1, 1998, there
were 5,509,854 shares of Common Stock, 45,146 shares of Class A Convertible
Preferred Stock and 22,500 shares of Class B Convertible Preferred Stock issued
and outstanding. As of that date, none of the executive officers and directors
of the Company owned shares of the Company's Class A Convertible Preferred Stock
or Class B Convertible Preferred Stock. The business address for all of the
executive officers and directors of the Company is 219 South Street, Murray
Hill, New Jersey 07974.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
OF CLASS A OF CLASS B BENEFICIAL OWNERSHIP
CONVERTIBLE CONVERTIBLE OF COMMON STOCK
PREFERRED STOCK PREFERRED STOCK (1)(2)
---------------- ---------------- ---------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
OF OF OF OF OF OF
NAME SHARES CLASS SHARES CLASS SHARES CLASS
---- ------ ------- ------ ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Stanley S. Binder(3)................................... -- -- -- -- 139,011 2.7%
John H. Davies(4)...................................... -- -- -- -- 121,667 2.2
John J. Harte(5)....................................... -- -- -- -- 51,100 *
Richard D. Condon(6)................................... -- -- -- -- 32,250 *
John D. Abernathy(7)................................... -- -- -- -- 29,204 *
James C. McGrath(8).................................... -- -- -- -- 22,250 *
Kenneth S. Wood(9)..................................... -- -- -- -- 57,136 1.0
Richard S. Rosenfeld(10)............................... -- -- -- -- 50,661 *
All directors and executive officers as a group
consisting of eight (8) persons...................... -- -- -- -- 503,279 8.7
Austin W. Marxe(11).................................... -- -- -- -- 1,026,822 18.0
153 E. 53rd St.
NY, NY 10022
Perkins Capital Management, Inc.(12) .................. -- -- -- -- 554,559 10.1
708 East Lake Street
Wayzata, MN 55391
Corbyn Investment Management, Inc.(13)................. -- -- -- -- 400,100 7.3
2330 W. Joppa Road
Suite 108
Lutherville, MD 21093
Westcliff Capital Management, LLC(14).................. -- -- -- -- 439,225 6.9
200 Seventh Avenue,
Suite 105
Santa Cruz, CA 95062
Richard S. Spencer III(14)............................. -- -- -- -- 439,225 6.9
200 Seventh Avenue,
Suite 105
Santa Cruz, CA 95062
David R. Korus(14)..................................... -- -- -- -- 439,225 6.9
152 W. 57(th)Street
New York, NY 10019
Ronald and Kathleen Hanna.............................. 21,549 47.7% -- -- 7,795 *
135 South Horizon Circle
Prescott, AZ 86303
Max Gerber(15)......................................... -- -- 12,500 55.6% 4,536 *
26 Broadway
New York, NY 10004-1776
Paul Spitzberg(16)..................................... -- -- 10,000 44.4 3,639 *
16 Whiteowl Road
Tenafly, NJ 07670
</TABLE>
- ----------------------
* Less than 1%
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<PAGE> 43
(1) Assumes the exercise of all outstanding warrants for Common Stock, the
conversion of each outstanding share of Class A Convertible Preferred Stock
and Class B Convertible Preferred Stock into Common Stock and the exercise
of all options exercisable within 60 days of February 1, 1998 for each
person or entity.
(2) Certain amounts shown are subject to adjustment in certain circumstances.
(3) Includes 72,875 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 12,500 shares of
Common Stock issuable upon exercise of warrants owned by Mr. Binder.
Excludes shares of Common Stock beneficially owned by SSF III of which Mr.
Binder is an independent general partner. Mr. Binder disclaims any
beneficial interest in such shares.
(4) Includes 50,372 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 12,500 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Davies.
(5) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998.
(6) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 5,000 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Condon.
(7) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable with 60 days of February 1, 1998 and 6,250 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Abernathy.
(8) Includes 13,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 3,750 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. McGrath.
(9) Includes 43,500 shares of Common Stock issuable upon the exercise of options
exercisable within 60 days of February 1, 1998.
(10) Includes 36,625 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of February 1, 1998 and 5,000 shares of
Common Stock issuable upon the exercise of warrants owned by Mr. Rosenfeld.
Also includes 3,636 shares of Common Stock owned by Mr. Rosenfeld's child.
(11) Includes (i) 502,580 shares of Common Stock and 256,667 shares of Common
Stock issuable upon the exercise of warrants owned by SSF III, and (ii)
174,242 shares of Common Stock and 93,333 shares of Common Stock issuable
upon the exercise of warrants owned by Special Situations Cayman Fund, L.P.
(the "Cayman Fund"). AWM Investment Company, Inc. ("AWM") is the sole
general partner of the Cayman Fund and the sole general partner of MGP
Advisors Limited ("MGP"), a general partner of SSF III. Mr. Marxe is the
President and Chief Executive Officer of AWM and the principal limited
partner of MGP. Accordingly, Mr. Marxe may be deemed to be the beneficial
owner of all of the shares of Common Stock held by SSF III and the Cayman
Fund. Mr. Binder is an independent general partner of SSF III. Mr. Binder
disclaims beneficial ownership of all shares held by SSF III.
(12) Consists of 319,150 shares of Common Stock owned by clients of Perkins
Capital Management, Inc. ("Perkins Capital") and 235,409 shares of Common
Stock held by The Perkins Opportunity Fund (the "Perkins Fund"), for which
Perkins Capital acts as investment adviser. Perkins Capital disclaims any
beneficial interest in the shares of Common Stock held by the Perkins Fund.
(13) Consists of 76,100 shares of Common Stock owned by Corbyn Investment
Management, Inc. and 324,000 shares of Common Stock owned by Greenspring
Fund, Inc.
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<PAGE> 44
(14) Includes 135,425 shares of Common Stock owned by Westcliff, LLC ("WL"),
47,175 shares of Common Stock owned by Westcliff Partners, L.P. ("WP") and
88,250 shares of Common Stock owned by Westcliff Long/Short, L.P. ("WLS").
Westcliff Capital Management, LLC ("WCM") is the investment adviser to and
a general partner of WP and WLS and WL is a general partner of WP and WLS.
Messrs. Spencer and Korus are the sole managers of WCM and WL.
(15) Includes 4,447 shares of Common Stock issuable upon conversion of the Class
B Convertible Preferred Stock.
(16) Includes 3,558 shares of Common Stock issuable upon conversion of the Class
B Convertible Preferred Stock.
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<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following is a brief summary of certain provisions of the capital stock
of the Company. Such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Certificate of
Incorporation, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, 1,000,000 shares of Convertible
Preferred Stock, par value $1.25 per share, and 4,000,000 shares of Preferred
Stock, par value $2.00 per share, of which 270,000 shares are designated as
Class A Convertible Preferred Stock and 730,000 shares are designated as Class B
Convertible Preferred Stock. As of February 1, 1998, the Company had outstanding
5,509,854 shares of Common Stock, no shares of Convertible Preferred Stock,
45,146 shares of Class A Convertible Preferred Stock and 22,500 shares of Class
B Convertible Preferred Stock. The Company currently intends to redeem the
outstanding shares of Class A Convertible Preferred Stock and Class B
Convertible Preferred Stock as soon as permitted under the terms thereof. Upon
completion of this Offering, the Company will have outstanding 7,509,854 shares
of Common Stock (7,809,854 shares if the Underwriters' over-allotment option is
exercised in full). In addition, the Company will have 1,594,936 shares of
Common Stock reserved for issuance pursuant to options, warrants and convertible
securities outstanding as of February 1, 1998. See "Shares Eligible For Future
Sale." As of February 1, 1998, there were approximately 1,000 record holders of
Common Stock.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share on all matters on which the holders of Common Stock are entitled to vote.
Subject to the rights of the outstanding shares of Convertible Preferred Stock
and Preferred Stock, the holders of the Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation or dissolution after
payment or provision for all liabilities and the preferential liquidation rights
of the Convertible Preferred Stock and Preferred Stock then outstanding. The
holders of Common Stock have no pre-emptive rights to purchase any shares of any
class of stock of the Company. All outstanding shares of Common Stock are, and
the shares of Common Stock to be issued by the Company pursuant to the Offering
will be, upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more classes
or series, and the Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to fix the rights, preferences and privileges of the
shares and the qualifications, limitations or restrictions thereon, the number
of shares constituting such class or series and the designation thereof, without
any further vote or action by the stockholders. Unless the designations
establishing a particular series of Preferred Stock provide that the shares of
such series of Preferred Stock rank junior to the Convertible Preferred Stock,
all outstanding shares of Preferred Stock will rank pari passu with the
Convertible Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
Depending upon the rights of such Preferred Stock, the issuance of additional
Preferred Stock could adversely affect the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank senior to the Common Stock as to
dividend rights,
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<PAGE> 46
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
The Board of Directors has designated two series of Preferred Stock, the
Class A Convertible Preferred Stock and the Class B Convertible Preferred Stock.
As indicated above, the Company currently intends to redeem the outstanding
shares of Class A Convertible Preferred Stock and Class B Convertible Preferred
Stock as soon as permitted under the terms thereof. Based on the recent trading
history for the Common Stock, the Company anticipates that it will be permitted
to redeem the outstanding shares of Class A Convertible Preferred Stock and
Class B Convertible Preferred Stock on or about April 29, 1998.
Class A Convertible Preferred Stock
Holders of Class A Convertible Preferred Stock are entitled to receive or
have set apart for payment, when and as declared by the Board of Directors,
cumulative dividends at an annual rate of $0.16 per share, payable semi-annually
in cash or shares of Common Stock at the Company's option. Holders of shares of
Class A Convertible Preferred Stock are entitled to convert each share of Class
A Convertible Preferred Stock into 0.361745 of a share of Common Stock. The
number of shares of Common Stock into which each share of Class A Convertible
Preferred Stock is convertible is subject to adjustment in certain events. The
Class A Convertible Preferred Stock is redeemable any time, at the Company's
option, after the closing price of the Common Stock has been $12.00 or more for
90 consecutive trading days, in whole or in part, at $2.00 per share, plus
accrued dividends. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, holders of Class A
Convertible Preferred Stock will be entitled to a liquidation preference of
$2.00 per share plus accrued dividends. Holders of Class A Convertible Preferred
Stock are entitled to vote on all matters on which the holders of shares of
Common Stock are entitled to vote, vote together with the holders of the Common
Stock the Convertible Preferred Stock and the Class B Convertible Preferred
Stock as a single class, and in such circumstances will be entitled to that
number of votes which is equal to the number of shares of Common Stock into
which each share of Class A Convertible Preferred Stock held by such holder is
then convertible. Holders of Class A Convertible Preferred Stock also are
entitled to vote as a class in certain limited circumstances.
Class B Convertible Preferred Stock
Holders of Class B Convertible Preferred Stock are entitled to receive or
have set apart for payment, when and as declared by the Board of Directors,
cumulative dividends at an annual rate of $0.16 per share, payable semi-annually
in cash or shares of Common Stock at the Company's option. Holders of shares of
Class B Convertible Preferred Stock are entitled to convert each share of Class
B Convertible Preferred Stock at any time after the date of issuance thereof,
into 0.355839 of a share of Common Stock. The number of shares of Common Stock
into which each share of Class B Convertible Preferred Stock is convertible is
subject to adjustment in certain events. The Class B Convertible Preferred Stock
is redeemable any time, at the Company's option, after the closing price of the
Common Stock has been $12.00 or more for 90 consecutive trading days, in whole
or in part, at $2.00 per share, plus accrued dividends. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, holders of Class B Convertible Preferred Stock will be entitled
to a liquidation preference of $2.00 per share, plus accrued dividends. Holders
of Class B Convertible Preferred Stock are entitled to vote on all matters on
which the holders of Common Stock are entitled to vote, vote together with the
holders of Common Stock, the Convertible Preferred Stock and the Class A
Convertible Preferred Stock as a single class, and in such circumstances will be
entitled to that number of votes which is equal to the number of shares of
Common Stock into which each share of Class B Convertible Preferred Stock held
by such holder is then convertible. Holders of Class B Convertible Preferred
Stock also are entitled to vote as a class in certain limited circumstances.
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<PAGE> 47
CONVERTIBLE PREFERRED STOCK
No Convertible Preferred Stock is currently issued or outstanding, and the
Company has no current plan to issue any shares of Convertible Preferred Stock.
Holders of Convertible Preferred Stock, when and if issued, will be entitled to
receive or have set apart for payment, when and as declared by the Board of
Directors, cumulative dividends at an annual rate of $.10 per share, payable
semi-annually in Common Stock. Holders of shares of Convertible Preferred Stock
will be entitled to convert each share of Convertible Preferred Stock at any
time prior to the fourth anniversary of the date of issuance thereof, into one
share of Common Stock. The Company will be entitled to force a conversion of the
Convertible Preferred Stock, but not with respect to less than all of the
outstanding shares, upon the occurrence of certain events. The number of shares
of Common Stock into which each share of Convertible Preferred Stock is
convertible is subject to adjustment in certain events. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, holders of Convertible Preferred Stock will be entitled to a
liquidation preference of $1.25 per share. Holders of Convertible Preferred
Stock will be entitled to vote on all matters on which the holders of Common
Stock vote, vote together with the Common Stock, the Class A Convertible
Preferred Stock and the Class B Convertible Preferred Stock as a single class,
and in such circumstances will be entitled to that number of votes which is
equal to the number of shares of Common Stock into which each share of
Convertible Preferred Stock held by such holder is then convertible. Holders of
Convertible Preferred Stock will also be entitled to vote as a class in certain
circumstances including, a merger, consolidation, a sale of substantially all of
the Company's assets and the adoption of stock option or other incentive plans.
CERTAIN CHARTER PROVISIONS
The Certificate of Incorporation contains provisions which require the
favorable vote by the holders of not less than 80.0% of the outstanding shares
of Common Stock for the approval of any merger, consolidation or other
combination with, or sale, lease or exchange of all or substantially all of the
assets of the Company to, another entity holding more than 10.0% of the
Company's outstanding voting equity securities or any affiliate of such entity.
These provisions could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law generally restricts a
corporation from entering into certain business combinations with an interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15.0% of a corporation's voting stock) or its affiliates for a period of
three years after the date of the transaction in which the person became an
interested stockholder unless (i) the transaction is approved by the board of
directors of the corporation prior to such business combination, (ii) the
interested stockholder acquires 85.0% of the corporation's voting stock in the
same transaction in which it exceeds 15.0%, or (iii) the business combination is
approved by the board of directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. The Delaware
General Corporation Law provides that a corporation may elect not to be governed
by Section 203. At present, the Company does not intend to make such an
election. Section 203 may render more difficult a change in control of the
Company or the removal of incumbent management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
47
<PAGE> 48
COMMON STOCK PURCHASE WARRANTS
In connection with its November 1996 public offering, the Company issued an
aggregate of 1,437,500 Warrants. Each Warrant entitles the registered holder
thereof to purchase one-quarter of a share of Common Stock at an exercise price
of $9.847 per share prior to November 12, 1999, subject to adjustment in certain
circumstances. The Warrants are subject to redemption by the Company, at $0.25
per Warrant (subject to adjustment under certain circumstances), upon not less
than 30 days' prior written notice, if the bid price of the Common Stock as
reported by Nasdaq averages in excess of 200% of the exercise price of the
Warrants for a period of 30 days ending within 15 days of the redemption notice
date. The Company may, in its sole discretion, lower the exercise price of the
Warrants for a period of not less than 30 days on not less than 30 days' prior
written notice. Except as described above, modification of the number of
securities purchasable upon the exercise of any Warrant, the exercise price and
the expiration date with respect to any Warrant or any other modification to the
Warrants requires the consent of the holders of two-thirds of the outstanding
Warrants.
In connection with the November 1996 public offering, the Company sold to
the managing underwriter Underwriter's Warrants (the "Underwriter's Warrants")
to purchase from the Company 125,000 shares of Common Stock at an exercise price
of $10.276 per share and 125,000 Warrants at an exercise price of $0.06 per
Warrant. The Underwriter's Warrants are exercisable with respect to the Common
Stock for a period of four years commencing November 12, 1997 and with respect
to the Warrants for a period of two years commencing November 12, 1997.
48
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, based on shares outstanding as of
February 1, 1998, the Company will have outstanding approximately 7,509,854
shares of Common Stock assuming no exercise or conversion of options, warrants
and convertible securities after February 1, 1998. All of the outstanding
shares, including the 2,000,000 shares offered hereby (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full), will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act. An additional 1,594,936 shares of Common
Stock are issuable upon the conversion or exercise of stock options, warrants
and convertible securities outstanding as of February 1, 1998, 1,438,686 of
which have been registered for resale by the holders thereof and are, therefore,
freely tradable and the balance of which are subject to registration rights
pursuant to which the holders thereof can cause the Company to effect the
registration of such shares for resale.
The holders of an aggregate of 709,621 shares of Common Stock (including
534,550 shares issuable upon the exercise or conversion of outstanding options,
warrants and convertible securities), have agreed with the Underwriters not to
offer or sell, directly or indirectly, or otherwise reduce their risk in, any
securities of the Company, for a period of 90 days after the date of this
Prospectus, subject to certain exceptions, without the prior written consent of
BancAmerica Robertson Stephens. Following the lock-up period, all of the shares
subject to the lock-up agreements will be available for immediate sale.
Sales of substantial amounts of such shares in the public market, or the
perception that such sales might occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors--Shares
Eligible for Future Sale."
49
<PAGE> 50
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens and Pacific Growth Equities, Inc. (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
numbers of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancAmerica Robertson Stephens.............................. 840,000
Pacific Growth Equities, Inc. .............................. 840,000
Barrington Research Associates, Inc. ....................... 80,000
Cruttenden Roth Incorporated................................ 80,000
Gerard Klauer Mattison & Co., LLC........................... 80,000
Needham & Company, Inc. .................................... 80,000
---------
Total................................................... 2,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $0.41 per share, of which $0.10
may be reallowed to other dealers. After the public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the same price per share paid for the
2,000,000 shares that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option, each of the Underwriters will have a
firm commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 2,000,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the 2,000,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The directors and certain officers of the Company, who hold an aggregate of
709,621 shares of Common Stock (including 534,550 shares issuable upon the
exercise or conversion of outstanding options, warrants and convertible
securities), have agreed with the Underwriters that, for a period of 90 days
from the date of this Prospectus (the "Lock-Up Period"), they will not offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, now owned or hereafter acquired
directly by such holders or with respect to which such holders have or hereafter
acquire the power of disposition (subject to certain exceptions) without the
prior written consent of BancAmerica Robertson Stephens, which may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the shares subject to the lock-up agreements. In addition, the
Company has agreed that during the Lock-Up Period, it will not, without the
prior written consent of BancAmerica Robertson Stephens, issue, sell, contract
to sell or otherwise dispose of any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock (subject to
certain
50
<PAGE> 51
exceptions). The offering price of the Common Stock was determined by
negotiations between the Company and the Representatives of the Underwriters,
based in part upon the market price for the Common Stock as reported on the
Nasdaq National Market.
In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualified market makers on The Nasdaq Stock Market may
engage in passive market making transactions in the Common Stock and the
Warrants on The Nasdaq Stock Market in accordance with Rule 103 of Regulation M
under the Exchange Act during the business day prior to the pricing of this
Offering. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
Certain persons participating in this Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock and the Warrants at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids or effecting
syndicate covering transactions. A stabilizing bid means the placing of any bid
or effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Common Stock or the Warrants. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
this Offering. Such transactions may be effected on The Nasdaq Stock Market, in
the over-the-counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
51
<PAGE> 52
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Lowenstein Sandler PC, Roseland, New Jersey. Certain
legal matters will be passed upon for the Underwriters by Alston & Bird LLP,
Atlanta, Georgia.
EXPERTS
The consolidated financial statements included in the Prospectus of
Barringer Technologies Inc. and subsidiaries as of December 31, 1996 and 1997
and each of the years in the three year period ended December 31, 1997, have
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form SB-2 under
the Securities Act with respect to the securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. Statements contained in
this Prospectus as to the content of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and
500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the public reference section of the Commission at its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, or from the Commission's Internet web site at
http://www.sec.gov. In addition, such materials also may be inspected and copied
at the offices of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.
20006.
52
<PAGE> 53
BARRINGER TECHNOLOGIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Barringer Technologies Inc.
Murray Hill, New Jersey
We have audited the accompanying consolidated balance sheets of Barringer
Technologies Inc. as of December 31, 1996 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. 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 presentation of the financial
statements. We believe that 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 financial position of Barringer
Technologies Inc. at December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
February 19, 1998 (March 13, 1998 as to Note 16)
F-2
<PAGE> 55
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,276 $ 8,188
Marketable securities..................................... 4,328 2,499
Trade receivables, less allowances of $63 and $109........ 3,521 7,908
Inventories (note 2)...................................... 2,270 3,049
Prepaid expenses and other................................ 498 887
Deferred tax asset (note 6)............................... 731 1,506
-------- --------
Total current assets................................... 16,624 24,037
Machinery and equipment, net (note 3)....................... 595 1,505
Other....................................................... 104 66
-------- --------
$ 17,323 $ 25,608
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable (note 4)..................................... $ 174 $ --
Accounts payable.......................................... 1,009 1,324
Accrued liabilities....................................... 421 473
Accrued payroll and related taxes......................... 522 1,520
Accrued commission........................................ 112 801
Foreign income taxes payable (note 6)..................... 115 255
-------- --------
Total current liabilities.............................. 2,353 4,373
Non-current liabilities..................................... 117 121
Commitments (note 7)
Stockholders' equity (note 5):
Convertible preferred stock, $1.25 par value, 1,000 shares
authorized, none outstanding........................... -- --
Preferred stock, $2.00 par value, 4,000 shares authorized.
270 shares designated class A convertible preferred
stock, 60 and 45 shares outstanding, less discount of
$47 and $35, respectively.............................. 74 55
730 shares designated class B convertible preferred
stock, 123 and 23 shares outstanding, respectively..... 245 45
Common stock, $0.01 par value, 7,000 and 20,000 shares
authorized, respectively and 5,357 and 5,495 shares
outstanding, respectively.............................. 54 55
Additional paid-in capital................................ 29,430 30,209
Accumulated deficit....................................... (14,522) (8,780)
Cumulative foreign currency translation adjustment........ (415) (457)
-------- --------
14,866 21,127
Less: common stock in treasury, at cost, 31 shares........ (13) (13)
-------- --------
Total stockholders' equity............................. 14,853 21,114
-------- --------
$ 17,323 $ 25,608
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 56
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Revenues.................................................... $6,374 $10,923 $22,689
Cost of revenues............................................ 3,601 5,363 9,008
------ ------- -------
Gross profit.............................................. 2,773 5,560 13,681
Operating expenses:
Selling, general and administrative....................... 3,305 3,734 7,971
Product development....................................... 354 230 715
------ ------- -------
Total operating expenses........................... 3,659 3,964 8,686
------ ------- -------
Operating income (loss)................................. (886) 1,596 4,995
Other income, (expense):
Interest expense.......................................... (240) (228) (9)
Equity in earnings of unconsolidated subsidiary........... -- 117 --
Gain on sale of investment in unconsolidated subsidiary... -- 123 --
Investment income......................................... -- 72 450
Other, net................................................ (52) (12) (53)
------ ------- -------
(292) 72 388
Income (loss) before income tax benefit................. (1,178) 1,668 5,383
Income tax benefit (note 6)................................. -- 391 371
------ ------- -------
Income (loss) from continuing operations................ (1,178) 2,059 5,754
Operation held for sale (note 13):
Income from operations.................................... 258 -- --
Gain on sale of portion of investment..................... 93 -- --
------ ------- -------
351 0 0
------ ------- -------
Net income (loss).................................. (827) 2,059 5,754
Preferred stock dividends................................... (82) (39) (12)
------ ------- -------
Net income (loss) attributable to common stockholders....... $ (909) $ 2,020 $ 5,742
====== ======= =======
Basic per share data (notes 1 and 14):
Income (loss) from continuing operations.................. $(0.39) $ 0.55 $ 1.05
Income from operation held for sale....................... 0.08 -- --
Gain on sale of operation held for sale................... 0.03 -- --
------ ------- -------
Net income (loss).................................. $(0.28) $ 0.55 $ 1.05
====== ======= =======
Diluted per share data (notes 1 and 14):
Income (loss) from continuing operations.................. $(0.39) $ 0.46 $ 0.92
Income from operation held for sale....................... 0.08 -- --
Gain on sale of operation held for sale................... 0.03 -- --
------ ------- -------
Net income (loss).................................. $(0.28) $ 0.46 $ 0.92
====== ======= =======
Weighted average common and common
equivalent shares outstanding:
Basic..................................................... 3,283 3,695 5,456
====== ======= =======
Diluted................................................... 3,283 4,440 6,257
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 57
BARRINGER TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
COMMON PREFERRED CLASS A CLASS B
STOCK STOCK PFD. STK. PFD. STK.
TOTAL ------------ ----------- ----------- ------------- PAID IN ACCUM.
EQUITY SHRS AM'T SHRS AM'T SHRS AM'T SHRS AM'T CAPITAL DEFICIT
------- ----- ---- ---- ---- ---- ---- ---- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1995........... 1,186 2,872 29 445 555 83 101 318 635 16,036 (15,633)
Sale of units in private
placement, net................. 888 383 4 884
Conversion of preferred stock.... 0 159 2 (445) (555) (60) (120) 673
Change in warrant exercise price
in payment of debt............. 10 10
1995 dividend on preferred
stock.......................... 0 65 82 (82)
Net loss......................... (827) (827)
Translation adjustment........... 68
------- ----- --- ---- ---- --- ---- ---- ----- ------- --------
Balance--December 31, 1995......... 1,325 3,479 35 0 0 83 101 258 515 17,685 (16,542)
Sale of securities, net of
expense ($741)................. 10,401 1,437 14 10,387
Conversion of preferred stock.... 0 55 1 (23) (27) (135) (270) 296
Issuance and exercise of stock
options and warrants........... 42 15 42
Conversion of debentures......... 1,000 364 4 996
Preferred stock dividends........ (15) 7 24 (39)
Net income....................... 2,059 2,059
Translation adjustment........... 41
------- ----- --- ---- ---- --- ---- ---- ----- ------- --------
Balance--December 31, 1996......... 14,853 5,357.. 54 0 0 60 74 123 245 29,430* (14,522)
Conversion of preferred stock.... 0 41 (15) (19) (100) (200) 219
Issuance and exercise of stock
options and warrants........... 490 97 1 489
Repayment of stockholder loan.... 71 71
Net income....................... 5,754 5,754
Translation adjustment........... (42)
Preferred stock dividends........ (12) (12)
------- ----- --- ---- ---- --- ---- ---- ----- ------- --------
Balance--December 31, 1997......... $21,114 5,495.. $55 0 $ 0 45 $55 23 $ 45 $30,209* $ (8,780)
======= ===== === ==== ==== === ==== ==== ===== ======= ========
<CAPTION>
FOREIGN TREAS.
TRANSL STOCK
------- ------
<S> <C> <C>
Balance--January 1, 1995........... (524) (13)
Sale of units in private
placement, net.................
Conversion of preferred stock....
Change in warrant exercise price
in payment of debt.............
1995 dividend on preferred
stock..........................
Net loss.........................
Translation adjustment........... 68
------ ----
Balance--December 31, 1995......... (456) (13)
Sale of securities, net of
expense ($741).................
Conversion of preferred stock....
Issuance and exercise of stock
options and warrants...........
Conversion of debentures.........
Preferred stock dividends........
Net income.......................
Translation adjustment........... 41
------ ----
Balance--December 31, 1996......... (415) (13)
Conversion of preferred stock....
Issuance and exercise of stock
options and warrants...........
Repayment of stockholder loan....
Net income.......................
Translation adjustment........... (42)
Preferred stock dividends........
------ ----
Balance--December 31, 1997......... $ (457) $(13)
====== ====
</TABLE>
- ------------
* At December 31, 1997 and 1996 net of note receivable of $203 and $274,
respectively, from the sale of stock.
See notes to consolidated financial statements.
F-5
<PAGE> 58
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Net income (loss)........................................... $ (827) $ 2,059 $ 5,754
Items not affecting cash:
Depreciation and amortization............................. 362 115 272
Inventory write-down and receivable reserves.............. 656 22 332
Income from and gain on sale of investment in Labco....... (351) (240) --
Pension recovery.......................................... (147) -- --
Deferred tax benefit...................................... -- (506) (775)
Prepaid pension cost...................................... (78) -- --
Other..................................................... 71 50 30
Increase in non-cash working capital balances............... (397) (2,947) (3,655)
------ ------- -------
Cash provided by, (used in) operating activities........ (711) (1,447) 1,958
------ ------- -------
Investing activities:
Purchase of machinery and equipment....................... (358) (124) (1,190)
Sale of (investment in) marketable securities............. -- (4,328) 1,829
Proceeds on sale of investment in Labco................... 300 574 --
------ ------- -------
Cash provided by, (used in) investing activities........ (58) (3,878) 639
------ ------- -------
Financing activities:
Proceeds on issuance of Convertible Subordinated
Debentures.............................................. -- 1,000 --
Reduction in long-term debt............................... -- (300) --
Decrease in bank debt and other........................... (412) (570) (174)
Proceeds on issuance of equity securities................. 888 10,443 430
Repayment of stockholder loan............................. -- -- 71
Rent inducement........................................... 108 -- --
Payment of dividends on preferred stock................... -- (15) (12)
------ ------- -------
Cash provided by financing activities................... 584 10,558 315
------ ------- -------
Increase (decrease) in cash and cash equivalents............ (185) 5,233 2,912
Cash and cash equivalents--beginning of year................ 267 43 5,276
Less cash held for sale..................................... (39) -- --
------ ------- -------
Cash and cash equivalents--end of year...................... $ 43 $ 5,276 $ 8,188
====== ======= =======
Changes in components of non-cash working capital balances
related to operations:
Trade receivables......................................... $ 38 $(2,010) $(4,433)
Inventories............................................... (281) (649) (1,065)
Other current assets...................................... 60 (248) (389)
Other assets.............................................. (12) 39 38
Accounts payable and accrued liabilities.................. (202) (79) 2,194
------ ------- -------
Increase in non-cash working capital balances............... $ (397) $(2,947) $(3,655)
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 59
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements comprise the accounts of
the Company and its continuing subsidiary companies. All intercompany
transactions have been eliminated.
Principles of Translation
Assets and liabilities of the Company's foreign subsidiaries are translated
by using year-end exchange rates and statement of operation items are translated
at average exchange rates for the year. Translation adjustments are accumulated
in a separate component of stockholders' equity.
Inventories
Materials and supplies are carried at the lower of average cost or
replacement cost. Finished goods and work-in process are carried at the lower of
average cost or net realizable value.
Property and Equipment
Property and equipment are carried at cost. Depreciation of owned equipment
is computed on a straight-line basis over the estimated useful lives of the
related assets, generally from three to ten years. Leasehold improvements are
amortized over the term of the related lease, generally from five to ten years,
which approximates the useful lives of these improvements. Equipment under
capital leases is amortized on a straight-line basis over the term of the lease,
generally four to ten years, which approximates the estimated useful lives of
the leased equipment.
Per Share Data
In December, 1997, as required, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which
establishes standards for computing and presenting earnings per share. SFAS 128
replaces the presentation of primary earnings per share and fully diluted
earnings per share with basic earnings per share and diluted earnings per share,
respectively. Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share is
computed assuming the conversion of convertible preferred stock and the exercise
or conversion of common equivalent shares, if dilutive, consisting of unissued
shares under options and warrants. In accordance with SFAS 128 all prior periods
presented have been restated to conform to the new presentation.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Revenue Recognition
The Company recognizes revenue on the percentage of completion method for
its research and development contracts with progress measured based on the ratio
of costs incurred to the total estimated cost, and generally, when product is
shipped for all other sales. Where the Company receives contracts for the design
and construction of specialty instruments that require long manufacturing times,
the Company will also recognize revenue on the percentage of completion method
similar to its recognition method in the research and development business.
F-7
<PAGE> 60
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the years ended December 31, 1995 and 1996, the Company had recognized
revenues of $264,000 and $49,000 respectively, on jobs in process and had
incurred related costs of $183,000 and $25,000 respectively, of which $210,000
and $0, respectively, were billed to customers. For the year ended December 31,
1997, the Company did not have any significant contracts in progress.
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Concentrations of credit risk with respect to such receivables are limited to
primarily governmental agencies. Marketable securities consists primarily of
investments in U.S. government and agency obligations and commercial paper.
Long-Lived Assets
Long-lived assets, such as machinery and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. If and when any such impairment
exists, the related assets will be written down to fair value. This policy is in
accordance with Statement of Financial Accounting Standards No. 121, ("SFAS
121") "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of", which the Company adopted effective for the year ended
December 31, 1996. No write-downs have been necessary through December 31, 1997.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of SFAS 123,
"Accounting for Stock-Based Compensation", but applies Accounting Principle
Board Opinion No. 25 "Accounting for Stock Issued to Employees", in accounting
and measuring compensation expense related to stock option plans. There was no
compensation expense related to the issuance of stock options to employees for
the years ended December 31, 1995, 1996 and 1997. In 1996, the Company recorded
compensation expense in the amount of $60,000 relating to stock options awarded
to the Company's independent directors (see note 5 for pro-forma disclosure
required by SFAS 123).
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, marketable securities, accounts receivable, accounts
payable, accrued liabilities and notes payable approximate fair value because of
the immediate or short-term maturity of these financial instruments. The Company
has the ability and intent to hold all marketable securities through their
respective maturity dates.
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 these estimates. Many of the
Company's estimates and assumptions used in the financial statements relate to
the Company's products, which are subject to technology and market changes. It
is reasonably possible that changes may occur in the near term that would affect
management's estimates with respect to accounts receivable, inventories,
equipment and deferred income taxes.
F-8
<PAGE> 61
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Recent Pronouncements of the Financial Accounting Standards Board
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and will be effective for fiscal years beginning after
December 15, 1997. The Company will be reviewing this document to determine its
applicability to the Company, and has elected not to adopt early application.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which supercedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards
for the way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Because of
the relatively recent issuance of this standard, management has been unable to
fully evaluate the impact, if any, it may have on future financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
2. INVENTORIES
At December 31, 1996 and 1997, the Company had parts, subassemblies and
work in process of $1,483,000, and $2,748,000 and finished goods of $787,000,
and $301,000, respectively.
3. MACHINERY AND EQUIPMENT
The major categories of machinery and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Office equipment........................................ $ 395,000 $ 969,000
Machinery and equipment................................. 1,857,000 1,986,000
Leasehold improvements.................................. 64,000 70,000
----------- -----------
2,316,000 3,025,000
Accumulated depreciation................................ (1,721,000) (1,520,000)
----------- -----------
Totals.................................................... $ 595,000 $ 1,505,000
=========== ===========
</TABLE>
4. NOTE PAYABLE
The Company's Canadian subsidiary, Barringer Research Ltd. ("BRL"), had a
financing arrangement with the Ontario Development Corporation ("ODC") for a
$730,000 export line of credit. In January 1997, the Company paid all amounts
owed to the ODC and the facility was terminated.
BRL's line of credit arrangement with the Toronto-Dominion Bank ("Bank")
was terminated by BRL in December 1996 upon the payment of all amounts due to
the Bank. During December 1996, the Company placed in an interest bearing
account $280,000 in order to secure a performance bond that
F-9
<PAGE> 62
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
was previously issued by the Bank. At December 31, 1996, this deposit was
restricted. On February 12, 1997, the bond was canceled and the deposit
released.
5. STOCKHOLDERS' EQUITY
Public Offering
On November 12, 1996, the Company completed the sale of 1,250,000 shares
("Shares") of common stock and 1,250,000 Common Stock Purchase Warrants
("Warrants") in a public underwriting. On December 12, 1996, the underwriters
exercised their over-allotment option and acquired an additional 187,500 Shares
and 187,500 Warrants. The aggregate net proceeds to the Company, after all
expenses of the offering, was approximately $10,401,000.
Private Offerings
On May 9, 1995, the Company completed the private placement of its
securities to two institutional investors. The private placement consisted of
125 Units priced at $6,000 each for an aggregate sales price of $750,000. Each
Unit ("Unit") consisted of 2,500 shares of the Company's common stock and a five
year warrant to purchase 2,500 shares of the Company's common stock at $1.96 per
share. In addition, in order to induce the institutional investors to enter into
this transaction, an additional three year warrant to acquire 37,500 shares of
the Company's common stock at $1.96 per share was issued.
On June 30, 1995, the Company completed an additional private placement in
which it sold an additional 128 Units, including 22 Units to seven members of
senior management and the Company's Board of Directors, for proceeds aggregating
$168,000. This private placement did not include the additional three year
warrant.
On July 10, 1996, the Company completed the sale of $1,000,000 of its 6%
Convertible Subordinated Debentures, ("Debentures") due 1997, in a private
transaction to private investors including members of management. These
debentures were convertible into shares of the Company's Common Stock at the
rate of $2.75 per share and mature on the earlier of (i) 30 days after the
completion of an underwritten public offering or a private placement by the
Company of its equity securities pursuant to which the Company receives net
proceeds in an aggregate amount in excess of $5,000,000, or (ii) July 9, 1997.
Interest is payable semi-annually. A portion of the net proceeds of the sale of
these debentures were used to repay the 12 1/2% Subordinated Convertible
Debentures due 1996. All of the Debentures were converted into 363,628 shares of
common stock in December 1996, as a result of the public offering.
Due from Officers/Shareholders
In connection with the exercise of options to acquire 190,000 shares of the
Company's Common Stock, two officers of the Company signed full recourse
interest bearing (no interest the first year, prime rate thereafter) unsecured
promissory demand notes aggregating $274,000 that was available to them under
the Company's stock option purchase program. Under that program the Company has
arranged for a market-maker in the Company's Common Stock, to coordinate the
orderly sale in the open market of a portion of the Common Stock to be received
by the employees upon the exercise of their options in an amount sufficient to
repay the loan and related interest. As of December 31, 1997, and 1996, $203,000
and $274,000, respectively, was outstanding.
F-10
<PAGE> 63
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock Outstanding or Reserved for Issuance
The following table sets forth the number of shares of Common Stock
outstanding as of December 31, 1997 as well as the number of shares of Common
Stock that would be outstanding in the event that all of the options and
warrants are exercised and all Series of Convertible Preferred Stock and
Debentures are converted into Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
EXERCISE, OUTSTANDING OR
CONVERSION OR RESERVED FOR
OPTION PRICE ISSUANCE
--------------- --------------
<S> <C> <C>
Common stock................................. 5,495,354
Class A convertible preferred stock.......... 0.361745 16,331
Class B convertible preferred stock.......... 0.355839 8,006
Stock options (i)............................ $1.00 to $14.00 691,025
Private placement warrants (ii).............. $1.96 387,499
Public warrants (iii)........................ $9.847 342,825
Underwriter's warrants (iii)................. $10.276 125,000
Underlying warrants (iii).................... $9.847 31,250
Directors' warrants (iv)..................... $7.11 to $8.01 7,500
---------
Total........................................ 7,104,790
=========
</TABLE>
All outstanding warrants expire between May 9, 1998 and December 22, 2007.
(i) Stock Compensation Plans
From time to time, the Company has granted non-qualified options to various
employees and directors. The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees", and related Interpretations in accounting for the
plans. Under APB Opinion 25, because the exercise price of the Company's stock
options issued to employees equals the market price of the underlying stock on
the date of grant, no compensation is recognized.
SFAS 123, "Accounting for Stock-Based Compensation", requires the Company
to provide pro forma information regarding net income (loss) and earnings (loss)
per share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in SFAS
123. The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-price model with the following weighted
average assumptions used for grants in 1995, 1996 and 1997; no dividend yield;
expected volatility of 46.5% in 1997 and 30% in 1996 and 1995; risk-free
weighted average interest rates of 6.03% in 1997 and 7.11% in 1996 and 1995; and
expected lives of 5 years for the options.
F-11
<PAGE> 64
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the accounting provisions of SFAS 123, the Company's net income
(loss), basic earnings (loss) per share and diluted earnings (loss) per share on
a pro-forma basis are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported...................................... $(827,000) $2,059,000 $5,754,000
Pro-forma........................................ $(884,000) $1,986,000 $5,567,000
Basic earnings (loss) per share from continuing
operations:
As reported...................................... $ (0.39) $ 0.55 $ 1.05
Pro-forma........................................ $ (0.40) $ 0.53 $ 1.02
Diluted earnings (loss) per share from continuing
operations:
As reported...................................... $ (0.39) $ 0.46 $ 0.92
Pro-forma........................................ $ (0.40) $ 0.44 $ 0.89
</TABLE>
At the May 13, 1997 Annual Meeting of Stockholders, the Company's
stockholders approved the adoption of the Company's 1997 Stock Compensation
Program ("Program"). The Program authorizes the granting of incentive stock
options, non-qualified supplementary options, stock appreciation rights,
performance shares and stock bonus awards to employees and consultants of the
Company and its subsidiaries, including those employees serving as officers or
directors of the Company ("Employee Plans"). The Program also authorizes
automatic option grants to directors who are not otherwise employed by the
Company ("Independent Director Plan"). In connection with the Program, 600,000
shares of Common Stock are reserved for issuance, of which up to 500,000 shares
may be issued under the Employee Plans and up to 100,000 shares may be issued
under the Independent Director Plan. In the event that an option or award
granted under the Program expires, is terminated or forfeited or certain
performance objectives with respect thereto are not met prior to exercise or
vesting, then the number of shares of Common Stock covered thereby will again
become eligible for grant under the Program. The Company will receive no
consideration for grants of options or awards under the Program.
A summary of the status of the Company's outstanding options is presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--
beginning of year.................. 58,750 $12.38 240,125 $ 4.54 461,000 $ 2.19
Granted.......................... 181,375 2.00 253,000 1.00 280,900 10.70
Exercised........................ 0 (1,250) 2.00 (19,937) 1.32
Forfeited........................ 0 (30,875) 10.66 (30,938) 10.32
-------- -------- -------
Outstanding--end of year........... 240,125 4.54 461,000 2.19 691,025 5.31
======== ======== =======
Options exercisable--end of year... 126,800 $ 6.38 164,200 $ 3.49 227,663 $ 1.94
Fair value of options granted
during the year.................. $ 0.70 $ 0.40 $ 6.72
======== ======== =======
</TABLE>
F-12
<PAGE> 65
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On February 28, 1997 and December 22, 1997, options to acquire 135,500
shares and 128,400 shares of the Company's common stock at $9.375 per share and
$11.78 per share, respectively, which was the market value at dates of grant,
were issued to officers and key employees of the Company, pursuant to the
Employee Plan. These options expire ten years from the dates of grant and are
exercisable as to 25% of the optioned shares after the first year, 50% after the
second year, 75% after the third year and 100% after the fourth year. On May 13,
1997, options to acquire 12,000 shares of the Company's common stock at $13.875
per share, which was the market value at date of grant, were issued to the
Company's independent directors pursuant to the Independent Director Plan. These
options expire on May 13, 2002 and are exercisable as to 100% after the first
year. In accordance with SFAS 123, the Company recorded compensation expense in
1997 of $60,000 in connection with the issuance of these options. The options
issued in 1996 expire on April 25, 2001 and are exercisable as to 25% of the
optioned shares immediately, 50% after the first year, 75% after the second year
and 100% after the third year. The options issued in 1995 expire on March 10,
2000 and are exercisable as to 40% of the optioned shares after the first year,
60% after the second year, 80% after the third year and 100% after the fourth
year.
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
NUMBER NUMBER
OUTSTANDING AT WEIGHTED-AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICE 1997 CONTRACTUAL LIFE PRICE 1997 PRICE
-------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.00 237,125 3.3 years $ 1.00 118,563 $ 1.00
2.00 167,250 2.2 years 2.00 100,350 2.00
9.38 132,500 9.3 years 9.38 0 9.38
11.25 to 11.78 133,400 9.9 years 11.25 to 11.78 0 11.25 to 11.78
13.88 12,000 9.5 years 13.88 0 13.88
14.00 8,750 0.2 years 14.00 8,750 14.00
------- -------
1.00 to 14.00 691,025 5.5 years $ 5.31 227,663 $ 1.94
======= =======
</TABLE>
(ii) Private Placement Warrants
In connection with the Company's private placement (see above) warrants to
purchase 420,000 shares of the Company's common stock at $1.96 per share were
sold to a group of private investors and senior management. During 1997, 32,500
of these warrants were exercised. The warrants expire between May 9, 1998 and
June 29, 2000.
(iii) Public Warrants
The public warrants (see above) are exercisable for three years and entitle
the registered holder to purchase one-quarter of a share of Common Stock at an
exercise price of $9.847 per share. The Warrant exercise price and the number of
shares issuable upon exercise of the Warrants are subject to adjustment under
certain circumstances. The Company may redeem outstanding Warrants on not less
than 30 days notice at a price of $0.25 per Warrant (subject to adjustment under
certain circumstances) if the closing bid price of the Common Stock averages in
excess of 200% of the exercise price for a period of 30 days' ending within 15
days of the redemption notice date. During 1997, 66,200 of these warrants were
exercised.
In connection with the November 1996 public offering, the underwriter
received a warrant ("Underwriter's Warrant") to purchase from the Company
125,000 shares of Common Stock at an
F-13
<PAGE> 66
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
exercise price of $10.276 per share ("Exercise Price") and 125,000 Warrants
("Underlying Warrant") at an exercise price of $0.06 per Warrant. Each
Underlying Warrant entitles the holder to purchase one-quarter of a share of
Common Stock at an exercise price of $9.847 per share. The Underwriter's
Warrants are exercisable with respect to the Common Stock for a period of four
years commencing from November 12, 1997 and with respect to the Underlying
Warrants for a period of two years commencing from November 12, 1997. These
warrants contain certain registration rights. None of these warrants was
exercised in 1997.
(iv) Directors' warrants
On December 31, 1991, the Board of Directors adopted the 1991 Directors
Warrant Plan ("Plan"). Pursuant to the Plan, each non-employee director was sold
a five-year warrant to purchase 3,750 shares of Common Stock at an exercise
price equal to the current market price for such shares at the time of issuance
of the warrant. During 1997, 3,750 warrants were exercised. During 1996, 3,750
warrants expired. During 1995, no warrants were issued under the Plan. The Board
of Directors terminated the Plan effective May 1997.
Increase in Authorized Shares
At the May 13, 1997 Annual Meeting of Stockholders, the Company's
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock of the Company from
7,000,000 to 20,000,000.
6. INCOME TAXES
The provision (benefit) for income taxes related to continuing operations
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense (benefit):
Federal......................................... $ 0 $ 143,000 $ 983,000
State........................................... -- 27,000 285,000
Recognition of net operating losses -- U.S...... -- (170,000) (1,268,000)
Foreign (primarily Canada)...................... -- 297,000 952,000
Recognition of net operating losses -- Canada... -- (182,000) (548,000)
---- --------- -----------
Total Current................................ 0 115,000 404,000
---- --------- -----------
Deferred tax expense (benefit):
Federal......................................... 0 (130,000) (728,000)
State........................................... -- (22,000) (128,000)
Foreign (primarily Canada)...................... -- (354,000) 81,000
---- --------- -----------
Total deferred............................... 0 (506,000) (775,000)
---- --------- -----------
Total income tax benefit.......................... $ 0 $(391,000) $ (371,000)
==== ========= ===========
</TABLE>
F-14
<PAGE> 67
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets are comprised of the following temporary differences
and carryforwards at December 31:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Nondeductible allowances against trade
receivables............................. $ 24,000 $ 20,000
Nondeductible reserves and accruals....... 178,000 104,000
Machinery and equipment................... 787,000 497,000
Tax benefit of Canadian operating loss and
investment credit carry forwards........ 217,000 --
Tax benefit of U.S. operating loss carry
forwards................................ 5,672,000 4,404,000
Other..................................... 35,000 53,000
----------- -----------
Gross deferred tax assets............... 6,913,000 5,078,000
Deferred tax assets valuation allowance... (6,182,000) (3,572,000)
----------- -----------
Net deferred tax assets......... $ 731,000 $ 1,506,000
=========== ===========
</TABLE>
As a result of the Company's historical trend of losses, a valuation
allowance has been provided for a substantial portion of the U.S. and Canadian
deferred tax assets. At December 31, 1997, the net deferred tax asset of
$1,506,000, included approximately $405,000 and $1,101,000 related to the
Company's Canadian and U.S. operations, respectively. At December 31, 1996, the
net deferred tax asset of $731,000, included approximately $525,000 and $206,000
related to the Company's Canadian and U.S. operations, respectively. Based on
historical results and estimated 1998 earnings, which include earnings from
certain contracts, as well as available tax planning strategies, management
considers realization of the unreserved deferred tax asset more likely than not.
Additional reductions to the valuation allowance will be recorded when, in the
opinion of management, the Company's ability to generate taxable income is
considered more likely than not.
The Company's income tax provision (benefit) differed from the amount of
income tax determined by applying the applicable statutory U.S. federal income
tax rate to pretax income from continuing operations as a result of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Income taxes (benefit) computed at the U.S. statutory
rate................................................... $(400) $ 567 $ 1,830
Income not subject to U.S. tax, net...................... (126) (225) (239)
U.S. losses and expenses for which no tax benefit has
been recognized........................................ 518 25 7
Utilization of U.S. net operating losses................. -- (143) (777)
Decrease in beginning of the year deferred tax asset
valuation allowance.................................... -- (590) (1,217)
Other.................................................... 8 (25) 25
----- ----- -------
Provision (benefit) for income taxes..................... $ 0 $(391) $ (371)
===== ===== =======
</TABLE>
At December 31, 1997, the Company has net operating loss carry forwards in
the U.S. of approximately $11,000,000 and $7,084,000 for federal and state
income tax purposes, respectively, which expire in varying amounts through 2011.
F-15
<PAGE> 68
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS
The Company rents facilities, automobiles and equipment under various
operating leases. Rental expenses under such leases amounted to $280,000,
$325,000 and $324,000 for 1995, 1996 and 1997, respectively.
At December 31, 1997, the aggregate minimum commitments pursuant to
operating leases, including a lease renewal are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1998............................................... $277,000
1999............................................... 165,000
2000............................................... 114,000
2001............................................... 123,000
2002 and thereafter................................ 421,000
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company's Canadian subsidiary's defined benefit pension plan, which
covered its Canadian employees, was terminated at December 31, 1993. At the same
time, it established a money purchase plan that is structured after the 401(k)
salary deferral plan available to all U.S. employees and as such, does not
establish any corporate obligation other than a discretionary matching formula
to employee contributions. As a result of the termination, the Company
recognized a gain of $206,000 in 1993, representing the excess of the Plan's
projected benefit obligation over the accumulated benefit obligation and
recognized an additional gain in 1995 of $172,000, representing the excess of
the Plan's assets over the cost of providing the annuities to the participants
for the value of their termination benefits. This excess was placed into a money
purchase contract and used by the Company to provide for its matching
contributions under the new arrangement. This amount is being carried as a
deferred pension expense asset on the consolidated balance sheet.
The Company maintains a 401(k) salary deferral plan instituted for all U.S.
employees with more than one year of service. As a money purchase plan, it does
not establish any Company liability other than a matching formula to employee
contributions.
The aggregate cost of both plans for 1995, 1996, and 1997 was $82,000,
$87,000 and $103,000, respectively.
Effective January 1, 1998, the Company adopted the Barringer Technologies
Inc. Supplemental Executive Retirement Plan (the "SERP Plan"). The SERP Plan
provides eligible participants with certain retirement benefits supplemental to
the Company's 401(k) Plan. Pursuant to the SERP Plan, the Company will make
annual contributions to the account of each participant equal to a variable
percentage of the participant's base salary and annual cash bonus depending on
the Company's achievement of certain performance targets. The actual percentage
contribution will be determined by the Executive Compensation Committee, subject
to certain parameters. A participant will become vested under the SERP Plan
after five years of participation therein. Since the SERP Plan was effective as
of January 1, 1998, no contributions were made for 1997.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company made cash payments for interest of $189,000, $246,000 and
$17,000, for the years ended December 31, 1995, 1996 and 1997, respectively.
Additionally, income taxes of $0, $3,500 and $209,000, were paid for the years
ended December 31, 1995, 1996 and 1997, respectively.
F-16
<PAGE> 69
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the years ended December 31, 1995 and 1996, the Company issued Preferred
Stock dividends in the amount $82,000 and $24,000 in the form of 65,417, and
7,949 shares of common stock, respectively. None were issued in 1997.
In December 1996, the entire $1,000,000 of the Company's 6% Convertible
Subordinated Debentures were converted into 363,628 shares of the Company's
common stock as a result of the public offering (see note 5).
10. INFORMATION CONCERNING THE COMPANY'S PRINCIPAL ACTIVITIES
A summary of the Company's continuing operations by geographic area for
each of the three years in the period ended December 31, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
United States........................................... $ 1,867 $ 4,122 $15,378
Canada.................................................. 5,110 7,887 14,693
Europe.................................................. 1,599 2,577 3,544
Eliminations............................................ (2,202) (3,663) (10,926)
------- ------- -------
Totals.......................................... $ 6,374 $10,923 $22,689
======= ======= =======
Income (loss) from continuing operations:
United States........................................... $(1,548) $ 1,152 $ 4,075
Canada.................................................. 270 869 1,447
Europe.................................................. 100 38 232
------- ------- -------
$(1,178) $ 2,059 $ 5,754
======= ======= =======
Identifiable assets:
United States........................................... $ 4,253 $16,650 $20,913
Canada.................................................. 6,248 7,750 8,312
Europe.................................................. 696 1,256 1,382
Eliminations............................................ (6,462) (8,333) (4,999)
------- ------- -------
Totals.......................................... $ 4,735 $17,323 $25,608
======= ======= =======
</TABLE>
For the year ended December 31, 1997, export sales, including sales from
Canada to other countries, comprised 38.8% of total revenues and were made
primarily to Western Europe, Asia and Central and South America.
A summary of the Company's continuing operations by principal activity for
the year ended December 31, 1995 is as shown below. Starting in 1996 no segment,
other than the Instruments segment, was material to the Company's consolidated
operations and accordingly, segment reporting is no longer required.
F-17
<PAGE> 70
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
TOTAL ELIMINATION RES. & DEV. INSTRUMENTS CORP. & OTHER
------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1995:
Revenues.................. $ 6,374 $1,052 $5,250 $ 72
======= ====== ====== ======
Operating income (loss)... $ (886) $ (311) $ 268 $ (843)
====== ====== ======
Interest expense and
other................... (292)
-------
Loss before income
taxes................... $(1,178)
=======
Depreciation and
amortization............ $ 362 $ 45 $ 314 $ 3
======= ====== ====== ======
Capital expenditures...... $ 359 $ 10 $ 349 --
======= ====== ====== ======
Identifiable assets....... $ 4,735 $(6,462) $ 275 $7,589 $3,333
======= ======= ====== ====== ======
</TABLE>
11. SALES TO MAJOR CUSTOMERS
During 1997, two customers accounted for approximately 27.8% (14.8% and
13%) of consolidated revenues of the Company. During 1996, one customer
accounted for approximately 11% of consolidated revenues of the Company. During
1995, no customer accounted for more than 10% of the consolidated revenues of
the Company.
12. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1997, the Company had no material adjustments.
During the fourth quarter of 1996, the Company recorded a deferred tax benefit
related to a decrease in the deferred tax asset valuation allowance of $266,000.
During the fourth quarter of 1995, the Company recorded adjustments for
estimated losses on inventories and receivables of approximately $450,000 and
$200,000, respectively.
13. SALE OF SUBSIDIARY
During the first quarter of 1995, the Company started to actively seek a
purchaser for its then 47% interest in Barringer Laboratories, Inc ("Labco").
Pursuant to the terms of a Stock Purchase Agreement, dated December 8, 1995
("Agreement"), by and between the Company and Labco, on December 13, 1995 the
Company sold to Labco 647,238 shares of Labco's common stock for an aggregate
purchase price of $809,000, resulting in a gain of $93,000. After giving effect
to the sale of the Labco shares, the Company continued to own 432,475 shares of
Labco stock representing a 26% ownership interest.
During 1996, the Company sold all of its remaining shares and warrants in
Labco and recognized a gain on such sales of $123,000. In addition to the gain
on the sale of its Labco investment, the Company recorded $117,000 of income
representing its proportionate share of Labco's net income for 1996.
F-18
<PAGE> 71
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. EARNINGS (LOSS) PER SHARE
Basic and Diluted earnings (loss) per share for the years ended December
31, 1997, 1996 and 1995 have been computed as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income............................................ $5,754,000
Less: Preferred dividends............................. (12,000)
----------
Basic Earnings Per Share
Income attributable to common stockholders.......... 5,742,000 5,456,000 $1.05
=====
Effect of dilutive securities
Warrants and options................................ 777,000
Convertible preferred dividends..................... 12,000 24,000
---------- ----------
Diluted Earnings Per Share
Income attributable to common stockholders and
assumed conversions.............................. $5,754,000 6,257,000 $0.92
========== ========== =====
</TABLE>
Options to purchase 24,268 shares of common stock, exercisable at between
$11.78 and $14.00 per share, were outstanding at December 31, 1997 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common stock
underlying the options.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income............................................ $2,059,000
Less: Preferred dividends............................. (39,000)
----------
Basic Earnings Per Share
Income available to common stockholders............. 2,020,000 3,695,000 $0.55
=====
Effect of dilutive securities
Warrants and options................................ 27,000 228,000
Convertible preferred dividends and debentures...... 39,000 517,000
---------- ----------
Diluted Earnings Per Share
Income available to common stockholders and assumed
conversions...................................... $2,086,000 4,440,000 $0.46
========== ========== =====
</TABLE>
F-19
<PAGE> 72
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
-----------------------------------------
LOSS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net loss from continuing operations.................. $(1,178,000)
Add: Preferred dividends............................. (82,000)
-----------
Basic Loss Per Share
Loss attributable to common stockholders........... (1,260,000) 3,283,000 $(0.39)
======
Effect of dilutive securities
Warrants and options...............................
Convertible preferred dividends.................... N/A N/A
----------- ----------
Diluted Loss Per Share
Loss attributable to common stockholders........... $(1,260,000) 3,283,000 $(0.39)
=========== ========== ======
</TABLE>
15. PROPOSED ACQUISITION
In March 1998, the Company entered into a merger agreement and certain
related agreements with DigiVision, Inc. ("DigiVision"), a San Diego-based
developer of video enhancement products, and certain of its shareholders
pursuant to which the Company intends to acquire all of the outstanding capital
stock of DigiVision for an aggregate cash purchase price of approximately
$750,000. Upon consummation of the acquisition, the Company may record a
one-time charge to write-off certain technology and in-process research and
development to be acquired from DigiVision. Although management of the Company
cannot currently estimate the amount of the charge, it is expected such charge
could represent a substantial portion of the purchase price, including costs
related to the acquisition. The final allocation of the purchase price will be
subject to the completion of due diligence procedures, including appraisals and
valuation analyses, as necessary.
The Company's proposed acquisition of DigiVision is subject to a number of
significant conditions precedent. The Company expects to consummate the
acquisition in the first half of 1998. However, no assurance can be given that
the acquisition will occur or as to the timing thereof.
16. SUBSEQUENT EVENT
On March 13, 1998, the Company established a $5.0 million unsecured
revolving credit facility with Fleet Bank, N.A. (the "Bank") to be used for
general working capital purposes, including the issuance of standby letters of
credit (the "Facility"). Drawings under the Facility may not be used to fund
acquisitions unless approved in advance by the Bank. Amounts drawn under the
Facility bear interest at a variable rate per annum selected by the Company and
equal to either the Bank's prime rate less 0.75% or LIBOR (determined on the
basis of a 30-, 60- or 90-day interest period, as applicable) plus 2.0%. The
Facility expires on June 30, 1999, subject to renewal. The Facility is
guaranteed by the Company's primary U.S. subsidiary, Barringer Instruments Inc.
("BII"). Pursuant to the Facility, the Company and BII are required to comply
with certain customary covenants, including certain financial tests. In
addition, BII and the Company's Canadian subsidiary (BRL) have agreed not to
pledge their assets to any other creditor without the Bank's prior written
consent.
F-20
<PAGE> 73
Graphic Description
Inside Back Cover
Photo 1 shows a schematic of the IONSCAN(R) heating and testing
chambers under the heading "IONSCAN(R) Technology at Work" surrounded by five
additional pictures. Picture 1 is headed "1 Particle Collected" and shows a
security agent collecting a sample from a briefcase. Picture 2 is headed "2
Sample Inserted" and shows a sample being inserted into the IONSCAN(R).
Picture 3 is headed "3 IONSCAN(R) Analyzes" and shows the IONSCAN(R) processing
a sample. Picture 4 is headed "4 Pass" and shows the IONSCAN(R)'s alarm
indicating "pass." Picture 5 is headed "5 Passenger Proceeds" and shows a
female passenger about to pick up her bag from the security station.
Photo 2 is a schematic drawing of a proposed automated luggage system
under the heading "New Product Development." The caption to the schematic reads
as follows:
"The FAA has recently awarded Barringer a contract to develop an
automated luggage trace explosives detection system. If successfully developed,
this product would provide high throughput testing of checked luggage with
minimal operator intervention."
Photo 3 shows a prototype of the Company's document scanner system.
The caption to the photograph reads as follows:
"Barringer has developed a Document Scanner under contract with the FAA
which could potentially provide passenger screening capabilities in airports
throughout the world."
<PAGE> 74
[Barringer Name and Logo]
<PAGE> 75
[BARRINGER TECH LOGO]