<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission
September 30, 1998 File Number 0-8241
- - ---------------------- -------------------
Barringer Laboratories, Inc.
- - ------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 84-0951626
- - -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15000 West 6th Avenue, Suite 300, Golden, Colorado 80401-5047
-------------------------------------------------------------
(Address of principal executive office)
Issuer's telephone number, including area code (303) 277-1687
--------------
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Number of shares outstanding as of September 30, 1998 - 3,257,315 of Common
Stock, $.01 par value.
<PAGE>
BARRINGER LABORATORIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997
- Consolidated Statements of Operations (Unaudited) for the Three
Months and Nine Months Ended September 30, 1998 and 1997
- Consolidated Statements of Cash Flows (Unaudited) for the Three
Months and Nine Months Ended September 30, 1998 and 1997
- Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
Signatures
Page 2
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------
1998 1997
---- ----
(UNAUDITED)
<S> <S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 97,000 $ 524,000
Trade receivables, less
allowance of $31,000 and
$13,000 for doubtful accounts 1,086,000 1,062,000
Prepaid expenses and other 327,000 127,000
---------- ----------
Total Current Assets 1,510,000 1,713,000
---------- ----------
Property and Equipment:
Machinery and equipment 2,285,000 2,214,000
Machinery and equipment under
capital lease obligations 134,000 134,000
Leasehold improvements 664,000 663,000
Office furniture and equipment 90,000 90,000
---------- ----------
3,173,000 3,101,000
Less accumulated depreciation
and amortization 2,952,000 2,809,000
---------- ----------
Net Property and Equipment 221,000 292,000
Certificate of Deposit 150,000 150,000
Other Assets 53,000 57,000
---------- ----------
Total Assets $1,934,000 $2,212,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------
1998 1997
---- ----
(UNAUDITED)
<S> <S> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 237,000 $ 251,000
Accrued liabilities:
Payroll, compensation and
related expenses 129,000 290,000
Other 281,000 211,000
Current maturities of long-
term debt 38,000 38,000
----------- -----------
Total Current Liabilities 686,000 790,000
Long-Term Debt, less current
maturities 24,000 54,000
----------- -----------
Total Liabilities 709,000 844,000
Minority Interest - 5,000
Shareholders' Equity
Preferred stock, $2.00 par value,
1,000,000 shares authorized;
none issued - -
Common stock, $0.01 par value,
shares authorized, 10,000,000;
issued and outstanding 3,257,315
and 1,590,649 33,000 16,000
Additional paid-in capital 3,055,000 2,397,000
Accumulated deficit (1,841,000) (1,027,000)
Translation Adjustment (23,000) (23,000)
----------- -----------
Total Shareholders' Equity 1,225,000 1,363,000
----------- -----------
Total Liabilities and
Shareholders' Equity $ 1,934,000 $ 2,212,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Mos. Ended Sept. 30, Nine Mos. Ended Sept. 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales of Services $ 1,506,000 $ 1,945,000 $ 4,843,000 $ 5,207,000
Cost of Services Sold 1,207,000 1,456,000 3,848,000 4,121,000
----------- ----------- ----------- -----------
Gross Profit 299,000 489,000 995,000 1,086,000
----------- ----------- ----------- -----------
Selling, General and
Administrative Expenses 497,000 439,000 1,817,000 1,303,000
----------- ----------- ----------- -----------
Operating Income (Loss) (198,000) 50,000 (822,000) (217,000)
Other Income (Expense):
Interest income 5,000 7,000 20,000 26,000
Interest expense (3,000) (4,000) (9,000) (14,000)
Translation gain (loss) (16,000) 2,000 (20,000) (14,000)
Other (1,000) 2,000 11,000 5,000
----------- ----------- ----------- -----------
Total Other Income (Expense) (15,000) 7,000 2,000 3,000
----------- ----------- ----------- -----------
Income (Loss) before Income
Taxes and Minority Interest
in Loss of Subsidiary (213,000) 57,000 (820,000) (214,000)
Minority Interest in Loss
of Subsidiary - 13,000 6,000 32,000
----------- ----------- ----------- -----------
Net Income (Loss) $ (213,000) $ 70,000 $ (814,000) $ (182,000)
----------- ----------- ----------- -----------
</TABLE>
Page 5
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Per Share Data:
Net Income (Loss) per share:
Basic $ (.07) $ .04 $ (.31) $ (.11)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ (.07) $ .04 $ (.31) $ (.11)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares
outstanding
Basic 3,257,315 1,633,792 2,609,167 1,603,050
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 3,257,315 1,784,807 2,609,167 1,603,050
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MOS. ENDED SEPT. 30, NINE MOS. ENDED SEPT. 30,
----------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for
the period $(213,000) $ 70,000 $(814,000) $(182,000)
Items not affecting cash
Non cash charge related to
issuance of common stock - - 183,000 -
Depreciation and amortization 48,000 72,000 143,000 212,000
Bad debt expense 6,000 6,000 18,000 18,000
Minority interest share in loss
of subsidiary - (13,000) (5,000) (32,000)
Other 1,000 - 2,000 23,000
Decrease (increase) in operating
assets net of operating
liabilities (306,000) (25,000) (344,000) (94,000)
--------- --------- --------- ---------
Cash Provided by (used in)
Operating Activities (464,000) (110,000) (817,000) (55,000)
--------- --------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and
equipment (31,000) (52,000) (72,000) (194,000)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of certificate
of deposit - (150,000) - (150,000)
Sale of common stock - - 492,000 -
Exercise of stock options - - - 37,000
Reduction in long-term debt (8,000) (14,000) (30,000) (46,000)
Increase (decrease) in short
term borrowing - (26,000) - -
Minority interest contributions - 9,000 - 59,000
--------- --------- --------- ---------
Cash provided by (used in)
Financing Activities (8,000) (181,000) 462,000 (100,000)
--------- --------- --------- ---------
Increase (Decrease) in cash (503,000) (123,000) (427,000) (349,000)
Cash and cash equivalents
- beginning of period 600,000 577,000 524,000 803,000
--------- --------- --------- ---------
Cash and cash equivalents
- end of period $ 97,000 $ 454,000 $ 97,000 $ 454,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 7
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MOS. ENDED SEPT. 30, NINE MOS. ENDED SEPT. 30
----------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Decrease (increase) in
operating assets net of
operating liabilities
Trade receivables $(169,000) $(150,000) $ (42,000) $ 7,000
Other current assets (55,000) - (199,000) (38,000)
Accounts payable and
accrued liabilities (82,000) 104,000 (103,000) 51,000
Income tax payable - - - (49,000)
Other - 21,000 - (65,000)
--------- --------- --------- ---------
Total - net $(306,000) $ (25,000) $(344,000) $ (94,000)
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash paid during the
period for interest $ 3,000 $ 4,000 $ 6,000 $ 14,000
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash paid during the
period for income taxes $ - $ - $ - $ 49,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 8
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of the Company, the unaudited financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position of the Company and its subsidiaries,
as of September 30, 1998 and the results of their operations and their cash
flows for the three months and the nine months ended September 30, 1998 and
1997. The accounting policies followed by the Company are set forth in the
Notes to Consolidated Financial Statements in the 1997 audited financial
statements of Barringer Laboratories, Inc. and Subsidiaries included in its
Annual Report on Form 10-KSB for the year ended December 31, 1997. The Form
10-KSB should be read in conjunction herewith.
2. ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENTS
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 compre-hensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
Company adopted SFAS No. 130 in the first quarter of 1998 and there was no
effect on the financial statements.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS
No. 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 disclosure regarding products and services, geographic areas
and major customers. SFAS No. 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.
Page 9
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
SFAS No. 131 is effective for financial statements for periods beginning
after December, 1997 and requires comparative information for earlier years
to be restated. The Company is planning on implementing the revised
disclosures of SFAS No.131 as soon as practicable, but no later than
reporting annual 1998 results. Financial position and results of operations
are unaffected by this standard.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis. SFAS
No. 132 is effective for years beginning after December 15, 1997 and
requires comparative information for earlier years to be restated, unless
such information is not readily available. Management believes the adoption
of this statement will have no material impact on the Company's financial
statements.
INCOME (LOSS) PER SHARE
Effective for the year ended December 31, 1997, the Company implemented
SFAS No. 128, "Earnings Per Share". SFAS No. 128 provides for the
calculation of "Basic" and "Diluted" income (loss) per share. Basic income
(loss) per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted income (loss) per share reflects
the potential dilution of securities that could share in the income (loss)
of an entity, similar to fully diluted income (loss) per share. The diluted
weighted number of common shares is calculated using the treasury stock
method for common stock issuable pursuant to outstanding stock options and
warrants. All prior period income (loss) per share data has been restated
to reflect the requirements of SFAS No. 128.
For the three months and for the nine months ended September 30, 1998,
option and warrant exercise prices exceeded the average market prices of
the common stock. Dilutive common stock equivalents of 214,100 and 240,117,
respectively, were not included in the computation of diluted per share
data because their effect was antidilutive. For the three months ended
September 30, 1997, 151,015 net common stock equivalents were dilutive
and are included in calculating diluted weighted average common shares
outstanding. For the nine months ended September 30, 1997, net common
stock equivalents of 207,814 were antidilutive.
Page 10
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (CONTINUED)
CURRENCY TRANSLATION
The Company had been treating the peso as the functional currency for its
Mexican subsidiary. As of December 31, 1996, Mexico was considered a highly
inflationary economy. As required by SFAS No. 52, "Foreign Currency
Translation", the Company changed the functional currency of this
subsidiary to the U.S. dollar. As a result, the Company remeasured the
financial statements from the peso to the U.S. dollar effective January 1,
1997. Nonmonetary assets and liabilities are remeasured at the exchange
rate at the date of the change in the functional currency, which rate then
becomes, in effect, the "historical rate" for translating those assets in
the future. Monetary assets and liabilities are remeasured at the exchange
rate in effect at the date a transaction occurs. Gains and losses related
to the remeasurement of monetary assets and liabilities are included in
income. The Peruvian and Nicaraguan subsidiaries are reported in U.S.
dollars.
3. INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At September 30, 1998, the Company has alternative minimum tax credits of
approximately $16,000 available to offset future federal income taxes on an
indefinite carryforward basis and unused net operating loss carryforwards
of approximately $4,086,000. Such net operating loss carryforwards expire
in varying amounts from 1998 to 2006 and are subject to certain limitations
under the Internal Revenue Code.
As of September 30, 1998, a valuation allowance has been recorded, as
Management of the Company is not able to determine that the deferred tax
asset will be realized. The Company has recorded a valuation allowance
primarily related to the uncertainty of realizing operating loss
carryforwards subject to limitation under the Internal Revenue Code of
1986, as well as uncertainties relating to the EPA investigation, as
described in Note 4, and its possible impact on the financial position of
the Company.
Page 11
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. UNCERTAINTY
In early 1998, the Company learned that certain employees in one section of
its environmental laboratory did not consistently follow laboratory
procedures as set forth in the Company's Standard Operating procedures and
applicable test methods. Management believes the employee practices in
question may have affected a small percentage of the soil and water test
results reported to clients of the environmental laboratory. The company
then commenced an internal investigation, engaged outside advisors to
assist in the investigation and initiated corrective actions. In addition,
the Company informed the United States Environmental Protection Agency
("EPA") of its' investigation and its' corrective action program.
Corrective action completed to date by the Company includes: review and
revision of relevant standard operating procedures; expansion of analyst
training; expansion of its Quality Assurance Program, including the
establishment of periodic external audits; establishment of an Ethical Work
Practices and Data Integrity Policy, and completion of 12 hours of ethics
training for all staff in the environmental laboratory.
EPA representatives have conducted an investigation into this matter in
accordance with Agency policy towards voluntary disclosures of this type.
The company cooperated fully with the Agency in this process. Depending on
the conclusions reached by the EPA and other factors, it is possible that
the Company could be subject to penalties and other sanctions that could be
substantial, and that the company could face other liabilities. It remains
impossible to predict the ultimate outcome of this uncertainty. To date, no
agency or other party has brought any action or proceeding against the
Company in connection with this matter.
The cost of the investigation and any associated liabilities may have a
material adverse impact on the results of operations, financial position
and cash flows of the Company. The Company's consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. Costs of professional services related to the
investigation are included as expenses in the statement of operations as
the services are incurred.
Other than as set forth above, the Company is not a party to any material,
pending, or threatened litigation.
Page 12
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SALE OF COMMON STOCK
Effective April 13, 1998, the Company completed the sale of 1,666,666
shares of restricted common stock at a price of $.30 per share ($500,000)
to provide additional working capital. The shares were issued at less than
the per share market transactions at the effective date. The difference
between the per share transaction price, as adjusted for dilution, and the
issuance price has been recorded as a $183,000 non cash charge and is
included in Selling, General and Administrative Expenses in the
Consolidated Statements of Operations for the three months and for the nine
months ended September 30, 1998. Among the subscribers are three members of
the Company's board of directors, two of whom are already significant
stock-holders. The Company claims exemption from registration under Section
4(2) of the Securities Act of 1933, as amended.
Page 13
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. The Company's
future operating results may be affected by various trends and factors which are
beyond the Company's control. These include, among other factors, the
competitive environment in which the Company operates, future capital needs,
uncertainty of government contracts, uncertainties in revenue due to
fluctuations in weather, and other uncertain business conditions that affect the
Company's businesses.
With the exception of historical information, the matters discussed below under
the headings "Results of Operations" and "Capital Resources and Liquidity" may
include forward-looking statements that involve risks and uncertainties. The
Company cautions readers that a number of important factors discussed herein,
and in other reports filed with the Securities and Exchange Commission,
particularly the Company's Form 10-KSB for the year ended December 31, 1997,
could affect the Company's actual results and cause actual results to differ
materially from those in the forward looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
Sales of services for the three months ended September 30, 1998 of $1,506,000
are 77% of prior year third quarter sales of $1,945,000. Environmental Division
1998 third quarter sales of $938,000 are 80%, down $232,000, versus third
quarter 1997 sales. Mineral Division 1998 third quarter sales of $568,000 are
down 27% or $207,000 as compared to third quarter of 1997.
Radiochemistry laboratory sales of $547,000 for the third quarter represent an
increase of 5% over the same period in 1997. Inorganic and organic laboratory
third quarter sales of $277,000 and $116,000, are lower versus the same period
of last year by 10% and 66%, respectively. The strong level of radiochemistry
sales in the first half of 1998 partially relates to 1997 large one-time
projects which required the resources of the laboratory in 1997. This caused
work for other customer projects to be delayed and completed in the first
quarter of 1998. Sales in both the inorganics and organics laboratories in 1997
were significantly impacted by large nonrepetitive contracts. If 1997 sales were
adjusted to eliminate those projects, 1998 sales in comparison would have
increased slightly. The Company continues to focus its' attention on the low
level radiation testing market.
Page 14
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Mineral Division third quarter sales were down versus 1997 by 27%. The major
decline in mineral exploration activity starting in 1997 has had a negative
worldwide impact on the entire mineral testing industry. The mix of sales in the
quarter was heavily weighted to Central America and Mexico, where production
costs are lower, while sales generated in the U.S. continue to be depressed.
The low price of gold has slowed exploration throughout the world but
particularly in the United States. As the gold exploration industry migrates out
of North America, sales from Latin America and other countries are expected to
become an increasingly important part of the Company's business.
Gross profit as a percentage of sales for the three months ended September 30,
1998 of 20% is 5% (points) lower than 1997 for the same period. The gross margin
deterioration is primarily attributable to the Mineral Division which
experienced margin deterioration of 16% (points) in the third quarter of 1998 as
compared to the same period in 1997. The margin percentage reduction can be
traced to a lower overall sales volume with relatively level fixed costs.
Start-up and incremental fixed costs associated with the facilities in Mexico,
Central America and Peru exacerbates the situation.
Selling, general and administrative expenses in the third quarter of 1998 are
higher by $58,000 than the third quarter of 1997 principally due to professional
fees related to the investigation as discussed further under "Capital Resources
and Liquidity".
NINE MONTHS ENDED SEPTEMBER 30, 1998
Sales of services for the nine months ended September 30, 1998 totaled
$4,843,000 a decrease of $364,000 (7%) as compared to the same period in 1997.
Environmental Division sales for the nine months of $2,729,000 was slightly
below 1997 levels. Mineral Division sales of $2,114,000 represented a decrease
of $296,000(12%) versus the same period of 1997.
Page 15
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
Revenues within the Environmental Division were led by radiochemistry laboratory
sales which were up over 1997 by 27%. The inorganic and organic laboratory sales
are down as compared to 1997 by 13% and 48%, respectively. Radiochemistry sales
levels were assisted by a concentration of efforts in 1997 due to nonrecurring
projects that caused other customer work to be completed and billed in 1998.
Inorganic and organic sales are significantly lower than 1997 because of the
large nonrecurring projects in 1997. This work severely impacted the resources
of the laboratories. Consequently, the Company is concentrating on the low level
radiation market and on providing a smoother flow of business through the
laboratories versus the large one time projects.
While Mineral Division sales were up 2% in the first quarter, the second quarter
experienced a drop in revenues of 11% and the third quarter sales continued the
decline with a 27% decrease versus the comparable periods in 1997. Sales for the
nine months as compared to the same period in 1997 declined 12%. The mix of
sales continued to be heavily weighted towards Central America and Mexico, while
revenues from exploration in the United States continued to be significantly
depressed. The wet season, which normally depresses exploration activity,was
exacerbated by El Nino both in the United States and in Peru. The low price of
gold continues to have a major depressing impact on the exploration industry in
general and specifically encourages exploration in less costly areas in Mexico,
Central America and South America.
Gross profit as a percentage of sales for the period of 21% is the same as last
year after being better than last year by 3% (points) for the first six months.
Third quarter gross profit of 20% declined by 5% (points) from 1997.
Environmental gross margins have steadily improved each quarter as compared to
1997 to 30% (points) in the third quarter and 25% (points) for the nine months,
an increase of 7% (points) versus 1997. Mineral Division gross margins have
declined versus last year and prior quarters to 15% (points) for the nine months
a decrease of 9% (points) from the same period in 1997. The deterioration is due
to reduced revenues coupled with the costs associated with the expansion into
Mexico, Central America and Peru.
Page 16
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 (CONTINUED)
Selling, general and administrative expenses increased over 1997 principally due
to the non cash charge of $183,000 associated with the sale of common stock
(Note 5 of the Notes to Consolidated Financial Statements) and professional fees
associated with the investigation as discussed further under "Capital Resources
and Liquidity".
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents of $97,000 at September 30, 1998 decreased by $427,000
from $524,000 at December 31, 1997. Financing activities generated net cash of
$462,000 for the nine months ended September 30, 1998 principally from the sale
of common stock. Operations used cash of $817,000 for the nine months ended
September 30, 1998, primarily due to the losses for the period and an increase
in net operating assets of $344,000. Cash decreased $503,000 in the third
quarter to $97,000. The decrease was primarily due to the net loss in the
quarter of $213,000 and a $306,000 increase in net operating assets.
In light of the investigation of certain laboratory procedures that were not
correctly followed, see Note 4 to the consolidated financial statements, the
Company has taken broad corrective action measures. Depending on the conclusions
of the EPA and other factors, it is possible that the Company could be subject
to penalties or other sanctions that could be severe, and that the Company could
face other liabilities. It remains impossible to predict the ultimate outcome of
this uncertainty. While Management believes that the steps it has taken to date
should mitigate any adverse consequences to the Company, the total cost of the
investigation incurred through September 30, 1998, has been approximately
$322,000. The eventual cost of the ongoing investigation and any associated
liabilities may have a material adverse impact on the operations and financial
position of the Company. The Company's 1998 consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Page 17
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
Effective April 13, 1998, the Company completed the sale of 1,666,666 shares of
restricted common stock at a price of $.30 per share ($500,000) to provide
additional working capital. The shares were issued at less than the per share
market transactions at the effective date. The difference between the per share
transaction price, as adjusted for dilution, and the issuance price has been
recorded as a $183,000 non cash charge and is included in Selling, General and
Administrative Expenses in the Consolidated Statements of Operations for the
nine months ended September 30, 1998. Among the subscribers are three members of
the Company's board of directors, two of whom are significant existing
stockholders. The cash from this sale was received in the second quarter.
In addition to the working capital provided from the sale of common stock, the
Company anticipates that additional future cash requirements will be satisfied
by sales of services, reductions in cost of services sold, secured borrowing or
factoring of accounts receivable and/or the sale of additional equity
securities.
There can be no assurance that the Company will not require additional financial
resources to enable it to meet its obligations in the future or that any future
funds required will be generated from operations or from the aforementioned or
other potential sources. The lack of additional capital could force the Company
to substantially curtail operations and/or capital replacements and would
therefore have a material adverse effect on the Company's business.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At September 30, 1998, the Company has approximately $16,000 of alternative
minimum tax credits and unused net operating loss carryforwards of approximately
$4,086,000. The alternative minimum tax credits have no expiration date and the
loss carryforwards expire in varying amounts from 1998 to 2006 and are subject
to certain limitations under the Internal Revenue Code.
Page 18
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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
The Company is aware of the issues associated with the programming code in its
existing computer systems as the year 2000 approaches. The issue is whether
these systems will properly recognize date sensitive information when the year
changes to 2000. Systems that do not properly recognize date sensitive
information could generate erroneous data or cause a system to fail.
The Company has made a decision to replace its two major computerized
information systems - accounting system and laboratory information management
system ("LIMS") - during the year with software packages that will be certified
as year 2000 compliant by their respective manufacturers. The cost of these
replacements will be in the range of $90,000-120,000 and are expected to be
financed through capital leases.
The Company has established an internal year 2000 team to examine and resolve
other potential year 2000 issues relating to the instrumentation used in the
Company's laboratories and other systems such as security, communications and
software. Management believes that the costs associated with resolving any
potential year 2000 issues associated with these systems will not be material.
Page 19
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. Information to be included herein is in Note 4 to
the Consolidated Financial Statements hereof.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Information to be included
herein is in Note 5 to the Consolidated Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None.
Page 20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BARRINGER LABORATORIES, INC.
(REGISTRANT)
Date: November 20, 1998 By: /s/ J. Graham Russell
----------------- -------------------------------
J. Graham Russell
President and C.E.O.
Page 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 97,000
<SECURITIES> 0
<RECEIVABLES> 1,086,000
<ALLOWANCES> 31,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,510,000
<PP&E> 3,173,000
<DEPRECIATION> (2,952,000)
<TOTAL-ASSETS> 1,934,000
<CURRENT-LIABILITIES> 709,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 1,192,000
<TOTAL-LIABILITY-AND-EQUITY> 1,934,000
<SALES> 1,506,000
<TOTAL-REVENUES> 1,506,000
<CGS> 1,207,000
<TOTAL-COSTS> 1,704,000
<OTHER-EXPENSES> 15,000
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (213,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
