<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
June 30, 1998 File Number 0-8241
- - ------------------------------- -------------------------
Barringer Laboratories, Inc.
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(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
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(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 June 30, 1998 - 3,257,315 of Common Stock,
$.01 par value.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and December 31, 1997
- Consolidated Statements of Operations (Unaudited) for the Three
Months and Six Months Ended June 30, 1998 and 1997
- Consolidated Statements of Cash Flows (Unaudited) for the Three
Months and Six Months Ended June 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
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 600,000 $ 524,000
Trade receivables, less
allowance of $39,000 and
$13,000 for doubtful accounts 923,000 1,062,000
Prepaid expenses and other 277,000 127,000
---------- ----------
Total Current Assets 1,800,000 1,713,000
---------- ----------
Property and Equipment:
Machinery and equipment 2,254,000 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
---------- ----------
3,142,000 3,101,000
Less accumulated depreciation
and amortization 2,904,000 2,809,000
---------- ----------
Net Property and Equipment 238,000 292,000
Certificate of Deposit 150,000 150,000
Other Assets 49,000 57,000
---------- ----------
Total Assets $2,237,000 $2,212,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 276,000 $ 251,000
Accrued liabilities:
Payroll, compensation and
related expenses 215,000 290,000
Other 239,000 211,000
Current maturities of long-
term debt 38,000 38,000
---------- ----------
Total Current Liabilities 768,000 790,000
Long-Term Debt, less current
maturities 32,000 54,000
---------- ----------
Total Liabilities 800,000 844,000
---------- ----------
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 (1,628,000) (1,027,000)
Translation Adjustment (23,000) (23,000)
---------- ----------
Total Shareholders' Equity 1,437,000 1,363,000
---------- ----------
Total Liabilities and
Shareholders' Equity $2,237,000 $2,212,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of Services $1,673,000 $1,768,000 $3,337,000 $3,262,000
Cost of Services Sold 1,370,000 1,420,000 2,641,000 2,665,000
--------- --------- --------- ---------
Gross Profit 303,000 348,000 696,000 597,000
--------- --------- --------- ---------
Selling, General and
Administrative Expenses 795,000 441,000 1,320,000 864,000
--------- --------- --------- ---------
Operating Loss (492,000) (93,000) (624,000) (267,000)
Other Income (Expense):
Interest income 8,000 8,000 15,000 19,000
Interest expense (3,000) (5,000) (6,000) (10,000)
Translation loss - 2,000 (4,000) (16,000)
Other 9,000 (1,000) 12,000 3,000
--------- --------- --------- ---------
Total Other Income (Expense) 14,000 4,000 17,000 4,000
Loss before Income
Taxes and Minority
Interest in Loss of
Subsidiary (478,000) (89,000) (607,000) (271,000)
Minority Interest in Loss
of Subsidiary - 10,000 6,000 19,000
--------- --------- --------- ---------
Net Loss $ (478,000) $ (79,000) $ (601,000) $ (252,000)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per Share Data:
Net Loss per share:
Basic $ (.16) $ (.05) $ (.26) $ (.05)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Diluted $ (.16) $ (.05) $ (.26) $ (.05)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Weighted average common
shares outstanding
Basic 2,979,537 1,610,833 2,285,093 1,587,424
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Diluted 2,979,537 1,610,833 2,285,093 1,587,424
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) for
the period $(478,000) $ (79,000) $(601,000) (252,000)
Items not affecting cash
Non cash charge related to
issuance of common stock 183,000 - 183,000 -
Depreciation and amortization 46,000 72,000 95,000 140,000
Bad debt expense 6,000 6,000 13,000 12,000
Minority interest share in loss
of subsidiary - (10,000) (6,000) (19,000)
Other 8,000 - 8,000 23,000
Decrease (increase) in operating
assets net of operating
liabilities 91,000 (161,000) (45,000) (69,000)
------- ------- ------- -------
Cash Provided by (used in)
Operating Activities (144,000) (172,000) (353,000) (165,000)
------- ------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and
equipment (16,000) (74,000) (41,000) (142,000)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 492,000 - 492,000 -
Exercise of stock options - 37,000 - 37,000
Reduction in long-term debt (15,000) (16,000) (22,000) (32,000)
Increase (decrease) in short
term borrowing - - - 26,000
Minority interest contributions - 1,000 - 50,000
------- ------- ------- -------
Cash provided by Financing
Activities 477,000 22,000 470,000 81,000
------- ------- ------- -------
Increase (Decrease) in cash 317,000 (224,000) 76,000 (226,000)
Cash and cash equivalents
- beginning of period 283,000 801,000 524,000 801,000
------- ------- ------- -------
Cash and cash equivalents
- end of period $ 600,000 $ 577,000 $ 600,000 $ 577,000
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Decrease (increase) in
operating assets net of
operating liabilities
Trade receivables $ (2,000) $(156,000) $ 127,000 $ 157,000
Other current assets (23,000) 9,000 (150,000) (38,000)
Accounts payable and
accrued liabilities 102,000 23,000 (50,000) (53,000)
Income tax payable - - - (49,000)
Other 14,000 (37,000) 28,000 (86,000)
--------- --------- --------- ---------
Total - net $ 91,000 $(161,000) $ (45,000) $ (69,000)
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash paid during the
period for interest $ 3,000 $ 5,000 $ 6,000 $ 5,000
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash paid during the
period for income taxes $ - $ - $ - $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
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<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 June 30, 1998 and the results of their
operations and their cash flows for the three months and the six months
ended June 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 comprehensive 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.
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<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 six months ended June 30, 1998, option
and warrant exercise prices exceeded the average market prices of the
common stock. Options and warrants to purchase 245,600 and 253,125
shares of Common Stock, respectively, were not included in the computation
of diluted per share data.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (CONTINUED)
INCOME (LOSS) PER SHARE
For the three months and for the six months ended June 30, 1997,
average market prices of the common stock exceeded the option and
warrant exercise prices. Common stock options and warrants of 211,776
and 236,213, respectively were not included in diluted earnings (loss)
per share as the effect was antidulutive due to the company recording
losses for both periods.
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 June 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 $3,646,000. 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 June 30, 1998, a valuation allowance has been recorded, as Management
of the Company is not able to determine that it is more likely than not
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 IRS 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.
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<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.
EPA representatives are conducting an investigation into this matter in
accordance with Agency policy towards voluntary disclosures of this
type, and the Company is cooperating fully in this process. To date, no
agency or other party has brought any action or proceeding against the
Company.
The Company is taking broad corrective actions, including: review and
revision of relevant standard operating procedures; expansion of analyst
training; expansion of its existing Quality Assurance Program including
the establishment of periodic external audits; establishment of an
Ethical Work Practices and Data Integrity Policy and the initiation of
an ethics training program for all staff.
Depending upon the nature and frequency of any improper practices 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 if reported test results were
erroneous. At this stage in the investigation, it remains impossible to
predict the ultimate outcome of this uncertainty.
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.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. UNCERTAINTY (CONTINUED)
Other than as set forth above, the Company is not a party to any material,
pending, or threatened litigation.
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 difference between
fair value of common stock 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 six months ended June 30, 1998. Among the
subscribers are three members of the Company's board of directors, two
of whom are already significant stockholders.
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<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 JUNE 30, 1998
Sales of services for the three months ended June 30, 1998 of $1,673,000 are 95%
of prior year second quarter sales of $1,768,000. Environmental Division 1998
second quarter sales of $837,000 are approximately the same as 1997 while
Mineral Division 1998 second quarter sales of $836,000 were down 11% or $100,000
versus second quarter of 1997.
Radiochemistry laboratory sales of $489,000 for the quarter in 1998 represent an
increase of 27% over the same period in 1997. Inorganic and organic laboratory
sales are lower versus the same period of last year by 19% and 30%,
respectively. The level of radiochemistry sales in 1998 partially relates to
the 1997 large one-time projects which demanded the resources of the laboratory
in 1997 and caused work for other customer projects to be completed in the first
quarter of 1998, thereby causing the 1998 increase in sales. The Company is
continuing to focus efforts in the radiochemistry area of the market.
Mineral Division sales were down versus 1997 by 11% overall. The mix of sales
was heavily weighted to Nicaragua and Honduras in 1998 while sales generated
through exploration in the U.S. decreased dramatically.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The wet season due to El Nino exacerbated the seasonal impact in both the U.S.
and Peru. The low price of gold has slowed exploration throughout the industry
but particularly in the United States. Consequently, as the gold exploration
industry migrates out of North America, sales from Mexico, Nicaragua, Honduras
and Peru 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 June 30, 1998
at 18% is 2% (points) lower than 1997 for the same period. The gross margin
deterioration is primarily attributable to the Mineral Division which
experienced margin deterioration of 9% (points) in the second quarter of 1998 as
compared to the same period in 1997. The margin percentage reduction from 1997
can be traced to the fixed costs associated with start-up facilities in Mexico
and Peru, without obtaining corresponding higher sales volume in those areas.
The reduction of sales volume in the U.S. exacerbates the situation.
Selling, general and administrative expenses in the second quarter of 1998 are
higher by $354,000 than the second quarter of 1997. The major cause of the
increase is 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 related to the investigation as discussed further under
"Capital Resources and Liquidity".
SIX MONTHS ENDED JUNE 30, 1998
Sales of services for the six months ended June 30, 1998 of $3,337,000 is an
increase of $75,000, 2%, as compared to the same period in 1997. As compared to
the first six months of 1997, Environmental Division sales of $1,791,000
represented and increase of 10%, $163,000, while Mineral Division sales of
$1,546,000 accounted for a decrease of 5%, $88,000.
Revenues within the Environmental Division were lead by radiochemistry
laboratory sales which were up over 1997 by 42%. The inorganic and organic
laboratory sales are down as compared to 1997 by 14% and 29%, respectively.
Radiochemistry sales were assisted by a concentration of efforts in 1997 due to
a large one time contract that caused other customer projects to be completed in
1998. In addition, the Company is focusing its efforts in the radiochemistry
area of the market.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
While Mineral Division sales were up 2% in the first quarter of 1998, the second
quarter experienced a drop in revenues of 11% causing a 5% decrease in sales for
the six months as compared to the same periods in 1997. The mix of sales
continued to be heavily weighted to Nicaragua and Honduras while the revenues
from exploration in the United States continued to be significantly depressed.
The wet season 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 of 21% is 3% (points) higher than the same
period of last year. Second quarter gross profit of 18% declined by 6% (points)
from that of the first quarter. Gross margins deteriorated due to the start-up
and ongoing fixed costs associated with the expansion into Mexico, Central
America and Peru as total revenues declined as compared to 1997.
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 $600,000 at June 30, 1998 increased by $76,000 from
$524,000 at December 31, 1997. Financing activities generated net cash of
$477,000 and $470,000 for the three months and for the six months ended June 30,
1998, respectively, principally from the sale of common stock. Operations used
cash of $144,000 and $353,000, respectively, for the three months and six months
ended June 30, 1998, primarily due to the losses for the periods.
In light of the investigation of certain procedures that were not correctly
followed, see Note 4 to the Consolidated Financial Statements, the Company has
taken broad corrective action measures. Depending upon the nature and frequency
of any improper practices and other factors, it is possible that the Company
could be subject
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
to penalties or other sanctions that could be severe, and the Company could
face other liabilities if reported test results were erroneous. At this
stage in the investigation, it is not possible 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 the end of June 30, 1998,
has been approximately $247,000. 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.
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 fair
value of common stock 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 and six
months ended June 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 improved sales of services, related reductions to cost of services sold,
and/or the sale of additional Company 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.
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<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At June 30, 1998, the Company has about $16,000 of alternative minimum tax
credits and unused net operating loss carryforwards of approximately $3,646,000.
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.
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 in use in the
Company's laboratories and other minor systems such as security and telephone.
Management believes that the costs associated with resolving any potential year
2000 issues associated with these systems will not be material.
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<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. The Company claims
exemption from registration under Section 4(2) of the Securities Act
of 1933, as amended.
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.
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<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: August 19, 1998 By: /s/ J. Graham Russell
------------------------- --------------------------
J. Graham Russell
President and C.E.O.
-20-
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 600,000
<SECURITIES> 0
<RECEIVABLES> 923,000
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<COMMON> 33,000
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