<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from_______________ to ______________
Commission 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 offices) (Zip Code)
Issuer's telephone number, including area code (303) 277-1687
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's net revenues for the fiscal year ended December 31, 1997 were
$7,179,000.
Number of shares outstanding as of March 13, 1998, of Common Stock, $.01 par
value - 1,590,649.
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<PAGE>
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based on the most recent trading date (March 20, 1998), is
$510,569.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The matters discussed below include forward-looking statements that involve
risks and uncertainties. The Company wishes to caution readers that a number of
important factors discussed herein, and in other reports filed with the
Securities and Exchange Commission, could affect the Company's actual plans and
cause them to differ materially from those in the forward-looking statements.
(a) COMPANY DEVELOPMENT
Barringer Laboratories, Inc. (the "Company") provides analytical services to the
environmental services and mineral exploration industries. The Company was
organized under Delaware law in December 1988 to conduct the laboratory business
previously conducted by Barringer Technologies, Inc. ("BTI"), the Company's
founder.
The Company's principal executive office is located at 1500 West 6th Avenue,
Suite 300, Golden, Colorado. This location is also the site of the Company's
environmental services laboratory. The Company also maintains a full service
mineral assay and geochemistry laboratory in Reno, Nevada.
In October, 1993, the Company formed a wholly owned Mexican subsidiary,
Barringer Laboratorios de Mexico S.A. de C.V. ("BLM"), which owns and operates a
5,000 square foot sample preparation laboratory in Hermosillo, Sonora.
In November, 1996, the Company entered into an agreement with Servicios
Ecologica S.A. ("SESA"), the Peruvian subsidiary of a Canadian environmental
services company, and Dr. Clifton Farrell, to form a Peruvian subsidiary of the
Company, Barringer Laboratories Del Peru S.A. ("BLP"). The Company owns 67% of
the common stock of BLP, SESA 28% and Dr. Farrell the remaining 5%. During
1997, BLP established a 2,500 square foot sample preparation laboratory in Lima.
The Company closed a former sample preparation laboratory in Helena, Montana in
late 1996 due to the decline in mineral exploration activity in that region.
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(a) COMPANY DEVELOPMENT (CONTINUED)
In July, 1997, the Company established a wholly owned subsidiary in Nicaragua,
Barringer Laboratorios de Nicaragua, S.A. ("BLN"), which owns and operates a
7,000 square foot sample preparation laboratory in Managua.
(b) DESCRIPTION OF THE COMPANY'S BUSINESS
OVERVIEW OF SERVICES PROVIDED
The Company provides analytical testing operations through two divisions:
ENVIRONMENTAL DIVISION
The Company performs independent analytical testing services for
governmental agencies, engineering consulting firms, industrial companies
and other entities involved in environmental monitoring programs and the
treatment and management of hazardous waste. The market for the Company's
services results primarily from its customers' need to comply with Federal,
state and local environmental regulations. Increasingly, the Company is
conducting work for customers required to comply with similar environmental
regulations in other countries. These customers typically rely on
independent laboratories such as the Company to support their efforts to
comply with these regulations.
The Company's environmental facility provides a wide range of laboratory
testing services to detect and measure the presence of chemical and/or
radioactive contamination in samples of water, soil, sediments, air,
industrial wastes and effluents, biological materials, vegetation, produce
and animal tissues, and body fluids. The analytical activities of the
laboratory may be divided into three categories:
Radiochemistry, or testing for low level radioactive contaminants,
including naturally occurring isotopes such as uranium and radium, the
transuranics such as plutonium and americium and man-made isotopes
such as cobalt 60 and iron 55.
Testing for organic chemical contaminants such as hydrocarbons,
pesticides, herbicides, polychlorinated biphenyls (PCBs), and
polynuclear aromatic (PNAs).
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ENVIRONMENTAL DIVISION (CONTINUED)
Testing for inorganic chemical contaminants such as trace metals,
nitrates, and sulfates. Included in this category are waste
characterization indicators such as corrosivity, ignitability and
reactivity required under the Resource Conservation and Recovery Act
of 1976, as well as wastewater characterization indicators such as
biological (or chemical) oxygen demand (BOD/COD), and turbidity
required under the Clean Water Act.
The Company's environmental laboratory also has the ability to analyze
mixed wastes: i.e. waste materials that are co-contaminated with both
chemical and radioactive contaminants. In 1997, radiochemistry comprised
approximately 50% of the environmental laboratory's work while the balance
was approximately evenly split between organic and inorganic analyses.
Even though the Company's environmental laboratory has the ability to
perform organic and inorganic chemical analysis for a wide range of
potential customers with environmental compliance needs, most of this
business is related to, or supportive of, the Company's radiochemistry
activity. During 1997, over 28,000 samples were analyzed in the Company's
environmental laboratory for 239 customers.
MINERAL DIVISION
The Company's mineralogical and geochemical testing activities are provided
largely in support of the exploration programs of precious metal mining
companies. The mineral laboratory is equipped to perform precious metal
fire assays as well as geochemical determinations of "pathfinder" metals
such as lead, zinc, copper and others. Cyanide leach tests for
characterizing the metallurgical properties of gold ores are also
conducted. In 1997, this laboratory processed over 200,000 samples for 79
customers. Supporting the Reno laboratory are satellite sample preparation
laboratories in Hermosillo, Mexico; Managua, Nicaragua; and Lima, Peru.
An increasing proportion of the Mineral Division's work originates outside
the United States.
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SALES BY DIVISION
The following table sets forth sales by Division for the past three fiscal
years.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
(in thousand $)
ENVIRONMENTAL DIVISION
Radiochemistry $1,935 $2,163 $2,388
Organic Analysis 947 740 1,005
Inorganic Analysis 1,160 1,120 1,144
------ ------ ------
TOTAL ENVIRONMENTAL $4,042 $4,023 $4,537
------ ------ ------
------ ------ ------
MINERAL DIVISION
United States $1,295 $1,821 $1,627
Latin America 1,378 1,147 426
Other 464 260 182
------ ------ ------
TOTAL MINERAL $3,137 $3,228 $2,235
------ ------ ------
TOTAL $7,179 $7,251 $6,772
------ ------ ------
------ ------ ------
</TABLE>
CUSTOMER BASE AND MARKETING ACTIVITIES
While the market for environmental testing services is widely distributed
across the United States, the Company's special expertise in radiochemistry
means that its Environmental Division's customers are widely scattered
geographically. They include en-vironmental consulting engineering firms,
hazardous and low level radioactive waste treatment/disposal companies,
public utilities, industrial companies (particularly mining companies) and
various Federal, state and local government agencies.
In 1997, the Environmental Division had 239 customers, of which the three
largest accounted for 14.4%, 9.5% and 8.5% of the Division's total revenues,
respectively. The Division's top seven customers accounted for just under 50%
of its total revenue. The loss of either of its top two customers would
likely represent a material adverse development for the Company and would
probably result in a downsizing of its Golden laboratory, at least on a
temporary basis.
The Mineral Division's customers are also widely distributed geographically
and consist largely of precious metal mining companies. The Mineral Division
had 79 customers in 1997, the three largest of which accounted for 16.2%,
14.6% and 5.7% of this Division's total revenues, respectively. The loss of
the Division's largest customer would represent a material adverse
development for
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CUSTOMER BASE AND MARKETING ACTIVITIES (CONTINUED)
the Company. It would likely lead to a downsizing of the Company's Reno
laboratory and could jeopardize the viability of one of the Latin American
sample preparation facilities. No single customer exceeds 10% of the Company's
total consolidated revenues.
The Company's customers initially award contracts for analytical work, or major
analytical projects, on the basis of responses to a competitive bidding process.
However, in both of the Company's main markets, customers are inclined to award
continuing repeat business to vendors with which they are satisfied according to
three key criteria: (a) accuracy of the analytical data provided; (b) quality of
customer service and (c) price.
The Company maintains a small, highly qualified group of five technical sales
staff, who conduct much of their activity by telephone and mail, particularly as
it relates to the competitive bidding process that dominates both of the
Company's main markets for new contracts and projects. They also make sales
trips several times per year to visit key customers and potential customers in
different geographic regions of the United States, and, in the case of the
Mineral Division, Mexico, Peru, Nicaragua and other Latin American countries.
In addition, the Company maintains customer service representatives in both
Divisions whose tasks are to ensure that the technical requirements of incoming
work are well defined and that customers are updated on the status of work or
projects currently in progress in the Company's laboratories.
The Company is an exhibitor at a small number of trade shows each year. These
shows are chosen for their relevance to the Company's areas of particular
expertise and include hazardous waste industry conferences (particularly those
focusing on the nuclear industry) and mining industry symposia. The Company is
active in a number of trade associations and other industry forums as a means of
promoting its visibility and technical expertise.
Given the specialized nature of the Company's analytical activities, Management
does not believe that print advertising is a productive channel for attracting
new business and, accordingly, devotes few resources to this form of promotional
activity.
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INTERNATIONAL ACTIVITIES
During the past several years, the major precious metal mining companies,
which are the primary customers of the Company's Mineral Division, have
significantly reduced their activities in North America. Exploration efforts
have increasingly focused on Latin America, where gold production costs are
in the range of $65-120 per ounce compared with $200-300 per ounce in North
America. Since 1993, the Company's Mineral Division has taken successful
steps to maintain its standing in this market by establishing local
operations to service the exploration programs of its customers in these
countries. Specifically:
In October, 1993, the Company established a 5,000 square feet sample
preparation laboratory in Hermosillo, Sonora, Mexico, owned and operated by
its wholly owned Mexican subsidiary, BLM.
In November, 1996, the Company established a 2,500 square feet sample
preparation laboratory in Lima, Peru, owned and operated by its 67% owned
Peruvian subsidiary, BLP.
In July, 1997, the Company established a 7,000 square feet sample
preparation laboratory in Managua, Nicaragua, owned and operated by its
wholly owned Nicaraguan subsidiary, BLN.
In early 1998, the Company entered into an exclusive contract with a major
Canadian mining company to provide comprehensive analytical services in support
of all of its exploration efforts in Nicaragua and Honduras. The Company is
establishing an additional sample preparation laboratory at La Rosita,
Nicaragua, and has entered into an arrangement to provide sample preparation
services in Tegucigalpa, Honduras, through the Honduran subsidiary of a U.S.
based laboratory company. The capital requirement for this project is
approximately $120,000 of which $60,000 will be reimbursed to the Company by the
customer within 12 months.
All of these sample preparation facilities are equipped with drying ovens and
rock crushing equipment for pulverizing the drill cores received from customers
in these countries. Following homogenization of the crushed rock samples,
representative samples are airfreighted to the Company's Reno laboratory for
fire assay and/or geochemical analysis.
The Company has utilized its presence in these Latin American markets to develop
additional business for its Environmental Division. North American mining and
other industrial corporations wishing to conduct business in these countries are
typically required to conform to environmental standards similar to those
prevailing in North America. The absence of high quality laboratories in these
countries generally requires that analytical
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INTERNATIONAL ACTIVITIES (CONTINUED)
work associated with meeting these standards be sent to North American
laboratories. The proportion of the Company's environmental work originating in
Latin America amounted to nearly 5% of the Company's total 1997 environmental
revenues.
Management believes that it is necessary to maintain international
diversification in order to maintain the Company's position in the market for
exploration-related mineral assay work. However, political unrest or severe
economic or financial disruption (e.g. inflation, currency fluctuations) in
any of the countries in which the Company has established operations could
compromise the viability of its local operations.
ENVIRONMENTAL COMPETITION
Management believes that the size of the U.S. environmental and hazardous waste
testing market exceeds $1 billion annually and that it is served by as many as
1,250 independent analytical laboratories. Most firms competing in this highly
fragmented market utilize similar instrumentation and analytical methods, and
have comparable technical capability to that of the Company. Many are
considerably larger and may have significantly greater financial resources than
the Company.
Since 1991, the U.S. market for environmental testing services has been
characterized by significant overcapacity. Accordingly, while a reputation for
producing accurate data, rapid response to customer requirements and an ability
to meet tight turnaround standards are important competitive factors, most
competition has been based largely on price. Over the past six years, prices in
some segments of this market have declined by as much as 60%.
There have been a number of attempts to achieve dominance in this industry
through consolidation strategies, but, to date, none have succeeded in creating
a financially successful company with significant market share. During the last
year, three of the largest fifteen environmental laboratory companies have filed
for protection under Federal bankruptcy laws, while most of the remaining larger
companies in the market have closed one or more laboratories, and many smaller
laboratory firms have closed down altogether. Management believes that more than
10% of the industry's capacity has been eliminated in the past year.
While there can be no assurance that there will be any improvement in the
competitive conditions prevalent in the market over the past several years, or
that new competitors will not emerge, management believes that the market may be
returning to a more stable position.
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ENVIRONMENTAL COMPETITION (CONTINUED)
The Company intends to capitalize on the recent capacity reduction in the
industry through its reputation in radiochemistry. This is a niche market
segment in which there are no more than 25-30 competitors nationwide.
Management believes that an interesting opportunity is developing in this
market for analytical services associated with the decommissioning of the
country's over 100 nuclear power plants, which are reaching the end of their
technical and economic lives.
The Company also believes that its growing presence and reputation in the
exploration-related mineral testing market in Latin America represents an
opportunity to secure an increasing amount of environmental work from this
region.
MINERAL COMPETITION
The market for mineral assay services is considerably smaller than that for
environmental testing services. There are several competitors with a much
greater market share than that of the Company. Two of these competitors are
subsidiaries of large, multi-dimensional testing companies with resources
significantly greater than those of the Company.
As indicated above, the precious metal mining industry has refocused its
exploration efforts on Latin America and, to a lesser extent, Asia and Africa,
at the expense of North America. Many of the smaller laboratory companies
serving the traditional North American market are finding themselves under
increasing price and volume pressure. Management believes that the number of
firms competing in this traditional market will decline over the coming years.
The Company has, as mentioned earlier, taken a number of steps in recent years
to position itself to take advantage of the developing opportunity in the Latin
American market. The Company's experience is that the key to success in this
process is an ability to respond quickly to customers' changing geographical
requirements while maintaining quality in its operations and services.
While there is no assurance that the market for exploration-related mineral
testing will continue to grow in Latin America, the Company has a well
established operational and financial formula for setting up sample preparation
facilities in these countries quickly and cost-effectively, and for finding
competent local technical and managerial staff who can maintain the Company's
standards of quality. Management believes that this capability should allow it
to secure and maintain a greater share of this market as the precious metal
mining industry continues to expand outside North America.
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<PAGE>
LICENSES AND PERMITS
The Company's environmental laboratory requires a number of licenses,
certifications and accreditations in order to provide the range of analytical
services it deems necessary to compete effectively in its target markets. These
are issued by Federal and state environmental agencies, private accrediting
bodies and private industrial corporations. The Company devotes significant
resources to the maintenance of these licenses and certifications which are
typically renewable on an annual or other periodic basis.
REGULATION
The environmental side of the Company's activities is regulated by the
Environmental Protection Agency, the Nuclear Regulatory Commission and the
Occupational Safety and Health Agency. Most of these regulations concern the
analytical methods used in the laboratory, maintenance of a safe working
environment, and the proper disposal of used samples and laboratory waste. The
mineral testing side of the Company's activities is less heavily regulated but
is also required to conform to Federal and local regulations concerning safe
working conditions and the disposal of waste material from its operations. The
Company is not aware of any new regulatory initiatives which, if adopted, would
impose significant incremental costs on the Company. See also Item 3 below.
EMPLOYEES
As of December 31, 1997, the Company had 112 employees, 106 of whom were
employed on a full time basis. Most of the Company's technical staff are degreed
professionals, and management believes the Company's reputation and ability to
provide customers with high quality data and good service depend upon its
ability to attract and retain highly qualified technical staff. None of the
Company's employees are represented by any union and the Company considers its
employee relationships to be satisfactory.
OTHER
The Company's business does not depend on the availability of raw materials, nor
does the Company have any patents, trade marks, licenses, franchises,
concessions, royalty agreements or labor contracts. The Company does not devote
any significant efforts on research and development.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases office and laboratory space from unaffiliated parties as
follows:
<TABLE>
<CAPTION>
Square Annual Expiration
Location Use Footage Lease Date
- -------- --- ------- ----- ----
<S> <C> <C> <C> <C>
15000 West 6th Avenue, Suite 300 office and analytical 17,800 $174,000 February, 2001
Golden, Colorado services laboratory
5301 Longley Lane office and analytical 25,500 $194,000 September, 2001
Reno, Nevada services laboratory
5301 Longley Lane, #24 storage space 2,420 $ 13,800 February, 2001
Reno, Nevada
Barringer Laboratorios DE Mexico sample preparation 5,000 $ 12,000 January, 1999
S.A. DE C.V. laboratory
Blvd. Garcia Morales 829-A BoDega 2
Colonia La Manga De Este Cuidad
Hermosillo, Sonora, Mexico
Barringer Laboratories DEL Peru sample preparation 2,500 $ 28,000 October, 1998
Avenida Domingo Orue 489 laboratory
Surguillo, Lima 34, Peru
Barringer Laboratorios DE Nicaragua sample preparation 7,000 $ 27,000 March, 1999
Complejo Ocal laboratory
Km 7.5 Carretara Norte
Managua, Nicaragua
</TABLE>
The Company believes that the office and laboratory space it currently leases
is adequate for its current operations.
ITEM 3. LEGAL PROCEEDINGS
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. This investigation is
not yet complete. In addition, the Company informed the United States
Environmental Protection Agency ("EPA") of its investigation and its
corrective action program. EPA has informed the Company that Agency law
enforcement personnel will be conducting their own investigation into this
matter in accordance with EPA's policy towards voluntary self-disclosures of
this type. The Company intends to cooperate fully with all regulatory
agencies with respect to the matter. To date, no agency or other party has
brought any action or proceeding against the Company.
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ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
In light of the above development, the Company has taken broad corrective
action measures, 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 or
other sanctions that could be severe, and that 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, and Management believes that the steps it has taken to date
should mitigate any adverse con-sequences to the Company. See "Item 6
Management's Discussion and Analysis or Plan of Operation".
However, 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 1997 consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Other than as set forth above, the Company is not a party to any material,
pending, or threatening litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of its fiscal year ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF OUTSTANDING COMMON STOCK
The Company's common stock is traded on the OTC Bulletin Board under the
symbol BALB. On March 13, 1997, there were approximately 35 holders of
record (both beneficial and nominee) of the common stock.
The following table sets forth the high and low bid quotations per share of
common stock for each quarter of the years indicated. The prices represent
quotations between dealers as reported by the NASDAQ and do not include
retail markup, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
<S> <C> <C>
1996 First Quarter $1.31 $ .37
Second Quarter 1.19 .84
Third Quarter 1.50 .93
Fourth Quarter 2.19 1.44
1997 First Quarter $3.13 $1.69
Second Quarter 3.00 1.88
Third Quarter 2.19 1.50
Fourth Quarter 1.94 1.50
1998 First Quarter $1.125 $0.625
</TABLE>
DIVIDEND POLICY
The Company has not paid cash dividends on its common stock and does not
anticipate paying cash dividends in the foreseeable future. The payment of
future dividends and the amount thereof will depend upon the Company's
earnings, financial condition, capital requirements and such other factors as
the Board of Directors may consider relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
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,
uncertainty arising out of the investigation described in Item 3, 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" include forward-looking statements that involve risks and
uncertainties. The Company wishes to caution readers that a number of
important factors discussed herein, and in other reports filed with the
Securities and Exchange Commission, could affect the Company's actual results
and cause actual results to differ materially from those in the
forward-looking statements.
RESULTS OF OPERATIONS
The following is a breakdown of consolidated operating results for the years
ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Consolidated
--------------------------
Years Ended 12/31
1997 1996
--------------------------
<S> <C> <C>
Sales of Services $7,179,000 $7,251,000
Cost of Services Sold 5,526,000 4,828,000
---------- ----------
Gross Profit 1,653,000 2,423,000
Selling, General and
Administrative Expenses 1,819,000 1,661,000
Corporate Realignment Expense 131,000 -
---------- ----------
Operating Profit (Loss) (297,000) 762,000
Other Income (Expense) 18,000 (26,000)
Loss on Disposal of Assets (87,000) -
Minority Interest in the Loss
of Subsidiary 54,000 -
---------- ----------
Income (Loss) before Income
Taxes and after elimination
of minority interest in the
loss of subsidiary $ (312,000) $ 736,000
---------- ----------
---------- ----------
</TABLE>
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RESULTS OF OPERATIONS (CONTINUED)
1997 COMPARED TO 1996
Net sales for 1997 of $7,179,000 reflect a $72,000 (1%) decrease in sales
compared to 1996 sales of $7,251,000. The Environmental Division experienced
an increase in sales of $19,000 (.5%) due to the addition of two new
customers' large one-time projects which generated sales of $579,000 in 1997.
These increases were offset by volume decreases of $577,000 (14.3%) from
existing customers. The Mineral Division experienced a decrease in sales of
$91,000 (2.8%) from 1996 due to a decrease in sales of $208,000 (24.3%) in
Mexico and a decrease in sales of $493,000 (21.6%) in the United States. The
decrease in Mexico was primarily due to the loss of a major customer at the
end of 1996. Sales from this customer in 1997 were $249,000 less than those
generated in 1996. An additional contributor to the reduced sales in Mexico
was a one-time project in 1996 which generated sales of $92,000. These
decreases were offset by volume sales increases of $133,000 from other
customers and the addition of new customers. Reduced sales in the United
States were due to lower gold prices and the migration of the gold
exploration industry out of North America and into Latin America.
These sales reductions were offset by new Peruvian customers' sales of
$154,000 and increased sales from Nicaraguan customers of $456,000 over 1996.
These increases were directly attributable to the establishment in 1997 of
mineral preparation facilities in these two countries.
Gross profit as a percentage of sales was $23.0% for 1997 as compared to
33.4% for 1996. This decrease in gross profit was due primarily to higher
production costs (labor, supplies, and outside services) in both Divisions.
An additional reason for the reduced margin was the acceptance of two large
projects at lower profit margins in the Environmental Division totaling
$579,000.
Selling, general and administrative expenses of $1,819,000 increased
$158,000 (9.5%) from 1996 due primarily to higher selling expenses
(commissions, travel, advertising, and convention), higher general and
administrative expenses (salaries, supplies, professional fees, and director
expenses), annual meeting/proxy expenses and start-up expenses related to the
Mineral Division's expansion into Latin America. These increases were
partially offset by a reduction in management bonuses of $70,000.
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RESULTS OF OPERATIONS (CONTINUED)
1997 COMPARED TO 1996 (CONTINUED)
Corporate realignment expenses in 1997 of $131,000 were related to the
management changes in the Chief Executive Officer and the Chief Financial
Officer positions, including severance costs and costs of purchasing vested
stock options.
Net other expenses totaled $69,000 in 1997 which increased $43,000 (69.2%)
from other expense of $26,000 in 1996. This increase was due to loss on
disposal of assets in 1997 of $87,000 which was for the write-off of assets
associated with the Environmental Division's Laboratory Information
Management System ("LIMS"), offset by the higher interest income and lower
interest expense.
For the year ended December 31 1997, after the elimination of the minority
interest in the loss of subsidiary of $54,000, the Company had a pre-tax loss
of $312,000 compared to income of $710,000 for 1996. This decrease of
$1,022,000 was due primarily to higher production costs in both Divisions,
lower profit margins on two large projects in the Environmental Division, and
higher selling and general/administrative expenses. Net other expenses of
$69,000 also contributed to the reduced profitability of the Company.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $524,000 at December 31, 1997 compared with
$803,000 at December 31, 1996. The $279,000 decrease in cash and cash
equivalents resulted from cash used in investing activities of $203,000 and
from cash used in financing activities of $179,000, offset by cash provided
by operating activities of $103,000.
Cash provided by operating activities of $103,000 resulted from the effect of
certain items not affecting cash of $366,000 (primarily depreciation,
amortization, and bad debt expense) and a decrease in operating assets net of
operating liabilities of $103,000, offset by a net loss of $312,000 and
minority interest in loss of subsidiary of $54,000.
Cash used for investing activities of $203,000 was for leasehold improvements
and equipment to increase the capacity of the Mineral Division analytical lab
and the purchase of equipment for the Company's new laboratory operations in
Peru and Nicaragua.
-16-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
Cash used in financing activities of $179,000 consisted of the purchase of a
$150,000 certificate of deposit which is security for the $150,000 letter of
credit required by the Colorado Department of Health, a decrease in long term
debt of $56,000, and the purchase of common stock from former management of
$84,000 as part of severance agreements. These uses were offset by cash
provided by the exercise of stock options of $52,000 and minority interest
contributions of $59,000 in the Peruvian subsidiary.
The $150,000 letter of credit is required by the Colorado Department of
Health in order to increase the level of the Company's Radiochemistry
license. This increase in the license gives the Company the ability to
expand the radiochemistry analytical business.
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. This investigation
is not yet complete. In addition, the Company informed the EPA of the
investigation and its corrective action program. The Company intends to
cooperate fully with all regulatory agencies with respect to the matter. To
date, no agency or other party has brought or threatened any action or
proceeding against the Company.
In light of the above development, the Company has taken broad corrective
action measures, 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 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
-17-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
the investigation incurred through the end of February, 1998, has been
approximately $85,000. 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 1997
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Given the uncertainty surrounding the outcome of the Company's investigation
and its related costs as described above, 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 to provide additional working capital of $500,000.
These shares were issued below the value at which the Company's stock last
traded on March 20, 1998. The difference between the issuance price and the
most recent trading price will be charged to compensation expense in the
second quarter. Among the subscribers are three members of the Company's
board of directors, two of whom are significant existing stockholders. 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 (as discussed below) and would therefore have a material adverse
effect on the Company's business.
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 course of the next 12 months 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.
-18-
<PAGE>
YEAR 2000 (CONTINUED)
Management believes that both can be installed and implemented largely using
existing Company personnel at a maximum incremental operating cost of $20,000
required to pay for temporary laboratory labor during the LIMS installation
process in the Company's environmental laboratory.
In addition, the Company will establish by April 30, 1998, 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 systems. Management believes that the
costs associated with resolving any potential year 2000 issues associated
with these systems will not be material.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
The Company's effective tax rate differs materially from the Federal
statutory rate of 34% as discussed in the notes to the accompanying
consolidated financial statements.
At December 31, 1997, 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 $3,404,000. Such net operating loss carryforwards expire in
varying amounts from 1998 to 2006 and are subject to certain limitations
under the Internal Revenue Code ("IRC") of 1986, as amended.
At December 31, 1997, a net deferred tax asset totaling $30,000 was recorded,
relating primarily to available alternative minimum tax credits.
As of December 31, 1997, a valuation allowance of $1,511,000 has been
recorded, as Management of the Company is not able to determine that it is
more likely than not that the remaining 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 limitations
under the IRC of 1986.
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the two year period ended December 31, 1997,
even though Mexico is considered a highly inflationary economy as discussed
in notes to the accompanying consolidated financial statements.
-19-
<PAGE>
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.
Also, 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 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.
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
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.
-20-
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Barringer Laboratories, Inc.
Golden, Colorado
We have audited the accompanying consolidated balance sheets of Barringer
Laboratories, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years then ended. 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 financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 8 to the consolidated financial statements, 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. The Company is in
the process of completing an internal investigation of this matter. Depending
upon the nature and frequency of any improper practices and 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 if reported
test results were erroneous. At this stage of the investigation, the ultimate
outcome of this uncertainty cannot presently be determined, but Management
believes that the steps it has taken to date should mitigate any adverse
consequences to the Company. The cost of the investigation and any associated
liabilities may have a material adverse impact on the results of operations, the
financial position and cash flows of the Company.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Barringer
Laboratories, Inc. and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years then
ended, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
March 18, 1998, except for Note 13
which is as of April 13, 1998
-21-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996
----- -----
<S> <C> <C>
Sales of Services (Note 9) $7,179,000 $7,251,000
Cost of Services Sold 5,526,000 4,828,000
---------- ----------
Gross Profit 1,653,000 2,423,000
Selling, General and
Administrative Expenses 1,819,000 1,661,000
Corporate Realignment Expense
(Note 12) 131,000 -
---------- ----------
Operating Profit (Loss) (297,000) 762,000
---------- ----------
Other Income (Expense):
Interest income 33,000 25,000
Interest expense (17,000) (48,000)
Loss on disposal of assets (87,000) -
Translation loss (3,000) (9,000)
Other 5,000 6,000
---------- ----------
Total Other Income (Expense) (69,000) (26,000)
---------- ----------
Income (Loss) before Income
Taxes and Minority Interest
in Loss of Subsidiary (366,000) 736,000
Provision for Income Taxes
(Note 5) - 26,000
---------- ----------
Income (Loss) before
Minority Interest in Loss
of Subsidiary (366,000) 710,000
Minority Interest in Loss
of Subsidiary (Note 4) 54,000 -
---------- ----------
Net Income (Loss) $ (312,000) $ 710,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996
----- -----
<S> <C> <C>
Per Share Data (Note 6):
Net Income (Loss) per share
Basic $ (.20) $ .43
---------- ----------
---------- ----------
Diluted $ (.20) $ .42
---------- ----------
---------- ----------
Weighted average common
shares outstanding
Basic 1,591,112 1,634,653
---------- ----------
---------- ----------
Diluted 1,591,112 1,692,203
---------- ----------
---------- ----------
</TABLE>
-23-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------ ------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 524,000 $ 803,000
Trade receivables, less
allowance of $13,000 and
$21,000 for doubtful accounts 1,062,000 1,087,000
Prepaid expenses and other 127,000 99,000
---------- ----------
Total Current Assets 1,713,000 1,989,000
---------- ----------
Property, Plant and Equipment:
Machinery and equipment 2,214,000 2,000,000
Machinery and equipment under
capital lease obligations 134,000 191,000
Leasehold improvements 663,000 647,000
Office furniture and equipment 90,000 79,000
---------- ----------
3,101,000 2,917,000
Less accumulated depreciation and
amortization 2,809,000 2,487,000
---------- ----------
Net Property, Plant and Equipment 292,000 430,000
Certificate of Deposit (Note 2) 150,000 -
Other Assets 57,000 75,000
---------- ----------
Total Assets $2,212,000 $2,494,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------ ------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 251,000 $ 213,000
Accrued liabilities:
Payroll, compensation and
related expenses 290,000 256,000
Other 211,000 121,000
Income tax payable (Note 5) - 49,000
Current maturities of obligation
under capital lease (Note 3) 38,000 58,000
---------- ----------
Total Current Liabilities 790,000 697,000
Obligation under capital lease,
less current maturities (Note 3) 54,000 89,000
---------- ----------
Total Liabilities 844,000 786,000
---------- ----------
Minority Interest (Note 4) 5,000 -
Commitments and Contingencies
(Notes 3, 7 and 8)
Shareholders' Equity (Note 6)
Preferred stock, $2.00 par value,
1,000,000 shares authorized;
none issued - -
Common stock, $0.01 par value,
10,000,000 shares authorized;
issued 1,590,649 and 1,652,016;
outstanding 1,590,649 and
1,563,756 16,000 17,000
Additional paid-in capital 2,397,000 2,532,000
Accumulated deficit (1,027,000) (715,000)
Translation adjustment (23,000) (23,000)
---------- ----------
1,363,000 1,811,000
Less common stock in treasury,
at cost, 88,260 shares
in 1996 (Note 6) - (103,000)
---------- ----------
Total Shareholders' Equity 1,363,000 1,708,000
---------- ----------
Total Liabilities and
Shareholders' Equity $2,212,000 $2,494,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-25-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN 000'S EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Treasury Stock Additional
------------------ ----------------- Paid-In Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
--------- ------ ------- ------ ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,299,254 $ 23 647,238 $(855) $3,278 $(1,425) $(15) $1,006
Acquisition and Retirement
of Treasury Stock (Note 6) (647,238) (6) (558,978) 752 (746) - - -
Translation Adjustment - - - - - - (8) (8)
Net Income for Year - - - - - 710 - 710
--------- ------ -------- ------ ------ ------- ----- ------
Balance, December 31, 1996 1,652,016 17 88,260 (103) 2,532 (715) (23) 1,708
Stock Granted to Management
(Note 6) 16,636 - - - - - - -
Exercise of Stock Options
(Note 7) 53,400 - - - 52 - - 52
Purchase of Management Stock
(Note 6) (43,143) - - - (84) - - (84)
Retirement of Treasury Stock
(Note 6) (88,260) (1) (88,260) 103 (103) - - (1)
Net Loss for Year - - - - - (312) - (312)
--------- ------ -------- ------ ------ ------- ----- ------
Balance, December 31, 1997 1,590,649 $ 16 - $ - $2,397 $(1,027) $(23) $1,363
--------- ------ -------- ------ ------ ------- ----- ------
--------- ------ -------- ------ ------ ------- ----- ------
</TABLE>
See accompanying notes to consolidated financial statements.
-26-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the year $ (312,000) $ 710,000
Items not affecting cash
Depreciation and amortization 341,000 397,000
Deferred income taxes - (30,000)
Bad debt expense 25,000 20,000
Minority interest in loss
of subsidiary (54,000)
Other - (8,000)
(Increase) decrease in operating
assets net of operating liabilities 103,000 (50,000)
------------ ------------
Cash Provided by Operating
Activities 103,000 1,039,000
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (203,000) (248,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of certificate of deposit (150,000) -
Exercise of stock options 52,000 -
Purchase of common stock (84,000) -
Increase in long-term debt - 148,000
Reduction in long-term debt (56,000) (222,000)
Increase (decrease) in short-term
borrowings - (84,000)
Minority Interest Contributions 59,000 -
------------ ------------
Cash Used in Financing
Activities (179,000) (158,000)
------------ ------------
Increase (decrease) in cash
and cash equivalents (279,000) 633,000
Cash and cash equivalents, beginning
of year 803,000 170,000
------------ ------------
Cash and cash equivalents, end of year $ 524,000 $ 803,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
-27-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Decrease (increase) in operating
assets net of operating liabilities
Trade receivables $ - $ (29,000)
Due from affiliate - 1,000
Other current assets (28,000) 44,000
Other assets 18,000 (28,000)
Income tax payable (49,000) 49,000
Accounts payable and accrued
liabilities 162,000 (87,000)
---------- ----------
Total - net $ 103,000 $ (50,000)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-28-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Barringer Laboratories, Inc., (the "Company") is an analytical services
company, principally engaged in analytical testing for the environmental
services and mineral exploration industries.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements comprise the accounts of
the Company, its wholly-owned Mexican subsidiary, its wholly-owned Nicaraguan
subsidiary, and its 67% owned Peruvian subsidiary. All intercompany balances
and transactions have been eliminated.
PRINCIPAL MARKETS
Sales of services are primarily to customers located in the United States,
with the balance of approximately 21% to customers in Mexico, Nicaragua, Peru
and Spain (See Note 10). For the year ended December 31, 1997 based upon
total sales, 20% of the Company's Environmental Division Services were
provided under contracts relating to federal government spending for
environmental enforcement and restoration.
PRINCIPLES OF TRANSLATION
Prior to 1997, the assets and liabilities of the Company's Mexican subsidiary
were translated by using year-end exchange rates and income statement items
were translated at average exchange rates for the year. Since Mexico is
considered a highly inflationary economy, effective January 1, 1997, the
Company remeasured the assets and liabilities of its Mexican subsidiary from
pesos to U.S. dollars. 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.
-29-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and trade accounts
receivable. Concentrations of credit risk with respect to trade receivables
are limited due to the large number of customers, generally short payment
terms, and their dispersion across geographic areas.
The Company invests temporary cash in demand deposits and money market
accounts with quality financial institutions. Such deposit accounts at times
may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
The carrying amounts of financial instruments including cash equivalents,
trade accounts receivable, trade accounts payable and accrued liabilities
approximated fair value because of the immediate or short-term maturity of
these instruments. The difference between the carrying amount and fair value
of the Company's long-term debt is not significant.
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 those estimates.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, plant 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. Equipment under capital leases is amortized on a
straight-line basis over the term of the lease, generally three to five
years, which approximates the estimated useful lives of the leased equipment.
-30-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109 "Accounting for
Income Taxes". Temporary differences are differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future years.
REVENUE RECOGNITION
Sales are recorded in the periods that services are performed.
STATEMENT OF CASH FLOWS
The Company invests temporary cash in demand deposits. For purposes of the
Statements of Cash Flows, the Company considers cash and all highly liquid
investments with an original maturity of three months or less to be cash and
cash equivalents.
INCOME (LOSS) PER SHARE
Through December 31, 1996, the Company followed the provisions of Accounting
Principles Board Opinion ("APB") 15, "Earnings Per Share". Effective for the
year ended December 31, 1997, the Company implemented Statement of Financial
Accounting Standards ("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. In loss periods, dilutive common equivalent shares are excluded as
the effect would be anti-dilutive. For the year ended December 31, 1997,
176,975 dilutive common equivalent shares of common stock were not included
in the computation of diluted income (loss) per share because their effect
was anti-dilutive. All prior period income (loss) per share data has been
restated to reflect the requirements of SFAS No. 128. The effect of the
adoption of SFAS No. 128 was not significant for earnings per share for 1996.
-31-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLANS
The Company applies APB 25, "Accounting for Stock Issued to Employees", and
related Interpretations in accounting for all stock option plans. Under APB
25, no compensation cost has been recognized for stock options issued to
employees as the exercise price of the Company's stock options granted equals
or exceeds the market price of the underlying common stock on the date of
grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the Company
to provide pro forma information regarding net income 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 No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued 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.
Also, in June 1997, 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.
-32-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, Management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
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.
2. CERTIFICATE OF DEPOSIT
The certificate of deposit is security for the $150,000 letter of credit
required by the Colorado Department of Health to increase the level of the
Company's Radiochemistry license. This increase in the license gives the
Company the ability to grow the radio-chemistry analytical business.
3. OBLIGATION UNDER CAPITAL LEASE
The obligation under capital lease consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Obligation under capital lease $ 92,000 $147,000
Less current maturities 38,000 58,000
-------- --------
$ 54,000 $ 89,000
-------- --------
-------- --------
</TABLE>
-33-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. OBLIGATION UNDER CAPITAL LEASE (CONTINUED)
As of December 31, 1997, future net minimum lease payments under capital
lease obligations are as follows:
<TABLE>
<S> <C>
1998 $ 47,000
1999 47,000
2000 8,000
--------
Total minimum lease payments 102,000
Less amounts representing interest 9,000
Less amounts representing executory costs 1,000
--------
Present value of net minimum lease payments $ 92,000
--------
--------
</TABLE>
4. MINORITY INTEREST
The minority interest represents the net value of the Peruvian minority
shareholders investment in the Company's Peruvian subsidiary. The net value
consists of the minority shareholders' investment of $59,000 less their share
in the 1997 loss of the Company's Peruvian subsidiary of $54,000 .
5. INCOME TAXES
Sources of income (loss) before income taxes and after minority interest in
loss of subsidiary include:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
United States operations $ (82,000) $ 759,000
Foreign operations (230,000) (23,000)
----------- -----------
$ (312,000) $ 736,000
----------- -----------
----------- -----------
</TABLE>
-34-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. INCOME TAXES (CONTINUED)
The provision for income taxes for the years ended December 31, consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current:
Federal $ - $ 26,000
State - 30,000
Deferred (reduction):
Federal (25,000) 246,000
State (7,000) 22,000
-------- --------
(32,000) 324,000
Increase (decrease) in
valuation allowance 32,000 (298,000)
-------- --------
$ - $ 26,000
-------- --------
-------- --------
</TABLE>
The significant components of deferred income tax expense (reduction)
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Utilization of net operating
loss carryforwards $ 23,000 $ 283,000
Expense accruals (28,000) 2,000
Depreciation and amortization (10,000) (31,000)
Other (17,000) 14,000
-------- --------
Deferred income tax expense
(reduction) $(32,000) $ 268,000
-------- --------
-------- --------
</TABLE>
-35-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. INCOME TAXES (CONTINUED)
RECONCILIATION OF INCOME TAXES
The following summary reconciles income taxes at the United States statutory
rate of 34% in 1997 and 1996 with the actual taxes:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Expense (benefit) computed
at the statutory rate $(106,000) $ 250,000
Losses for which no tax
benefit has been recognized 61,000 8,000
Valuation allowance 32,000 (298,000)
Other 13,000 66,000
--------- ---------
Provision for income taxes $ - $ 26,000
--------- ---------
--------- ---------
</TABLE>
Temporary differences between the financial statement carrying amounts and
the tax basis of assets and labilities that give rise to significant portions
of the net deferred tax asset relate to the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Tax operating loss carryforwards $1,259,000 $1,282,000
Property and equipment, principally
due to differences in depreciation 170,000 160,000
Expense accruals 54,000 26,000
Other 58,000 41,000
---------- ----------
1,541,000 1,509,000
Valuation allowance (1,511,000) (1,479,000)
---------- ----------
Net deferred tax asset $ 30,000 $ 30,000
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997 and 1996, the net deferred tax asset recorded is
included in prepaid expenses and other in the accompanying consolidated
balance sheet.
At December 31, 1997, 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 $3,404,000. Such net operating loss carryforwards expire in
varying amounts from 1998 to 2006 and are subject to certain limitations
under the Internal Revenue Code ("IRC") of 1986, as amended.
-36-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. INCOME TAXES (CONTINUED)
RECONCILIATION OF INCOME TAXES (CONTINUED)
As of December 31, 1997, 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 limitations under the IRC of 1986, as well as
uncertainties relating to the EPA investigation and its possible impact on the
financial position in 1998 as discussed in Note 8.
6. SHAREHOLDERS' EQUITY
STOCK GRANTED TO MANAGEMENT
During 1997, the Company granted a former member of management under a cash-less
exercise 16,636 shares of common stock in exchange for 25,000 non-qualified
stock options held by the former member of management to purchase common stock
at $.90 per share. No additional compensation expense was recorded related to
this transaction.
PURCHASE OF MANAGEMENT STOCK
During 1997, the Company purchased 35,143 shares of common stock at $2.00 a
share and purchased 8,000 shares of common stock at $1.75 per share from former
members of management.
RETIREMENT OF TREASURY STOCK
Effective October 24, 1997, the Company retired 88,260 shares of its common
stock valued at $103,000. These shares were purchased from Barringer
Technologies, Inc. ("BTI") under an agreement dated October 7, 1996.
Effective December 11, 1996, the Company retired 647,238 shares of its common
stock valued at $752,000. These shares were purchased from BTI under an
agreement dated December 8, 1995.
-37-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
Net Income (Loss) per Share
<TABLE>
<CAPTION>
Year Ended
----------------------------
December 31, December 31,
1997 1996
<S> <C> <C>
Numerator $ (312,000) $ 710,000
---------- ----------
---------- ----------
Denominator:
Denominator for basic net
income (loss) per share-
weighted average shares 1,591,112 1,634,653
Effect of dilutive securities:
Employee stock options - 57,550
---------- ----------
Denominator for diluted
net income (loss) per share -
adjusted weighted average 1,591,112 1,692,203
---------- ----------
---------- ----------
Basic net income (loss) per share $ (.20) $ .43
---------- ----------
---------- ----------
Diluted net income (loss) per share $ (.20) $ .42
---------- ----------
---------- ----------
</TABLE>
For the year ended December 31, 1997, dilutive common stock equivalents of
176,975 were not included in the computation of diluted net income (loss) per
share because their effect was anti-dilutive.
PREFERRED STOCK
The Preferred Stock of the Company can be issued in series. With respect to
each series issued, the Board of Directors of the Company will determine, among
other things, the number of shares in the series, voting rights and terms,
dividend rates and terms, liquidation preferences and redemption and conversion
privileges. There was no preferred stock outstanding at December 31, 1997.
-38-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. STOCK OPTIONS AND WARRANTS
The following table sets forth the number of shares of common stock that are
reserved as of December 31, 1997 for all outstanding options and warrants.
<TABLE>
<CAPTION>
Exercise Common Stock
Conversion or Outstanding or
Security Option Price Reserved for Issuance
- ---------------------- ------------- ---------------------
<S> <C> <C>
Common Stock 1,590,649
Stock Options (a)
$ .90 8,600
$1.00 110,500
$1.06 24,000
Warrants (b)
Nassau Group Warrants $1.06 80,000
expiring five years $1.25 25,000
after issuance ---------
1,838,749
---------
---------
</TABLE>
(a) STOCK OPTIONS
At December 31, 1997, the Company has four stock option plans, which are
described below. The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees", and related Interpretations in accounting for all plans.
Under APB Opinion 25, no compensation cost has been recognized for stock options
issued to employees as the exercise price of the Company's stock options granted
equals or exceeds the market price of the underlying common stock on the date of
grant.
1989 INCENTIVE STOCK OPTION PLAN
The 1989 Incentive Stock Option Plan (the "Plan") is designed to provide
incentives for employees who may or may not be key employees, as well as
officers and directors who are also employees of the Company and its
subsidiaries, by providing up to 200,000 shares of the Company's common stock
issuable pursuant to grants.
-39-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
(a) STOCK OPTIONS (CONTINUED)
1989 INCENTIVE STOCK OPTION PLAN (CONTINUED)
The Plan is administered by a Committee of at least three directors appointed by
the Board of Directors. The Committee is authorized to determine the
individuals to whom, and the times at which, options will be granted, the number
of shares subject to each grant, the applicable restriction period, the purchase
price for the shares subject to the option, and to specify such other terms and
provisions of any grants of options as it deems necessary or advisable.
However, the term of the options may not be for more than five years and the
purchase price per share shall not be less than the market value of such shares
at the time of grant. Additionally, options granted under the Plan typically
vest 60% after two years of continuous employment of the optionee after the date
of grant and 20% each year of continuous employment thereafter. During 1997,
options to purchase 43,400 of common stock at $.90 per share were exercised. At
December 31, 1997, options to purchase 5,600 shares of common stock are
exercisable under this plan.
The Plan will terminate in December 1999, except for outstanding options under
the Plan, which will remain in effect until they have been exercised or shall
have been expired by their terms.
1997 LONG-TERM INCENTIVE PLAN
Stockholders approved the 1997 Long-Term Incentive Plan ("1997 Plan"). The 1997
Plan is designed to provide key management employees of the Company with added
incentives to continue in the long-term service of the Company and to create in
such employees a more direct interest in the future success of the Company by
relating compensation to increases in stockholder value, so that the income of
key management employees is more closely aligned with the income of the
stockholders of the Company. The 1997 Plan is also designed to attract key
employees and to retain and motivate participating employees by providing an
opportunity for investment
-40-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
(a) STOCK OPTIONS (CONTINUED)
1997 LONG-TERM INCENTIVE PLAN (CONTINUED)
in the Company. The 1997 Plan is administered by the Board of Directors or
through an Incentive Plan Committee appointed by the Board of Directors and
consisting of not less than two persons, all of whom must be non-employee
directors. The 1997 Plan reserves 120,000 shares of the Company's common stock
for issuance. Any shares that are the subject of an award under the 1997 Plan
which has lapsed or expired unexercised or unissued will automatically become
available for reissue under the 1997 Plan. The exercise prices, vesting
schedules, and other pertinent terms of the 1997 Plan will be determined by the
Committee, but no exercise price for an incentive stock option will be less than
the fair market value of the stock on the date the option is granted. There
were no options granted under this plan in 1997.
OTHER STOCK OPTIONS
The Company also grants non-qualified stock options to management, outside
directors, and consultants as authorized by the Board of Directors. These
options are exercisable at varying times from date of grant and expire five
years from date of grant. As of December 31, 1997, all non-qualified stock
options have been granted at an exercise price in excess of the current market
value at the time of grant.
In 1996, the Company granted to certain consultants non-qualified options to
purchase 84,000 shares of common stock at $1.00 and $1.06 per share in
connection with agreements to provide services to the Company. Such options are
exercisable for a period of two years from the date of grant and vest on a
monthly basis over a two year period. Non qualified stock options to purchase
22,500 shares of common stock at $1.00 were canceled in 1997 and non-qualified
stock options to purchase 10,000 shares of common stock at $1.00 were exercised
in 1997. Also during 1997, 25,000 non-qualified stock options held by a former
member of management to purchase common stock at $.90 per share were exchanged
for 16,636 shares of common stock under a cash-less exercise. As of December
31, 1997, stock options to purchase 90,000 shares of common stock are
exercisable under this plan.
-41-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. Stock Options and Warrants (Continued)
(a) STOCK OPTIONS (CONTINUED)
NON-EMPLOYEE DIRECTORS PLAN
Stockholders approved the Non-Employee Directors Stock Option Plan (the
"Non-Employee Directors Plan"). The Non-Employee Directors Plan provides for
the grant of stock options to non-employee directors of the Company and its
affiliated corporations in order to encourage and provide incentives for high
level performance by the non-employee directors of the Company. The maximum
number of shares of common stock that may be subject to stock options under
the Non-Employee Directors Plan is 30,000 shares. Upon adoption of the
non-Employee Directors Plan or upon initial election or appointment of a
non-employee director to the Board of Directors of the Company, he or she
shall be granted a stock option to purchase 1,000 shares of common stock. In
addition, each non-employee director shall be granted a stock option to
purchase 1,000 shares of common stock effective as to each anniversary date
of the initial grant of a stock option to such director. Each stock option
granted under the Non-Employee Directors Plan shall be vested one-third on
the date of grant, one-third upon the first yearly anniversary date of a
grant and the final one-third upon the second yearly anniversary date of the
grant. The purchase price per share of common stock for the shares to be
purchased pursuant to the exercise of a stock option will be 100% of the fair
market value of the common stock on the date of grant of the option. There
were no options granted under this plan in 1997.
(b) WARRANTS
In May 1996, the Company granted to certain individuals associated with The
Nassau Group, Inc. warrants to purchase 80,000 shares and 25,000 shares of
common stock at $1.06 and $1.25 per share, respectively, as an inducement to
such individuals to become involved in the Company and also an inducement to
purchase 10% of the outstanding shares of the Company's common stock. Such
warrants are exercisable for a period of five years from the date of grant. Of
the total warrants granted, warrants to purchase 50,000 shares of common stock
vested when granted and the remaining warrants vest on a monthly basis over a
one year period. At December 31, 1997, warrants to purchase 105,000 shares of
common stock were issued and exercisable under the agreement.
-42-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. Stock Options and Warrants (Continued)
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the Company
to provide pro forma information regarding net income 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 No. 123. The Company
estimated the fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for 1996 grants: dividend yield of 0%; expected volatility
of 30% to 34%; risk free interest rates of 5.25% to 6.27%; and expected lives
of five years. There were no options or warrants granted during 1997.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would have been adjusted to the following pro
forma amounts:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
NET INCOME (loss):
As reported $(312,000) $ 710,000
Pro forma (343,000) 686,000
NET INCOME (loss) PER SHARE:
Basic
As reported $ (.20) $ .43
Pro forma $ (.22) $ .42
Diluted
As reported $ (.20) $ .42
Pro forma $ (.22) $ .41
</TABLE>
During the initial phase-in period of SFAS 123, the effects on pro forma results
are not likely to be representative of the effects on pro forma results in
future years since options vest over several years and additional awards could
be made each year.
-43-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of the status of the Company's stock option plans and outstanding
warrants as of December 31, 1997 and 1996 and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
Weighted Weighted
Average Average
Range of Exercise Range of Exercise
Shares Prices Shares Price
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 443,000 $1.04 151,500 $ .90
Granted - - 344,000 1.08
Exercised (53,400) .92 - -
Canceled (141,500) 1.08 (7,500) 1.00
Expired - - (45,000) .90
--------- --------- -------- ---------
Outstanding,
end of year 248,100 $1.05 443,000 $ 1.04
--------- --------- -------- ---------
--------- --------- -------- ---------
Options and warrants
exercisable, end
of year 200,600 $1.06 276,976 $ 1.05
--------- --------- -------- ---------
--------- --------- -------- ---------
Weighted average fair
value of options
and warrants granted
during the year - $ .22
--------- --------
--------- --------
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options/Warrants
Options/Warrants Outstanding Exercisable
- ---------------------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 Life Price at 12/31/97 Price
- ----------- ----------- ----------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ .90-$1.06 223,100 2.5 years $1.03 175,600 $1.03
$1.25 25,000 4.2 years 1.25 25,000 1.25
------- -------
$ .90-$1.25 248,100 2.7 years $1.05 200,600 1.06
------- -------
------- -------
</TABLE>
-44-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
(A) LEASE PAYMENTS
The Company rents office and laboratory facilities, and equipment under various
operating leases. Total rental expenses under such leases amounted to $715,000
and $558,000 for each of the two years ended December 31, 1997 and 1996. At
December 31, 1997 future minimum rental payments required under operating leases
that have initial or remaining noncancellable terms in excess of one year are as
follows:
<TABLE>
<S> <C>
Year ending December 31, 1998 $ 641,000
1999 553,000
2000 339,000
2001 171,000
----------
$1,704,000
----------
----------
</TABLE>
(B) 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
commenced an internal investigation, engaged outside advisors to assist in
the investigation, and initiated corrective actions. This investigation is
not yet complete. In addition, the Company informed the United States
Environmental Protection Agency ("EPA") of its investigation and its
corrective action program. EPA has informed the Company that Agency law
enforcement personnel will be conducting their own investigation into this
matter in accordance with EPA's policy towards voluntary self-disclosures of
this type. The Company intends to cooperate fully with all regulatory
agencies with respect to the matter. To date, no agency or other party has
brought any action or proceeding against the Company.
-45-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Depending upon the nature and frequency of any improper practices 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 if reported test results were erroneous. At this stage in the
investigation, it is not possible to predict the ultimate outcome of this
uncertainty, and Management believes that the steps it has taken to date should
mitigate any adverse consequences to the Company.
However, the cost of the investigation and any associated liabilities may have a
material adverse impact on the results of operations, the 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.
9. MAJOR CUSTOMERS
No single customer accounted for more than 10% of the Company's total revenues
in 1997 or 1996.
-46-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. INFORMATION CONCERNING THE COMPANY'S PRINCIPAL ACTIVITIES
A summary of the Company's operations by geographic area for the years ended
December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total sales of services
United States $5,741,000 $6,194,000
Mexico 685,000 914,000
Nicaragua 599,000 143,000
Peru 154,000 -
---------- ----------
Total $7,179,000 $7,251,000
---------- ----------
---------- ----------
Earnings (loss) from operations
before income taxes and after
minority interest in loss of
subsidiary
United States $ (82,000) $ 759,000
Mexico (87,000) (23,000)
Nicaragua (35,000) -
Peru (108,000) -
---------- ----------
Total $ (312,000) $ 736,000
---------- ----------
---------- ----------
Identifiable Assets
United States $2,542,000 $2,612,000
Mexico 129,000 156,000
Nicaragua 23,000 -
Peru 113,000 -
Eliminations (595,000) (274,000)
---------- ----------
Totals $2,212,000 $2,494,000
---------- ----------
---------- ----------
</TABLE>
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company made cash payments for interest of $17,000 and $48,000 in 1997 and
1996.
The Company made cash payments of $49,000 and $10,000 for income taxes in 1997
and 1996.
-47-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. CORPORATE REALIGNMENT EXPENSE
The Company recorded severance costs and other expenses associated with changes
in management personnel in 1997 of $131,000.
13. SUBSEQUENT EVENT
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 to provide additional
working capital of $500,000. These shares were issued below the value at which
the Company's stock last traded on March 20, 1998. The difference between the
issuance price and the most recent trading price will be charged to compensation
expense in the second quarter. Among the subscribers are three members of the
Company's board of directors, two of whom are significant existing stockholders.
-48-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART II
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND CONSOLIDATED FINANCIAL DISCLOSURE
Not applicable.
-49-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Position with the Company Director
Name and affiliates Since
---- ------------------------- --------
<S> <C> <C>
J. Graham Russell.......Director, President and 1997
Chief Executive Officer
of the Company
R. Scott Asen...........Director of the Company 1996
Anthony R. Barringer....Director of the Company 1991
John P. Holmes..........Director of the Company 1996
J. Francis Lavelle......Director of the Company 1996
Randolph H. Ware........Director of the Company 1991
C.F. Wasser, III........Director of the Company 1991
Vern K. Peterson........Vice President --
</TABLE>
J. Graham Russell, 51, joined the Company as President, Chief Executive
Officer, and a Director on December 8, 1997. From January, 1995 until
December 8, 1997, Mr. Russell was an independent consultant to the
environmental laboratory industry. In February, 1996, he founded Chemical
Management Services, L.L.C., an innovative chemical recycling technology
company. He remains a Principal and majority owner of this company. Prior
to January, 1995, Mr. Russell held a number of executive positions with U.S
based subsidiaries of The Ocean Group, plc, a major British industrial
services corporation, quoted on the London stock exchange. His last
assignment for The Ocean Group, plc, ran from January, 1985 until January,
1995, during which time he was President and CEO of National Environmental
Testing, Inc., which he built from start-up to the third largest
environmental testing company in the U.S. with revenues of nearly $50 million
at its peak. Mr. Russell is a British citizen. He has an MA in economic
geography from Cambridge University in the United Kingdom and an MBA from the
Cranfield Institute of Technology, one of Britain's largest business schools.
-50-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Cont.)
R. Scott Asen, 53, is a Director of the Company. Mr. Asen has been general
partner of Pioneer Associates, Pioneer III-A, Pioneer III-B and Pioneer IV,
venture capital investment funds, since 1981, 1983, and 1984, respectively.
Since 1983, Mr. Asen has been President of Asen and Co., Inc., an investment
management firm. Presently, Mr. Asen is also a director of Davox
Corporation, SeaMed Corporation and a number of privately held companies.
Dr. Anthony R. Barringer, 72, is a Director of the Company and the founder of
Barringer Technologies, Inc. (BTI) for which he was President and later
served as Chairman until he resigned in January, 1993, and Chief Executive
Officer until January, 1989. Since November, 1989, Dr. Barringer has been
the principal officer of Barringer Patents Inc., a technology development
firm not in competition with the Company. Dr. Barringer is also Chairman and
Chief Executive Officer of Barringer GeoSystems Inc., a company formed in
August, 1994 for the development of airborne geophysical systems. This firm
is not in competition with the Company.
Dr. Randolph H. Ware, 53, is a Director of the Company. Dr. Ware is founder
of the Boulder Brewing Company (1980), now the Rockies Brewing Company;
Radiometrics Inc. (1987), a developer and manufacturer of atmospheric remote
sensing equipment; UNAVCO (1984), a research group funded by the National
Science Foundation and NASA to make scientific use of the Global Positioning
System (GPS) satellites; and GPS/MET, a program that demonstrated GPS sensing
of the atmosphere from orbit. He now directs GPS research programs at the
University Corporation for Atmospheric Research, and serves as Chairman of
Radiometrics Corporation.
John P. Holmes, III, 36, is a Director of the Company. Mr. Holmes is the
founder and a Managing Director of Ahern Partners, Inc., the general partner
of a private investment fund, and formerly managing director of The Nassau
Group. Prior to founding Ahern in 1989, Mr. Holmes was a Vice President at
First New York Securities. Mr. Holmes joined First New York Securities from
Oppenheimer & Co., where he served as a Vice President. Mr. Holmes received
his BA in Political Science from Trinity College in 1983.
-51-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)
J. Francis Lavelle, 34, is a Director of the Company. Mr. Lavelle is the
founder and, since 1992, a Managing Director of The Nassau Group, Inc. a
boutique investment banking and strategic consulting firm which focuses on the
environmental industry. Prior to establishing The Nassau Group, Mr. Lavelle was
an executive with Baring Brothers & Co., Inc., a UK based firm, for five years,
his last position being Vice President responsible for international and
domestic mergers and acquisitions. Mr. Lavelle joined Baring Brothers from
Booz, Allen & Hamilton where his fields of expertise were international merger
and acquisition advice as well as business strategy development. He graduated
CUM LAUDE from Princeton University after completing an A.B. degree at the
Woodrow Wilson School of Public and International Affairs.
C.F. Wasser, III, 46, is a Director of the Company. From December, 1982 to
January, 1993, Mr. Wasser was Senior Vice President of Sales for Kidder Peabody
& Co., Inc. in Minneapolis, Minnesota. He served as a Senior Vice President for
Paine Webber in Wayzata, Minnesota from January, 1993 to October 1995 and Senior
Vice President - Investments for EVEREN Securities, Inc. in Minneapolis,
Minnesota from October, 1995 to January, 1998.
Vern K. Peterson, 46, is a Vice President of the Company and manager of its
Minerals Division. He joined the Company in 1985. From 1982 to 1985, he was a
Laboratory Manager of Shasta Analytical Inc. Mr. Peterson was a business major
at Valley College and Glendale College and has over 18 years of business
management experience, the last 13 years of which involved managing
laboratories.
All seven directors are elected by the holders of the Company's Common Stock to
serve one year terms or until their successors shall be elected and shall
qualify.
There are no family relationships between any of the directors and officers of
the Company.
-52-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the total remuneration, on an accrued basis,
during the Company's last fiscal year ended December 31, 1997 for the Chief
Executive Officer and the executive officers whose total cash and non-cash
compensation exceeded $100,000 and for their prior two years remuneration.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
-------------------------------- ----------------------- ---------
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal sation Award(s) Option/ Payouts sation
Position Year(1) Salary($) Bonus($) ($) ($) SARs(#)(2) ($) ($)(3)
- -------- ------- --------- -------- ------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Graham Russell 1997 7,692 - N/A N/A - N/A N/A
President/CEO(4)
John S. Lovell 1997 29,800 - N/A N/A - N/A N/A
Former Acting
President(5)
Chief Technical
Officer
Vern Peterson 1997 94,370 10,000 24,988 N/A - N/A 3,734
Vice President(6) 1996 82,597 23,662 N/A N/A 18,000 N/A 7,468
1995 68,250 7,320 N/A N/A - N/A 7,334
Former Executive Officers
Robert H. Walker 1997 111,800 - 79,878 N/A - N/A 14,035
Former President 1996 111,800 44,364 N/A N/A 60,000 N/A 13,733
and CEO (7) 1995 108,212 31,312 N/A N/A - N/A 13,596
Charles E. Ramsay 1997 73,942 - 19,465 N/A - N/A 10,416
Former Chief 1996 70,500 23,101 N/A N/A 12,000 N/A 9,751
Financial Officer 1995 63,945 16,860 N/A N/A - N/A 6,301
(8)
</TABLE>
(1) Periods presented are for the year ended December 31.
(2) Number of shares of the Company's common stock subject to options granted
during the year indicated.
(3) Represents employer contributions for insurance, disability, 401K and a car
allowance.
(4) Mr. Russell joined the Company on December 8, 1997. Mr. Russell's salary
for fiscal year 1998 is $155,000.
-53-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
(5) Dr. Lovell was acting president and CEO for the Company from September 22,
1997 to December 7, 1997. Dr. Lovell is currently Chief Technical Officer
of the Company.
(6) Other annual compensation for 1997 was a result of Mr. Peterson selling
16,400 shares of common stock which he had acquired through exercising
incentive stock options during 1997.
(7) Mr. Walker's employment terminated on October 16, 1997. Amounts shown as
Other Annual Compensation consists of the following:
<TABLE>
<S> <C>
16,636 shares of common $44,751
stock exchanged for 25,000
non-qualified stock options
Company buy-out of out- 18,175
standing exercisable stock
options at $2.00 per option
less option price
25,000 options @ $.375
8,000 options @ $1.10
Company's buy-back of common 11,000
stock, which Mr. Walker
acquired through exercised
stock options in 1997,
at $2,00 per share less
option price
10,000 shares @ $1.10
Accrued Vacation 5,952
-------
Total $79,878
-------
-------
</TABLE>
Additionally, the Company will continue to pay approximately $37,000 in
salary and fringe benefits to Mr. Walker through April 16, 1998.
-54-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
(8) Mr. Ramsay's employment terminated on December 19, 1997. Amounts shown as
Other Annual Compensation consist of the following:
<TABLE>
<S> <C>
Accrued Vacation $ 7,225
Company's buy-back of common 6,800
stock, which Mr. Ramsay
acquired through exercised
stock options in 1997, at
$1.75 less option price
8,000 shares at $.85
Company's buy-out of out- 5,400
standing exercisable stock
options at $1.75 per option
less option price
6,400 option @ $.85
-------
Total $19,465
-------
-------
</TABLE>
Additionally, the Company will continue to pay approximately $40,000 in salary
and fringe benefits to Mr. Ramsay through June 19, 1998.
Bonuses for Mr. Russell and other individuals are determined by the Compensation
Committee of the Board of Directors based on overall Company performance.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
- --------------------------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees in or Base Expiration
Name Granted Fiscal Year Price($/Sh) Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
There were no options granted in 1997.
</TABLE>
-55-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
AGGREGATE OPTIONS EXERCISED IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997.
The following table sets forth certain information regarding options to purchase
shares of the Company's common stock exercised during the Company's 1997 fiscal
year and the number and value of exercisable and unexercisable options to
purchase shares of the Company's common stock held as of the end of the
Company's 1997 fiscal year by the executive officers of the Company named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
- --------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End($)
--------------- -----------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized($)(1) Unexercisable Unexercisable(2)
---- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
J. Graham Russell - - - -
John S. Lovell - - - -
Vern K. Peterson 16,400 29,356 1,600/18,000 $656/$5,580
Former Executive Officers:
Robert H. Walker 10,000 17,900 N/A N/A
Charles E. Ramsay 8,000 14,320 N/A N/A
</TABLE>
(1) Value realized is equal to the difference between the fair market value per
share of common stock on the date of exercise and the option exercise price
per share multiplied by the number of shares acquired upon exercise of an
option.
(2) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the fair market value per share of common stock of $1.31
at December 31, 1997, and the option exercise price per share multiplied by
the number of shares subject to options.
-56-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
STOCK OPTIONS
1989 INCENTIVE STOCK OPTION PLAN 1989
The Corporation has in effect an Incentive Stock Option Plan pursuant to which
key employees of the Company and its subsidiaries may be granted options to
purchase shares of the Company's common stock. The Board of Directors
administers such plan, selects optionees and grants options, and fixes the terms
of such options subject to the terms of the plan. In general, options under the
Company's Incentive Stock Option Plan are exercisable at a price equal to the
fair market value on the date of grant for a period of five years during the
optionee's continued employment with the Company or one of its subsidiaries and
after two years of employment with the Company. During 1997, options to
purchase 43,400 of common stock at $.90 were exercised. As of December 31,
1997, the Company had outstanding options which were granted in 1994 to certain
officers and employees to purchase 5,600 shares of the Company common stock at
$.90 per share.
1997 LONG-TERM INCENTIVE PLAN
Stockholders approved the 1997 Long-Term Incentive Plan ("1997 Plan"). The 1997
Plan is designed to provide key management employees of the Company with added
incentives to continue in the long-term service of the Company and to create in
such employees a more direct interest in the future success of the Company by
relating compensation to increases in stockholder value, so that the income of
key management employees is more closely aligned with the income of the
stockholders of the Company. The 1997 Plan is also designed to attract key
employees and to retain and motivate participating employees by providing an
opportunity for investment in the Company. The 1997 Plan will be administered
by the Board of Directors or through an Incentive Plan Committee appointed by
the Board of Directors and consisting of not less than two persons, all of whom
must be non-employee directors. The 1997 Plan reserves 120,000 shares of the
Company's common stock for issuance. Any shares that are the subject of an
award under the 1997 Plan which has lapsed or expired unexercised or unissued
will automatically become available for reissue under the 1997 Plan. The
exercise prices, vesting schedules, and other pertinent terms of the 1997 Plan
will be determined by the Committee, but no exercise price for an incentive
stock option will be less than the fair market value of the stock on the date
the option is granted. There were no options granted under this plan in 1997.
-57-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
OTHER STOCK OPTIONS
The Company also grants non-qualified stock options to management, outside
directors, and consultants as authorized by the Board of Directors. These
options are exercisable at varying times from date of grant and expire five
years from date of grant. As of December 31, 1997, all non-qualified stock
options have been granted at an exercise price in excess of the current market
value at the time of grant.
In 1996 the Company granted to certain consultants non-qualified options to
purchase 84,000 shares of common stock at $1.00 and $1.06 per share in
connection with agreements to provide services to the Company. Such options are
exercisable for a period of two years from the date of grant and vest on a
monthly basis over a two year period. Non qualified stock options to purchase
22,500 shares of common stock at $1.00 were canceled in 1997 and non-qualified
stock options to purchase 10,000 shares of common stock at $1.00 were exercised
in 1997. Also during 1997, 25,000 non-qualified stock options held by a former
member of management to purchase common stock at $.90 per share were exchanged
for 16,636 shares of common stock under a cash-less exercise. As of December
31, 1997, stock options to purchase 90,000 shares of common stock are
exercisable under this plan.
NON-EMPLOYEE DIRECTORS PLAN
Stockholders approved the Non-Employee Directors Stock Option Plan (the
"Non-Employee Directors Plan"). The Non-Employee Directors Plan provides for
the grant of Stock Options to non-employee directors of the Company and its
affiliated corporations in order to encourage and provide incentives for high
level performance by the non-employee directors of the Company. The maximum
number of shares of common stock that may be subject to stock options under
the Non-Employee Directors' Plan is 30,000 shares. On adoption of the
non-Employee Directors' Plan or upon initial election or appointment of a
non-employee director to the Board of Directors of the Company, he or she
shall be granted a stock option to purchase 1,000 shares of common stock. In
addition, each non-employee director shall be granted a stock option to
purchase 1,000 shares
-58-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 10. EXECUTIVE COMPENSATION (CONTINUED)
NON-EMPLOYEE DIRECTORS PLAN
of common stock effective as to each anniversary date of the initial grant of a
stock option to such director. Each stock option granted under the Non-Employee
Directors Plan shall be vested one-third on the date of grant, one-third upon
the first yearly anniversary date of a grant and the final one-third upon the
second yearly anniversary date of the grant. The purchase price per share of
common stock for the shares to be purchased pursuant to the exercise of a stock
option will be 100% of the fair market value of the common stock on the date of
grant of the option. There were no options granted under this plan in 1997.
401(k) CASH OR DEFERRED COMPENSATION PLAN
In 1994, the Company established a tax-qualified 401(k) cash or deferred
compensation plan that covers all employees of the Company who have completed
one year of service and attained age 21. Participants are permitted, within the
limitations imposed by the Internal Revenue Code of 1954, as amended, to make
pretax contributions. Participants are always fully vested in their accounts
under the Plan. The Company makes matching contributions equal to 100% of the
first 2% of an employee's salary and 50% of the next 5% of an employee's salary,
which contributions vest in the employee proportionately over a period of six
years. Amounts accrued pursuant to the Plan for the benefit of executive
officers are included in the Summary Compensation Table under the column "All
Other Compensation". Prior to 1994, the Company was part of Barringer
Technologies Inc.'s tax qualified 401(k) plan.
COMPENSATION OF DIRECTORS
The non-employee directors receive $1,500 per quarter and $500 for each meeting
they attend plus expenses.
-59-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of March 13, 1998, the number of outstanding
options and warrants included with the number of shares of common stock owned by
each officer and director of the Company and all directors and officers as a
group and any persons (including any "group" as used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to own beneficially 5% or
more of such securities. As of March 13, 1998, there were 1,590,649 shares of
the Company's common stock issued and outstanding, 143,100 outstanding options
to purchase the Company's common stock, and 105,000 outstanding warrants to
purchase the Company's common stock.
-60-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER OF COMMON STOCK(1) OF CLASS
- ------------------------ ------------------ ---------
<S> <C> <C>
J. Graham Russell.................... - -
Barringer Laboratories, Inc.
15000 W. Sixth Ave., Suite 300
Golden, Colorado 80401
Vern Peterson........................ 12,400 0.8
Barringer Laboratories, Inc.
5301 Longley Lane
Bldg. E, Suite 178
Reno, Nevada 89511
R. Scott Asen(2)(3)(4)............... 160,400 10.1
Asen and Co., Inc.
224 East 49th St.
New York, NY 10017
Anthony R. Barringer................. 37,000 2.3
25060 Montane Drive West
Golden, Colorado 80401
John P. Holmes, III(5)............... 247,969 15.1
Ahern Partners, Inc.
18 Kings Hwy. North
Westport, CT 06880
J. Francis Lavelle(6)................ 245,469 15.0
The Nassau Group, Inc.
18 Kings Hwy. North
Westport, CT 06880
</TABLE>
-61-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER OF COMMON STOCK(1) OF CLASS
- ------------------------ ------------------ ---------
<S> <C> <C>
Randolph H. Ware..................... 30,000 1.9
2105 Kohler
Boulder, Colorado 80303
C.F. Wasser, III..................... 141,438 8.8
12290 Chinchilla Ct.
Rosemont, Minnesota 55068
All directors and officers as a group
consisting of eight (8) persons.... 874,856 50.5
</TABLE>
- ----------------------------------
*Less than 1%
(1) Includes 42,400 outstanding stock options granted and exercisable until May
31, 1998 to the officers and directors of the Company.
(2) Includes 5,814 shares of the Company's common stock held by an account
titled,"Dean Witter Reynolds C/F David V. Foster IRA Rollover dated
2/17/95". Mr. Asen manages this account and disclaims beneficial ownership
of all shares owned by this account.
(3) Includes 8,721 shares of the Company's common stock held by an account
titled,"Asen and Co., Inc. FBO SDFJ, Inc.". Mr. Asen manages this account
and disclaims beneficial ownership of all shares owned by this account.
(4) Includes 5,814 shares of the Company's common stock held by an account
titled, "Victoria Street". Mr. Asen manages this account and disclaims
beneficial ownership of all shares owned by this account.
-62-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONTINUED)
(5) Includes 50,469 of the Company's warrants. The warrants were issued to Mr.
Holmes as an inducement to Mr. Holmes to become involved in the Company and
also an inducement to purchase 10% of the outstanding shares of the
Company's common stock. Each warrant entitles Mr. Holmes to purchase one
share of the Company's common stock upon an average payment of $1.11. Each
warrant is exercisable for a period of five (5) years after date of issue.
As of December 31, 1997, all warrants have been issued.
(6) Includes 50,469 of the Company's warrants. The warrants were issued to Mr.
Lavelle as an inducement to Mr. Lavelle to become involved in the Company
and also an inducement to purchase 10% of the outstanding shares of the
Company's common stock. Each warrant entitles Mr. Lavelle to purchase one
share of the Company's common stock upon an average payment of $1.11. Each
warrant is exercisable for a period of five (5) years after date of issue.
As of December 31, 1997, all warrants have been issued.
-63-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective April 30, 1992 the Company sold all the common stock of its Canadian
subsidiary, Barringer Laboratories, Ltd to Philip Environmental Ltd. The
Company used the net proceeds to repay $1,662,000 of short-term borrowings plus
related interest including the portion of such indebtedness which was due and
owed Barringer Technologies, Inc. ("BTI"), the Company's then largest
stockholder. Principal and interest under this agreement were originally due on
May 31, 1994. Interest was payable semi-annually at a bank's prime rate plus
2%. In 1994, BTI made a $136,000 principal payment on its note due to the
Company. Additionally, BTI paid $93,000 to Philip Environmental on behalf of
the Company. This payment was related to the warranties, representations, and
guarantees made by the Company in the 1992 sale of the Company's Canadian
subsidiary. In connection with a new line of credit in 1994, the Company agreed
to extend BTI's note due date to May 31, 1995 for BTI's guarantee of the line of
credit and increase the interest on the note to a bank's prime rate plus 4%
(12.5% at December 31, 1994) payable monthly from a bank's prime rate plus 2%
payable semi-annually.
Effective December 13, 1995 under an agreement dated December 8, 1995, the
Company had purchased from BTI 647,238 shares of the Company's common stock for
$809,000, which consisted of a cash payment of $300,000 and cancellation of
intercompany obligations (note and intercompany Account Receivable) in the
amount of $509,000. Additionally, 88,260 shares of the Company's common stock
owned by BTI were placed in an escrow account, to be returned to BTI if the
Company's 1996 earnings were at least 13% higher than 1995 earnings. The
Company's 1996 earnings were not 13% higher than 1995 earnings, and therefore
the 88,260 shares were reverted back to the Company with a purchase price per
share of $1.10. BTI had agreed not to transfer its remaining 26% interest in
the Company until January 2, 1997, subject to certain conditions, and had
agreed to grant the Company a right of first refusal with respect to such shares
until January 2, 1997, subject to certain conditions. The Intercompany
Agreement between the Company and BTI was terminated on December 13, 1995.
-64-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
BTI terminated all voting trusts, proxy arrangements, and all other arrangements
and agreements of any kind or nature to which it was a party under which it was
authorized to vote shares of the Company. BTI did not enter into any voting
trusts, proxy agreements, and any other agreements relating to shares of the
Company.
Effective October 28, 1996 under an Agreement dated October 7, 1996, BTI sold
all of its remaining ownership of the Company's common stock, net of the 88,260
escrowed shares of the Company's common stock which were returned to the
Company.
As of November 18, 1996 BTI sold all of its remaining ownership of the Company's
outstanding Common Stock.
Effective May 17, 1996, the Company entered into an exclusive agreement with The
Nassau Group, Inc. ("Nassau") of Westport, Connecticut, to provide the Company
with financial advisory services and investment banking support over the course
of the next two years. Nassau provides assistance in terms of evaluating
strategic growth and acquisition opportunities, evaluating financing
alternatives and helping to arrange for the Company's future capital needs. The
Company granted warrants to individuals associated with Nassau as an inducement
to such individuals to become involved in the Company and also an inducement to
purchase 10% of the outstanding shares of the Company's common stock. Such
warrants will be exercisable for a period of five years after date of issue and
entitle these individuals to purchase 80,000 shares and 25,000 shares of common
stock at $1.06 per share and $1.25 per share, respectively. Messrs. Lavelle and
Holmes, Directors of the Company, are principals of Nassau. In connection with
the Company's April 1998 financing described in Item 7, Nassau waived any
compensation rights which it may have had.
-65-
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
23.1 Consent of BDO Seidman, LLP.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed for the quarter ended
December 31, 1997.
-66-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BARRINGER LABORATORIES, INC.
Date: April 14, 1998
By: /s/ J. Graham Russell
--------------------------------
J. Graham Russell, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Titles or Capacities Date
- --------- -------------------- ----
/s/J. Graham Russell Director, President and April 14, 1998
- ------------------------ Chief Executive Officer
J. Graham Russell (Principal Executive
Officer)
/s/R. Scott Asen
- ------------------------ Director April 14, 1998
R. Scott Asen
/s/Anthony R. Barringer
- ------------------------ Director April 14, 1998
Anthony R. Barringer
/s/John P. Holmes
- ------------------------ Director April 14, 1998
John P. Holmes
/s/Randolph H. Ware
- ------------------------ Director April 14, 1998
Randolph H. Ware
/s/C.F. Wasser, III
- ------------------------ Director April 14, 1998
C.F. Wasser, III
/s/J. Francis Lavelle
- ------------------------ Director April 14, 1998
J. Francis Lavelle
-67-
<PAGE>
INDEX TO EXHIBITS
Page
----
Exhibit 23.1 Consent of BDO Seidman, LLP. 70
Exhibit 27.1 Financial Data Schedule. 72
-68-
<PAGE>
EXHIBIT 23.1
CONSENT OF BDO SEIDMAN, LLP
-69-
<PAGE>
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Barringer Laboratories, Inc.
Golden, Colorado
We hereby consent to the incorporation by reference in this Registration
Statement of our report dated March 18, 1998, except for Note 13 which is as of
April 13, 1998, relating to the consolidated financial statements of Barringer
Laboratories, Inc. and subsidiaries appearing in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997.
BDO SEIDMAN, LLP
Denver, Colorado
April 13, 1998
-70-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 524,000
<SECURITIES> 0
<RECEIVABLES> 1,062,000
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