<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission
June 30, 1999 File Number 0-8241
- ------------------------- -------------------------
Barringer Laboratories, Inc.
- ----------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 84-0951626
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15000 West 6th Avenue, Suite 300, Golden, Colorado 80401-5047
- ----------------------------------------------------------------------------
(Address of principal executive office)
Issuer's telephone number, including area code (303) 277-1687
------------------------
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Number of shares outstanding as of June 30, 1999 6,708,982 of Common Stock, $.01
par value.
1
<PAGE>
BARRINGER LABORATORIES, INC.
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998
- Consolidated Statements of Operations (Unaudited) for the
Three Months and Six Months Ended June 30, 1999 and 1998;
- Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Six Months Ended June 30, 1999 and 1998;
- Notes to Consolidated Financial Statements.
Item 2 Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
The following report on Form 8K was filed:
General Credit and Security Agreement with Spectrum
Commercial Services, a division of Lyon Financial Services,
Inc., providing a revolving line of credit.
Signatures
</TABLE>
2
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 50,000 $ 173,000
Trade receivables, less
allowance of $44,000 and
$34,000 for doubtful accounts 970,000 1,064,000
Prepaid expenses and other 327,000 247,000
Subscription receivable - 255,000
----------- ----------
Total Current Assets 1,347,000 1,739,000
----------- ----------
Property and Equipment:
Machinery and equipment 2,337,000 2,304,000
Machinery and equipment under
capital lease obligations 234,000 234,000
Leasehold improvements 669,000 664,000
Office furniture and equipment 85,000 90,000
---------- ----------
3,325,000 3,292,000
Less accumulated depreciation
and amortization 3,081,000 2,964,000
---------- ----------
Net Property and Equipment 244,000 328,000
Certificate of Deposit - 150,000
Other Assets 106,000 101,000
---------- ----------
Total Assets $1,697,000 $2,318,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Line of credit $ 216,000 $ -
Trade accounts payable 516,000 247,000
Accrued liabilities:
Payroll, compensation and
related expenses 186,000 343,000
Accrued property tax 31,000 46,000
Other 231,000 190,000
Current maturities of obligations
Under capital leases 73,000 74,000
---------- ----------
Total Current Liabilities 1,253,000 900,000
Obligations under capital leases,
less current maturities 31,000 71,000
---------- ----------
Total Liabilities 1,284,000 971,000
---------- ----------
Shareholders' Equity
Preferred stock, $2.00 par value,
1,000,000 shares authorized;
none issued - -
Common stock, $0.01 par value,
shares authorized, 10,000,000;
issued and outstanding 6,708,982
and 3,407,315 67,000 34,000
Common stock to be issued - 575,000
Additional paid-in capital 3,751,000 3,184,000
Accumulated deficit (3,382,000) (2,423,000)
Translation Adjustment (23,000) (23,000)
----------- -----------
Total Shareholders' Equity 413,000 1,347,000
----------- -----------
Total Liabilities and
Shareholders' Equity $1,697,000 $2,318,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales of Services $1,326,000 $1,673,000 $2,532,000 $3,337,000
Cost of Services Sold 1,319,000 1,370,000 2,517,000 2,641,000
----------- ---------- ---------- ---------
Gross Profit 7,000 303,000 15,000 696,000
----------- ---------- ---------- ---------
Selling, General and
Administrative Expenses 507,000 795,000 948,000 1,320,000
----------- ---------- ---------- ---------
Operating Loss (500,000) (492,000) (933,000) (624,000)
Other Income (Expense):
Interest income 2,000 8,000 4,000 15,000
Interest expense (18,000) (3,000) (26,000) (6,000)
Translation gain (loss) 3,000 - (4,000) (4,000)
Other (1,000) 9,000 (1,000) 12,000
----------- ---------- ---------- ---------
Total Other Income (Expense) (14,000) 14,000 (27,000) 17,000
----------- ---------- ---------- ---------
Loss before Income
Taxes and Minority Interest
in Loss of Subsidiary (514,000) (478,000) (960,000) (607,000)
Minority Interest in Loss
of Subsidiary - - - 6,000
----------- ---------- ---------- ---------
Net Loss $ (514,000) $ (478,000) $ (960,000) $ 601,000)
=========== ========== ========== =========
</TABLE>
5
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Per Share Data:
Net Loss per share:
Basic $ (.08) $ (.16) $ (.15) $ (.26)
========== =========== ========== ==========
Diluted $ (.08) $ (.16) $ (.15) $ (.26)
========== =========== ========== ==========
Weighted average common
shares outstanding
Basic 6,660,278 2,979,537 6,611,575 2,285,093
========== =========== ========== ==========
Diluted 6,660,278 2,979,537 6,611,575 2,285,093
========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for
the period $(514,000) $(478,000) $(960,000) $(601,000)
Items not affecting cash
Non cash charge related to
issuance of common stock - 183,000 - 183,000
Depreciation and amortization 57,000 46,000 117,000 95,000
Bad debt expense 6,000 6,000 12,000 12,000
Minority interest share in loss
of subsidiary - - - (5,000)
Other (5,000) 8,000 (5,000) 8,000
Decrease (increase) in operating
assets net of operating
liabilities 104,000 91,000 140,000 (45,000)
--------- ---------- --------- ---------
Cash Provided by (used in)
Operating Activities (351,000) (144,000) (696,000) (353,000)
--------- ---------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and
equipment (9,000) (16,000) (33,000) (41,000)
--------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under line of credit 216,000 - 216,000 -
Sale of common stock 26,000 492,000 280,000 492,000
Reduction in long-term debt (18,000) (15,000) (40,000) (22,000)
Redemption of Certificate of
Deposit 150,000 - 150,000 -
--------- ---------- --------- ---------
Cash provided by Financing
Activities 374,000 477,000 606,000 470,000
--------- ---------- --------- ---------
Increase (Decrease) in cash 14,000 317,000) (123,000) 76,000
Cash and cash equivalents
- beginning of period 36,000 283,000 173,000 524,000
--------- ---------- --------- ---------
Cash and cash equivalents
- end of period $ 50,000 $ 600,000 $ 50,000 $ 600,000
========= ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30
--------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Decrease (increase) in
operating assets net of
operating liabilities
Trade receivables $ (14,000) $ (2,000) $ 84,000 $ 127,000
Other current assets 35,000 (23,000) (80,000) (150,000)
Accounts payable and
accrued liabilities 85,000 102,000 137,000 (50,000)
Other (2,000) 14,000 (1,000) 28,000
--------- --------- --------- ---------
Total - net $ 104,000 $ 91,000) $ 140,000 $ (45,000)
========= ========= ========= =========
Cash paid during the
period for interest $ 18,000 $ 3,000 $ 26,000 $ 6,000
========= ========= ========= =========
Cash paid during the
period for income taxes $ - $ - $ - $ -
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of the Company, the unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company and
its subsidiaries, as of June 30, 1999 and the results of their
operations and their cash flows for the three and six months ended June
30, 1999 and 1998. The accounting policies followed by the Company are
set forth in the Notes to Consolidated Financial Statements in the 1998
audited financial statements of Barringer Laboratories, Inc. and
Subsidiaries included in its Annual Report on Form 10-KSB for the year
ended December 31, 1998. The Form 10-KSB should be read in conjunction
herewith.
2. MANAGEMENT'S PLAN
The Company's operating plan for the year has concentrated on
rebuilding sales in the Mineral Division which suffered a steep decline
during 1998 and 1999, largely due to the depressed level of worldwide
mineral exploration activity. Management estimates that the Company's
operating activities, plus the necessary investments to rebuild Mineral
Division sales, will require funding.
The Company is addressing this funding requirement in several ways.
Effective December 1998, the Company sold 3,055,556 shares of common
stock for $550,000. The Company sold an additional 146,111 shares of
restricted common stock for $26,300 in June 1999. A $150,000
Certificate of Deposit which was pledged to the Colorado Department of
Health in order to meet an environmental regulatory requirement
relating to laboratories involved in radiochemistry activities has been
released and replaced with a Financial Guarantee Bond. The Company has
negotiated a $750,000 line of credit secured by the assets of the
Company. Borrowing under the line of credit is limited to the Company's
eligible domestic accounts receivable.
It is probable that the Company will require additional financial
resources to enable it to meet its obligations in the future in
addition to any funds generated from operations or from the
aforementioned other sources. The lack of additional capital could
force the Company to substantially curtail operations and possibly
consider the sale of existing assets. It could therefore have a
material adverse effect on the Company's business.
9
<PAGE>
3. ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENTS
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" requires companies to record derivatives on the balance
sheet as assets or liabilities measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. Management believes
that the adoption of SFAS 133 will have no effect on its financial
statements.
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities", requires that the costs of start-up activities, including
organization costs, be expensed as incurred. This Statement is
effective for financial statements issued for fiscal years beginning
after December 15, 1998. Management believes that the adoption of SOP
98-5 will have no material effect on its financial statements.
LOSS PER SHARE
The Company follows the provision of SFAS 128, "Earnings Per Share"
SFAS 128 provides for the calculation of "Basic" and Diluted" loss per
share. Basic 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
loss per share reflects the potential dilution of securities that could
share in the loss of an entity, similar to fully diluted loss per
share. In loss periods, dilutive common equivalent shares are excluded
as the effect March would be anti-dilutive.
For the three months and six months ended June 30, 1999 dilutive
common stock equivalents of 170,000 and 180,800, respectively,
were not included in the computation of diluted per share data because
their effect was antidilutive. Option and warrant exercise prices
exceeded the average market prices of the common stock. For the
three months and for the six months ended June 30, 1998, option and
warrant exercise prices exceeded the average market prices of the
common stock. Diluted common stock equivalents of 245,600 and 253,125,
respectively, were not included in the computation of diluted per share
because that effect was antidilutive.
10
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF TRANSLATION
Effective January 1, 1997, the Company remeasured the assets and
liabilities of its Mexican subsidiary from pesos to U.S. dollars since
Mexico is considered a highly inflationary economy. Non-monetary 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 remeasureent of monetary assets and liabilities are included in
income. The Peruvian and Nicaraguan subsidiaries are reported in U.S.
dollars.
4. INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At June 30, 1999, the Company has alternative minimum tax credits of
approximately $15,000 available to offset future federal income taxes
on an indefinite carryforward basis and unused net operating loss
carryforwards of approximately $5,005,000. Such net operating loss
carryforwards expire in varying amounts from 1999 to 2018 and are
subject to certain limitations under Section 382 of the Internal
Revenue Code ("IRC") of 1986 as amended.
As of June 30 1999, a valuation allowance has been recorded, as
Management of the Company is not able to determine that the deferred
tax asset will be realized.
11
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTIGATION
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 a broad program of corrective actions. In addition, the
Company informed the United States Environmental Protection Agency
("EPA") of its investigation and its corrective action program.
EPA representatives conducted an investigation into this matter in
accordance with Agency policy towards voluntary disclosures of this
type, and the Company cooperated fully in that process. To date, no
agency or other party has brought any action or proceeding against the
Company.
By letters dated December 24, 1998, and March 19, 1999, the EPA has
informed the Company that it does not intend to take any civil or
criminal enforcement action against the Company as a result of the
matters reported by the Company. Management believes that the EPA
investigation into this matter has concluded.
12
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SALE OF COMMON STOCK
Effective April 1998, the Company completed the sale of 1,666,666
shares of restricted common stock at a price of $.30 per share for
$500,000, less issuance costs of $9,000, to provide additional working
capital. In addition, effective December 1998, the Company finalized an
agreement to sell 3,055,556 shares of restricted common stock at a
price of $.18 per share for $550,000 consisting of $295,000 of cash
proceeds and stock subscription receivable of $255,000 to provide
additional working capital. Subsequent to December 13, 1998, all stock
subscriptions receivable were collected and the shares of common stock
were issued. In June, 1999, an additional 146,111 shares of restricted
common stock were sold for $26,300.
7. ACQUISITION
On December 4, 1998, the Company completed the acquisition of certain
assets of Shasta Geochemistry Laboratory, Inc. ("Shasta"), an
analytical services company, principally engaged in testing for the
mineral exploration industries, in an all stock transaction, for
150,000 shares of the Company's common stock valued at $39,000 and
contingent future consideration of additional common stock, not to
exceed an additional 150,000 shares, in the event certain goals are
met. The Company will issue one additional share of its common stock
for each $2.00 that total gross revenues collected by the company from
Shasta customers during the first year after closing exceed $300,000,
and during the second year after closing exceed $600,000. The purchase
price allocation is preliminary and may change based on the resolution
of these contingencies.
The assets acquired include customer lists, a noncompetition agreement
among the President of Shasta and the Company and all goodwill of
Shasta.
The operations of Shasta are incorporated into the operations of the
Company's 27,000 square foot laboratory located in Reno, Nevada. The
Company has not acquired any assets nor assumed any liabilities of
Shasta other than those described above.
The acquisition was accounted for as a purchase with the assets valued
at the fair value of the common stock issued by the Company and this
value has been allocated to customer list (50%) and noncompetition
agreement (50%) and is being amortized over 4 and 2 years,
respectively.
13
<PAGE>
8. SALE OF ACCOUNTS RECEIVABLE
Periodically the Company has sold its accounts receivable to an
independent factoring company. The factoring agreement has been
replaced with an asset based line of credit. As of June 30, 1999 no
accounts receivable had been factored.
9. ASSET BASED LINE OF CREDIT
On May 25, 199, the Company entered into a General Credit and Security
Agreement with Spectrum Commercial Services, a division of Lyon
Financial Services, Inc.
Under the Credit Agreement, Spectrum agreed to provide a revolving line
of credit, secured by essentially all of Barringer's assets. Barringer
essentially assigned all collections on its domestic and some foreign
accounts receivable to Spectrum and entered into a lock box agreement
with Spectrum and Norwest Bank Minnesota, National Association, under
which all cash collected on such accounts receivable must be deposited
into the lock box and be used to pay down the line of credit. Since the
receivables are used to pay down the debt, Barringer, in turn is
relying on the line of credit to meet its cash needs.
The Note is due on May 24, 2001 or earlier upon demand of Spectrum, and
Spectrum may demand payment of such amounts at any time for any reason
or no reason whatsoever. The maturity date of the line of credit may be
extended after May 24, 2001 by Barringer for successive twelve month
periods. Spectrum on certain specified conditions, including the demand
feature, may terminate the Credit Agreement before the maturity date.
However, the Credit Agreement provides that if Barringer terminates the
Credit Agreement before the maturity date, it will be liable for a
prepayment charge equal to $3,800 times the number of months until the
maturity date.
The maximum amount which Spectrum will advance at any given time is
equal to the lesser of
- a borrowing base equal to 80% of Barringer's eligible
accounts receivable, or
- a maximum principal amount of $750,000.
14
<PAGE>
An eligible receivable basically is an account billed to a United
States or Canadian customer as to which not more than 10% of the
account is more than 90 days past due. However, under the Credit
Agreement, Spectrum, in its sole discretion, may determine that a
receivable is not an eligible receivable. By way of example, the Credit
Agreement sets forth some types of receivables which Spectrum may
determine not to be eligible, including receivables which may have
earlier been eligible receivables. Such examples include those as to
which the account debtor declares bankruptcy, the receivable is not
paid within 90 days of the date of the invoice, the account debtor
disputes the validity of the receivable, or Spectrum, in its reasonable
discretion, becomes dissatisfied with the credit-worthiness of the
account debtor. In addition, Spectrum, in its sole discretion, may
decrease or increase the borrowing base percentage below or above the
80% described above.
The annual interest rate on the Note is equal to the prime rate charge
by Norwest Bank Minnesota, National Association, plus 5.35%, which is
adjusted as the prime rate increases or decreases. As of June 30, 199,
Norwest's price rate was 8%.
If Barringer meet certain profit levels, as set forth in the Credit
Agreement, for the year 1999, the interest rate will be reduced to
prime plus 4.85%, and if Barringer meets the required 1999 profit
levels and certain higher profit levels for the year 2000, the interest
rate will be reduced to prime plus 4.35%. However, in no event will the
interest rate be less than 10% per year, and the interest payable for
each calendar month will be a minimum of $3,800, regardless of the
amounts which have been advanced.
After an event of default, the interest rate would be 5% more than the
rate otherwise in affect, except that in any event, the interest rate
would not be less than 13% per annum, and at least $5,200 per month in
interest would be assessed each month regardless of the amount of
advances outstanding.
In the Credit Agreement, the minimum rates of interest are stated at
13% and, after an event or default, 15% per year, as opposed to 10% and
13%, respectively, as set forth in the Note. Barringer is uncertain as
to which rates (those in the Note or in the Credit Agreement) will
apply. Furthermore, there can be no assurance that Barringer will meet
the profit levels for 1999 and 2000 which would permit a reduction in
the interest rates as set forth above.
15
<PAGE>
The Credit Agreement provides that all fees and expenses reimbursable
or payable to Spectrum in connection with the line of credit will be
added to the amount of advances outstanding and payable under the Note.
In addition, at Spectrum's option, interest which is to paid when due
can be added to the principal balance. In addition to other fees and
expenses, Barringer is obligated under the Credit Agreement for an
administration fee of $2,000 pre calendar quarter and an annual lie
maintenance fee of $15,000.
The Credit Agreement also includes various affirmative and negative
covenants, which Barringer must meet. The affirmative covenants include
requirement that Barringer maintain nominal profit levels before income
taxes or that restrict the net losses that Barringer may incur. The
negative covenants prohibit, without Spectrum's consent or otherwise
restrict such items as expenditures for fixed assets, indebtedness,
recapitalizations, mergers, entry into new lines of business, employee
compensation and substantial changes in the present ownership,
management or business of Barringer.
Following its execution of the Credit Agreement and Note on May 25,
1999, Spectrum charged approximately $10,000 in fees and expenses to
principal under the line of credit. On or about June 4, 1999, Barringer
took initial advances of approximately $46,000 under the line of credit
to pay off a factoring company to which accounts receivable had been
sold. The factoring company agreed that, after payment of the $46,000,
any amounts received on the related receivables would be turned over to
Spectrum.
16
<PAGE>
10. BUSINESS SEGMENTS
In 1998, the company adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". The Company reports
separately operating results in the following two principal, strategic,
business segments: Environmental analytical testing services and
mineralogical and geochemical testing activities. The Company evaluates
segment performance based on income (loss) from operations. A summary
of segment information follows (in thousands $):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Environmental
Sales of Services $ 859 $ 837 $1,791 $1,791
Cost and Expenses 831 795 1,632 1,608
Operating Profit 28 42 159 183
Mineral
Sales of Services $ 467 $ 836 $ 741 $1,546
Costs and Expenses 817 783 1,476 1,456
Operating Loss (350) 53 (735) 102
Corporate
Costs and Expenses $ 178 $ 587 $ 357 $ 897
Operating Loss (178) (587) (357) (897)
Consolidated
Sales of Services $1,326 $1,673 $2,532 $3,337
Costs and Expenses 1,826 2,165 3,465 3,961
Operating Loss (500) (479) (933) (624)
</TABLE>
17
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. The
Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include, among other
factors, the competitive environment in which the Company operates, future
capital needs, uncertainty of government contracts, uncertainties in revenue
due to fluctuations in weather, and other uncertain business conditions that
affect the Company's businesses.
With the exception of historical information, the matters discussed below
under the headings "Results of Operations" and "Capital Resources and
Liquidity" may include forward-looking statements that involve risks and
uncertainties. The Company cautions readers that a number of important
factors discussed herein, and in other reports filed with the Securities and
Exchange Commission, particularly the Company's Form 10-KSB for the year
ended December 31, 1998, could affect the Company's actual results and cause
actual results to differ materially from those in the forward looking
statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999
Sales of services on a combined basis of the environmental and mineral
businesses, for the three months ended June 30, 1999 of $1,326,000 are 79% of
prior year second quarter sales of $1,673,000. Environmental Division 1999
second quarter sales of $859,000 are higher versus second quarter of $837,000
by $22,000. Environmental bookings for the second quarter of 1999 are up 34%
versus the second quarter of 1998. Mineral Division 1999 second quarter sales
of $467,000 are down 44% or $369,000 as compared to second quarter 1998 sales
of $836,000.
Radiochemistry laboratory sales of $442,000 for the second quarter of 1999
represent a decrease of 10% as compared to the same period in 1998. Inorganic
second quarter sales of $226,000 are down 3% versus the same period of last
year. Organic laboratory second quarter sales of $191,000 are up versus the
same quarter of 1998 by 69%. The lower radiochemistry laboratory sales are
attributable to timing of environmental market activity. The Company
anticipates that that section of the market will improve in the second half
of 1999. The Company continues to focus its' attention on the low level
radiation testing market. Increased organic revenues have been significantly
favorably impacted by new business.
18
<PAGE>
Mineral Division sales fell by $374,000 or 45% in the second quarter of 1999
versus the second quarter of 1998. The reasons for the decrease continued to
be those from the second half of 1998. They are mainly the reduction in
mineral exploration work brought about by low gold and other metal prices and
the downturn in investment by junior mining companies. The mineral
exploration market is continuing to be very depressed and is expected to be
depressed for at least the foreseeable future.
Gross profit of $7,000 for the three months ended June 30, 1999 is $296,000
and 17% (points) lower than the second quarter of 1998. The gross profit
deterioration is totally attributable to the Mineral Division which
experienced gross profit losses in the second quarter of 1999 as compared to
20% gross margin on sales in the second quarter of 1998. The margin reduction
can be traced to lower sales volume with relatively level fixed costs and
costs associated with improving laboratory operations. The gross margin
losses of the Mineral Division are offset by gross profit and gross margin
(3%) points improvement in the Environmental Division.
Selling, general and administrative expenses in the second quarter of 1999
are $288,000 lower than the second quarter of 1998 principally due to
professional fees related to the investigation as discussed further under
"Capital Resources and Liquidity".
SIX MONTHS ENDED JUNE 30, 1999
Sales of services for the six months ended June 30, 1999 of $2,532,000 are
$805,000 lower versus the first six months of 1998. Almost the entire
reduction in sales is attributable to the Mineral business. The significant
reduction in mineral exploration work that started in 1998 has accelerated in
1999. Major mining and exploration companies are reducing exploration
budgets. Junior mining companies are conducting minimal exploration activity
with the result that revenue from this market sector have dropped
dramatically. Since the Company services this industry, sales have dropped.
The Company has aggressively pursued business from mineral companies
continuing to explore. As a consequence of these marketing and sales efforts,
revenues in Mexico have had a strong first half. However, the mineral
exploration market is continuing to be very depressed. It is expected to be
depressed for at least the foreseeable future.
Environmental revenues of $1,791,000 were flat in 1999 as compared to 1998.
Radiochemistry revenues of $977,000 were down by 12% offset by strong organic
laboratory revenues of $353,000, up 60% as compare to 1998. Inorganic
laboratory revenues of $461,000 were flat with 1998. The lower radiochemistry
laboratory sales are attributable to timing of environmental market activity.
The Company anticipates that that section of the market will improve in the
second half of 1999. Cumulative bookings for the six months ended June 30,
1999 are up 13% versus the same period in 1998.
Gross profit in 1999 of $15,000 was off from 1998 by $681,000, virtually
entirely due to the reduction in the mineral division business.
19
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Selling, general and administrative expenses have decreased from 1998 by
$372,000 primarily due to lower professional fees associated with the concluded
investigation and the non cash charge of $183,000 related to the sale of common
stock in 1998.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents of $50,000 at June 30, 1999 decreased by $123,000
from $173,000 at December 31, 1998. Operations used cash of $351,000 for the
three months ended June 30, 1999, and $696,000 for the six months ended June
30, 1999, primarily due to the losses for the period. Financing activities
generated net cash of $374,000 for the three months ended June 30, 1999,
primarily from borrowing under the asset based line of credit and redemption
of the Certificate of Deposit which was replaced by a bond. Net cash
generated from financing for the six months ended June 30, 1999 of $606,000
include proceeds from the sale of restricted common stock, borrowing under
the asset based line of credit and redemption of the Certificate of Deposit.
The Company's operating plan for the year has concentrated on rebuilding
sales in the Mineral Division which suffered a steep decline during 1998 and
1999, largely due to the depressed level of worldwide mineral exploration
activity. Management estimates that the Company's operating activities, plus
the necessary investments to rebuild Mineral Division sales, will require
funding. The mineral exploration market is continuing to be very depressed
and is expected to be depressed for at least the foreseeable future.
The Company is addressing this funding requirement in several ways. Effective
December 1998, the Company sold 3,055,556 shares of common stock for
$550,000. The Company sold an additional 146,111 shares of restricted common
stock for $26,300 in June 1999. A $150,000 Certificate of Deposit which was
pledged to the Colorado Department of Health in order to meet an
environmental regulatory requirement relating to laboratories involved in
radiochemistry activities has been released and replaced with a Financial
Guarantee Bond. The Company has negotiated a $750,000 line of credit secured
by the assets of the Company. Borrowing under the line of credit is limited
by the Company's eligible domestic accounts receivable.
It is probable that the Company will require additional financial resources
to enable it to meet its obligations in the future in addition to any funds
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 possibly consider the sale of existing
assets. It could therefore have a material adverse effect on the Company's
business.
20
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
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 a broad program of corrective actions. In
addition, the Company informed the United States Environmental Protection
Agency ("EPA") of its investigation and its corrective action program.
EPA representatives conducted an investigation into this matter in accordance
with Agency policy towards voluntary disclosures of this type, and the
Company cooperated fully in that process. To date, no agency or other party
has brought any action or proceeding against the Company.
By letters dated December 24, 1998, and March 19, 1999, EPA has informed the
Company that it does not intend to take any civil or criminal enforcement
action against the Company as a result of the matters reported by the
Company. Management believes that the EPA investigation into this matter has
concluded.
Effective April 1998, the Company completed the sale of 1,666,666 shares of
restricted common stock at a price of $.30 per share for $500,000, less
issuance costs of $9,000, to provide additional working capital. In addition,
effective December 1998, the Company finalized an agreement to sell 3,055,556
shares of restricted common stock at a price of $.18 per share for $550,000
consisting of $295,000 of cash proceeds and stock subscription receivable of
$255,000 to provide additional working capital. Subsequent to December 13,
1998, all stock subscriptions receivable were collected and the shares of
common stock were issued.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At March 31, 1999, the Company has approximately $15,000 of alternative
minimum tax credits and unused net operating loss carryforwards of
approximately $5,005,000. The alternative minimum tax credits have no
expiration date and the loss carryforwards expire in varying amounts from
1999 to 2018 and are subject to certain limitations under Section 382 of the
Internal Revenue Code ("IRC") of 1986 as amended.
21
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company even though Mexico is considered a highly
inflationary economy as discussed in notes to the accompanying consolidated
financial statements.
YEAR 2000
The Company is aware of the issues associated with the programming code in
its existing instruments and 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 is in the process of replacing its two major computer-ized
information systems - accounting system and laboratory information management
system ("LIMS") - with systems certified as year 2000 compliant by their
respective manufacturers. In addition, the Company is either replacing
instruments or installing new software in instruments that are not year 2000
compliant. The two computerized information systems cost approximately
$100,000 and have been financed with capital leases. The cost to remedy the
instrumentation issues is expected to be less than $50,000. Management
believes that costs associated with remediation, if necessary, of fax
machines, telephones, security systems, etc will not be material. The Company
has not developed contingency plans that would assure it will not be
adversely impacted by the effect of the Year 2000 Issue and does not intend
to prepare such plans. Actual results could differ materially from the above
estimates concerning year 2000 issues.
22
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. Information to be included herein is in Note 5 to
the Consolidated Financial Statements hereof.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Information to be included
herein is in Note 6 to the Consolidated Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Form 8K, General Credit and Security Agreement with Spectrum Commercial
Services, a division of Lyon Financial Services, Inc. providing a
revolving line of credit, previously filed.
Exhibit 27, Financial Data Schedule.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BARRINGER LABORATORIES, INC.
(REGISTRANT)
Date: August 16, 1999 By: /s/ J. Graham Russell
---------------------- ---------------------------
Graham Russell
President and C.E.O.
24
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 50,000
<SECURITIES> 0
<RECEIVABLES> 970,000
<ALLOWANCES> (44,000)
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<PP&E> 3,325,000
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<COMMON> 67,000
<OTHER-SE> 346,000
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<SALES> 2,532,000
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