in<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission
September 30, 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 November 15, 1999 6,708,982 of Common Stock,
$.01 par value.
<PAGE>
BARRINGER LABORATORIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998
- Consolidated Statements of Operations (Unaudited) for the
Three Months and Nine Months Ended September 30, 1999 and
1998;
- Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Nine Months Ended September 30, 1999 and
1998;
- Notes to Consolidated Financial Statements.
Item 2 Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
Signatures
2
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 59,000 $ 173,000
Trade receivables, less allowance
of $250,000 and $34,000 for
doubtful accounts 821,000 1,064,000
Prepaid expenses and other 106,000 247,000
Subscription receivable - 255,000
---------- ----------
Total Current Assets 986,000 1,739,000
---------- ----------
Property and Equipment:
Machinery and equipment 1,353,000 2,304,000
Machinery and equipment under
capital lease obligations 233,000 234,000
Leasehold improvements 519,000 664,000
Office furniture and equipment 59,000 90,000
---------- ----------
2,164,000 3,292,000
Less accumulated depreciation
and amortization 2,023,000 2,964,000
---------- ----------
Net Property and Equipment 141,000 328,000
Certificate of Deposit - 150,000
Other Assets 28,000 101,000
---------- ----------
Total Assets $1,155,000 $2,318,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
Liabilities and Shareholders' Equity (Deficit)
<S> <C> <C>
Current Liabilities:
Line of credit $ 581,000 $ -
Trade accounts payable 563,000 247,000
Accrued liabilities:
Payroll, compensation and related
expenses 145,000 343,000
Accrued property tax 20,000 46,000
Other 181,000 190,000
Current maturities of obligations
under capital leases 73,000 74,000
Net liabilities of discontinued operations 358,000 -
---------- -----------
Total Current Liabilities 1,921,000 900,000
Obligations under capital leases,
less current maturities 16,000 71,000
---------- -----------
Total Liabilities 1,937,000 971,000
---------- -----------
Shareholders' Equity (Deficit)
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 3,741,000 3,184,000
Accumulated deficit (4,567,000) (2,423,000)
Translation Adjustment ( 23,000) ( 23,000)
---------- -----------
Total Shareholders' Equity (Deficit) ( 782,000) 1,347,000
---------- -----------
Total Liabilities and Shareholders'
Equity (Deficit) $1,155,000 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of Services $1,140,000 $ 938,000 $2,930,000 $2,729,000
Cost of Services Sold 805,000 656,000 2,138,000 2,046,000
------------ ----------- ------------ -----------
Gross Profit 335,000 282,000 792,000 683,000
------------ ----------- ------------ -----------
Selling, General and
Administrative Expenses 367,000 406,000 1,022,000 1,527,000
------------ ----------- ------------ -----------
Operating Loss
Continuing Operations ( 32,000) ( 124,000) ( 230,000) ( 844,000)
Other Income (Expense):
Interest income - 3,000 2,000 17,000
Interest expense ( 24,000) ( 3,000) ( 50,000) ( 9,000)
Other 1,000 3,000 ( 4,000) 5,000
------------ ----------- ------------ -----------
Total Other Income (Expense) ( 23,000) 3,000 ( 52,000) 13,000
------------ ----------- ------------ -----------
Loss from Continuing
Operations ( 55,000) ( 121,000) ( 282,000) ( 831,000)
Income (Loss) from Discontinued
Operations (1,132,000) ( 92,000) (1,865,000) 17,000
------------ ----------- ------------ -----------
Net Loss $(1,187,000) $( 213,000) $(2,147,000) $( 814,000)
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
5
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per Share Data:
Net Loss per share:
Basic
Loss from Continuing
Operations $( .01) $( .04) $( .04) $( .32)
Income (Loss) from
Discontinued
Operations $( .16) $( .03) $( .28) $ .01
--------- --------- --------- ---------
Net Loss $( .17) $( .07) $( .32) $( .31)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted
Loss from Continuing
Operations $( .01) $( .04) $( .04) $( .32)
Income (Loss) from
Discontinued
Operations $( .16) $( .03) $( .28) $( .01)
--------- --------- --------- ---------
Net Loss $( .17) $( .07) $( .32) $( .31)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares
outstanding
Basic 6,708,982 3,257,315 6,644,044 2,609,167
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 6,708,982 3,257,315 6,644,044 2,609,167
--------- --------- --------- ---------
--------- --------- --------- ---------
</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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) for
the period $(1,187,000) $(213,000) $(2,147,000) $(814,000)
Items not affecting cash
Non cash charge related to
issuance of common stock - - - 183,000
Depreciation & amortization 103,000 48,000 220,000 143,000
Bad debt expense 206,000 6,000 216,000 18,000
Minority interest share in
loss of subsidiary - - - ( 5,000)
Other ( 45,000) 1,000 40,000 2,000
Decrease (increase) in
Operating assets net of
Operating liabilities 519,000 ( 306,000) 661,000 ( 344,000)
----------- --------- ----------- ---------
Cash Provided by (used in)
Operating Activities ( 314,000) ( 464,000) (1,010,000) ( 817,000)
----------- --------- ----------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and
Equipment ( 17,000) ( 31,000) ( 50,000) ( 72,000)
----------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under line of credit 365,000 - 581,000 492,000
Sale of common stock - - 270,000 -
Reduction in long-term debt ( 15,000) ( 8,000) ( 55,000) ( 30,000)
Redemption of Certificate of
Deposit - - 150,000 -
Other ( 10,000) - - -
----------- --------- ----------- ---------
Cash provided by Financing
Activities 340,000 ( 8,000) 946,000 462,000
----------- --------- ----------- ---------
Increase (Decrease) in cash 9,000 ( 503,000) ( 114,000) ( 427,000)
Cash and cash equivalents
- beginning of period 50,000 600,000 173,000 524,000
----------- --------- ----------- ---------
Cash and cash equivalents
- end of period $ 59,000 $ 97,000 $ 59,000 $ 97,000
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</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 SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Decrease (increase) in
operating assets net of
operating liabilities
Trade receivables $ (314,000) $(169,000) $ 230,000 $( 42,000)
Other current assets 161,000 (55,000) (81,000) (199,000)
Accounts payable and
accrued liabilities 244,000 (82,000) (338,000) (103,000)
Other 428,000 - (472,000) -
---------- --------- --------- ----------
Total - net $ 519,000 $(306,000) $(663,000) $(344,000)
---------- --------- --------- ----------
---------- --------- --------- ----------
Cash paid during the
period for interest $ 24,000 $ 3,000 $ 50,000 $ 69,000
---------- --------- --------- ----------
---------- --------- --------- ----------
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 September 30, 1999 and the results of their operations and their cash
flows for the three and nine months ended September 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
At September 30, 1999 the Company has a net working capital deficit of
$935,000 and a shareholders' deficit of $782,000. For the nine month
period ended September 30, 1999, the Company has incurred a net loss
totalling $2,147,000.
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.
Because of the increasingly depressed mineral exploration market,
the Company decided to exit the mineralogical and geochemical testing
business segment (Note 10). Consequently, the Company entered into an
agency agreement with Inspectorate Griffith USA, Inc. (Inspectorate)
effective October 15, 1999. Under the terms of the agreement, the Company
transferred domestic and international customer contracts, while retaining
existing trade accounts receivable, to Inspectorate along with the right
to use the "Licensed Mark" for promotional marketing and sales activity. In
consideration, the Company is entitled to a commission of 2 1/2% of
payments received by Inspectorate pursuant to the contracts for a period of
three years. In addition, Inspectorate has hired certain of the company's
employees and will acquire certain fixed assets at fair market value. The
Company has recorded a loss on disposal of this segment of $786,000 to
cover costs to close the facilities, to reserve for uncollectible accounts
receivable and to reduce fixed assets to market value on a liquidating
basis.
The Company will focus on the environmental analytical testing services
business.
9
<PAGE>
To address the funding requirements for 1999, effective December 1998, the
Company sold 3,055,556 shares of common stock for $550,000 and an
additional 146,111 shares of restricted common stock for $26,300 in June
1999. In October 1999, the Company entered into subscription agreements
with certain shareholders to issue $100,000 of convertible notes, with the
option to increase the offering to a total of $500,000. The notes are
convertible into shares of restricted common stock at $.06 per share. The
proceeds of these notes are expected to be received in the fourth quarter
of 1999. A $150,000 Certificate of Deposit which was pledged to the
Colorado Department of Health has been replaced with a Financial guarantee
bond. Additionally, the Company has 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. The Company has
not complied with the nominal profit covenant as of September 30, 1999
and is presently working with the lender to waive the violation.
It is quite possible that the Company could require additional financial
resources to enable it to meet its obligations in the future in addition to
any funds generated from operations. The lack of additional capital could
force the company to substantially curtail operations.
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
10
<PAGE>
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 would be anti-dilutive.
For the three months and nine months ended September 30, 1999, dilutive
common stock equivalents of 168,000 and 178,800, 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 nine
months ended September 30, 1998, option and warrant exercise prices
exceeded the average market prices of the common stock. Dilutive Common
stock equivalents of 214,100 and 240,117 respectively, were not included in
the computation of diluted loss per share because their effect was
antidilutive.
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 remeasurement of
monetary assets and liabilities are included in income. The Peruvian and
Nicaraguan subsidiaries are reported in U.S. dollars.
11
<PAGE>
4. INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At September 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 $6,072,000. 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 September 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.
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.
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.
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.
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. 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
12
<PAGE>
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.
Effective October 1999, the Company entered into agreements to issue
$100,000 of convertible notes, with the option to increase the offering to
$500,000. The principal amount is due in two years from the date of the
note with interest of 10% per annum from the due date of such principal
until payment in full is made. The Company has the right, at any time until
the maturity date, to convert the notes into 8,333,333 shares of restricted
common stock. The Company anticipates that it will be in a position to take
all action as is necessary to increase the authorized but unissued shares
of its common stock during the first quarter of fiscal year 2000, if not
sooner. Therefore, if not sooner than the first quarter of fiscal year
2000, the Company shall, as soon as reasonably practicable, convert the
notes into shares of common stock at a conversion of $.06 per share.
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.
The assets acquired include customer lists, a noncompetition agreement
among the President of Shasta and the Company and all goodwill of Shasta.
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. All assets
associated with this acquisition have been written off as of September 30,
1999 (Note 10).
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 September 30, 1999 no accounts receivable had
been factored.
9. ASSET BASED LINE OF CREDIT
On May 25, 1999, 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 the Company's assets. The Company
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, the Company, 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 the Company 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 September 30, 1999,
Norwest's prime rate was 8.25%.
If the Company meets 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 the Company 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
15
<PAGE>
Note. The Company is uncertain as to which rates (those in the Note or in
the Credit Agreement) will apply. Furthermore, there can be no assurance
that the Company will meet the profit levels for 1999 and 2000 which
would permit a reduction in the interest rates as set forth above.
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 be paid when due can be added to
the principal balance. In addition to other fees and expenses, the Company
is obligated under the Credit Agreement for an administration fee of $2,000
per calendar quarter and an annual life maintenance fee of $15,000.
The Credit Agreement also includes various affirmative and negative
covenants, which the Company must meet. The affirmative covenants include
requirement that the Company maintain nominal profit levels before income
taxes or that restrict the net losses that the Company 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 the Company. The Company has not complied with the
nominal profit covenant as of September 30, 1999 and is presently working
with the lender to waive the violation. As of September 30, 1999, $581,000
is outstanding under this agreement.
10. DISCONTINUED OPERATIONS
In September, 1999, the Company decided to dispose of its mineralogical and
geochemical testing business segment due to the depressed level of
worldwide mineral exploration activity. Therefore, it has separately
reported the losses from this segment as discontinued operations for all
periods presented in the Consolidated Statements of Operations. The Company
has estimated the net realizable value of the assets and estimated costs
and expenses directly associated with the disposal. The assets and
liabilities of the discontinued business segment have been segregated in
the Consolidated Balance Sheets. Effective October 15, 1999, the Company
entered into an agency agreement with Inspectorate Griffith USA, Inc. Under
the terms of the agreement, the Company transferred domestic and
international customer
16
<PAGE>
contracts, while retaining existing trade accounts receivable, to
Inspectorate along with the right to use the "Licensing Mark" for
promotional marketing and sales activity. In consideration, the Company is
entitled to a commission of 2 1/2% of payments received by Inspectorate
pursuant to the contracts for a period of three years. In addition,
Inspectorate has hired certain of the Company's employees and will acquire
certain fixed assets at fair market value.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 467,000 $ 836,000 $ 741,000 $1,546,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Income (Loss) from Operations $( 346,000) $( 92,000) $(1,079,000) $ 17,000
Estimated Loss on Disposal $( 786,000) $ - $( 786,000) $ -
------------ ----------- ------------ -----------
Income (Loss) from discontinued
Operations $(1,132,000) $( 92,000) $(1,865,000) $ 17,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</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 SEPTEMBER 30, 1999
Sales of services includes the continuing environmental business. The mineral
business is reported as discontinued and, therefore, sales and costs are not
reported separately. Environmental sales of services in the third quarter are
up 21% as compared to 1998. Environmental bookings for the nine months ended
September 30, 1999 are up 17% as compared to 1998.
Radiochemistry laboratory sales of $610,000 are up 12% versus 1998, which is a
reversal from what had been experienced for the first six months of 1999, in
which sales were down 10%. The increase of revenues is attributable to timing in
the market. The Company continues to focus market attention on mixed waste
radiochemistry testing. Inorganic sales of $214,000 are 77% of the same period
in 1998 as the laboratory experienced difficulties in meeting turnaround time
requirements. Organic revenues of $320,000 continued strong at 276% of last year
as the laboratory continues to have new business.
Gross profits of $335,000 and 29% as a percent of revenue represents an increase
of $53,000 and about the same margin percent as in 1998. The increase in gross
profit is due principally to higher sales volume.
Selling, General and Administrative expenses in the third quarter of 1999 are
$39,000 lower than the same quarter of 1998, primarily due to professional fees
related to the investigation referred to in the "Notes to Consolidated Financial
Statements, Management's Plan."
NINE MONTHS ENDED SEPTEMBER 30, 1999
Sales of services includes the continuing environmental business. The mineral
business is reported as discontinued and, therefore, sales and costs are not
reported separately. Environmental sales for the nine months ended September
30, 1999 of $2,930,000 are $201,000 (7%) higher versus the same period in
1998. Radiochemistry revenues of $1,587,000 are 96% and inorganic revenues of
$670,000 are 92%, both as compared to the same period of last year. Strong
organic revenues of $673,000 offset the declines of the other two
laboratories to produce a 7% increase versus 1998. Radiochemistry sales are
attributable to timing of environmental market activity, as in fact revenues
have increased
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over last year in the third quarter of 1999. Organic sales increase is a
function of adding new customers.
Gross profit of $792,000 is $109,000 higher than 1998 due to higher revenues and
a 2% point increase in margins to 27% from 25%.
Selling, general and administrative expenses have decreased from 1998 by
$505,000 primarily due to lower professional fees associated with the
successfully concluded investigation and the non cash charge in 1998 related to
the sale of common stock.
DISCONTINUED OPERATIONS
In September 1999, the Company established a plan to dispose of its
mineralogical and geochemical testing business segment. Therefore, it has
separately reported the operating losses from this segment as discontinued
operations for the three and nine months ended September 30, 1999 and 1998.
The Company also recorded an estimated loss on disposal at September 30, 1999
based upon the estimated net realizable value of the discontinued operation
including estimated costs and expenses directly associated with the disposal
and estimated losses from operations through the disposal date. Losses from
discontinued operations totaled $346,000 and $1,079,000 for the three and
nine months ended September 30, 1999, respectively. This compares to losses
(income) of $(17,000) and $92,000 for the three and nine months ended
September 30, 1998, respectively.
At September 30, 1999, the net current liabilities of discontinued operations
consisted primarily of trade accounts receivable net of accounts payable and
accrued liabilities.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents of $59,000 at September 30, 1999 decreased by $114,000
from $173,000 at December 31, 1998. Operations used cash of $314,000 for the
three months ended September 30, 1999, and $1,010,000 for the nine months ended
September 30, 1999, primarily due to the losses for the period. Financing
activities generated net cash of $340,000 for the three months ended September
30, 1999, primarily from borrowing under the asset based line of credit. Net
cash generated from financing for the nine months ended September 30, 1999 of
$946,000 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.
Because of the increasingly depressed mineral exploration market, the Company
decided to exit its business in the mineralogical and geochemical testing
segment. Consequently the Company entered into an agency agreement with
Inspectorate Griffith USA, Inc. (Inspectorate) effective October 15, 1999. Under
the terms of the agreement, the Company transferred domestic and international
customer contracts, while retaining existing trade accounts receivable, to
Inspectorate along with the right to use the Licensed Mark for promotional
marketing and sales activity. In consideration the Company is entitled to a
commission of 2 1/2% of payments received by Inspectorate pursuant to the
contracts. In addition, Inspectorate has hired certain of the Company's
employees and will acquire certain fixed assets at fair market
19
<PAGE>
value. The Company has recorded a loss provision of $786,000 to cover costs to
close the facilities, uncollectible accounts receivable and reduce fixed assets
to market value on a liquidating basis.
The Company will focus on the environmental analytical testing services
business.
To address the funding requirements for 1999, effective December 1998, the
Company sold 3,055,556 shares of common stock for $550,000 and an additional
146,111 shares of restricted common stock for $26,300 in June 1999. In
October 1999, the Company entered into a subscription agreement with certain
shareholders to sell notes convertible into an additional 8,333,333 shares of
common stock for $500,000. The proceeds from these notes are expected to be
received in the fourth quarter of 1999. A $150,000 Certificate of Deposit
which was pledged to the Colorado Department of Health has been replaced with
a Financial Guarantee bond. The Company has 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. The Company has not
complied with the nominal profit covenant as of September 30, 1999 and is
presently working with the lender to waive the violation.
It is quite possible that the Company could require additional financial
resources to enable it to meet its obligations in the future in addition to
any funds generated from operations. The lack of additional capital could
force the company to substantially curtail operations and possibly consider
the sale of assets which could have a material adverse effect on the
Company's 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.
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.
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.
20
<PAGE>
As discussed above, effective October 1999, the Company entered into
agreements to issue $100,000, with the option to increase the offering to
$500,000, of convertible notes, the principal amount of which is due in full
two years from the date of the note with interest of 10% per annum from the
due date of such principal until payment in full is made. The Company has the
right, at any time until the maturity date, to convert the notes into
8,333,333 shares of restricted common stock. The Company anticipates that it
will be in a position to take all action as is necessary to increase the
authorized but unissued shares of its common stock during the first quarter
of fiscal year 2000, if not sooner. Therefore, if not sooner than the first
quarter of fiscal year 2000, the Company shall, as soon as reasonably
practicable, convert the notes into shares of common stock at a conversion
price of $.06 per share.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
At September 30, 1999, the Company has approximately $15,000 of alternative
minimum tax credits and unused net operating loss carryforwards of approximately
$6,072,000. 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.
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
21
<PAGE>
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 computerized
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>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Information to be included
herein is in Note 6 to the Consolidated Financial Statements. The
Company utilized the exemption from registration under Section 4(2) of
the Securities Act of 1933 and Regulation D thereunder, in that there
were a small number of purchasers who were experienced, knowledgeable
and sophisticated investors who were and are because of their economic
bargaining power, able to fend for themselves in connection with the
investment decision.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Information to be included herein
is contained in Note 2 and Note 5, Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Conditions and Results of Operations, Capital Resources and Liquidity.
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.
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: November 15, 1999 By: /s/J. Graham Russell
--------------------------------- -----------------------
Graham Russell
President and C.E.O.
24
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