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, 1999
OR
[ ] TRANSITION REPORT Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 0-8241
BARRINGER LABORATORIES, INC.
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(Name of small business issuer in its charter)
Delaware 84-0951626
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(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
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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
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(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 [ ] No [X]
This Form 10KSB is the only report not filed timely during the past 12 months.
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, 1999 were
$4,044,000.
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based on the most recent trading date (May 8, 2000), is $8,570,000.
Number of shares outstanding as of May 8, 2000, of Common Stock, $.01 par value
16,803,180.
Documents Incorporated by Reference
None.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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PART I
Item 1. DESCRIPTION OF BUSINESS
Statements made or incorporated in this report include a number of
forward-looking statements. Forward-looking statements include, without
limitation, statements containing the words "anticipates", "believes",
"expects", "intends", "future", and words of similar import which express
management's belief, expectations or intentions regarding the Company's future
performance or future events or trends. The Company wishes to caution readers
that forward-looking statements involve known and unknown risks, uncertainties
and other factors, as discussed herein and in other materials filed by the
Company with the Securities and Exchange Commission. Such risks, uncertainties
and other factors may cause actual results, performance or achievements of the
Company to differ materially from those anticipated and expressed or implied by
such forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
(a) COMPANY DEVELOPMENT
Barringer Laboratories, Inc. (the "Company") provides analytical services to the
environmental services industry. The Company was organized under Delaware law in
December 1988. The Company's principal executive office and environmental
testing laboratory are located at 15000 West 6th Avenue, Suite 300, Golden,
Colorado.
Until September 30, 1999, the Company also provided analytical services to the
mineral exploration industry. Because of the sharp downturn in worldwide mineral
exploration activity during 1998 and 1999, the Company determined to exit this
line of business, which included substantially all of the Company's
international operations, and concentrate its resources on the development of
its environmental testing business. On October 15, 1999 the Company entered into
an agency agreement with Inspectorate Griffith USA, Inc. ("Inspectorate"), under
the terms of which the Company transferred its domestic and international
mineral analytical customer contracts to Inspectorate along with the right to
use the licensed trademark of the Company for promotional marketing and sales
activity (the "Licensed Mark"), while retaining existing trade accounts
receivable. 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 hired certain of the Company's then
employees and acquired certain fixed assets at fair market value.
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(b) DESCRIPTION OF THE COMPANY'S BUSINESS
OVERVIEW OF ENVIRONMENTAL SERVICES PROVIDED
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. The Company conducts a small amount of work for customers required
to comply with similar environmental regulations in other countries. Customers
typically rely heavily 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:
o Radiochemistry, or testing for low level 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.
o Testing for organic chemical contaminants such as hydrocarbons, pesticides,
herbicides, polychlorinated biphenyls (PCBs), and polynuclear aromatics
(PNAs).
o 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 1999, radiochemistry constituted approximately
54.6% of the environmental laboratory's work, organic analysis constituted
approximately 22.4%, and the balance constituted inorganic analysis. 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, the Company directs its marketing efforts toward
those customers with special needs in the area of radioactively contaminated
waste. As a consequence, the large majority of the Company's business is related
to its specialized capabilities in the analysis of radioactive and mixed waste.
During 1999 the environmental laboratory processed samples for over 300
customers.
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SALES BY CATEGORY
The following table sets forth sales for the business by category for the past
two fiscal years (in $000).
1999 1998
---- ----
Radiochemistry $2,210 $2,226
Organic Analysis 930 478
Inorganic Analysis 904 977
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TOTAL $4,044 $3,681
====== ======
CUSTOMER BASE AND MARKETING ACTIVITIES
Because of the Company's special expertise in the analysis of radioactive and
mixed waste, its environmental laboratory's customers are widely scattered
geographically. Customers include environmental consulting engineering firms,
hazardous and low level radioactive and mixed waste treatment/disposal
companies, public utilities, industrial companies (including mining companies)
and various Federal, state and local government agencies.
In 1999, the three largest customers accounted respectively for 18.7%, 9.7% and
7.8% of the Company's total revenues. The top 10 customers accounted for 58.8%
of total revenues. The loss of the Company's largest customer would represent a
material adverse development for the Company and would probably result in a
downsizing of its environmental laboratory, at least on a temporary basis.
The Company's customers initially award ongoing analytical programs or major
analytical projects on the basis of responses to a competitive bidding process.
However, 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 has a small number of long term contractual arrangements with customers
but these are the exception rather than the norm in the environmental testing
industry.
The Company maintains a small, highly qualified group of technical sales staff,
who conduct much of their activity by telephone and mail, particularly as it
relates to the competitive bidding process that dominates the Company's market
for new analytical programs and projects. However, members of the sales staff
are devoting increasing amounts of their time to sales trips to visit key
customers and potential customers in different geographic regions of the United
States.
The Company also maintains a project management staff comprised of technically
qualified individuals 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 laboratory. Because
it is the members of the project management staff that maintain contact with
existing customers on a day to day basis, they form an integral part of the
Company's business development effort.
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). The Company is active in a number of trade
associations and other industry forums as a means of promoting its visibility
and technical expertise. The Company maintains an Internet website, at
www.barringer-labs.com, which provides a description of the capabilities of its
environmental laboratory and is also used to communicate new developments in the
Company, advertise employment opportunities and capture information about
potential customers. Given the specialized nature of the Company's environmental
analytical activities, management does not believe that print advertising is a
productive channel for attracting new business and, therefore, devotes few
resources to this form of promotional activity.
COMPETITION
Management believes that the size of the U.S. environmental and hazardous waste
testing market falls within the range of $1 - $1.5 billion annually and that it
is served by as many as 1,000 independent analytical laboratory facilities owned
by several hundred companies.
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Between 1991 and 1997, the U.S. market for environmental testing services was
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 were important competitive factors, most
competition was based largely on price. During that period, prices in some
segments of this market declined by as much as 60%.
During 1998 and 1999, several of the larger environmental laboratory groups have
either filed for protection under Federal bankruptcy laws or significantly
downsized their operations by combining laboratories or through outright
closures. Many smaller firms have also closed down. Management believes that
this industry process is continuing. Current industry reports suggest that as
much as 15 - 20% of the industry's capacity may have been eliminated in the past
two years. While there can be no assurance that there will be any lessening of
the intense competition prevalent in the market during the early to mid-1990s,
or that new competitors will not emerge, management believes that the market may
be returning to a more stable supply/demand position.
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 business with a significant market share. Nonetheless,
many competitors in this highly fragmented market are considerably larger than
the Company and have significantly greater financial and human resources than
the Company. Accordingly, the Company may be at a competitive disadvantage in
competing with these entities, particularly at this time due to the Company's
lack of capital. See Item 6, "Management's Discussion and Analysis or Plan of
Operation."
The Company conducts a minor portion of its environmental testing business in
the general market for environmental chemistry as described above. To this
extent, most of its competitors have similar technical capabilities and utilize
analytical instrumentation and methods similar to those used by the Company.
However, as noted above, the Company's special capabilities and expertise lie in
the analysis of radioactive and mixed waste. This is a niche within the overall
market in which most environmental laboratories do not compete. No more than 10
to 15 laboratories nationwide possess a radioactive materials license permitting
them to handle large volumes of low level radioactively contaminated samples.
Even fewer have the comprehensive range of analytical capabilities of the
Company. The Company's principal environmental testing operations are,
therefore, conducted in a segment of the market which is considerably less
competitive than the mainstream environmental testing market. There is no
assurance, however, that the current competitive conditions in the Company's
market niche will continue or that new competitors will not enter this segment
of the overall environmental testing market.
Management believes that the market for testing radioactive and mixed waste
offers long term, stable prospects because the technical issues involved in the
clean-up of low level radioactive waste tend to be inherently more complex than
those encountered in the remediation of non-radioactive chemical waste.
The Department of Energy has emphasized that the clean-up of many radioactively
contaminated sites within the United States will take at least 20 years, during
which time management estimates there will be a steady flow of work for
competent contractors, including analytical laboratories such as the Company's.
Management believes that a further long term business opportunity may be
5
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developing in this segment of the market in connection with the decommissioning
of the country's over 100 nuclear power plants, which are reaching the end of
their technical and economic lives.
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 needed to compete effectively in its target markets. These are issued
by Federal and state environmental agencies, private accrediting bodies and
private industrial corporations. Licenses include the Company's license to
handle radioactive materials, which is issued by the Colorado Department of
Health (under oversight of the Nuclear Regulatory Commission) and it requires
the Company to post a financial bond for clean up expenses. The Company devotes
significant resources to the maintenance of these licenses and certifications,
which are typically renewable on an annual or other periodic basis.
The Environmental Protection Agency is currently supporting a new initiative
known as the National Environmental Laboratory Accreditation Program ("NELAP"),
a recently promulgated national standard of accreditation for environmental
laboratories designed to reduce the number of separate accreditation systems to
which laboratories are currently subject. Securing NELAP accreditation (which is
based largely on the International Organization for Standardization (ISO) Guide
25 standard for laboratory accreditation) will be important for the Company. The
Company has applied to the State of Colorado for accreditation under NELAP,
which may require considerable investment of time and effort, including the use
of outside consulting services. However, because NELAP is intended to be
reciprocal among participating states, management believes that once this
accreditation is secured, it will reduce the Company's total cost of maintaining
the necessary Federal and state licenses and accreditations.
REGULATION
The Company's environmental testing activities are regulated by the
Environmental Protection Agency, the Nuclear Regulatory Commission, the
Occupational Safety and Health Agency and various state agencies including the
Colorado Department of Health. 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. To date, compliance
with these regulations has taken a significant amount of management and staff
time, which can be expected to continue in the future; however this compliance
is required of all environmental laboratories.
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EMPLOYEES
As of December 31, 1999, the Company had 47 employees of whom 44 were employed
on a full time basis. At that date, the Company also employed 5 temporary
employees and one independent contractor in its corporate office. 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, trademarks, licenses, franchises,
concessions, royalty agreements or labor contracts. The Company does not
currently devote any significant efforts to research and development. However,
management believes its future competitive position may be improved by enhancing
its technical capabilities in the area of radiochemical analysis and, to this
end, is currently engaged in a search for one or more radiochemistry experts to
join the staff.
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 Offices and analytical
Golden, Colorado, USA services laboratory 17,800 $174,000 March 31, 2005
5301 Longley Lane Offices and analytical
Building E, Suite 178 services laboratory 25,500 $194,000 Sept. 30, 2001
Reno, Nevada, USA
5301 Longley Lane, #24 Storage space
Reno, Nevada, USA 2,420 $13,800 Feb. 28, 2001
</TABLE>
The Company is attempting to sublease the property at 5301 Longley Lane, which
was used in connection with part of the Company's discontinued mineral
analytical operations.
The Company believes that the office and laboratory space it currently leases is
adequate for its current operations and is in operable condition.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material, pending, or threatening litigation.
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In early 1998, the Company learned that certain employees in one section of its
environmental laboratory did not consistently follow laboratory practices as set
forth in the Company's Standard Operating Procedures and applicable test
methods. These irregularities were reported by the Company to the relevant
enforcement departments of the Environmental Protection Agency ("EPA").
By letters dated December 24, 1998 and March 19, 1999, the EPA 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,
and that no liability will result.
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, 1999.
At a special meeting of stockholders on March 29, 2000, the Company's
Certificate of Incorporation was amended to increase the authorized number of
shares of Common Stock from 10,000,000 to 50,000,000.
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 30, 2000, there were approximately 220 holders of record 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.
Common Stock
------------------------------
High Low
---- ---
1998 First Quarter 1.37 .62
Second Quarter .59 .31
Third Quarter .56 .34
Fourth Quarter .31 .22
1999 First Quarter .34 .20
Second Quarter .31 .16
Third Quarter .13 .09
Fourth Quarter .09 .04
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SALES OF UNREGISTERED EQUITY SECURITIES
At various times from October 19 through December 29, 1999, the Company issued
and sold $373,000 of convertible subordinated notes payable. The notes were
convertible into the common stock, at the option of the Company, at a rate of
$0.06 per common share. There was no underwriter, placement agent or
broker-dealer involved in the sale of the notes. The notes were sold to existing
stockholders of the Company, including two members of the Company's board of
directors, Mr. Graham and Mr. Asen, who purchased on the same terms and
conditions as the other purchasers. Mr. Graham, who is the Company's president,
purchased $12,000 of the notes, and Mr. Asen purchase $325,000. The Company
claimed exemption from registration under the Securities Act of 1933 pursuant to
the private offering exemption set forth in Section 4(2) thereof. The Company
claimed this exemption by virtue of offering the securities privately to only a
small number of stockholders who already had a substantial familiarity with the
Company and to whom the appropriate disclosures were made. Additional
convertible notes were sold to existing stockholders of the Company in the first
quarter of 2000, and $600,000 of the notes, including the $373,000, were
converted into 10,000,000 shares of common stock in April 200. See note 7 to the
consolidated financial statements, "Subordinated Convertible Notes Payable," and
Item 12 herein, "Certain Relationships and Related Transactions."
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. Under the General Credit and Security Agreement
with Spectrum Commercial Services ("Spectrum"), dated May 25, 1999 (relating to
the Company's revolving line of credit), the Company is prohibited from paying
cash dividends.
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 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, and
the uncertainty of government agency funding and contracting procedures.
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 them to differ materially
from those in the forward- looking statements.
Until September 30, 1999, the Company provided analytical services to the
mineral exploration industry. Because of the increasingly depressed mineral
exploration market, the Company determined to exit the mineralogical and
geochemical testing business segment on September 30, 1999. The Company entered
into an agency agreement with Inspectorate Griffith USA, Inc. Under the terms of
the agreement, the Company transferred all of its' domestic and international
mineral 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. See "Discontinued Operations" below.
With this agreement, the Company effectively exited the mineral testing
business. Accordingly, the Company's financial results for 1998 and 1999 have
been restated to reflect its continuing business, which comprises its
environmental testing and corporate activities. The following discussion should
be read with this change in the Company's business activities in mind.
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RESULTS OF OPERATIONS
The following is a breakdown of operating results from continuing operations
which excludes the discontinued analytical mineral operations for the years
ended December 31, 1999 and 1998.
Years Ended December 31
1999 1998
---- ----
Sales of Services $4,044,000 $3,681,000
Cost of Services Sold 2,969,000 2,730,000
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Gross Profit 1,075,000 951,000
Selling, General and
Administrative Expenses 1,445,000 2,065,000
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Operating Loss (370,000) (1,114,000)
---------- ----------
Other Income (Expense):
Interest Income 2,000 23,000
Interest Expense (87,000) (11,000)
Other Income (7,000) 1,000
---------- ----------
(92,000) 13,000
---------- ----------
Loss from Continuing Operations $(462,000) $(1,101,000)
========== ==========
1999 COMPARED TO 1998
Net sales for 1999 from continuing operations of $4,044,000 increased by 10%
compared to 1998 sales of $3,681,000. This increase reflects a general expansion
in the Company's customer base due to improved marketing and sales programs and
maintenance of a high level of customer service. Within this general
improvement, however, there were shifts in the mix of the Company's business
from an operational standpoint. The following table shows the breakdown of
business by type of analytical work for 1999 compared with 1998 (in $000s).
Type of Work 1999 1998 Increase
(Decrease)
Radiochemistry $ 2,210 $ 2,226 $ (16)
Inorganics $ 904 $ 977 $ (73)
Organics $ 930 $ 478 $ 452
The most important aspect of the above table is the significant increase in the
volume of organics work performed by the Company. This was the result of a
marketing program designed to take advantage of the surplus instrument capacity
in the Company's organics laboratory. Specifically, most of the increased
organics work was performed for three contract operators at a major Department
of Energy site in Texas.
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The decline in inorganics work was largely attributable to the ongoing decline
in work volume from the Company's second largest customer, a former uranium
mining company whose site clean-up work has been declining gradually for several
years and will continue to do so in the future. While this change leaves the
Company with spare capacity in its inorganics laboratory, the overall change in
the mix of analytical work is beneficial because margins on organics analytical
work are typically higher than those in inorganics work.
Gross profit of the environmental laboratory increased from $951,000 to
$1,075,000 between 1998 and 1999. This represented a margin improvement from
25.8% in 1998 to 26.5% in 1999, mainly attributable to a reduction in the unit
costs of labor and other direct costs. This, in turn was due to the increase in
organics revenues because this type of work is instrument intensive rather than
labor intensive so that an almost 100% increase in volume in this laboratory
generated a relatively minor increase in labor and other direct costs. It is the
Company's intention to endeavor to further increase the amount of organics work
as a proportion of total revenues.
Selling, General and Administrative expenses decreased to $1,445,000 in 1999
from $2,065,000 in 1998, a decrease of $620,000. The most significant elements
of the decrease were the absence in 1999 of legal costs associated with the
investigation of the Company's organics laboratory, which occurred in 1998; non-
cash compensation charges of $275,000 associated with two private equity
offerings during 1998 whereas there was no material non- cash compensation
charges associated with the 1999 private placement; offset by increased
expenditures on marketing and sales programs and additional administrative
support and one-time expenses associated with a personnel change.
Net financing and interest costs of the environmental laboratory amounted to
$85,000 in 1999 compared with net interest income in 1998 of $12,000. This
change represents the cost of the receivables-backed line of credit negotiated
with Spectrum during 1999. See "Capital Resources & Liquidity" below.
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
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 all of its
domestic and international mineral customer contracts, while retaining existing
trade accounts receivable, to Inspectorate along with the right to use the
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Licensed Mark for promotional marketing and sales activity. In consideration,
the Company is entitled to a commission of 2 1/2% payments received by
Inspectorate pursuant to the contracts for a period of three years. In addition,
Inspectorate hired certain of the Company's former employees and acquired
certain fixed assets at fair market value.
The following is a breakdown of operating results from discontinued operations
for the years ended December 31, 1999 (through September 30, 1999) and 1998 (in
$000's):
Years Ended December 31,
------------------------
1999 1998
---- ----
Sales of Services $ 1,252 $ 2,559
Cost of Services Sold 2,053 2,448
------- -------
Gross Profit (Loss) (801) 111
Selling, General and
Administrative Expenses 446 420
------- -------
Operating Loss (1,247) (309)
------- -------
Other Income (Expense):
Costs to Close (1,086) --
Other Costs, Net -- (3)
Gain on Sale of Assets -- 17
------- -------
Total Other Income (Expense) (1,086) 14
------- -------
Net Loss $(2,333) $ (295)
======= =======
Included in costs to close are payments on leases until terminated, transferred
or sublet; costs to remodel, clean and maintain the facility; reserve for an
account receivable; and write down of fixed and other assets to net realizable
value.
CAPITAL RESOURCES AND LIQUIDITY
The following is presented on a consolidated basis including both continuing and
discontinued operations.
The Company is faced with a significant working capital shortage. At December
31, 1999, negative working capital was $1,539,000. Management is attempting to
minimize the negative impact of the working capital shortage through close
supervision of general and administrative expenses. In addition, the Company is
seeking additional equity and/or debt financing. The Company has raised equity
capital from certain of its existing stockholders and may continue to raise
additional equity capital from them. No assurance can be made that additional
capital will be raised, or if raised, that it will be on terms beneficial to the
Company.
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Cash and cash equivalents totaled $92,000 at December 31, 1999 compared with
$173,000 at December 31, 1998. The $81,000 reduction resulted from cash used in
operating activities of $806,000 and cash used in investing activities of
$269,000, offset by cash flows from financing activities of $994,000.
Cash used in operations of $806,000 resulted from operating losses of $2,795,000
(including losses from discontinued operations of $2,333,000 of which $1,086,000
is a loss on the disposal of a business segment) plus a decrease in operating
assets (net of operating liabilities) of $653,000, offset by various non-cash
items including depreciation and amortization ($226,000), and bad debt
provisions ($1,000).
Cash used in investing activities of $269,000 was related to computer and
instrument purchases for the Environmental business, and the purchase of a truck
for the Mexico operation, as well as cash paid in connection with disposal of
the business segment.
Cash from financing activities resulted from the cash collected from the
December 1998 private placement of $255,000 in January 1999. An additional
146,111 shares of restricted common stock were sold in June 1999 for $26,000.
Additional cash was generated through the release of a $150,000 Certificate of
Deposit which was pledged to the Colorado Department of Health and replaced with
a financial guarantee bond. Net cash of $267,000 was also generated under the
line of credit secured by the Company's assets and limited to the Company's
eligible domestic accounts receivable. The Company has not complied with the
nominal profit and other covenants in the General Credit and Security Agreement
as of December 31, 1999. Spectrum, the lender, has waived these defaults until
May 15, 2000. From October 1999 through December 31, 1999, the Company entered
into subscription agreements with certain existing shareholders to issue
$373,000 of convertible notes, with the option to increase the offering to a
total of $500,000. In early 2000, funding under this program was increased to
$700,000 from $500,000. Additional notes for the remaining $127,000 of the
$500,000, plus an additional $100,000 in convertible notes, were issued through
March 2000. All of the notes were convertible into shares of restricted common
stock at $.06 per share. In April 2000, all $600,000 of notes were converted
into 10,000,000 shares of common stock.
As of December 31, 1999, the Company had a net working capital deficiency of
$1,539,000. This net working capital deficiency resulted principally from a net
loss of $2,795,000 which includes the loss from discontinued operations of
$2,333,000 (including depreciation and other non-cash charges) for the year
ended December 31, 1999. Also contributing to the working capital deficiency was
the line of credit of $267,000, subordinated convertible notes payable of
$373,000, net liabilities of discontinued operations of $627,000 and trade
accounts payable and accrued expenses of $1,120,000 which includes accruals
related to the discontinued operations.
13
<PAGE>
The Company's current cash requirements to sustain its operations for the next
twelve months are estimated to be approximately $600,000. The Company expects
that these requirements will be provided by a combination of cash generated from
operations, cash provided by the Company's line of credit based upon eligible
domestic accounts receivable, and cash from short-term debt and/or equity
financings with existing stockholders.
There can be no assurance that any funds required during the next twelve months
or thereafter can be generated from operations or, if such required funds are
not internally generated, that funds will be available from external sources
such as debt or equity financings or other potential sources. The lack of
additional capital could force the Company to substantially curtail or cease
operations and would, therefore, have a material adverse effect on its business.
Further, there can be no assurance that any such required funds, if available,
will be available on attractive terms or that they will not have a significantly
dilutive effect on the Company's existing shareholders.
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, 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 $6,085,000. Such net operating loss carryforwards expire in
varying amounts from 2000 to 2019 and are subject to certain limitations under
Section 382 of the Internal Revenue Code ("IRC") of 1986, as amended.
As of December 31, 1999, a valuation allowance of $2,649,000 was recorded,
because management of the Company is not able to determine that it is more
likely than not that the Company's deferred tax assets will be realized. The
Company has recorded a valuation allowance primarily related to the uncertainty
of realizing operating loss carryforwards due 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, 1999.
14
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFA No. 137,
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 No. 133 is effective for fiscal years beginning
after June 15, 2000. Management believes that the adoption of SFAS No. 133 will
have no effect on its financial statements.
YEAR 2000 COMPLIANCE
During 1999, the Company initiated its Year 2000 compliance project. The
evaluation addressed internal hardware and software, production instruments, key
vendors, customers, and other significant third parties. The Company did not
experience any Y2K disruptions, nor did any entity expend any significant
amounts during 1999 or in 2000 to ensure Y2K compliance.
15
<PAGE>
Item 7. 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, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity (deficit)
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 12, in 1999 the Company disposed of its mineralogical and
geochemical testing business segment. Accordingly, the accompanying financial
statements present the mineralogical and geochemical testing business segment as
a discontinued operation for all periods presented.
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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years then
ended, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Denver, Colorado
April 14, 2000, except for Note 4
which is as of April 28, 2000.
16
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1999 1998
---- ----
<S> <C> <C>
Sales of Services ............................... $ 4,044,000 $ 3,681,000
Cost of Services Sold ........................... 2,969,000 2,730,000
----------- -----------
Gross Profit .................................. 1,075,000 951,000
Selling, General and
Administrative Expenses ....................... 1,445,000 2,065,000
----------- -----------
Operating Loss ................................ (370,000) (1,114,000)
----------- -----------
Other Income (Expense):
Interest income ............................... 2,000 23,000
Interest expense .............................. (87,000) (11,000)
Other ......................................... (7,000) 1,000
----------- -----------
Total Other Income (Expense) .................... (92,000) 13,000
----------- -----------
Loss from Continuing Operations ................. (462,000) (1,101,000)
----------- -----------
Discontinued Operations:
Loss from discontinued
operations of mineralogical
and geochemical testing
business segment .............................. (1,247,000) (295,000)
Loss on disposal of
mineralogical and geochemical
testing business segment ...................... (1,086,000) --
----------- -----------
Total Discontinued Operations ................. (2,333,000) (295,000)
----------- -----------
Net Loss ........................................ $(2,795,000) $(1,396,000)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1999 1998
---- ---
<S> <C> <C>
Per Share Data:
Net Loss per common share
Basic and Diluted:
Loss from Continuing
Operations ...................................... $ (.07) $ (.45)
Loss from Discontinued
Operations ...................................... (.35) (.12)
------------- ------------
Net Loss .......................................... $ (.42) $ (.57)
============= =============
Weighted average common
shares outstanding
Basic and Diluted ...................................... 6,672,263 2,442,817
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ................................... $ 92,000 $ 173,000
Trade receivables, less
allowance of $116,000 and
$13,000 for doubtful accounts ............................. 705,000 636,000
Prepaid expenses and other .................................. 92,000 114,000
Net assets of discontinued operations ....................... -- 509,000
Subscription receivable ..................................... -- 255,000
---------- ----------
Total Current Assets ...................................... 889,000 1,687,000
---------- ----------
Property and Equipment:
Machinery and equipment ..................................... 1,375,000 1,332,000
Machinery and equipment under
capital lease obligations ................................. 234,000 234,000
Leasehold improvements ...................................... 519,000 514,000
Office furniture and equipment .............................. 59,000 59,000
---------- ----------
2,187,000 2,139,000
Less accumulated depreciation and
amortization .............................................. 2,054,000 1,927,000
---------- ----------
Net Property and Equipment ................................ 133,000 212,000
---------- ----------
Other Assets:
Certificate of Deposit ...................................... -- 150,000
Other ....................................................... 34,000 32,000
---------- ----------
Total Other Assets ............................................ 34,000 182,000
---------- ----------
Total Assets .................................................. $1,056,000 $2,081,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
---- ----
<S> <C> <C>
Liabilities and Shareholders' Equity/(Deficit)
Current Liabilities:
Line of credit ......................................... $ 267,000 $ --
Subordinated convertible notes
payable ............................................ 373,000 --
Trade accounts payable ................................. 562,000 195,000
Accrued liabilities:
Payroll, compensation and
related expenses .............................. 178,000 203,000
Accrued property tax ............................... 38,000 41,000
Other .............................................. 342,000 150,000
Current maturities of obligations
under capital lease ................................ 41,000 74,000
Net liabilities of discontinued
operations ......................................... 627,000 --
----------- -----------
Total Current Liabilities .......................... 2,428,000 663,000
Obligations under capital lease,
less current maturities ................................ 31,000 71,000
----------- -----------
Total Liabilities .................................. 2,459,000 734,000
----------- -----------
Commitments and Contingencies
Shareholders' Equity/(Deficit)
Preferred stock, $2.00 par value,
1,000,000 shares authorized;
none issued ................................... -- --
Common stock, $0.01 par value,
50,000,000 shares authorized;
6,708,982 and 3,407,315
issued and outstanding ........................ 68,000 34,000
Treasury stock, at cost ............................ (5,000) --
Common stock to be issued .......................... -- 575,000
Additional paid-in capital ......................... 3,752,000 3,184,000
Accumulated deficit ................................ (5,218,000) (2,423,000)
Accumulated other comprehensive
income ........................................ -- (23,000)
----------- -----------
Total Shareholders' Equity/(Deficit) ................... (1,403,000) 1,347,000
----------- -----------
Total Liabilities and
Shareholders' Equity/(Deficit) ..................... $ 1,056,000 $ 2,081,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN 000'S EXCEPT SHARE DATA)
Years Ended December 31, 1999 and 1998
Common Stock Treasury Stock
----------------------------------------------------- --------------
Issued To Be Issued
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 .............. 1,590,649 $ 16 -- $ -- -- $ --
Private Placement, net of
issuance costs of $9,
April 1998 .......................... 1,666,666 17 -- -- -- --
Private Placement, December
1998 ................................ -- -- 3,055,556 550 -- --
Stock Granted to Directors ............ -- -- 100,000 25 -- --
Stock Issued in Acquisition ........... 150,000 1 -- -- -- --
Net Loss for Year ..................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 ............ 3,407,315 34 3,155,556 575 -- --
Private Placement December
1998 ................................ 3,055,556 31 (3,055,556) (550) -- --
Stock Granted to Directors ............ 100,000 1 (100,000) (25) -- --
Private Placement, May 1999 ........... 146,111 2 -- -- -- --
Purchase of Management Stock .......... -- -- -- -- 27,777 (5)
Foreign currency translation
adjustment - discontinued
operations .......................... -- -- -- -- -- --
Net Loss for Year ..................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 ............ 6,708,982 $ 68 -- $ -- 27,777 $ (5)
========== ========== ========== ========== ========== ==========
<CAPTION>
Accumulated
Additional Other
Paid-In Accumulated Comprehensive
Capital Deficit Income Total
---------- ----------- ------------- -----
<S> <C> <C> <C> <C>
Balance, January 1,1998 ............... $ 2,397 $(1,027) $ (23) $ 1,363
Private Placement, net of
issuance costs of $9, April
1998 ................................ 657 -- -- 674
Private Placement, December
1998 ................................ 92 -- -- 642
Stock Granted to Directors ............ -- -- -- 25
Stock Issued in Acquisition ........... 38 -- -- 39
Net Loss for Year ..................... -- (1,396) -- (1,396)
------- ------- ------- -------
Balance, December 31, 1998 ............ 3,184 (2,423) (23) 1,347
Private Placement December
1998 ................................ 519 -- -- --
Stock Granted to Directors ............ 24 -- -- --
Private Placement, May 1999 ........... 25 27
Purchase of management stock .......... -- -- -- (5)
Foreign currency translation
adjustment - discontinued
operations .......................... -- -- 23 23
Net Loss for Year ..................... -- (2,795) -- (2,795)
------- ------- ------- -------
Balance, December 31, 1999 ............ $ 3,752 $(5,218) $ -- $(1,403)
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years Ended December 31,
1999 1998
---- ----
Cash Flows From Operating Activities
<S> <C> <C>
Net loss .................................................. $(2,795,000) $(1,396,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Compensatory costs related to
issuances of common stock ............................... -- 275,000
Loss on disposal of discontinued
operations .............................................. 1,086,000 --
Depreciation and amortization ............................. 226,000 181,000
(Gain) loss on disposal of assets ......................... -- (17,000)
Bad debt expense .......................................... 1,000 24,000
Compensation costs related to stock
grants to directors ..................................... -- 25,000
(Increase) decrease in operating
assets net of operating liabilities ..................... 653,000 (82,000)
----------- -----------
Cash Used in Operating Activities ......................... (829,000) (990,000)
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment ........................ (85,000) (120,000)
Cash paid upon disposal of
discontinued operations ................................. (161,000) --
Proceeds from sale of assets .............................. -- 17,000
----------- -----------
Cash Used in Investing Activities ......................... (246,000) (103,000)
----------- -----------
Cash Flows From Financing Activities
Borrowing under line of credit ............................ 267,000 --
Proceeds from issuing convertible notes ................... 373,000 --
Proceeds from sale of common stock ........................ 27,000 786,000
Redemption of certificate of deposit ...................... 150,000 --
Purchase of common stock .................................. (5,000) --
Payments on capital lease obligations ..................... (73,000) (44,000)
Proceeds from satisfaction of
subscription receivable ................................. 255,000 --
----------- -----------
Cash Provided By Financing
Activities .............................................. 994,000 742,000
----------- -----------
Decrease in cash .......................................... (81,000) (351,000)
Cash and cash equivalents beginning
of year ................................................. 173,000 524,000
----------- -----------
Cash and cash equivalents, end of year .................... $ 92,000 $ 173,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years Ended December 31,
1999 1998
---- ----
<S> <C> <C>
Decrease (increase) in operating
assets net of operating liabilities
Trade receivables ...................... $ 74,000 $ (26,000)
Other current assets ................... 101,000 (120,000)
Other assets ........................... 10,000 (9,000)
Accounts payable and accrued
liabilities ........................ 468,000 73,000
-------- --------
Total, net ...................................... $653,000 $ (82,000)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
industry.
MANAGEMENT'S PLAN
The Company's operating plan for 1999 focused on revitalizing its Mineral
Division, which had suffered a steep decline in revenues during 1998, due to the
depressed level of worldwide mineral exploration activity. Conditions in this
market continued to deteriorate during 1999 and the Company determined to exit
this business (See Note 12).
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 all of its domestic and international mineral
testing 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. No commission has been recorded or
received from Inspectorate as of December 31, 1999. In addition, Inspectorate
has hired certain of the Company's employees and acquired certain fixed assets
at fair market value. The Company has recorded a loss on disposal of this
segment of $1,086,000, which includes all foreign investments and an immaterial
minority interest.
The Company's intent is to focus on the environmental testing services business.
As of December 31, 1999, the Company had a net working capital deficiency of
$1,539,000. This net working capital deficiency resulted principally from a net
loss of $2,795,000 which includes the loss from discontinued operations of
$2,333,000 (including depreciation and other non-cash charges) for the year
ended December 31, 1999. Also contributing to the working capital deficiency was
the line of credit of $267,000, subordinated convertible notes payable of
$373,000, net liabilities of discontinued operations of $627,000 and trade
accounts payable and accrued expenses of $1,120,000 which includes accruals
related to the discontinued operations.
24
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's current cash requirements to sustain its operations for the next
twelve months are estimated to be $600,000. The Company expects that these
requirements will be provided by a combination of cash generated from
operations, cash provided by the Company's line of credit based upon eligible
domestic accounts receivable, and cash from short-term debt and/or equity
financings with existing stockholders.
To address its funding requirements, the Company has sold shares of its common
stock and has issued convertible notes. During October through December 1999,
the Company issued $373,000 of subordinated convertible notes, and in May 1999
the Company entered into a line of credit agreement (Note 4) to replace a
factoring agreement (Note 3). From January through March 31, 2000 the Company
issued an additional $227,000 of subordinated convertible notes for total
proceeds of $600,000. The notes were converted into 10,000,000 shares of common
stock in April 2000.
There can be no assurance that any funds required during the next twelve months
or thereafter can be generated from operations or, if such required funds are
not internally generated, that funds will be available from external sources
such as debt or equity financings or other potential sources. The lack of
additional capital could force the Company to substantially curtail or cease
operations and would, therefore, have a material adverse effect on its business.
Further, there can be no assurance that any such required funds, if available,
will be available on attractive terms or that they will not have a significantly
dilutive effect on the Company's existing shareholders.
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 accounts of the
subsidiaries are a part of the discontinued operations and intercompany balances
and transactions have been eliminated in consolidation. In connection with its
discontinued operations, the Company has written off the immaterial minority
interest in its Peruvian operations.
PRINCIPAL MARKETS
Sales of services of the Company's continuing business are primarily to
customers located in the United States. For the year ended December 31, 1999 and
1998, based upon total sales, 20% and 11%, respectively, of the Company's
Environmental Division Services were provided under contracts relating to
federal government spending for environmental enforcement and restoration.
25
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 were reported in U.S. dollars.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
The carrying amounts of financial instruments, including cash equivalents, trade
accounts receivable, trade accounts payable and accrued liabilities, are
approximated at fair value because of the immediate or short-term maturity of
these instruments. Fair value of the Company's line of credit and convertible
notes payable approximate carrying value based upon market rates currently
available for debt with similar terms and maturities.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed to completely perform as contracted.
Concentrations of credit risk, whether on or off the balance sheet, that arise
from financial instruments exist for groups of customers or groups of
counterparties when they have similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly effected by
changes in economic or other conditions.
Concentrations of credit risk with respect to trade receivables are generally
limited due to customers being dispersed across geographic areas. Ongoing credit
evaluations of customers' financial condition are performed and, generally no
collateral is required. The Company maintains an allowance for potential losses
based on management's analysis of possible uncollectible accounts.
SALES OF ACCOUNTS RECEIVABLE
The Company applies Statement of Financial Accounting Standards ("SFAS") 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". SFAS 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. Under SFAS 125, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.
26
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property 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.
Depreciation expense for the years ended December 31, 1999 and 1998, was
$226,000 and $181,000, respectively.
LONG-TERM ASSETS
The Company applies SFAS 121, "Accounting for the Impairment of Long-Lived
Assets". Under SFAS 121, long-lived assets and certain intangibles are evaluated
for impairment when events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable through the estimated
undiscounted future cash flows resulting from the use of these assets. When any
such impairment exists, the related assets will be written down to fair value.
In connection with the Company's discontinued operations, included in loss on
disposal of discontinued operations is $40,000 relating to the write down of
long-term assets to fair market value.
INCOME TAXES
The Company accounts for income taxes under SFAS 109 "Accounting for Income
Taxes". Accordingly, deferred tax liabilities and assets are determined based on
temporary 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 using the enacted tax rates in effect for the
year in which the differences are expected to reverse.
27
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUE RECOGNITION
Sales are recorded in the periods that services are performed. Revenue is
recognized when sample testing is completed and a report is issued. Where
contracts provide for testing of multiple samples at varying times, revenue is
recognized on a per sample basis when sample testing for a batch is completed
and the report is issued.
STATEMENTS OF CASH FLOWS
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.
LOSS PER SHARE
The Company follows the provisions 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 losses 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 years ended December 31, 1999 and
1998, 212,000 and 191,600 dilutive potential common shares were not included in
the computation of diluted loss per share because their effect was
anti-dilutive. For the year ended December 31, 1999, debt convertible into
6,216,666 common shares was not included in the computation of diluted loss per
share because its' effect was anti-dilutive.
STOCK OPTION PLANS
The Company applies Accounting Principal Board Opinion ("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 123, "Accounting for Stock-Based Compensation", requires the Company to
provide pro forma information regarding net income (loss) 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 123.
28
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPREHENSIVE INCOME
The Company adopted SFAS 130, "Reporting Comprehensive Income". Comprehensive
income is comprised of net income and all changes to the statements of
shareholders' equity, except those due to investment by shareholders, changes in
paid-in-capital and distributions to shareholders. SFAS 130 does not impact the
Company's financial statements for the year ended December 31, 1998. During 1999
the Company wrote off its only item of accumulated other comprehensive income,
translation adjustment, in connection with its discontinued operations.
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,
which was amended by SFAS 137, is effective for fiscal years beginning after
June 15, 2000. Management believes that the adoption of SFAS 133 will have no
material impact on its financial statements.
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform with current year presentation.
1. ACQUISITION
On December 4, 1998, the Company completed the acquisition of certain assets of
Shasta Geochemistry Laboratory, Inc. ("Shasta"), a mineral analytical services
company, 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 of common stock. The assets
acquired included customer lists and a noncompetition agreement between the
President of Shasta and the Company.
The acquisition was accounted for as a purchase with the assets valued at the
fair value of the common stock issued by the Company. This value was allocated
to customer list (50%) and noncompetition agreement (50%). All assets associated
with this acquisition have been written off as of September 30, 1999, in
connection with the Company's discontinued operations (see Note 12). During
1998, the results of operations of Shasta were included in the accompanying
financial statements from the date of acquisition, and have been restated and
presented as discontinued operations.
29
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CERTIFICATE OF DEPOSIT
During 1998, the Company had a certificate of deposit in the amount of $150,000
to support the Company's radioactive materials handling license, as required by
the Colorado Department of Health. This license is a regulatory requirement for
any company engaged in the analysis of radioactive materials. During 1999, the
certificate of deposit was replaced with a $150,000 bond. The bond's purpose is
to cover any potential remediation costs with respect to the Company's Golden
facility.
3. SALE OF ACCOUNTS RECEIVABLE
During 1998 and 1999 the Company sold approximately $101,000 and $216,000 of its
accounts receivable to an independent factoring company under an agreement for
approximately $80,000 and $174,000 which reflects a 20% retainage. Pursuant to
the provisions of SFAS 125, the Company reflected the transaction as a sale of
assets less the costs of the transaction and less any anticipated future loss in
value of the retained asset. To the extent that payments from customers exceed
the amount received from the factoring company, the difference less fees and
expenses is refunded to the Company. The Company received the retained share of
all of these receivables. This agreement was terminated in June, 1999.
4. 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. ("Spectrum").
Under the Credit Agreement, Spectrum agreed to provide a revolving line of
credit, secured by essentially all of the Company's assets. The Company assigned
substantially all collections on its domestic, and some foreign, accounts
receivable to Spectrum.
The Note is due on May 24, 2001, or earlier upon demand. The maturity date of
the line of credit may be extended after May 24, 2001 by the Company for
successive twelve month periods. Spectrum, upon 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 the Company's eligible accounts
receivable, as defined in the agreement, or
- a maximum principal amount of $750,000.
30
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, Spectrum, in its sole discretion, may decrease or increase the
borrowing base percentage below or above the 80% described above.
Advances under the line of credit bear interest at the prime lending rate (8.5%
as of December 31, 1999) as defined in the agreement, plus 5.35%.
Provisions of the credit agreement indicate that, if the Company meets required
profit levels, as defined in the agreement, 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. The profit levels
were not met in 1999.
The Company is obligated under the Credit Agreement for an administration fee of
$2,000 per calendar quarter and 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 the 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 or restrict, without Spectrum's consent, 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 and require submission of Form
10-KSB within 90 days of year-end. The Company has not complied with the nominal
profit and the financial statement covenants as of December 31, 1999 and has
received waivers of the defaults. Additionally, Spectrum has consented to
certain transactions prohibited by the agreement, including the issuance of the
subordinated, convertible notes payable and the repurchase of a stockholder's
shares. As of December 31, 1999, $266,809 is outstanding under this agreement.
5. OBLIGATIONS UNDER CAPITAL LEASE
Obligations under the Company's capital leases consist of the following:
December 31,
1999 1998
---- ----
Obligations under capital lease $ 72,000 $145,000
Less current maturities 41,000 74,000
-------- --------
$ 31,000 $ 71,000
======== ========
31
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999, future net minimum lease payments under capital lease
obligations are as follows:
2000 $ 48,000
2001 32,000
--------
Total minimum lease payments 80,000
Less amounts representing interest 7,000
Less amounts representing executory costs 1,000
--------
Present value of net minimum lease payments $ 72,000
========
At December 31, 1999, cost and accumulated depreciation of assets under lease
obligations are $233,550 and $144,749, respectively.
6. INCOME TAXES
Sources of loss before income taxes include:
1999 1998
---- ----
United States operations $(2,303,000) $ (993,000)
Foreign operations (492,000) (403,000)
----------- -----------
$(2,795,000) $(1,396,000)
=========== ===========
The provision (benefit) for income taxes for the years ended December 31,
consisted of the following:
1999 1998
---- ----
Current:
Federal $ -- $ --
State -- --
Deferred:
Federal (744,000) (302,000)
State (66,000) (24,000)
--------- ---------
(810,000) (326,000)
Increase in
valuation allowance 810,000 326,000
--------- ---------
Federal $ -- $ --
========= =========
32
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary reconciles income taxes at the United States statutory
rate of 34% in 1999 and 1998 with the actual taxes:
December 31,
1999 1998
---- ----
Federal benefit computed
at the statutory rate $(950,000) $(475,000)
Losses for which no tax
benefit has been recognized 191,000 169,000
Valuation allowance 810,000 326,000
Other (51,000) (20,000)
--------- ---------
Provision for income taxes $ -- $ --
========= =========
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:
December 31,
1999 1998
---- ----
Tax operating loss carryforwards $ 2,251,000 $ 1,586,000
Property and equipment, principally
due to differences in depreciation 125,000 162,000
Discontinued operations accrual 170,000 --
Expense accruals 22,000 57,000
Other 111,000 62,000
----------- -----------
2,679,000 1,867,000
Valuation allowance (2,649,000) (1,837,000)
----------- -----------
Net deferred tax asset $ 30,000 $ 30,000
=========== ===========
At December 31, 1999 and 1998, the net deferred tax asset recorded is included
in prepaid expenses and other in the accompanying consolidated balance sheets.
As of December 31, 1999 and 1998, a valuation allowance has been recorded, as
management of the Company is not able to determine that it is more likely than
not that the deferred tax asset will be realized.
At December 31, 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 $6,085,000. Such net operating loss carryforwards expire in
varying amounts from 2000 to 2019 and are subject to certain limitations under
Section 382 of the Internal Revenue Code ("IRC") of 1986, as amended.
33
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SUBORDINATED CONVERTIBLE NOTES PAYABLE
During October through December 1999, the Company issued $373,000 of
subordinated, convertible notes pursuant to subscription agreements to purchase
shares of the Company's common stock at $.06 per share (the conversion rate of
the notes) to certain existing stockholders. Such stockholders include a major
stockholder who purchased notes of $325,000 and the Company's President who
purchased notes of $12,000. The notes, which are secured by substantially all of
the Company's assets, and are subordinated to the line of credit, are due two
years from the date of issuance. The notes are non-interest bearing. All of the
notes were converted to 6,216,666 shares of common stock during April 2000.
Imputed interest expense computed at a market rate and beneficial conversion
feature of the notes were not material for the year ended December 31, 1999.
8. SHAREHOLDERS' EQUITY
PURCHASE OF TREASURY STOCK
During November 1999, the Company purchased 27,777 shares of its common stock
from a former employee for $5,000. The shares of stock will be cancelled in
2000.
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 subscriptions receivable of $255,000 to
provide additional working capital. Subsequent to December 31, 1998, all stock
subscriptions receivable were collected and the shares of common stock were
issued.
The shares were issued at prices less than the quoted market price per share on
the effective dates. The difference between the per share transaction prices, as
adjusted for dilution, and the issuance price has been recorded as a $183,000
and a $92,000 non- cash charge, respectively, and are included in Selling,
General and Administrative Expenses in the Consolidated Statements of Operations
for the year ended December 31, 1998.
Among the subscribers of the two placements were three members of the Company's
board of directors, two of whom had already been significant shareholders. The
shares were issued pursuant to exemptions from registration under Section 4(2)
of the Securities Act of 1933, as amended.
34
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During May 1999, the Company issued 146,111 shares of common stock at a price of
$.18 per share for $26,300. Net proceeds were used to provide additional working
capital.
STOCK GRANTED TO DIRECTORS
In December 1998, the Company granted 100,000 shares of its common stock to
outside directors in consideration for 1998 directors' fees. The Company
recorded compensatory expense of $25,000 in 1998 based upon the approximate
market price per share at date of grant. The shares of common stock were issued
in February 1999. No shares of common stock were granted to directors in 1999.
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, 1999 and
1998.
9. STOCK OPTIONS, WARRANTS AND STOCK APPRECIATION RIGHTS
The following table sets forth the number of shares of common stock outstanding
plus the common shares that are reserved as of December 31, 1999 for all
outstanding options and warrants.
Shares of
Exercise or Common Stock
Option Price Outstanding or
Security Per Share Reserved for Issuance
-------- ------------ ---------------------
Common Stock - Outstanding 6,681,206
Stock Options (a) $ .10 65,000
$ .50 10,000
$1.00 32,000
Warrants (b)
Nassau Group Warrants $1.06 80,000
expiring in May, 2001 $1.25 25,000
---------
Total 6,893,206
=========
(a) STOCK OPTIONS
At December 31, 1999, the Company had three stock option plans, which are
described below. The Company applies APB 25, "Accounting for Stock Issued to
Employees", and related Interpretations in accounting for all 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.
35
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The Plan is administered by a Committee of directors appointed by the Board of
Directors. At December 31, 1999 and 1998, options to purchase 2,000 and 31,600
shares of common stock were outstanding under this plan.
The Plan was terminated during December 1999, except for outstanding options
under the Plan, which will remain in effect until they have been exercised or
have expired by their terms.
1997 LONG-TERM INCENTIVE PLAN
The 1997 Long-Term Incentive Plan ("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. 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 is administered by the
Board of Directors. The 1997 Plan reserves 120,000 shares of the Company's
common stock for issuance. There were options for 65,000 shares of common stock
granted under this plan in 1999, all of which remained outstanding as of
December 31, 1999. There were no options granted under this plan in 1998.
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, 1999, all non-qualified stock
options have been granted at an exercise price at or in excess of the current
market value at the time of grant. No options were granted under this plan in
1999. During the year ended December 31, 1998, options to purchase 25,000 shares
of common stock were granted under the plan. At December 31, 1999 and 1998,
options to purchase 40,000 and 55,000 shares of common stock, respectively, were
outstanding under this plan.
36
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NON-EMPLOYEE DIRECTORS PLAN
The Non-Employee Directors Plan provides for the grant of stock options to
non-employee directors of the Company 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. Under the
Non- Employee Directors Plan, each non-employee director was to be granted a
stock option to purchase 1,000 shares of common stock. In addition, each
non-employee director was to be granted a stock option to purchase 1,000 shares
of common stock effective as of each anniversary date after the initial grant of
a stock option to such director. Each stock option granted under the
Non-Employee Directors Plan was to 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 was to be 100% of the fair market value of the common
stock on the date of grant of the option. No options have been granted under
this plan. Presently, Mr. Asen is the only non-employee director of the Company.
(b) WARRANTS
In May 1996, the Company granted to certain individuals associated with The
Nassau Group, Inc. (a former Director of the Company is also Managing Director
of Nassau) 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 ending of five years from the date of grant, through May 2001. The
warrants are fully vested.
(c) STOCK APPRECIATION RIGHTS
In March 1998, the Company granted Stock Appreciation Rights ("SAR's") on 30,000
shares of the Company's common stock to a non- employee. Two-thirds of the SAR's
are contingent upon the successful completion of certain objectives and the
remaining 10,000 SAR's vested immediately. The base price of the SAR's is $.51
per share with the maximum stock appreciation attaching to the SAR's of $1.50
per share. The SAR's expired in March 2000. During 1999, the Company's stock
price per share did not exceed the SAR's base price of $.51 per share and
therefore the Company did not recognize any compensation expense.
37
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS 123, "Accounting for Stock-Based Compensation", requires the Company to
provide pro forma information regarding net loss as if compensation costs for
the Company's stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS 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:
Years Ended December 31,
1999 1998
---- ----
Dividend Yield 0% 0%
Expected volatility 72% 153%
Risk-Free interest rates 5.9% 5.5%
Expected lives in years 5 years 5 years
Under the accounting provisions of SFAS 123, the Company's net loss and net loss
per share would have been adjusted to the following pro forma amounts:
Years Ended December 31,
1999 1998
---- ----
Net loss from continued operations:
As reported $ (462,000) $ (1,101,000)
Pro forma (465,000) (1,112,000)
Net loss per share:
Basic and diluted
As reported $ (.07) $ (.47)
Pro forma $ (.07) $ (.46)
38
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock option plans and outstanding
warrants as of December 31, 1999 and 1998 and changes during the years ended on
those dates is presented below:
1999 1998
-------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Outstanding 191,600 $ .99 248,100 $ 1.05
Granted 65,000 .10 25,000 .50
Exercised -- -- -- --
Canceled (44,600) .82 (81,500) 1.01
-------- ----- -------- -----
Outstanding,
end of year 212,000 $ .75 191,600 $ .99
======== ===== ======== =====
Options and warrants
exercisable, end
of year 138,600 1.07 162,900 .70
======== ===== ======== =====
Weighted average fair
value of options
and warrants granted
during the year $ .04 $ .50
===== =====
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999.
Options/Warrants
Options/Warrants Outstanding Exercisable
------------------------------------ ----------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
December 31, 1999
$ .10 65,000 4.8 yrs $ .10 -- $ --
$ .50 10,000 3.5 yrs $ .50 2,000 $0.50
$1.00-1.06 112,000 1.4 yrs $1.04 111,600 $1.04
$1.25 25,000 2.2 yrs $1.25 25,000 $1.25
------- -------
$ .10-1.25 212,000 $1.07 138,600 $1.07
======= ===== ======= =====
39
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average grant date fair value of stock options and warrants granted
is summarized as follows:
Years Ended December 31,
1999 1998
---- ----
Market value equal to exercise
price $ -- $ --
Market value greater than exercise
price -- .56
Market value less than exercise
price .04 .41
10. COMMITMENTS AND CONTINGENCIES
(a) LEASE COMMITMENTS
The Company rents office and laboratory facilities, and equipment under various
operating leases. Total rental expenses under such leases amounted to $672,000
and $723,000 for the years ended December 31, 1999 and 1998, respectively. At
December 31, 1999, future minimum rental payments required under operating
leases that have initial or remaining noncancellable terms in excess of one year
are as follows:
Year ending December 31, 2000 $ 577,000
2001 462,000
2002 249,000
2003 252,000
2004 258,000
Thereafter 64,000
----------
$1,862,000
==========
(b) 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. These irregularities were reported by the Company to the relevant
enforcement departments of the Environmental Protection Agency ("EPA").
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,
and that no liability will be incurred.
40
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) EMPLOYMENT AGREEMENTS
The Company has entered into an agreement with a finance and accounting
independent contractor which includes compensation of $2,500 per week. Also
included is a cash bonus incentive and Stock Appreciation Rights for 30,000
shares of the Company's common stock upon completion of agreed upon assignments
(expired in March 2000) and warrants to purchase 10,000 shares of the Company's
common stock exercisable at $.28 per share until March 2002. These warrants have
not been granted.
(d) SELF INSURANCE
The Company's medical plan is self insured. The Company has stop gap insurance
on an individual participant basis of $12,000 and approximately $110,000 on an
annual aggregate claim basis.
(e) LITIGATION
The Company is subject from time to time to legal proceedings and claims which
arise in the ordinary course of its business. The Company believes that the
final disposition of any such matters will not have a material adverse affect on
its financial position, results of operations or liquidity.
11. MAJOR CUSTOMERS
In 1999, one customer accounted for more than 10% individually and approximately
19% in the aggregate of the Company's total revenues. In 1998, three customers
accounted for more than 10% individually and approximately 40% in the aggregate
of the Company's total revenues in 1998.
12. DISCONTINUED OPERATIONS
Effective September 30, 1999, the Company disposed of its mineralogical and
geochemical testing business segment. Accordingly, this segment has been
presented as a discontinued operation as of and for the year ended December 31,
1999. The balance sheet as of December 31, 1998 and the statement of operations
for the year ended December 31, 1998 have been restated to conform to this
presentation.
Revenues from the mineralogical and geochemical testing business segment for the
nine months ended September 30, 1999 and year ended December 31, 1998 were
$1,252,000 and $2,559,000, respectively.
For the nine months ended September 30, 1999 and year ended December 31, 1998,
the Company recognized a loss from the discontinued operation of approximately
$1,247,000 and $309,000, respectively. During the year ended December 31, 1999,
the Company recorded a loss on disposal of the business segment of $1,086,000
which primarily represents payments on leases until terminated, transferred or
sublet; costs to remodel, clean and maintain the facility; reserve for account
receivables; and write down of fixed assets and other assets to net realizable
value.
41
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the discontinued business segment, effective October 15,
1999, the Company entered into an agency agreement with Inspectorate Griffith
USA, Inc. ("Inspectorate"). Under the terms of the agreement, the Company
transferred all of its mineral testing 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 the payments received by Inspectorate pursuant to the contracts for a
period of three years. No commission has been recorded or received from
Inspectorate as of December 31, 1999. In addition Inspectorate has hired certain
of the Company's employees and has acquired certain fixed assets at fair market
value.
As of December 31, 1999 no commissions have been received by the Company.
At December 31, 1999 and 1998, net assets of the discontinued business segment,
retained by the Company following the transfer to Inspectorate, consisted of the
following:
December 31,
1999 1998
---- ----
Assets:
Trade receivables, $ 69,000 $ 428,000
Prepaid expenses and other 29,000 133,000
Property and equipment, net 21,000 116,000
Other assets 26,000 69,000
--------- ---------
Total Assets 145,000 746,000
--------- ---------
Liabilities:
Trade accounts payable 186,000 52,000
Accrued liabilities 586,000 185,000
--------- ---------
Total Liabilities 772,000 237,000
--------- ---------
Net Assets / (Liabilities) of
Discontinued Operations $(627,000) $ 509,000
========= =========
13. BUSINESS SEGMENTS AND GEOGRAPHIC AREA 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 and
related information for the years ended December 31, 1999 and 1998, is as
follows:
42
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 1998
---- ----
Environmental - Continuing
Operations
Sales of Services $ 4,044 $ 3,681
Costs and Expenses $ 3,621 $ 3,208
Operating Profit $ 423 $ 473
Mineral - Discontinued
Operations
Sales of Services $ 1,252 $ 2,559
Costs and Expenses $ 2,499 $ 2,868
Operating Loss $(1,247) $ (309)
Corporate
Costs and Expenses $ 793 $ 1,587
Operating Loss $ (793) $(1,587)
Consolidated
Sales of Services $ 5,296 $ 6,240
Costs and Expenses $ 6,913 $ 7,663
Operating Loss
From Discontinued
Operations $(1,247) $ (309)
Operating Loss
From Continuing
Operations $ (370) $(1,114)
43
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's operations by geographic area for the years ended
December 31, 1999 and 1998, is as follows:
1999 1998
---- ----
Total sales of services
United States $ 4,390,000 $ 3,941,000
Mexico 537,000 503,000
Nicaragua 4,000 1,122,000
Peru 245,000 177,000
Spain 110,000 380,000
Colombia 10,000 117,000
Discontinued Operations (1,252,000 (2,559,000)
----------- -----------
Total-Continuing Operations $ 4,044,000 $ 3,681,000
=========== ===========
Loss from operations
before income taxes and after
minority interest in loss of
subsidiary
United States (includes loss
for Spain and Colombia) $(2,373,000) $(1,020,000)
Mexico (186,000) (156,000)
Nicaragua (66,000) (82,000)
Peru (170,000) (165,000)
Discontinued Operations 2,425,000 309,000
----------- -----------
Total $ (370,000) $(1,114,000)
=========== ===========
Long-lived Assets
United States $ 133,000 $ 259,000
Mexico 39,000 25,000
Nicaragua -- 23,000
Peru -- 38,000
Eliminations (17,000) (17,000)
Discontinued Operations (22,000) (116,000)
----------- -----------
Totals $ 133,000 $ 212,000
=========== ===========
Substantially all of the Company's International business pertained to the
discontinued mineral operations.
During 1999, sales to three customers represented approximately $758,000,
$393,000 and $314,000 of the Company's total sales. At December 31, 1999,
accounts receivable from these customers totaled $212,000, $36,000 and $99,000.
For the year ended December 31, 1999 and 1998, sales from significant customers
consisted of the following:
1999 1998
---- ----
A -- % 18.0% (Foreign Sales)
B 18.7 11.6
C 9.7 10.4
D 7.7 --
44
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company made cash payments for interest of $87,000 and $9,000 in 1999 and
1998.
The Company made no cash payments for income taxes in 1999 and in 1998.
Supplemental disclosure of non-cash investing and financing activities:
Years Ended December 31,
1999 1998
---- ----
Common stock issued for subscription
receivable $ -- $ 255,000
Common stock issued for acquisition
of certain assets of Shasta
Laboratories, Inc. -- 39,000
Capital lease obligations entered into
for property and equipment -- 97,000
Issuance of common stock in
satisfaction of shares to be issued
at December 31, 1998 575,000 --
15. SUBSEQUENT EVENTS
During March 2000, the Company's certificate of incorporation was amended to
increase the authorized number of shares of common stock from 10,000,000 to
50,000,000.
Through April 15, 2000, the Company issued an additional $227,000 of convertible
notes payable for working capital needs. During April 2000, $600,000 of the
convertible subordinated notes were converted into 10,000,000 shares of common
stock.
45
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART II
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND CONSOLIDATED FINANCIAL DISCLOSURE
Not applicable.
46
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Director
Name Position with the Company Since
---- ------------------------- --------
J. Graham Russell ................... Director, President and 1997
Chief Executive Officer
of the Company
R. Scott Asen ....................... Director of the Company 1996
J. Graham Russell, 53, 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.
R. Scott Asen, 55, 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.
The 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.
47
<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, 1999 for the Chief
Executive Officer and the executive officers whose total cash and non-cash
compensation exceeded $100,000 and for their prior two years remuneration.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation ---------------------------------
------------------------------- Awards Payouts
Other ----------------------- -------
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal sation Award(s) Option/ Payouts sation
Position Year(1) Salary($) Bonus($) ($) ($) SARs(#)(2) ($) ($)(3)
- --------- ------- --------- -------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Graham Russell 1999 110,000 -- 15,000 N/A -- N/A 11,484
President/CEO(4) 1998 155,000 -- N/A N/A -- N/A N/A
1997 7,692 -- N/A N/A -- N/A N/A
John S. Lovell (5) 1999 94,184 -- N/A N/A -- N/A 8,108
Chief Technical 1998 90,000 -- N/A N/A 15,000 N/A N/A
Officer and 1997 29,800 -- N/A N/A -- N/A N/A
Secretary
Vern Peterson 1999 58,235 -- N/A N/A -- N/A 28,333
Vice President(6) 1998 104,501 -- N/A N/A -- N/A 3,734
1997 94,370 10,000 23,662 N/A 18,000 N/A 7,468
</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 and 401K.
(4) Mr. Russell joined the Company on December 8, 1997. Mr. Russell's salary
for fiscal year 1998 was $155,000. Mr Russell's salary for fiscal year 1999
was $110,000 cash and $15,000 in common stock.
(5) Dr. Lovell was acting president and CEO for the Company from September 22,
1997 to December 7, 1997. Dr. Lovell resigned from the Company on October
6, 1999.
(6) Other annual compensation for 1997 was a result of Mr. Peterson selling
16,400 shares of common stock, which he had acquired through exercising
incentive stock options during 1997. Other compensation for 1999 includes
employer contributions for health insurance and payment for earned
vacation. Mr. Peterson's employment terminated with the Company on January
27, 1999.
48
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
---------------------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise
SARs Employees in or Base Expiration
Name Granted Fiscal Year Price($/Sh) Date
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None
</TABLE>
AGGREGATE OPTIONS EXERCISED IN 1999 AND OPTION VALUES AT DECEMBER 31, 1999.
The following table sets forth certain information regarding options to purchase
shares of the Company's common stock exercised during the Company's 1999 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 1999 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>
None
</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 and the
option exercise price per share multiplied by the number of shares subject
to options.
STOCK OPTIONS
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. At December 31, 1999 and 1998, options to purchase
2,000 and 3,600 respectively shares of common stock are exercisable under this
plan. The Plan was terminated in December 1999, except for outstanding options
under the plan, which will remain in effect until they have been exercised or
have expired by their terms.
49
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
1997 LONG-TERM INCENTIVE PLAN
The 1997 Long-Term Incentive Plan ("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. 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 is administered by the
Board of 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 have 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 are
determined by the Board of Directors, 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 options for 65,000 shares of common stock
granted under this plan in 1999, all of which remained outstanding as of
December 31, 1999. There were no options granted under this plan in 1998.
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, 1999, all non-qualified stock
options have been granted at an exercise price at or in excess of the current
market value at the time of grant.
During 1998, stock options to purchase 81,500 shares expired and were cancelled
and stock options to purchase 25,000 shares of common stock at an exercise price
of $.50 per share were granted. During 1999 stock options to purchase 15,000
shares expired and were canceled and no stock options were granted. As of
December 31, 1999 and 1998, non-qualified stock options to purchase 32,000 and
37,500 shares of common stock, respectively, were exercisable.
50
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
NON-EMPLOYEE DIRECTORS PLAN
The Non-Employee Directors Stock Option 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. Under the
Non-Employee Directors Plan, each non-employee director was to be granted a
stock option to purchase 1,000 shares of common stock. In addition, each
non-employee director was to be granted a stock option to purchase 1,000 shares
of common stock effective as of each anniversary date after the initial grant of
a stock option to such director. Each stock option granted under the
Non-Employee Directors Plan was to 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 was to be 100% of the fair market value of the common
stock on the date of grant of the option. No options have been granted under
this plan. Presently, Mr. Asen is the only non-employee director of the Company
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".
COMPENSATION OF DIRECTORS
The non-employee directors were granted 25,000 shares of common stock plus
reimbursement of expenses in 1998. The shares of common stock were issued in
February 1999. Directors were not granted any shares of common stock in 1999.
51
<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 April 13, 2000, 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 April 13, 2000, there were 16,803,180 shares of
the Company's common stock issued and outstanding, 107,000 outstanding options
to purchase the Company's common stock, and 105,000 outstanding warrants to
purchase the Company's common stock.
Number of Shares Percent
Name of Beneficial Owner of Common Stock of Class
- ------------------------ ---------------- --------
J. Graham Russell 935,308 5.4
Barringer Laboratories, Inc.
15000 W. Sixth Ave., Suite 300
Golden, Colorado 80401
R. Scott Asen(1)(2)(3)(4)(5) 11,064,961 65.0
Asen and Co., Inc.
224 East 49th St.
New York, NY 10017
J. Francis Lavelle (6) 2,549,635 14.9
The Nassau Group, Inc.
18 Kings Hwy, North
Westport, CT 06880
AB Associates LP (5) 1,372,222 8.0
224 East 49th Street
New York, NY 10017
Shares beneficially owned by
Directors and Executive
Officers as a group 12,000,269 71.1
(1) Includes 150,259 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.
(2) Includes 328,331 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.
52
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
(3) Includes 328,331 shares of the Company's common stock held by an account
titled "Woodmere Court Investments". Mr. Asen manages this account and
disclaims beneficial ownership of all shares owned by this account.
(4) Includes 163,890 shares of the Company's common stock held by an account
titled "Nicole Miller & Kim Taipale JT Ten". Mr. Asen manages this account
and disclaims beneficial ownership of all shares owned by this account.
(5) Includes 1,372,222 shares of the Company's common stock held by an account
titled, "AB Associated LP". Mr. Asen manages this account and disclaims
beneficial ownership of all shares owned by the partnership except those
shares in which he has a pecuniary interest. That number of shares will be
determined by the final performance of the partnership.
(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 as 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, 1999 and 1998, all warrants have been issued.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
The shares were issued at prices less than the market price per share on the
effective dates. The difference between the per share transaction prices, as
adjusted for dilution, and the issuance price has been recorded as a $183,000
and a $92,000 non-cash charge, respectively, and are included in Selling,
General and Administrative Expenses in the Consolidated Statements of Operations
for the year ended December 31, 1998. Among the subscribers of the two
placements were three members of the Company's board of directors, two of whom
had already been significant shareholders. Mr. Asen purchased 2,262,500 shares
for $513,750, and Mr. Russell purchased 333,333 shares for $70,000.
53
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
From October 1999 through December 31, 1999, the Company entered into
subordinated agreements with certain shareholders to issue $373,000 to
convertible notes, with the option to increase the offering to a total of
$500,000. In January 2000, the Company increased the offering from $500,000 to
$700,000 with the same terms and conditions. The notes are convertible into
shares of restricted common stock at $.06 per share. Additional subordinated
convertible notes totaling $227,000 were issued in 2000, convertible into common
stock with the same terms and conditions. In April 2000, the $600,000 in notes
was converted into 10,000,000 shares of common stock. Mr. Asen purchased
$510,000 of notes and Mr. Russell purchased $30,000 of notes. These two
directors of the Company participated in the offering on the same terms as other
stockholders. For information concerning the stock ownership of the Company's
Directors, see Item 11 of this report, Security Ownership of Certain Beneficial
Owners And Management.
54
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed Herewith or Incorporated by Reference to Previous Filings
with the Securities and Exchange Commission:
1. The following exhibits were filed with Registration Statement No.
33-31626 on Form S-1, declared effective by the Securities and
Exchange Commission on December 20, 1989, and are incorporated herein
by reference:
Exhibit No. Description
---------- -----------
3.1A Articles of Incorporation of the Company.
3.1B Bylaws of the Company.
2. The following exhibit was filed with the Form 1 KSB for the fiscal
year ended December 31, 1994 8-K and is incorporated herein by
reference:
Item 601, Reg. S-B
Exhibit No. Description Cross-Reference
---------- ----------- ------------------
10.26 The Company's 401(k) Savings (4)
Plan as restated October 28, 1994.
3. The following exhibit was filed with the Form 8 Current Report dated
December 21, 1995 and is incorporated herein by reference:
55
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
Exhibit No. Description
---------- -----------
10.27 Stock Purchase Agreement between Barringer
Laboratories, Inc. and Barringer Technologies, Inc.
dated December 8, 1995.
4. The following exhibit was filed with the Form 8 Current Report dated
October 9, 1996 and is incorporated herein by reference:
Exhibit No. Description
---------- -----------
10.51 Termination Agreement by and between Barringer
Laboratories, Inc. and Barringer Technologies Inc.
dated October 7, 1996.
5. The following exhibits were filed with the Registration Statement on
Form S-8 filed on January 22, 1997 and are incorporated herein by
reference:
Exhibit No. Description
---------- -----------
4.1 1989 Incentive Stock Option Plan of th Registrant.
4.2 Form of Non-Qualified Stock Option Agreement.
4.3 Rumler Stock Option Agreement dated April 17, 1996.
6. The following exhibits were filed with the Schedule 14A Proxy
Statement filed on June 20, 1997 and are incorporated herein by
reference:
Item 601, Reg. S-B
Exhibit No. Description Cross-Reference
---------- ----------- ------------------
A 1997 Long-term Incentive Plan. (4)
B Non-employee Directors' Stock (4)
Option Plan
7. The following exhibits were filed with the Form 8-K Current Report
dated May 19, 1998 and are incorporated herein by reference:
56
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
Item 601, Reg. S-B
Exhibit No. Description Cross-Reference
---------- ----------- ------------------
2 Registration Rights Agreement, (10)
dated as of April 13, 1998,among
the Company, J. Francis Lavelle; R.
Scott Asen; J. Graham Russell; NMBM
Investment Group; AB Associates LP;
Asen and Co., Inc.; FBO SDFJ, Inc.;
Dean Witter Reynolds C/F David V.
Foster IRA Rollover DTD 2/17/95;
Victoria Street; Woodmere Court
Investments; Nicole Miller; Kim
Taipale; and Gregory A. Beard.
3 Agreement, dated April 13, 1998, (10)
for Reimbursement by Company to R.
Scott Asen and J. Francis Lavelle
of Expenses of Investments in
Company
8. The following exhibit was filed with the Form 8 Current Report dated
December 17, 1998 and is incorporated herein by reference:
Item 601, Reg. S-B
Exhibit No. Description Cross-Reference
---------- ----------- ------------------
98.10 Assets Purchase Agreement by and (10)
among Shasta Geochemistry
Laboratory, Inc., Charles R.
Whipple, Russell G. Whipple and
Chipps S. Whipple and the Company.
9. The following exhibits were filed with the Form 8-K Current Report dated
July 23, 1999 and are incorporated herein by reference:
Exhibit No. Description
---------- -----------
10.1 General Credit and Security Agreement this Agreement,
dated as of May 25, 1999, between SPECTRUM Commercial
Services and the Company.
10.2 Revolving Note, $750,000 principal amount, made May 25,
1999 by the Company payable to SPECTRUM COMMERCIAL
SERVICES.
57
<PAGE>
BARRINGER LABORATORIES, INC. AND SUBSIDIARIES
PART III
10. The following exhibits were filed with the Form 8-K Current Report dated
March 3, 2000 (regarding a financing by the Company involving the issuance
of convertible notes and stock) and are incorporated herein by reference:
Exhibit No. Description
---------- -----------
10.4 Form of Convertible Note of the Compan issued to
Investors
10.5 Form of Security Agreement between the Company and
Investors.
10.6 Form Registration Rights Agreement between the Company
and Investors.
11. The following exhibit was filed with the Form 8-K Current Report dated
March 3, 2000 (regarding the transfer of the Company's contracts and
customers relating to the minerals and metallurgical analytical services
performed by the Company) and is incorporated herein by reference:
Exhibit No. Description
---------- -----------
10.3 Agency Agreement between Inspectorate Griffith USA,
Inc. and the Company.
12. The following exhibits are filed herewith:
Exhibit No. Description
---------- -----------
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
(b) Reports on Form 8-K Filed During the Fourth Fiscal Quarter:
No reports on Form 8-K were filed by the Company during the fourth quarter
of its fiscal year ended December 31, 1999.
58
<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: May 12, 2000
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 May 12, 2000
- -----------------------
J. Graham Russell Chief Executive Officer
(Principal Executive
Officer)
/s/ R. Scott Asen Director May 12, 2000
- -----------------------
R. Scott Asen
59
<PAGE>
INDEX TO EXHIBITS
Exhibit 21 Subsidiaries of the Registrant
Exhibit 27 Financial Data Schedule
SUBSIDIARIES OF THE REGISTRANT
Barringer Laboratories de Mexico S.A. de C.V.
Barringer Laboratories, de Nicaragua S.A.
Barringer Laboratories Del Peru S.A.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 92,000 173,000
<SECURITIES> 0 0
<RECEIVABLES> 705,000 636,000
<ALLOWANCES> 116,000 13,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 889,000 1,687,000
<PP&E> 2,187,000 2,139,000
<DEPRECIATION> (2,054,000) (1,927,000)
<TOTAL-ASSETS> 1,056,000 2,081,000
<CURRENT-LIABILITIES> 2,459,000 734,000
<BONDS> 0 0
0 0
0 0
<COMMON> 68,000 34,000
<OTHER-SE> (1,471,000) 1,313,000
<TOTAL-LIABILITY-AND-EQUITY> 1,056,000 2,081,000
<SALES> 4,044,000 3,681,000
<TOTAL-REVENUES> 4,044,000 3,681,000
<CGS> 2,969,000 2,730,000
<TOTAL-COSTS> 4,414,000 4,795,000
<OTHER-EXPENSES> (92,000) (13,000)
<LOSS-PROVISION> 1,000 24,000
<INTEREST-EXPENSE> 87,000 11,000
<INCOME-PRETAX> (462,000) (1,101,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (462,000) (1,101,000)
<DISCONTINUED> (2,333,000) (295,000)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,795,000) (1,396,000)
<EPS-BASIC> (.42) (.57)
<EPS-DILUTED> (.42) (.57)
</TABLE>
