-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OlIlcVqJn4iU8GhP+J0o0FDDv2Ilw2rJAnvjhjSnWe/MyKxAh5bI2h3G4LCYVvis xS0ZRE+Y25E/mFBIIURbGQ== 0000905718-98-000330.txt : 19980814 0000905718-98-000330.hdr.sgml : 19980814 ACCESSION NUMBER: 0000905718-98-000330 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARRINGER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000010119 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 840720473 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-03207 FILM NUMBER: 98685766 BUSINESS ADDRESS: STREET 1: 219 SOUTH STREET CITY: NEW PROVIDENCE STATE: NJ ZIP: 07974 BUSINESS PHONE: 9086658200 MAIL ADDRESS: STREET 1: 219 SOUTH STREET CITY: NEW PROVIDENCE STATE: NJ ZIP: 07974 FORMER COMPANY: FORMER CONFORMED NAME: BARRINGER RESOURCES INC DATE OF NAME CHANGE: 19910331 FORMER COMPANY: FORMER CONFORMED NAME: BARRINGER RESEARCH INC DATE OF NAME CHANGE: 19800821 10QSB 1 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR - ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to Commission file number 0-3207 Barringer Technologies Inc. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) Delaware 84-0720473 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION INCORPORATION) NUMBER) 219 South Street, Murray Hill, New Jersey 07974 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (908) 665-8200 (Issuer's telephone number) (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common stock, $0.01 par value - outstanding as of August 12, 1998 - 7,851,297 shares Transitional Small Business Disclosure Format (check one): Yes ; No X BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES INDEX Page No. Part IFinancial Information Item 1. Financial Statements - Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 3 - Consolidated Statements of Operations (unaudited) for the three months and six months ended June 30, 1998 and 1997 5 - Consolidated Statements of Cash Flows (unaudited) for the three months and six months ended June 30, 1998 and 1997 6 - Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis or Plan of Operations 10 Part II Other Information: Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Index to Exhibits 17 Part I. Financial Information Item 1. Financial Statements BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS JUNE 30, DEC. 31, 1998 1997 (unaudited) Current assets: Cash and cash equivalents $20,899,000 $8,188,000 Marketable securities 17,128,000 2,499,000 Accounts receivable, less allowances of $213,000 and $109,000 5,516,000 7,908,000 Inventories 3,814,000 3,049,000 Prepaid expenses and other 835,000 887,000 Deferred tax asset 2,056,000 1,506,000 --------------- ----------------- Total current assets 50,248,000 24,037,000 Property and equipment 1,811,000 1,505,000 Other assets 831,000 66,000 --------------- ----------------- Total assets $52,890,000 $25,608,000 =============== ================= See notes to consolidated financial statements. BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30, DEC. 31, 1998 1997 (unaudited) Current liabilities: Accounts payable $1,767,000 $1,324,000 Accrued liabilities 651,000 473,000 Accrued payroll and related taxes 1,060,000 1,520,000 Accrued commission payable 191,000 801,000 Foreign income tax payable 3,000 255,000 ------------ ---------- Total current liabilities 3,672,000 4,373,000 Other non-current liabilities 150,000 121,000 ------------ ---------- Total liabilities 3,822,000 4,494,000 ------------ ---------- Shareholders' equity: Convertible preferred stock, $1.25 par value, 1,000,000 shares authorized, none outstanding Preferred stock, $2.00 par value, 4,000,000 shares authorized: 270,000 shares designated class A convertible preferred stock, 38,616 and 45,146 shares outstanding less discount of $30,000 and 47,000 55,000 $35,000, respectively 730,000 shares designated class B convertible preferred stock, 22,500 shares outstanding 45,000 45,000 Common stock, $.01 par value, 20,000,000 shares authorized, 7,851,000 and 5,495,000 shares outstanding, respectively 79,000 55,000 Additional paid-in capital 55,609,000 30,209,000 Accumulated deficit (6,164,000) (8,780,000) Foreign currency translation (535,000) (457,000) ------------ ------------ 49,081,000 21,127,000 Less: common stock in treasury at cost, 31,000 shares (13,000) (13,000) ------------ ------------ Total shareholders' equity 49,068,000 21,114,000 ----------- ------------ Total liabilities and shareholders' equity $52,890,000 $25,608,000 =========== ============= See notes to consolidated financial statements.
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS,EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------- -------------- ------------ --------------- Revenues $5,188 $5,816 $11,135 $9,438 Cost of revenues 1,978 2,494 4,412 3,955 ------------- -------------- ------------ --------------- Gross profit 3,210 3,322 6,723 5,483 ------------- -------------- ------------ --------------- Operating expenses: Selling, general and administrative 2,095 1,905 3,791 3,200 Product development 423 163 785 338 Write-off of acquired technology 435 - 435 - ------------- -------------- ------------ --------------- 2,953 2,068 5,011 3,538 ------------- -------------- ------------ --------------- Operating income 257 1,254 1,712 1,945 ------------- -------------- ------------ --------------- Other income (expense): Interest income 485 115 635 212 Other, net (62) (10) (76) (28) ------------- -------------- ------------ --------------- 423 105 559 184 ------------- -------------- ------------ --------------- Income before income tax benefit 680 1,359 2,271 2,129 Income tax benefit 150 56 350 131 ------------- -------------- ------------ --------------- Net income 830 1,415 2,621 2,260 Preferred stock dividends (2) (3) (5) (6) ------------- -------------- ------------ --------------- Net income attributable to common $ 828 $1,412 $2,616 $2,254 stockholders ============= ============== ============ =============== Per share data (note 4): Basic earnings per common share $ 0.11 $ 0.26 $ 0.40 $ 0.42 ============= ============== ============ =============== Diluted earnings per common share $ 0.10 $ 0.22 $ 0.35 $ 0.36 ============= ============== ============ =============== Weighted average common and common equivalent shares outstanding: Basic 7,710 5,453 6,624 5,423 ============= ============== ============ =============== Diluted 8,435 6,327 7,426 6,205 ============= ============== ============ ===============
See notes to consolidated financial statements.
BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) Three Months Six Months Ended Ended June 30, June 30, ------------ ------------- ------------- ----------- OPERATING ACTIVITIES 1998 1997 1998 1997 ------------ ------------- ------------- ----------- Net Income $830 $1,415 $2,621 $2,260 Items not affecting cash: Depreciation and amortization 126 40 226 80 Deferred tax benefit (250) (175) (550) (300) Inventory and accounts receivable reserves (62) 94 104 94 Write-off of acquired technology 435 - 435 - Other (73) 41 (73) (13) Decrease (increase) in non-cash working capital balances 2,192 (1,411) 517 (3,416) ------------ ------------- ------------- ---------- Cash provided by (used in) operating 3,198 4 3,280 (1,295) activities ------------ ------------- ------------- ---------- INVESTING ACTIVITIES Purchase of equipment and other (154) (140) (458) (513) Purchase of DigiVision and related costs (821) (821) Sale (purchase) of marketable securities (16,628) 821 (14,629) 273 ----------- ------------ ------------- --------- Cash provided by (used in) investing (17,603) 681 (15,908) (240) activities ------------ ------------ ------------- --------- FINANCING ACTIVITIES Proceeds on sale of common stock, net of $2,393 25,207 - 25,207 - of offering costs Warrant and option exercises 99 167 204 335 Payment of dividends on preferred stock (5) (6) (5) (6) Reduction in bank debt and other (67) - (67) (174) ----------- ------------ ------------ ---------- Cash provided by financing activities 25,234 161 25,339 155 ----------- ------------ ------------ ---------- Increase (decrease) in cash and cash equivalents 10,829 846 12,711 (1,380) Cash and cash equivalents at beginning of period 10,070 3,050 8,188 5,276 ----------- ------------ ------------ ---------- Cash and cash equivalents at end of period $20,899 $3,896 $20,899 $ 3,896 =========== ============ ============ ========== CHANGES IN COMPONENTS OF NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATIONS Accounts receivable $2,046 $(1,377) $2,350 $(2,925) Inventories (198) (774) (573) (1,154) Other current assets 130 (257) 70 3 Accounts payable and accrued liabilities 214 997 (1,330) 660 ------------ ------------- ------------- --------- Decrease (increase) in non-cash working capital $2,192 $(1,411) $517 $(3,416) balances ============ ============= ============= ========= Cash paid during the period for interest - - - $2 ============ ============= ============= ========= Cash paid during the period for income taxes $156 $8 $201 $158 ============ ============= ============= =========
See notes to consolidated financial statements. BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the Company, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position of the Company as of June 30, 1998 and the results of its operations and its cash flows for the three months and six months ended June 30, 1998 and 1997, respectively. The accounting policies followed by the Company are set forth in the Notes to Consolidated Financial Statements in the audited consolidated financial statements of Barringer Technologies Inc. and Subsidiaries included in its Annual Report on Form 10-KSB for the year ended December 31, 1997. This report should be read in conjunction therewith. The results of operations for the three months and six months ended June 30, 1998 are not necessarily indicative of the results to be expected for any other interim period or for the full year. 2. As a result of the Company's losses in periods prior to 1996, a valuation allowance had been provided for a portion of the U.S. and Canadian deferred tax assets. The U.S. valuation allowance was reduced by $250,000 and $550,000 for the three months and six months ended June 30, 1998, respectively, which created a deferred tax benefit of an equivalent amount. Based on historical results and estimated 1998 earnings, as well as available tax planning strategies, management considers realization of the unreserved deferred tax asset more likely than not. Additional reductions to the valuation allowance will be recorded when, in the opinion of management, the Company's ability to generate taxable income sufficient to reduce additional amounts of the valuation allowance is considered more likely than not. 3. On March 13, 1998, the Company established a $5.0 million unsecured credit facility with Fleet Bank, N.A. (the "Bank") to be used for general working capital purposes, including the issuance of standby letters of credit (the "Facility"). Borrowings under the Facility may not be used to fund acquisitions unless approved in advance by the Bank. Amounts drawn under the Facility bear interest at a variable rate per annum selected by the Company and equal to either the Bank's prime rate less 0.75% or LIBOR (determined on the basis of a 30-, 60- or 90-day interest period, as applicable) plus 2.0%. The Facility expires on June 30, 1999 and is subject to renewal. The Facility is guaranteed by the Company's primary U.S. subsidiary, Barringer Instruments Inc. ("BII"). Pursuant to the Facility, the Company and BII are required to comply with certain customary covenants, including certain financial tests. In addition, BII and the Company's Canadian subsidiary, Barringer Research Limited, have agreed not to pledge their assets to any other creditor without the Bank's prior written consent. At June 30, 1998, $4,800,000 was available under this facility. 4. Basic and diluted earnings per share for the three months and six months ended June 30, 1998 and 1997, respectively, have been computed as follows:
For the three months For the six months ended June 30, 1998 ended June 30, 1998 ------------------------------------------------------------------------------------ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount -------------------------------===========------------------------------------------ Net income for the period $ 830 $ 2,621 Less: Preferred dividend requirements (2) (5) -------------- -------------- Basic Earnings Per Share Income attributable to common shareholders 828 7,710 $ 0.11 2,616 6,624 $ 0.40 =========== =========== Effect of dilutive securities Warrants and options 703 780 Convertible preferred dividend requirements 2 22 5 22 -------------------------- ------------------------------------- Diluted Earnings Per Share Income attributable to common shareholders and assumed conversions $ 830 8,435 $ 0.10 $ 2,621 7,426 $ 0.35 ====================================================================================
For the three months For the six months ended June 30, 1997 ended June 30, 1997 ----------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------------------------------------------------------------------------------- Net income for the period $ 1,415 $ 2,260 Less: Preferred dividend requirements (3) (6) ---------- ------- Basic Earnings Per Share Income attributable to common shareholders 1,412 5,453 $ 0.26 $ 2,254 5,423 $0.42 ======== ======== Effect of dilutive securities Warrants and options 845 753 Convertible preferred dividend requirements 3 29 6 29 ------------------------------- --------------------------------- Diluted Earnings Per Share Income attributable to common shareholders and assumed conversions $ 1,415 6,327 $ 0.22 $ 2,260 6,205 $0.36 ======================================= ========================================
5. In the six months ended June 30, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", (SFAS 130), which requires that all components of comprehensive income and total comprehensive income be reported on one of the following: a statement of income and comprehensive income, a statement of comprehensive income or a statement of stockholders' equity. Comprehensive income is comprised of net income and all changes in stockholders' equity, except those due to investments by stockholders (changes in paid in capital) and distributions to stockholders (dividends). For interim reporting purposes, SFAS 130 requires disclosure of total comprehensive income. Total comprehensive income is as follows:
For the three For the six months ended months ended June 30, June 30, ---------------- ------------------ ------------------ ------------------- 1998 1997 1998 1997 ---------------- ------------------ ------------------ ------------------- Net income $ 830 $ 1,418 $ 2,621 $ 2,265 Other comprehensive income (loss) (principally foreign exchange (75) 72 (78) (2) translation) ---------------- ------------------ ------------------ ------------------- Comprehensive income $ 755 $ 1,490 $ 2,543 $ 2,263 ================ ================== ================== ===================
6. On April 3, 1998, the Company completed the sale of 2,000,000 shares of its common stock through an underwritten public offering, which provided the Company with net proceeds of approximately $22 million. On April 30, 1998, the Company completed the sale of an additional 300,000 shares of its common stock pursuant to the exercise of the underwriters' over-allotment option, which provided the Company with additional net proceeds of approximately $3.2 million. The Company expects to use the net proceeds to increase its sales, marketing and customer support capabilities, to expand its facilities, to pursue possible acquisitions of, or investments in, complementary businesses, products or technologies and for general corporate purposes. 7. On April 30, 1998, the Company acquired all of the outstanding capital stock of DigiVision, Inc. ("DigiVision"), a San Diego-based developer of video enhancement products, for an aggregate cash purchase price of approximately $821,000, including related incurred acquisition costs, in a business combination accounted for as a purchase. DigiVision's results of operations are included in the accompanying financial statements from the acquisition date forward. With respect to this acquisition, DigiVision's results of operations from January 1, 1998 through the acquisition date were not material and accordingly, pro-forma operating results are not presented. Acquired in process research and development projects of DigiVision, which could not be capitalized, were valued at $435,000 and were expensed at the time of the acquisition. The excess of the purchase price (including acquisition related costs) over the fair value of net assets acquired ($778,000) is being amortized over a five year period. Item 2. Management's Discussion and Analysis or Plan of Operation BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth certain income and expense items from the Company's consolidated statements of operations expressed as a percentage of revenues for the periods indicated.
Percentage of Revenues Three months ended Six months ended June 30, June 30, 1998 1997 1998 1997 ------- ---- ---- ------- Statement of operations data: Revenues........................................ 100.0 100.0 100.0 100.0 Cost of revenues................................ 38.1 42.9 39.6 41.9 ------- ----- ----- ----- Gross profit.................................... 61.9 57.1 60.4 58.1 Selling, general and administrative expenses 40.4 32.8 34.1 33.9 Product development............................. 8.2 2.8 7.0 3.6 Write-off of acquired technology................ 8.4 - 3.9 - ------- ----- ----- ----- Operating income ............................... 4.9 21.5 15.4 20.6 Other income (expense), net..................... 8.2 1.8 5.0 1.9 Income tax benefit ............................. 2.9 1.0 3.1 2.3 ------- ----- ----- ----- Net income ..................................... 16.0 24.3 23.5 24.8 Preferred stock dividend requirements........... * * * * ------- ----- ----- ----- Net income attributable to common 16.0 24.3 23.5 24.8 stockholders................................. ======= ===== ===== ===== * less than 0.1%
Comparison of the Three-Month Period Ended June 30, 1998 to the Three-Month Period Ended June 30, 1997 Revenues. For the quarter ended June 30, 1998, revenues decreased by approximately $600,000, or 10.8%, to $5.2 million from $5.8 million for the quarter ended June 30, 1997. Sales of IONSCAN(R)s and related products decreased by approximately $900,000, or 15.5%, due to a decline in average unit selling price and lower orders for consumables and accessories. The decrease in average selling prices resulted primarily from an increase in the number of IONSCAN(R)s sold to U.S. government agencies, which are at lower unit prices than sales to other customers and competitive pressures in the Company's other markets. During the three-month period ended June 30, 1997, the FAA placed a large stocking order for consumables and accessories in connection with its initial procurement of IONSCAN(R)s. As a result, sales of such consumables and accessories were lower in the three-month period ended June 30, 1998. These decreases were offset in part by revenues of $323,000 generated by DigiVision subsequent to its acquisition during the second quarter of 1998. Sales of specialty instruments were insignificant in both quarters. The Company has placed less emphasis on marketing its specialty instruments and anticipates that revenues from sales of such instruments will continue to be immaterial to the Company's overall results. Revenues derived from funded research and development decreased by approximately $115,000, or 63.9%, in the quarter ended June 30, 1998 as compared to the 1997 period. Funded research and development revenues decreased as a result of a hiatus caused by the wait for the FAA to formally approve an increase in the scope of work of the first phase of a $700,000 FAA project awarded to the Company to design an automated luggage explosives detection system utilizing the Company's trace detection technology. The first phase of this project which involves a proof of concept, including the planned increase in scope, is expected to be completed by the end of the fourth quarter of 1998. Gross Profit. For the quarter ended June 30, 1998, gross profit decreased by approximately $100,000, or 3.4%, to $3.2 million from $3.3 million in the 1997 period. As a percentage of revenues, gross profit increased to 61.9% in the quarter ended June 30, 1998 from 57.1% in the 1997 period. Excluding the effects of DigiVision, gross profit for the first quarter of 1998 decreased by approximately $285,000 compared to the first quarter of 1997, and as a percentage of revenues, gross profit increased to 62.5%. The dollar decrease in gross profit was due primarily to lower revenues during the three months ended June 30, 1998. The increase in gross profit percentage was primarily attributable to reduced production costs resulting from larger, more efficient production runs of the IONSCAN(R) and related reductions in cost of materials due to higher volume purchases. Selling, General and Administrative. For the quarter ended June 30, 1998, selling, general and administrative expenses increased by approximately $191,000, or 10.0%, to $2.1 million from $1.9 million in the 1997 period primarily as a result of the inclusion of DigiVision. As a percentage of revenues, selling, general and administrative expenses increased to 40.4% in the 1998 period from 32.8% in the 1997 period. Selling and marketing expenses decreased by approximately $62,000, primarily due to reduced commission expense. Excluding the effects of DigiVision, selling and marketing expenses would have decreased by approximately $151,000. General and administrative expenses increased by $253,000 primarily as a result of increased payroll and related costs and expenses relating to the Company's recently formed business development group. Excluding the effects of DigiVision, general and administrative expenses increased by approximately $165,000. A significant portion of the expenses relating to the business development group resulted from a shifting of expense from production due to personnel re-alignment. The Company will be adding additional personnel to the business development group and accordingly, expects that general and administrative expenses will increase. Product Development. For the quarter ended June 30, 1998, product development expenses increased by approximately $260,000, or 160%, to $423,000 from $163,000 in the 1997 period. As a percentage of revenues, product development expenses increased to 8.2% for the quarter ended June 30,1998 from 2.8% in the 1997 period as a result of a higher level of internally funded new product development activity and the reduction of funded projects. Excluding the effects of DigiVision, product development increased by $216,000. Management expects to incur increased product development expenses in future periods in connection with the enhancement of existing products and the development of new products and applications. Write-off of Acquired Technology. During the second quarter of 1998, the Company completed the acquisition of DigiVision. In connection therewith, the Company acquired approximately $435,000 of certain technology that was in the research and development stage. The costs related to such technology were expensed at the time of the acquisition. Operating Income. For the quarter ended June 30, 1998, operating income decreased by $997,000, or 79.5%, to $257,000 from $1.3 million in the 1997 period. As a percentage of revenues, operating income decreased to 4.9% from 21.5% in the 1997 period. The decrease was due to the factors described above. Other Income and Expense. For the quarter ended June 30, 1998, interest income increased by $370,000, or 322%, to $485,000 from $115,000 in the 1997 period. The increase was the result of increased interest earned on larger cash and short term investment balances. Income Taxes. For the quarter ended June 30, 1998, the Company had a net tax benefit of $150,000, composed of foreign taxes of $100,000, offset by a $250,000 deferred tax benefit. Such deferred tax benefit was due in part to a reduction in the deferred tax valuation allowance as a result of changes in management's estimates of the utilization of U.S. tax loss carryforwards caused primarily by improved operating results. Management anticipates that further deferred tax benefits will be recognized in future quarters in 1998. Comparison of the Six-Month Period Ended June 30, 1998 to the Six-Month Period Ended June 30, 1997 Revenues. For the six months ended June 30, 1998, revenues increased by approximately $1.7 million, or 18.0%, to $11.1 million from $9.4 million for the six months ended June 30, 1997. Sales of IONSCAN(R)s and related products increased by approximately $1.6 million, or 17.1%, due to a 47.7% increase in unit sales offset in part by a decline in average unit selling price. The decrease in average selling prices resulted primarily from an increase in the number of IONSCAN(R)s sold to U.S. government agencies, which are at lower unit prices than sales to other customers and competitive pressures in the Company's other markets. Sales of specialty instruments were insignificant in both periods. The Company has placed less emphasis on marketing its specialty instruments and anticipates that revenues from sales of such instruments will continue to be insignificant to the Company's overall results. Revenues derived from funded research and development decreased by approximately $181,000, or 57.8%, in the six months ended June 30, 1998 as compared to the 1997 period. Funded research and development revenues decreased as a result of a hiatus caused by the wait for the FAA to formally approve an increase in the scope of work of the first phase of a $700,000 FAA project awarded to the Company to design an automated luggage explosives detection system utilizing the Company's trace detection technology. The first phase of this project which involves a proof of concept, including the planned increase in scope, is expected to be completed during 1998. In addition, DigiVision recorded sales of $323,000 in the period. Gross Profit. For the six months ended June 30, 1998, gross profit increased by approximately $1.2 million or 22.6%, to $6.7 million from $5.5 million in the 1997 period. As a percentage of revenues, gross profit increased to 60.4% in the six months ended June 30, 1998 from 58.1% in the 1997 period. Excluding the effects of DigiVision, gross profit increased by approximately $1.1 million, and as a percentage of revenues, gross profit increased to 60.8%. The increase in gross profit was primarily attributable to increased sales, as well as reduced production costs resulting from larger, more efficient production runs of the IONSCAN(R) and related reductions in cost of materials due to higher volume purchases. Selling, General and Administrative. For the six months ended June 30, 1998, selling, general and administrative expenses increased by approximately $591,000, or 18.5%, to $3.8 million from $3.2 million in the 1997 period. DigiVision accounted for approximately $177,000, or 5.3% of the increase. As a percentage of revenues, selling, general and administrative expenses increased to 34.1% in the 1998 period from 33.9% in the 1997 period. Selling and marketing expenses increased by approximately $67,000. Excluding DigiVision, selling and marketing expenses would have decreased by approximately $21,000. General and administrative expenses increased by $525,000 primarily as a result of increased payroll and related costs and expenses related to the Company's recently formed business development group. Excluding DigiVision, general and administrative expenses increased by approximately $437,000. A significant portion of the expenses relating to the business development group resulted from a shifting of expense from production due to personnel re-alignment. The Company will be adding additional personnel to the business development group and accordingly expects that general and administrative expenses will increase. Product Development. For the six months ended June 30, 1998, product development expenses increased by approximately $447,000, or 132%, to $785,000 from $338,000 in the 1997 period. As a percentage of revenues, product development expenses increased to 7.0% for the six months ended June 30,1998 from 3.6% in the 1997 period as a result of a higher level of internally funded new product development activity and the reduction of funded projects. Excluding DigiVision, product development increased by $403,000. Management expects to incur increased product development expenses in future periods in connection with the enhancement of existing products and the development of new products and applications. Write-off of Acquired Technology. On April 30, 1998, the Company completed the acquisition of DigiVision. In connection therewith, the Company acquired approximately $435,000 of certain technology that was in the research and development stage. The costs related to such technology were expensed at the time of the acquisition. Operating Income. For the six months ended June 30, 1998, operating income decreased by approximately $233,000, or 12.0%, to $1.7 million from $1.9 million in the 1997 period. As a percentage of revenues, operating income decreased to 15.4% from 20.6% in the 1997 period. The decrease was due primarily to the factors described above. Other Income and Expense. For the six months ended June 30, 1998, interest income increased by $423,000, or 200%, to $635,000 from $212,000 in the 1997 period. The increase was the result of increased interest earned on larger cash and short term investment balances. Income Taxes. For the six months ended June 30, 1998, the Company had a net tax benefit of $350,000, composed of foreign taxes of $200,000, offset by a $550,000 deferred tax benefit. Such deferred tax benefit was due in part to a reduction in the deferred tax valuation allowance as a result of changes in management's estimates of the utilization of U.S. tax loss carryforwards caused primarily by improved operating results. Management anticipates that further deferred tax benefits will be recognized in future quarters in 1998. Capital Resources and Liquidity Cash provided by operations was approximately $3.3 million in the six months ended June 30, 1998, and cash used in operations was approximately $1.3 million in the same period in 1997. Cash provided by operations in the six months ended June 30, 1998 resulted primarily from net income of $2.6 million and lower accounts receivable, offset in part by reduced accounts payable and accrued liabilities. Cash used in operating activities in the same period in 1997, resulted primarily from increases in accounts receivable and inventory, which more than offset net income of $2.3 million for the period. Cash used in investing activities was $15.9 million in the six months ended June 30, 1998 and $240,000 in the same period in 1997. Cash used in investing activities in the six months ended June 30, 1998 resulted from the purchase of marketable securities, the acquisition of DigiVision and capital expenditures. Cash used in investing activities in the same period in 1997 resulted from capital expenditures partially offset by the sale of marketable securities. Cash provided by financing activities was $25.3 million in the six months ended June 30, 1998, and $155,000 in the same period in 1997. Cash provided by financing activities in the six months ended June 30, 1998 resulted primarily from the net proceeds of the sale of 2.3 million shares of the Company's common stock in an underwritten public offering. Cash provided by financing activities in the same period in 1997 resulted primarily from the net proceeds of certain option and warrant exercises, offset by the repayment of indebtedness. The Company's capital expenditures in the six months ended June 30, 1998 aggregated approximately $458,000. Such expenditures consisted primarily of fixed assets purchased to support product development projects and computer hardware relating to the modernization of the Company's computer network. The Company believes that it will require approximately $500,000 in additional capital investment in tooling, equipment, and facility improvements for 1998. In March 1998, the Company established a $5.0 million unsecured credit facility with Fleet Bank, N.A. (the "Bank") to be used for general working capital purposes, including the issuance of standby letters of credit (the "Facility"). Drawings under the Facility may not be used to fund acquisitions unless approved in advance by the Bank. Amounts drawn under the Facility bear interest at a variable rate per annum selected by the Company and equal to either the Bank's prime rate less 0.75% or LIBOR (determined on the basis of a 30-, 60- or 90-day interest period, as applicable) plus 2.0%. The Facility expires on June 30, 1999, subject to renewal. The Facility is guaranteed by the Company's primary U.S. subsidiary, Barringer Instruments Inc. ("BII"). Pursuant to the Facility, the Company and BII are required to comply with certain customary covenants, including certain financial tests. In addition, BII and the Company's Canadian subsidiary, Barringer Research Limited, have agreed not to pledge their assets to any other creditor without the Bank's prior written consent. At June 30, 1998, $4.8 million was available under this Facility. On July 7, 1998 the Company announced that its Board of Directors had authorized the repurchase of up to 1,000,000 shares or approximately 12.7% of the Company's outstanding Common Stock. The repurchases will be made from time to time in open market transactions in amounts as determined by the Company's management and will be funded out of the Company's working capital. The Company has tax loss carryforwards to offset future tax liabilities in the U.S. As of June 30, 1998, the Company had cash and cash equivalents of $20.9 million and marketable securities of $17.1 million. The Company believes that its existing cash balances, marketable securities and expected income from operations in future periods will be sufficient to fund its working capital requirements for at least the next twelve months. Inflation Inflation was not a material factor in either the sales or the operating expenses of the Company during the periods presented herein. Year 2000 Issue The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Certain computer programs may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activity. Based on a recent internal assessment, the Company has determined that the cost to modify its existing software and/or to convert to new software will not be significant. However, if customers, suppliers or others with whom the Company does business experience problems relating to the year 2000 issue, the Company's business, financial condition or results of operations could be materially adversely affected. Effects of Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. Due to its recent issuance, the Company is currently reviewing the effects of SFAS No. 133. This standard will be adopted by the Company no later than its year ending December 31, 2000. Disclosure Regarding Forward-Looking Statements This Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used herein, the words "estimate," "project," "believe," "anticipate," "intend," "expect," "plan," "predict," "may," "should," "will," the negative thereof and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which can not be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements herein. Important factors that could contribute to such differences include, but are not limited to, the development and growth of markets for the Company's products, the Company's dependence on and the effect of governmental regulations on demand for the Company's products, the impact of both foreign and domestic governmental budgeting decisions and the timing of governmental expenditures, the reliance of the Company on its IONSCAN(R) products, and the dependence of the Company on its ability to successfully develop and market new product applications, the effects of competition, and the effect of general economic and market conditions, as well as conditions prevailing in the markets for the Company's products. Certain of the factors summarized above are described in more detail in the Company's Registration Statement on Form SB-2 (File no. 333-33129) and the Company's 1997 Annual Report on Form 10-KSB (File No. 0-3207) and reference is hereby made thereto for additional information with respect to the matters referenced above. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligations to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect occurrence of unanticipated events. BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders (a) The 1998 Annual Meeting of Stockholders of the Company was held on May 13, 1998. (b) - (c) The matters voted on at the Annual Meeting of Stockholders and the results of such voting were as follows: 1) Election of Directors
Nominee For Withheld ------- ------------ -------- Stanley S. Binder 5,673,146 0 John H. Davies 5,673,233 0 John J. Harte 5,673,358 0 Richard D. Condon 5,673,358 0 John D. Abernathy 5,672,883 0 James C. McGrath 5,673,358 0
2) Ratification of appointment of BDO Seidman, LLP as independent auditors of the Company's 1998 financial statements FOR: 5,688,720; AGAINST: 8,647; ABSTAIN: 9,756; NOT-VOTED: 1,859,812 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1A The Company's Certificate of Incorporation, as amended (previously filed as Exhibit 3.1A to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (File No. 0-3207) and incorporated herein by reference). 3.2A By-laws of the Company is (previously filed as Exhibit 3.2A to the Company's Annual Report on Form 10-K/A-2 for the fiscal year ended December 31, 1994 (File No. 0-3207) and incorporated herein by reference). 27 Financial Data Schedule. (b) Reports on Form 8-K None BARRINGER TECHNOLOGIES INC. AND SUBSIDIARIES SIGNATURES In accordance with the requirements of the Exchange Act , the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BARRINGER TECHNOLOGIES INC. (Registrant) /S/ STANLEY S. BINDER Stanley S. Binder President, /S/ RICHARD S. ROSENFELD Richard S. Rosenfeld, Chief Financial Officer (Principal Accounting Officer) Date: August 12, 1998 BARRINGER TECHNOLOGIES INC. INDEX TO EXHIBITS Exhibit Number Page No. 27.1 Financial Data Schedule 18 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-QSB FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000010119 BARRINGER TECHNOLOGIES INC. 1000 US 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 20,899 17,128 5,729 213 3,814 50,248 3,446 1,635 52,890 3,672 0 0 92 79 48,897 52,890 11,135 11,135 4,412 5,011 (559) 0 0 2,271 (350) 2,621 0 0 0 2,621 0.40 0.35
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