UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
Commission File Number 0-11353
CIRCUIT RESEARCH LABS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0344671
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2522 West Geneva Drive, Tempe, Arizona 85282
(Address of Principal executive office) (Zip Code)
Registrant's telephone number,
including area code
(602) 438-0888
172743 20 5
(CUSIP Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report.
Outstanding at
Class March 31, 2000
Common stock, $.10 par value 622,682
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 2000 (Unaudited) and
December 31, 1999 2
Consolidated Condensed Statements of
Operations - Three months ended
March 31, 2000 and 1999 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows - Three months ended March 31, 2000
and 1999 (Unaudited) 5
Notes to Consolidated Condensed Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Part II. OTHER INFORMATION:
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52,771 $ 62,597
Securities available-for-sale 383,905
Accounts receivable, less allowance for
doubtful accounts of $5,000 at March
31,2000 and $9,715 at December 31, 1999 60,683 47,662
Inventories:
Raw materials and supplies 146,134 137,247
Work in process 154,825 118,233
Finished goods 286,234 305,725
Total inventories, net of obsolescence reserve
of $379,629 at March 31, 2000 and
December 31, 1999 587,193 561,205
Prepaid expenses and other 58,840 40,219
Total current assets 759,487 1,095,588
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 503,000 503,000
Furniture and fixtures 292,272 285,167
Machinery and equipment 520,958 518,272
Total 1,447,099 1,437,308
Less accumulated depreciation 1,008,912 996,420
Property, plant and equipment - net 438,187 440,888
Deferred acquisition costs 548,215 298,215
TOTAL $1,745,889 $1,834,691
(continued)
2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
2000 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 57,262 $ 70,732
Accrued salaries and benefits 42,676 34,684
Accrued professional fees 33,158 30,933
Customer deposits 19,370 3,623
Other accrued expenses and liabilities 16,059 10,507
Total current liabilities 168,525 150,479
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value - authorized
500,000 shares, none issued
Common stock, $.10 par value - authorized
20,000,000 shares, 622,682 shares issued
at March 31, 2000 and 597,682 shares
issued at December 31, 1999 62,268 59,768
Additional paid-in capital 1,734,974 1,637,474
Deficit (219,878) (13,030)
Total stockholders' equity 1,577,364 1,684,212
TOTAL $1,745,889 $1,834,691
See accompanying notes to consolidated condensed financial statements.
3
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2000 1999
NET SALES $208,068 $374,293
COST OF GOODS SOLD 90,987 243,667
Gross profit 117,081 130,626
OPERATING EXPENSES:
Selling, general and administrative 242,529 167,410
Research and development 97,611 29,348
Severance expense 118,000
Total operating expenses 340,140 314,758
LOSS FROM OPERATIONS (223,059 (184,132)
INTEREST AND OTHER INCOME 16,211 13,608
NET LOSS $(206,848) $(170,524)
LOSS PER COMMON SHARE - Basic and Diluted $(.34) $(.42)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - Basic and Diluted 600,155 410,182
See accompanying notes to consolidated condensed financial statements.
4
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2000 1999
OPERATING ACTIVITIES:
NET LOSS $(206,848) $(170,524)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 12,492 7,570
Loss on sale of assets 393
Changes in assets and liabilities:
Accounts receivable (13,021) (32,306)
Inventories (25,988) 155,240
Prepaid expenses and other assets (18,621) (6,851)
Deferred acquisition costs (250,000)
Accounts payable, accrued expenses
and customer deposits 18,046 115,969
NET CASH (USED IN)PROVIDED BY OPERATING
ACTIVITIES (483,940) 69,491
INVESTING ACTIVITIES:
Proceeds from sale or maturity of securities 383,905 102,630
Purchase of securities (143,616)
Capital expenditures (9,791)
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 374,114 (40,986)
FINANCING ACTIVITIES:
Proceeds from sale of common stock 100,000
Principal payments on long-term debt (10,000)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 100,000 (10,000)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (9,826) 18,505
CASH AND CASH EQUIVALENTSAT BEGINNING OF PERIOD 62,597 128,691
CASH AND CASH EQUIVALENTS AT END OF PERIOD $52,771 $ 147,196
See accompanying notes to consolidated condensed financial statements.
5
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. The Consolidated Condensed Financial Statements included
herein have been prepared by Circuit Research Labs, Inc. ("CRL" or
the "Company"), pursuant to the rules and regulations of the
Securities and Exchange Commission. The Consolidated Condensed
Balance Sheet as of March 31, 2000 and the Consolidated Condensed
Statements of Operations for the three months ended March 31,
2000 and 1999 and the Consolidated Condensed Statements of Cash
Flows for the three months ended March 31, 2000 and 1999 have been
prepared without audit.
Certain information and note disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the
consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
In the opinion of management, the Consolidated Condensed Financial
Statements for the unaudited interim periods presented herein
include all adjustments, consisting only of normal recurring
adjustments, necessary to present a fair statement of the results
of operations for such interim periods. Net operating results for
any interim period may not be comparable to the same interim
period in previous years, nor necessarily indicative of the
results that may be expected for the full year.
2. In calculating the loss per share for the three months ended
March 31, 2000 and 1999, the effects of 671,250 and 14,062 total
shares related to options to purchase common stock were not used
for computing diluted earnings per share because the results would
be antidulitive.
3. On January 5, 2000, the Company announced that it had signed a
letter of intent to acquire one of its competitors, Orban, Inc., a
subsidiary of Harman International Industries, Inc. The purchase
price is $10.5 million, of which $500,000 has been paid. The
transaction is expected to close in the second quarter of 2000.
The Company believes that the remaining funding for the purchase
of Orban Inc. is expected to be provided by a private placement of
equity of Circuit Research Labs, Inc. and a combination of seller
financing and asset based lending. As of May 11, 2000, there is no
assurance that the Company will be able to acquire the necessary
financing. The transaction is subject to the ratification of a
definitive agreement as well as customary closing conditions.
4. During the quarter ended March 31, 2000, the Company completed
a private placement of 25,000 shares of its common stock at a
$4.00 price per share.
6
Item. 2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had net working capital of approximately
$591,000 and the ratio of current assets to current liabilities
was 4.51 to 1 at March 31, 2000. At December 31, 1999, the
Company had net working capital of approximately $945,000 and a
current ratio of 7.28 to 1.
Securities decreased by approximately $384,000. The decrease
was the result of the need for cash to fund operations and a
$250,000 deposit paid during the quarter to Harman International
Industries, Inc. for the purchase of Orban Inc.
Accounts receivable were $61,000 at March 31, 2000 compared
to $48,000 at December 31, 1999, for a net increase of $13,000, or
27%. The increase was the result of a higher percentage of credit
sales versus prepaid sales in the first quarter of 2000 compared
to the fourth quarter of 1999.
Total inventories were $587,000 at March 31, 2000 compared
to total inventories of $561,000 at December 31, 1999.
Deferred acquisition costs of $548,000 at March 31, 2000
and $298,000 at December 31, 1999 relate to the proposed purchase
of one of the Company's competitors, Orban Inc., a subsidiary of
Harman International Industries, Inc. On January 5, 2000, the
Company announced that it had signed a letter of intent to acquire
Orban for a purchase price of $10.5 million, of which $500,000 has
been paid. The transaction is expected to close in the second
quarter of 2000. The total costs deferred relating to this
acquisition are approximately $548,000, including a $500,000 non-
refundable deposit at March 31, 2000. The remaining funding for
the purchase of Orban is expected to be provided by a private
placement of equity of CRL and a combination of seller financing
and asset based lending. As of May 11, 2000, there is no assurance
that the Company will be able to acquire the necessary financing.
The transaction is subject to the ratification of a definitive
agreement as well as customary closing conditions.
In March 2000, the Company completed a private placement of
25,000 shares of its common stock at $4.00 per share. These funds
were used in operations.
The Company believes its future liquidity needs will be met
by a combination of cash generated from operating activities, a
private placement of the Company's common stock and exercise of
outstanding stock options. The Company does not have any available
credit facilities. The Company presently does not have any
commitments for capital expenditures, other than the letter of
intent discussed above.
7
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the first quarter of 2000 totaled $208,000
compared to the first quarter sales in 1999 of $374,000. The
Company continues to experience slower demand across its product
lines, in both domestic and international markets.
Cost of goods sold was 44% of net sales for the first
quarter ended March 31, 2000 compared to 65% for the same period
in 1999. The difference is the result of the cost of a severance
package offered to production employees in 1999 when the Company
had decided to cease production.
Selling, general and administrative expenses were $242,000
in the first quarter of 1999 compared to selling, general and
administrative expenses of $167,000 for the first quarter of 1999.
The increase in selling, general and administrative expenses in
2000 is the result of an increase in personnel in sales, marketing
and administration and an increase in both domestic and
international sales and marketing expenses.
Research and development expense in the first quarter of
2000 totaled $98,000, compared to the 1999 first quarter total of
$29,000. The increase is the result of an increase in the number
of engineering staff.
The severance expense of $118,000 to adminstration, sales
and marketing staff in the first quarter of 1999 related to the
Company's decision to cease production and dissolve the Company.
Subsequently, the Company's Board of Directors voted not to
dissolve the corporation, but to continue in business.
Interest and other income of $16,000 for the first quarter
of 2000 was comparable to $14,000 for the first quarter of 1999.
The loss for the first quarter of 2000 was $207,000 compared
to a loss of $171,000 for the first quarter of 1999.
The document includes "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of
1996. Management's anticipation of future events is based upon
assumptions regarding levels of competition, research and
development results, raw material markets, the markets in which
the Company operates, and stability of the regulatory environment.
Any of these assumptions could prove inaccurate, and therefore
there can be no assurance that the forward-looking information
will prove to be accurate.
8
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
Part II. OTHER INFORMATION
Item 5. Other Information
The Company's common shares are no longer listed on the NASDAQ
Small Cap market; however, since April 1, 1998, the shares have
been listed on the OTC Bulletin Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein: none
(b) Reports on Form 8-K: none
9
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Registrant
CIRCUIT RESEARCH LABS, INC.
DATE: May 15, 2000
BY /s/Charles Jayson Brentlinger
Charles Jayson Brentlinger
President (Authorized Officer
for signature)
10