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, 2001
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, 2001
Common stock, $.10 par value 2,296,022
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 2001 (Unaudited) and
December 31, 2000 2
Consolidated Condensed Statements of
Operations - Three months ended
March 31, 2001 and 2000 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows - Three months ended March 31, 2001
and 2000 (Unaudited) 5
Notes to Consolidated Condensed Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. OTHER INFORMATION:
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
2001 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $282,540 $272,203
Accounts receivable, less allowance for
doubtful accounts of $26,000
at March 31, 2001 and $15,000 at
December 31, 2000 1,126,454 727,001
Inventories:
Raw materials and supplies 1,986,473 2,061,872
Work in process 1,413,609 1,262,536
Finished goods 660,587 774,836
------- -------
Total inventories, net of obsolescence
reserve of $841,000
at March 31, 2001 and at December
31, 2000 3,220,108 3,258,683
Prepaid expenses and other 158,196 156,008
Advances to shareholders 19,336 21,654
------ ------
Total current assets 4,806,634 4,435,549
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 874,697 874,697
Furniture and fixtures 927,227 927,227
Machinery and equipment 1,133,225 1,135,395
--------- ---------
Total 3,066,018 3,068,188
Less accumulated depreciation 1,356,053 1,258,833
--------- ---------
Property, plant and equipment - net 1,709,965 1,809,355
OTHER ASSETS 40,450 39,000
GOODWILL - (Net of accumulated amortization of
$879,868 at March 31, 2001 and
$615,908 at December 31,2000) 6,511,024 6,774,984
--------- ---------
TOTAL $13,068,073 $13,058,888
========== ==========
2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
2001 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $844,112 $836,965
Accrued salaries and benefits 428,910 283,226
Accrued professional fees 87,696 100,198
Customer deposits 187,964 275,502
Due to shareholders 46,087 25,000
Other accrued expenses and liabilities 228,872 282,912
Long-term debt - current portion 495,569 483,280
------- -------
Total current liabilities 2,319,210 2,287,083
--------- ---------
Long-term debt less current portion 8,724,571 8,738,466
--------- ---------
Total liabilities 11,043,781 11,025,549
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value -
authorized 500,000 shares, none issued
Common stock, $.10 par value - (authorized
20,000,000 shares, 2,296,022 issued
as of March 31, 2001 and 2,269,522
as of December 31, 2000) 229,602 226,952
Additional paid-in capital 4,108,013 4,077,538
Accumulated deficit (2,313,323) (2,271,151)
--------- ---------
Total stockholders' equity 2,024,292 2,033,339
--------- ---------
TOTAL $13,068,073 $13,058,888
========== ==========
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,
2001 2000
NET SALES $3,907,576 $208,068
COST OF GOODS SOLD 2,026,474 90,987
--------- ------
Gross profit 1,881,102 117,081
--------- -------
OPERATING EXPENSES:
Selling, general and administrative 1,234,385 242,529
Research and development 415,905 97,611
Total operating expenses 1,650,290 340,140
--------- -------
INCOME (LOSS) FROM OPERATIONS 230,812 (223,059)
OTHER (INCOME) EXPENSE
Interest and other income (6,825) (16,211)
Interest expense 279,809
------- ------
Total other (income) expense 272,984 (16,211)
------- ------
NET LOSS ($42,172) ($206,848)
======= ========
LOSS PER COMMON SHARE -
Basic and diluted ($0.02) ($0.17)
===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 2,272,725 1,200,310
========= =========
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,
2001 2000
OPERATING ACTIVITIES:
Net loss ($42,172) ($206,848)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 363,350 12,492
Changes in assets and liabilities:
Accounts receivable (399,453) (13,021)
Inventories 38,575 (25,988)
Prepaid expenses and other assets (3,638) (18,621)
Deferred acquisition costs (250,000)
Accounts payable and accrued expenses (1,249) 18,046
------- ------
Net cash used in operating activities (44,587) (483,940)
------ -------
INVESTING ACTIVITIES:
Proceeds from sale or maturity of securities 383,905
Capital expenditures (9,791)
-----
Net cash used by investing activities 0 374,114
== =======
FINANCING ACTIVITIES:
Proceeds from shareholder advances 23,405
Principal payments on long-term debt (1,606)
Proceeds from sale of common stock 33,125 100,000
------ -------
Net cash provided by financing activities 54,924 100,000
------ -------
NET INCREASE (DECREASE) IN CASH 10,337 (9,826)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 272,203 62,597
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $282,540 $52,771
======= ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $279,809
=======
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, 2001 and the Consolidated Condensed
Statements of Operations for the three months ended March 31,
2001 and 2000 and the Consolidated Condensed Statements of Cash
Flows for the three months ended March 31, 2001 and 2000 have been
prepared without audit.
Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America 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 10-KSB/A for the year ended December 31, 2000.
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. Income (loss) per share amounts for the three months ended
March 31, 2001 and 2000 are calculated using only weighted average
outstanding shares of 2,272,725 and 1,200,310 respectively.
Options and warrants to purchase 1,000,000 and 1,708,158 shares
respectively, of common stock for the three months ended March 31,
2001 were not used in computing diluted earnings per share because
the result would be anti-dilutive. Options to purchase 1,342,500
shares of common stock for the three months ended March 31, 2000
were not used in computing diluted earnings per share because the
result would be anti-dilutive.
6
3. Long term-debt at March 31, 2001 consisted of the following:
Orban, Inc. Tranche A Note $5,000,000
Orban, Inc. Tranche B Note 3,500,000
Note to shareholder 193,859
Note to shareholder 97,500
Mortgage note 360,394
Employee note 68,387
------
Total long-term debt 9,220,140
Less current portion 495,569
-------
Total long-term debt, less
current portion $8,724,571
=========
CRL Systems and Orban entered into a Credit Agreement to establish
the terms and conditions of the $8,500,0000 loan from Orban to CRL
Systems. The agreement was used in conjunction with the Asset Sale
Agreement between Orban, Inc. and CRL Systems, Inc. The loan is
evidenced by two promissory notes, the Senior Subordinated Tranche
A Note (the "Tranche A Note") and the Senior Subordinated Tranche
B Note (the "Tranche B Note"). The Tranche A Note, in the amount
of $5,000,000, originally bore interest at 8 percent per annum
and required quarterly principal payments beginning March 31,
2001, with a balloon payment of $3,000,000 due on March 31, 2003.
The Tranche B Note, in the amount of $3,500,000, originally bore
interest at 8 percent per annum for the period from June 1, 2000 to
July 31, 2000 and 10 percent per annum from August 1, 2000 up to its
September 30, 2000 maturity date. The notes are collateralised by,
among other things, all receivables, inventory and equipment,
investment property, including CRL's capital stock in CRL Systems,
and intellectual property of CRL and CRL Systems, as defined in
the "Guarantee and Collateral Agreement". In addition, all proceeds
of debt or equity or sales of assets are to be first applied to
the remaining balance due on the notes.
The Company has received several payment extensions on the Tranche
A and B notes. First, in exchange for $150,000 cash and an
increase in the interest rates to 12 percent per annum for both
the Tranche A and Tranche B notes, Orban, Inc. extended the
maturity date of the Tranche B note to November 30, 2000. The
maturity date of the Tranche B note has subsequently been extended
several additional times without fees or other significant changes
to the original terms of the note and is now due in full on April 30,
2002. Also, the first principal payment on the Tranche A note of
$250,000, originally due March 31, 2001, has been extended to
September 30, 2001 with the remaining quarterly principal payments
deferred until April 30, 2002. Interest only payments are payable
monthly for both notes. The Asset Sale Agreement between CRL Systems and Orban
contains a provision to allow Orban to rescind the transaction if, as of
November 30, 2000, CRL Systems has not paid in full the $3.5 million short-term
note. If Orban exercises its option to rescind the agreement, it is to return
$9,250,000 of the purchase price to CRL Systems, with the difference due to
Orban as liquidating damages. The note has since been extended to April 30,
2001 with Orban retaining the option to rescind the agreement.
In consideration for arranging the purchase financing of Orban,
the Company incurred fees of $97,500 to a shareholder, the total
of which is included in the current portion of long-term debt at
December 31, 2000. The note is due August 14, 2001 after being
extended from its prior due date of May14, 2001 and accrues
interest of 7.5 percent per annum starting at the original date of
the note of June 21, 2000, which is payable at maturity.
7
The Company issued $205,000 in long-term debt to a shareholder in
consideration for his role in the acquisition of the assets of
Orban, Inc. The note bears interest at 7.5 per cent per annum,
with principal and interest due monthly beginning August 1, 2000
for four years. Based on a verbal agreement with the note holder
the Company has only made interest payments in 2001.
On May 30, 2000, the Company mortgaged its office building and
manufacturing facility in Tempe, Arizona for $335,000. The
mortgage note bears interest at 15.25 percent per annum, payable
monthly, and the full principal balance was to be paid on November
30, 2000. Prior to the December 2000 extended maturity date, the
Company refinanced the unpaid balance into two new mortgage
agreements for $300,000 and $62,000. The notes bear interest at
11.75 percent per annum and 14.75 percent per annum respectively.
Principal and interest payments are payable monthly for both notes
commencing in February 2001 using a 12-year amortization period
and requiring a balloon payment at the end of the five-year term.
On June 12, 2000, the Company entered into a promissory note for
$68,387 from an employee. The note bears interest at 12 percent
per annum. All principal and interest was due September 12, 2000;
however, the maturity date has been extended to June 30, 2001. The
note is unsecured.
4. On February 8, 2001, Mr. Charles Jayson Brentlinger, the
President and CEO of the Company fulfilled his entire obligation
of the stock purchase agreement he had entered into at the time he
acquired control of the Company, by exercising the remaining
options to purchase 26,500 shares for a total price of $33,125.
The Company's President, Mr. Charles Jayson Brentlinger has committed
to exercise his options if necessary to satisfy the Company's debt
payment requirements, if operating cash flows are inadequate.
8
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
$2,487,000 and the ratio of current assets to current liabilities
was 2.73 to 1 at March 31, 2001. At December 31, 2000, the
Company had net working capital of approximately $2,148,000 and a
current ratio of 1.94 to 1.
Accounts receivable were $1,126,000 at March 31, 2001 compared
to $727,000 at December 31, 2000 for a net increase of $399,000,
or 55%. The increase was the result of increased sales for the
three months ended March 31, 2001
Total inventories were $3,220,000 at March 31, 2001 compared
to total inventories of $3,259,000 at December 31, 2000. The
amount of inventory stayed relatively the same with a slight
decrease of $39,000, or 1% due to the just-in-time method of
purchasing to conserve cash flow.
During the fiscal year ending December 31, 2001, the
Company's principal working capital requirements are to pay normal
recurring operating costs. Management believes that these
requirements can be met from the operating cash flows. In addition
the Company has $496,000 of debt payments due by March 31, 2002.
The Company's President, Mr. Charles Jayson Brentlinger has
committed to exercise his options if necessary to satisfy the
Company's debt payment requirements, if operating cash flows are
inadequate.
9
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
On May 31, 2000 the Company acquired the net assets of Orban,
Inc., which were $5,134,000 at December 31, 1999. The net assets
of the Company at December 31, 1999 were $1,684,000. The revenues
for Orban for the year ended December 31, 1999 as reported in the
8-K/A filed November 21, 2000 were $12.4 million compared to
revenues for the Company for the same period of $1.0 million.
Accordingly, due to the consolidation of Orban's operations into
the Company's beginning May 31, 2000, period to period comparisons
of results of operations may not be meaningful.
Net sales for the first quarter of 2001 totaled $3,908,000
compared to the first quarter sales in 2000 of $208,000. Included
in the net sales for the three months ended March 31, 2001 are
$3,564,000 in revenues for the sale of Orban products. Sales under
the CRL division increased by $136,000 or 65% for the three months
ended March 31, 2001 compared to the three months ended March 31,
2000. The increased demand in CRL products was primarily due to a
single order from an international customer. Without that order
CRL products would continue to experience slower demand across its
product lines, in both domestic and international markets.
Cost of goods sold was 52% of net sales for the first
quarter ended March 31, 2001 compared to 44% for the same period
in 2000. The 8% increase in cost of goods sold is primarily due to
the practice of purchasing just-in-time inventory, creating
increases in the cost of raw materials because we are buying in
lower quantities.
Selling, general and administrative expenses ("SG&A") for the
three months ended March 31, 2001 was $1,234,000 an increase of
409% over $242,000 reported the first quarter of 2000. As a
percentage of net revenue, SG&A decreased from 116% for the three
months ended March 31, 2000 to 32% for the same period in 2001.
The increase in SG&A expense is due in part to the variable
component of SG&A (commissions and other domestic and
international sales and marketing expenses) associated with the
increase in revenues following our acquisition of the Orban
assets. The fixed component of SG&A has also increased due to the
additional personnel in sales and marketing and administration and
cost related to operating the Orban business following the May 31,
2000 acquisition.
Research and development expense was $416,000 in the first
quarter of 2001, an increase of 325% over $98,000 for the same
period in 2000. The increase resulted from both an increase in the
number of engineering staff at CRL and research and development
activities at Orban, which we continued at pre-acquisition levels.
10
Interest and other expense 1for the first quarter of 2001
was $280,000, of which 255,000 represents interest paid to Harman
in connection with the seller carry-back loan that financed a
portion of our purchase cost for the Orban assets. CRL did not
incur any interest expense for the three months ended March 31,
2002.
Operationally, the Company is reporting $594,000 in income
before interest, taxes, depreciation and amortization (EBITDA). as
compared to the same period in 2000 where the negative EBITDA of
$211,000. This is primarily due to the amortization of goodwill
and the interest expense incurred by the acquisition of Orban.
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.
11
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
Exhibit Index
(a) Exhibits No.
13 Annual Report on Form 10-KSB/A previously
filed on May 21, 2001 and incorporated herein by
reference.
(b) Reports on Form 8-K: none
12
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 22, 2001
BY /s/Charles Jayson Brentlinger
Charles Jayson Brentlinger
President (Authorized
Officer for signature)
13