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 September 30, 1995
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 September 30, 1995
Common stock, $.10 par value 597,682
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1995 (Unaudited) and
December 31, 1994 3
Consolidated Condensed Statements of
Operations (Unaudited) Three and
nine months ended September 30, 1995
and 1994 5
Consolidated Condensed Statements of
Cash Flows (Unaudited) Nine months
ended September 30, 1995 and 1994 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
1
PART I. FINANCIAL INFORMATION
The Consolidated Condensed Financial Statements included
herein have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. The
Consolidated Condensed Balance Sheet as of September 30, 1995 and
the Consolidated Condensed Statements of Operations for the three
and nine months ended September 30, 1995 and 1994 and the
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1995 and 1994 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 for the year
ended December 31, 1994.
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
financial position and 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 earnings that may be
expected for the full year.
2
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1995 1994
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $79,630 $122,217
Securities available-for-sale 361,990 321,712
Accounts receivable, less allowance for
doubtful accounts of $16,500 172,569 209,597
Income taxes receivable 13,000
Inventories:
Raw materials and supplies 436,672 354,298
Work in process 103,019 97,433
Finished goods 245,906 259,315
--------- ---------
Total inventories 785,597 711,046
Deferred income taxes 15,000 15,000
Prepaid expenses and other 65,860 74,259
--------- ---------
Total current assets 1,480,646 1,466,831
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 497,004 497,004
Furniture and fixtures 383,523 379,435
Machinery and equipment 549,220 528,270
--------- ---------
Total 1,560,616 1,535,578
Less accumulated depreciation 963,076 904,111
--------- ---------
Property, plant and equipment - net 597,540 631,467
--------- ---------
DEFERRED INCOME TAXES 15,000 15,000
OTHER ASSETS 114,279 119,001
STOCKHOLDERS' NOTES RECEIVABLE 1,081 4,462
--------- ---------
TOTAL $2,208,546 $2,236,761
========== ==========
3
(continued)
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1995 1994
------------ -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $59,170 $14,839
Accrued salaries, benefits and
professional fees 53,748 84,912
Other accrued expenses, liabilities
and customer deposits 120,828 26,435
Long-term debt - current portion 7,883 7,169
--------- ---------
Total current liabilities 241,629 133,355
--------- ---------
LONG-TERM DEBT - LESS CURRENT PORTION 106,356 112,354
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value -
authorized 500,000 shares, none issued
Common stock, $.10 par value -
authorized 20,000,000 shares,
597,682 shares issued 59,768 59,768
Additional paid-in capital 1,247,240 1,247,240
Retained earnings 553,553 684,044
--------- ---------
Total stockholders' equity 1,860,561 1,991,052
--------- ---------
TOTAL $2,208,546 $2,236,761
========== ==========
4
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
NET SALES $488,576 $555,560 $1,448,626 $1,452,051
COST OF GOODS SOLD 182,534 202,579 500,032 530,997
-------- -------- -------- --------
Gross profit 306,042 352,981 948,594 921,054
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and
administrative 292,716 259,050 788,882 846,044
Research and development 100,252 66,146 301,526 254,484
-------- -------- -------- --------
Total operating expenses 392,968 325,196 1,090,408 1,100,528
-------- -------- -------- --------
LOSS FROM OPERATIONS (86,926 ) 27,785 (141,814 )(179,474 )
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest and other income 4,887 26,114 18,060 36,887
Interest expense (3,674 ) (3,893 ) (14,737 )(16,496 )
------ -------- -------- --------
Total other (expense) income 1,213 22,221 3,323 20,391
------ -------- -------- --------
(LOSS) INCOME BEFORE INCOME
TAXES (85,713 ) 50,006 (138,491 ) (159,083 )
INCOME TAX (BENEFIT) EXPENSE 20,000 (8,000 ) ( 30,000 )
-------- -------- -------- --------
NET (LOSS) INCOME $(85,713 ) $30,006 $(130,491 )$(129,083 )
======= ======= ======= ========
(LOSS) INCOME PER COMMON SHARE $(.14 ) $ .05 $(.22 ) $(.22 )
======= ======= ======= =======
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 597,682 597,682 597,682 597,682
======= ======= ======= =======
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
-----------------
1995 1994
---- ----
(Unaudited)
OPERATING ACTIVITIES:
NET LOSS $(130,491 ) $(129,083 )
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 64,503 68,739
Changes in assets and liabilities:
Accounts receivable 37,028 (83,552 )
Income taxes receivable 13,000 15,102
Inventories (74,551 ) (16,882 )
Prepaid expenses and other 8,399 13,079
Other assets (816 ) (9,105 )
Accounts payable and accrued expenses 107,560 (29,994 )
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES: 24,632 (171,696 )
-------- --------
INVESTING ACTIVITIES:
Purchase of securities (386,309 )
Proceeds on sale or maturity of securities 346,031 140,505
Capital expenditures (25,038 ) (18,727 )
Payments received on stockholders' notes 3,381 3,454
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (61,935 ) 125,232
-------- ---------
FINANCING ACTIVITIES:
Borrowings under credit line 20,000
Payments under credit line (20,000 )
Principal payments on long-term debt (5,284 ) (4,656 )
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (5,284 ) (4,656 )
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (42,587 ) (51,120 )
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 122,217 183,200
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $79,630 $132,080
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION 14,737 16,496
Cash paid for interest ======= =======
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company had net working capital of $1,239,017 and a
current ratio of 6 to 1 at September 30, 1995, compared to net
working capital of $1,333,476 and a current ratio of 11 to 1 at
December 31, 1994. Net working capital decreased during the
quarter due to the operating loss of the Company, and increases
in accounts payable and customer deposits. The increase in
customer deposits is a result of a backlog of orders for the
DP100.
Inventories at September 30, 1995 increased by $74,551 from
December 31, 1994 which is attributed to an increase in raw
materials in order to meet future production requirements for
current and new products. Production of the Company's new digital
processor, the DP100, and the RDS/RBDS generator, the SC100 V1,
are currently scheduled for production in December 1995. Design
modifications have delayed the production schedules.
The Company's credit line of $200,000 was not utilized
during the quarter and at September 30, 1995 had no outstanding
balance. The credit agreement is collateralized by accounts
receivable, and bears interest at prime plus 1% on outstanding
amounts. Management does not contemplate usage of the line for
anything other than offsetting investment timing and cash flow
management.
At September 30, 1995, the Company had no material
commitments for capital expenditures.
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 115 in
May 1993 establishing certain new financial accounting and
reporting standards for investments in debt and equity
securities. SFAS No. 115 requires the classification of
securities at acquisition into one of three categories: held-to-
maturity, available-for-sale, or trading -- with different
reporting requirements for each classification. All of the
Company's marketable securities are classified as available-for-
sale, and are carried at fair value. The estimated fair value of
the Company's securities approximated cost at December 31, 1994
and September 30, 1995.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales during the third quarter of 1995 totaled $488,576
compared to sales of $555,560 for the same period of 1994, a
decrease of 12%. The decrease was the result of a lower
international demand for the Company's radio products, offset
partially by increased domestic TV products. Net sales for the
first nine months of 1995 were $1,448,626 which was comparable to
net sales for the same period of 1994 of $1,452,051.
Cost of goods sold was 37% and 36% of net sales and gross
margins were 63% and 64% for the three month periods ended
September 30, 1995 and 1994, respectively. For the nine months
ended September 30, 1995, cost of goods sold was 35% of net sales
and the gross margin was 65%. Cost of goods sold for the nine
months of 1994 was 37% of net sales and the gross margin was 63%.
The Company incurred $292,716 of selling, general and
administrative expenses in the third quarter of 1995 which was an
increase of $33,666 compared to selling, general and admin-
istrative expenses of $259,050 in the third quarter of 1994. The
increase in 1995 is the result of increased travel and promotion
expenses relating to the introduction of the new products. For
the nine months ended September 30, 1995, selling, general and
administrative expenses were $57,162 lower then the same period
of 1994. This was the result of the Company realizing the
benefits of managements cut backs of support personnel in
accounting, administration and marketing that were instituted in
the third quarter of 1994.
Research and development expense in the third quarter of
1995 totaled $100,252, an increase of $34,106 from the third
quarter of 1994. The increase was the result of contract engi-
neering work on the new products, the DP100 and the RDS/RBDS
units. For the nine months ended September 30, 1995, research
and development expenses increased $47,042 over the same period
of 1994. This increase is the result of contract engineering
costs.
Interest and other income was $4,887 for the third quarter
of 1995. Interest and other income for the third quarter of 1994
was $26,114 which included one time receipts of engineering fees
of $12,000 and a gain on the sale of securities of $8,937. This
also accounts for the difference of $18,827 in the interest and
other income for the nine months ended September 30, 1995
compared to the nine months ended September 30, 1994.
Interest expense consists of the interest on the long-term
8
mortgage collateralized by the Company's headquarter facility
plus bank costs for the Company's credit line which is occasion-
ally used to manage cash flow.
The Company has received all available tax refunds from
previous periods.
Net loss for the third quarter of 1995 was $85,713 as
compared to net income for the third quarter of 1994 of $30,006.
The net loss for the nine months ended September 30, 1995 was
$130,491 compared to a net loss of $129,083 for the nine months
ended September 30, 1994.
9
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein - None.
(b) Reports on Form 8-K - None.
10
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 thereunto duly authorized.
Registrant
CIRCUIT RESEARCH
LABS, INC.
DATE: NOVEMBER 12, 1995
BY /s/Gary D. Clarkson
Gary D.
Clarkson
Treasurer (Authorized
Officer for signature)
11