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, 1997
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, 1997
Common stock, $.10 par value 597,682
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 1997 (Unaudited) and
December 31, 1996 3
Consolidated Condensed Statements of
Operations - Three months ended
March 31, 1997 and 1996 (Unaudited) 5
Consolidated Condensed Statements of Cash
Flows - Three months ended March 31, 1997
and 1996 (Unaudited) 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
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
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 March 31, 1997 and the
Consolidated Condensed Statements of Operations for the three
months ended March 31, 1997 and 1996 and the Consolidated
Condensed Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 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, 1996.
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. Certain
reclassifications were made to the 1996 financial statements to
conform with the 1997 presentation.
2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 84,843 $ 48,048
Securities available-for-sale 58,347 167,961
Accounts receivable, less allowance for
doubtful accounts of $16,520 152,532 189,616
Inventories:
Raw materials and supplies 292,812 335,072
Work in process 406,245 314,291
Finished goods 322,946 306,559
Total inventories 1,022,003 955,922
Prepaid expenses and other 69,617 69,628
Total current assets 1,387,342 1,431,175
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 497,004 497,004
Furniture and fixtures 398,933 397,546
Machinery and equipment 619,580 616,081
Total 1,646,386 1,641,500
Less accumulated depreciation 1,081,603 1,062,936
Property, plant and equipment - net 564,783 578,564
OTHER ASSETS - NET 157,170 159,851
TOTAL $2,109,295 $2,169,590
(continued)
3
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 88,564 $ 64,650
Accrued salaries and benefits 29,539 65,699
Accrued professional fees 3,972 21,976
Customer deposits 35,230 40,432
Other accrued expenses and liabilities 14,367 31,826
Long-term debt - current portion 20,524 15,228
Total current liabilities 192,196 239,811
LONG-TERM DEBT - LESS CURRENT PORTION 108,794 122,287
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 and outstanding 59,768 59,768
Additional paid-in capital 1,247,240 1,247,240
Retained earnings 501,297 500,484
Total stockholders' equity 1,808,305 1,807,492
TOTAL $2,109,295 $2,169,590
4
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1997 1996
NET SALES $510,852 $638,530
COST OF GOODS SOLD 206,837 260,286
Gross profit 304,015 378,244
OPERATING EXPENSES:
Selling, general and
administrative 247,736 262,681
Research and development 50,700 92,299
Total operating expenses 298,436 354,980
INCOME FROM OPERATIONS 5,579 23,264
OTHER INCOME (EXPENSE):
Interest and other income 1,587 5,005
Interest expense (3,303) (7,037)
Total other income (expense) (1,716) (2,032)
INCOME BEFORE INCOME TAXES 3,863 21,232
INCOME TAX EXPENSE 3,050
NET INCOME $ 813 $ 21,232
INCOME PER COMMON SHARE $.00 $.04
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 597,682 597,682
5
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1997 1996
OPERATING ACTIVITIES:
NET INCOME $ 813 $ 21,232
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 21,348 21,595
Changes in assets and liabilities:
Accounts receivable 37,084 23,552
Inventories (66,081) 26,772
Prepaid expenses and other 11 (12,578)
Other assets 0 (1,825)
Accounts payable, accrued expenses and
customer deposits (52,911) 52,395
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (59,736) 131,143
INVESTING ACTIVITIES:
Proceeds from sale or maturity of securities 109,614
Capital expenditures (4,886) (37,504)
Payments received on stockholders' notes 1,081
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 104,728 (36,423)
FINANCING ACTIVITIES:
Principal payments on long-term debt (8,197) (13,539)
NET INCREASE IN CASH AND CASH EQUIVALENTS 36,795 81,181
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 48,048 25,974
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 84,843 $107,155
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 3,303 $7,037
Cash paid for income taxes $ 3,050
6
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Company had net working capital of $1,195,000 and the
ratio of current assets to current liabilities was 7.22 to 1 at
March 31, 1997. At December 31, 1996, the Company had net working
capital of $1,191,000 and a current ratio of 6.0 to 1.
Accounts receivable decreased $37,000 from $190,000 at
December 31, 1996, to $153,000 at March 31, 1997. The decrease is
the direct result of lower sales in the first quarter of 1997,
compared to sales in the fourth quarter of 1996.
Total inventories of $1,022,000 at March 31, 1997 compared
to total inventories of $956,000 at December 31, 1996. The
increase was a result of sales that were lower than anticipated
sales during the quarter ended March 31, 1997.
The Company's credit agreement expired on July 1, 1996, and
since it had not been used, the Company did not pursue its
renewal. The Company believes its future liquidity needs will be
met by a combination of cash generated from operating activities,
the reduction of investments, and existing cash balances.
The estimated fair value of the Company's securities
approximates cost at March 31, 1997.
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 1997 totaled $511,000 and
were 20% lower than the first quarter sales in 1996 of $639,000.
The decrease was due to slower sales across CRL's product line,
both domestic and international sales. In the first quarter of
1996 the Company shipped a number of DP100s to fill a backlog from
1995. In the first quarter of 1997, sales of the DP100 were
delayed while a new version of software was being finished.
Cost of goods sold was 40% of net sales for the first
quarter ended March 31, 1997 compared to 41% for the same period
in 1996 and illustrates that production costs were comparable to
the prior year's period.
Selling, general and administrative expenses were $248,000
in the first quarter of 1997 compared to selling, general and
administrative expenses of $263,000 for the first quarter of 1996.
The decrease was due to lower marketing expenses both in the
domestic and international market place.
Research and development expense in the first quarter of
1997 totaled $51,000, compared to the 1996 first quarter total of
$92,000. The decrease was due to lower developmental cost on the
new product lines and lower labor cost resulting from not having
contract engineers on staff. The Company does not anticipate
incurring increases in engineering cost in the near future.
Interest and other income of $1,600 for the first quarter of
1997 compared to $5,000 for the first quarter of 1996. The lower
interest income was the result of the Company having less funds
invested in securities.
Interest expense consists of the interest cost on the
long-term mortgage collateralized by the Company's headquarters
facility. Income tax expense for the three months ended March 31,
1997 is greater than the amount computed by applying the statutory
income tax rate to income before income taxes due primarily to
nondeductible expenses and final determination of prior year's
estimates.
Net income for the first quarter was $813 compared to net
income of $21,000 for the first quarter of 1996.
The document includes "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of
1995. 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
II. OTHER INFORMATION
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 13, 1997
BY /s/Gary D. Clarkson
Gary D. Clarkson
Treasurer (Authorized
Officer for signature)
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