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, 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 September 30, 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
September 30, 1997 (Unaudited) and
December 31, 1996 2
Consolidated Condensed Statements of
Operations - Three and nine months ended
September 30, 1997 and 1996 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows - Nine months ended September 30,
1997 and 1996 (Unaudited) 5
Notes to Consolidated Condensed Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Page 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 67,827 $ 48,048
Securities available-for-sale 59,356 167,961
Accounts receivable, less allowance
for doubtful accounts of $12,520
(1997) and $16,520 (1996) 237,426 189,616
Inventories:
Raw materials and supplies 266,879 335,072
Work in process 287,888 314,291
Finished goods 362,421 306,559
Total inventories 917,188 955,922
Prepaid expenses and other 54,801 69,628
Total current assets 1,336,598 1,431,175
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 497,004 497,004
Furniture and fixtures 399,148 397,546
Machinery and equipment 629,547 616,081
Total 1,656,568 1,641,500
Less accumulated depreciation 1,113,197 1,062,936
Property, plant and equipment - net 543,371 578,564
OTHER ASSETS - NET 161,991 159,851
TOTAL $2,041,960 $2,169,590
(continued)
Page 2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1997 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 105,917 $ 64,650
Accrued salaries and benefits 43,846 65,699
Accrued professional fees 8,361 21,976
Customer deposits 3,961 40,432
Other accrued expenses and liabilities 17,860 31,826
Long-term debt - current portion 18,145 15,228
Total current liabilities 198,090 239,811
LONG-TERM DEBT - LESS CURRENT PORTION 103,566 122,287
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 433,296 500,484
Total stockholders' equity 1,740,304 1,807,492
TOTAL $2,041,960 $2,169,590
See accompanying notes to consolidated condensed financial statements.
Page 3
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
NET SALES $557,549 $631,295 $1,574,688 $1,869,587
COST OF GOODS SOLD 267,040 270,308 751,228 775,893
Gross profit 290,509 360,987 823,460 1,093,694
OPERATING EXPENSES:
Selling, general and
administrative 252,787 238,270 725,130 762,236
Research and
development 52,501 58,419 157,714 211,087
Total operating
expenses 305,288 296,689 882,844 973,323
(LOSS) INCOME FROM
OPERATIONS (14,779) 64,298 (59,384) 120,371
OTHER INCOME (EXPENSE):
Interest and other
income 1,147 4,215 4,923 12,681
Interest expense (3,151) (3,529) ( 9,677) (15,816)
Total other (expense)
income (2,004) 686 (4,754) (3,135)
(LOSS) INCOME BEFORE INCOME
TAXES (16,783) 64,984 (64,138) 117,236
INCOME TAX EXPENSE 0 0 3,050 50
NET (LOSS) INCOME $ (16,783)$ 64,984 $ (67,188) $ 117,186
(LOSS) INCOME PER
COMMON SHARE $(.03) $ .11 $(.11) $.20
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 597,682 597,682 597,682 597,682
See accompanying notes to consolidated condensed financial
statements.
Page 4
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
OPERATING ACTIVITIES:
NET (LOSS) INCOME $ (67,188) $117,186
ADJUSTMENTS TO RECONCILE NET
(LOSS) INCOME
TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 58,306 69,199
Changes in assets and liabilities:
Accounts receivable (47,810) (81,579)
Inventories 38,734 (142,969)
Prepaid expenses and other assets 4,642 5,864
Accounts payable, accrued expenses
and customer deposits (44,638) ( 8,079)
NET CASH USED IN OPERATING ACTIVITIES (57,954) (40,378)
INVESTING ACTIVITIES:
Purchase of securities (118,833) (146,970)
Proceeds from sale or maturity of
securities 227,438 242,880
Capital expenditures (15,068) (5,967)
Payments received on stockholders' notes 1,081
NET CASH PROVIDED BY INVESTING ACTIVITIES 93,537 91,024
FINANCING ACTIVITIES:
Principal payments on long-term debt (15,804) (21,851)
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,779 28,795
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 48,048 25,974
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 67,827 $ 54,769
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 9,677 $15,816
Cash paid for income taxes $ 3,050
Test equipment transferred from Inventories
to Engineering Equipment $ 45,290
See accompanying notes to consolidated condensed financial statements.
Page 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 September 30, 1997 and the Consolidated Condensed Statements
of Operations for the three and nine months ended September 30,
1997 and 1996 and the Consolidated Condensed Statements of Cash
Flows for the nine months ended September 30, 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 on Form 10-KSB 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. In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share", effective for both interim
and annual periods ending after December 15, 1997. This standard
specifies the computation, presentation and disclosure of earnings
per share for entities with publicly held common stock or potential
common stock. The Company will provide the required disclosures in
its year-end report. The effect on the Company's earnings per share
disclosure is not material for the periods presented.
The FASB also issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The standard changes the
reporting of certain items currently reported in the equity section
of the balance sheet. The Company is currently evaluating what
Page 6
impact this standard will have on the Company's financial
statements. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. This standard requires that public
companies report certain information about operating segments in
their financial statements. It also establishes related disclosures
about products and services, geographic areas, and major customers.
The Company is currently evaluating what impact this standard will
have on its financial statements.
3. It is anticipated that the Company's common shares will no
longer be listed on the NASDAQ Small Cap market, but after February
23, 1998, the shares will be listed on the OTC Bulletin Board. See
Part II, Other Information, Item 5 of this report for additional
information.
Page 7
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 $1,139,000 and the
ratio of current assets to current liabilities was 6.7 to 1 at
September 30, 1997. At December 31, 1996, the Company had net
working capital of $1,191,000 and a current ratio of 6.0 to 1.
Securities decreased from $168,000 at December 31, 1996 to
$59,000 at September 30, 1997. The maturity of certain investments
was used to meet working capital requirements. The estimated fair
value of the Company's securities approximated cost at September
30, 1997.
Accounts receivable of $237,000 at September 30, 1997 was
$47,000 higher compared to the December 31, 1996 balance of
$190,000. The increase was due to a higher percentage of credit
sales verses prepaid sales in 1997 compared to the previous period.
Total inventories of $917,000 at September 30, 1997 compared
to total inventories of $956,000 at December 31, 1996. The decrease
is the result of management's continuing effort to reduce overall
inventories.
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 Company
presently does not have any commitments for capital expenditures.
Page 8
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 third quarter of 1997 totaled $558,000 and
were 12% lower than the third quarter sales in 1996 of $631,000.
The Company continues to experience slower demand across its
product lines, in both domestic and international markets.
Cost of goods sold was 48% of net sales for the third quarter
ended September 30, 1997 which was comparable to 43% for the same
period in 1996. The increase is the result of the expected lower
profit margins in the Desert Assemblies division. The profit margin
on CRL's main product lines for the third quarter ended September
30, 1997 was 61% which was consistent with the same period of 1996.
Selling, general and administrative expenses were $253,000 in
the third quarter of 1997 compared to selling, general and
administrative expenses of $238,000 for the third quarter of 1996.
Research and development expense in the third quarter of 1997
totaled $53,000, compared to the 1996 third quarter total of
$58,000. The decrease was the result of shifting personnel from
engineering to production in order to fill a vacancy in production.
Interest and other income of $1,100 for the third quarter of
1997 compared to $4,200 for the third 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.
Net loss for the third quarter of 1997 was $17,000 compared
to net income of $65,000 for the third quarter of 1996.
Year-to-date net sales were approximately $295,000 lower in
1997 as compared to the same period in 1996. The decrease was due
to slower sales across CRL's product lines, in both domestic and
international markets. The Company also had a large single
international order in 1996 that contributed to the difference.
Cost of goods sold was 48% of net sales for the nine months ended
September 30, 1997 compared to 42% for the same period in 1996. The
increase was the result of a temporary increase in production costs
on CRL's main product line. The cost of goods sold for CRL's main
product line year-to-date 1997 was 38% compared to 1996
year-to-date cost of goods sold of 35%. The decrease in gross
profit was offset by a $90,000 decrease in operating expenses for
Page 9
the nine months ended September 30, 1997 compared to the same
period in 1996. The result of the decrease in sales, increase in
percentage of cost of goods sold, and the decrease in operating
expenses was a $67,000 loss from operations for the first nine
months of 1997, compared to a $117,000 profit for the same period
of 1996.
This 10QSB 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.
Page 10
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
Part II. OTHER INFORMATION
Item 5. Other Information
Circuit Research Labs, Inc. is currently listed on the NASDAQ
Small Cap market under the symbol CRLI. NASDAQ is raising its
requirements for continued listing. It will require among other
criteria,a public float of 500,000 shares, and the Company's public
float is approximately 295,000 shares. "Public float" is defined as
shares that are not held directly or indirectly by any officer or
director of the issuer and by any other person who is the
beneficial owner of more than 10% of the total shares
outstanding.
NASDAQ will require a minimum market value of the public float to
be $1,000,000. The bid price on November 11, 1997 for the Company's
common stock was $1 5/16. The highest bid price in 1997
was $1 5/8. The present market value of the Company's public float
is approximately $388,000.
In addition, the Company may not meet other new monetary tests.
Based on present information, the Company will not be able to
meet these new NASDAQ requirements which go into effect February
23, 1998.
The Company's shares will be offered the services of another
quotation service - the OTC Bulletin Board.
It is anticipated that the shares will be listed on the OTC
Bulletin Board after February 23, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein - None.
(b) Reports on Form 8-K - None
Page 11
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: November 12, 1997
BY /s/Gary D. Clarkson
Gary D. Clarkson
Treasurer (Authorized
Officer for signature)
Page 12