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, 1998
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, 1998
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, 1998 (Unaudited) and
December 31, 1997 2
Consolidated Condensed Statements of
Operations - Three months ended
March 31, 1998 and 1997 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows - Three months ended March 31, 1998
and 1997 (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 9
Signatures 10
Page 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, Dec. 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $108,388 $ 119,851
Securities available-for-sale 948,156 89,607
Accounts receivable, less allowance for
doubtful accounts of $6,520 181,202 112,320
Inventories:
Raw materials and supplies 168,302 176,439
Work in process 261,703 289,690
Finished goods 433,627 416,996
Total inventories 863,632 883,125
Prepaid expenses and other 63,290 58,346
Total current assets 2,164,668 1,263,249
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 497,004 497,004
Furniture and fixtures 302,568 300,628
Machinery and equipment 601,631 599,864
Total 1,532,072 1,528,365
Less accumulated depreciation 1,011,737 996,810
Property, plant and equipment - net 520,335 531,555
OTHER ASSETS - NET 10,288 51,794
TOTAL $2,695,291 $1,846,598
(continued)
Page 2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, Dec 31,
1998 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $58,104 $ 53,382
Accrued salaries and benefits 31,830 63,086
Accrued professional fees 20,647 29,302
Customer deposits 1,732 26,180
Other accrued expenses and liabilities 14,028 7,315
Long-term debt - current portion 11,000 16,481
Total current liabilities 137,341 195,746
LONG-TERM DEBT - LESS CURRENT PORTION 9,961 105,656
Total liabilities 147,302 301,402
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 1,240,981 238,188
Total stockholders' equity 2,547,989 1,545,196
TOTAL $2,695,291 $1,846,598
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
March 31,
1998 1997
NET SALES $517,210 $510,852
COST OF GOODS SOLD 220,905 206,837
Gross profit 296,305 304,015
OPERATING EXPENSES:
Selling, general and administrative 221,877 247,736
Research and development 55,989 50,700
Total operating expenses 277,866 298,436
INCOME FROM OPERATIONS 18,439 5,579
OTHER INCOME (EXPENSE):
Proceeds from officer's life insurance
in excess of cash surrender value 1,000,681
Interest and other income 2,829 1,587
Interest expense (19,156) (3,303)
Total other income (expense) 984,354 (1,716)
INCOME BEFORE INCOME TAXES 1,002,793 3,863
INCOME TAX EXPENSE 3,050
NET INCOME $1,002,793 $ 813
INCOME PER COMMON SHARE - Basic and Diluted $1.68 $.00
See accompanying notes to consolidated condensed financial statements.
Page 4
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1998 1997
OPERATING ACTIVITIES:
NET INCOME $1,002,793 $ 813
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 15,347 1,348
Proceeeds from officer's life insurance in
excess of cash surrender value (1,000,681)
Changes in assets and liabilities:
Accounts receivable (68,882) 37,084
Inventories 19,493 ( 66,081)
Prepaid expenses and other assets 3,772 11
Accounts payable, accrued expenses and
customer deposits (52,924) (52,911)
NET CASH USED IN OPERATING ACTIVITIES (81,082) (59,736)
INVESTING ACTIVITIES:
Proceeds from officer's life insurance 1,033,051
Purchase of securities (948,156)
Proceeds from sale or maturity of securities 89,607 109,614
Capital expenditures ( 3,707) (4,886)
NET CASH PROVIDED BY INVESTING ACTIVITIES 170,795 104,728
FINANCING ACTIVITIES:
Principal payments on long-term debt (101,176) ( 8,197)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (11,463) 36,795
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 119,851 48,048
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $108,388 $ 84,843
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $19,156 $ 3,303
Cash paid for income taxes $ 3,050
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 March 31, 1998 and the Consolidated
Condensed Statements of Operations for the three months ended March 31, 1998
and 1997 and the Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 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, 1997.
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. The following is a reconciliation of the numerators and denominators of
basic and diluted earnings per share computations for income from continuing
operations for the three month period ended March 31, 1997 as required by
Statement of Financial Accounting Standards (SFAS) No. 128 Earnings per Share.
For the three months ended March 31, 1998, the results of 14,062 total
related to options to purchase common stock were not used for computing
diluted earnings per share because the result would be antidelutive.
Page 6
Three months ended March 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic
Income available to common
stockholders $ 813 597,682 $ 0.00
Effect of dilutive stock
options 3,923
Diluted
Income available to common
stockholders
and assumed conversions $ 813 601,605 $ 0.00
3. The Company adopted SFAS No. 130, Reporting Comprehensive Income, on January
1, 1998. Comprehensive income for the three months ended March 31, 1998 and
1997 was the same as net income for these periods.
4. Ronald R. Jones, who was the President and a Director and Chief Executive
Officer of the Company, died on January 1, 1998. At a special meeting of the
Board of Directors of the Company on January 2, 1998, Gary D. Clarkson was
appointed President and Chief Executive Officer. Mr. Clarkson had been the
Secretary/Treasurer and a Director of the Company, and was co-founder of the
Company with Ronald Jones in 1974.
On February 6, 1998, the Company received $1,033,000 as proceeds of an
insurance policy payable upon the death of Ronald Jones.
Pursuant to an agreement between the Company and Ronald Jones, the
Company repurchased all of Ronald Jones' 187,500 shares from the estate of
Ronald Jones for the price of approximately $181,640 on May 5, 1998.
5. Until March 31, 1998, Circuit Research Labs, Inc. was listed on the
NASDAQ Small Cap market. NASDAQ has raised its requirements for continued
listing. It now requires 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 also requires a
minimum market value of the public float to be $1,000,000. The bid price on
March 31, 1998 for the Company's common stock was $2.00. The highest bid price
in 1997 was $2.19. The market value of the Company's public float at
March 31, 1998 was approximately $590,000. In addition, the Company did not
meet other new monetary tests. While the Company's common shares are no longer
listed on the NASDAQ Small Cap market, as of April 1, 1998, the shares have
been listed on the OTC Bulletin Board.
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 $2,027,000 and the ratio of
current assets to current liabilities was 16.00 to 1 at March 31, 1998. At
December 31, 1997, the Company had net working capital of $1,068,000 and a
current ratio of 6.00 to 1. In February 1998, the Company received $1,033,000
as proceeds of an insurance policy payable upon the death of Ronald R. Jones.
In March 1998, the Company paid off the balance, plus accrued interest and
early payment premium, on the mortgage note collateralized by the Company's
operating facility.
Securities increased from $90,000 at December 31, 1997 to $948,000 at
March 31, 1998. The increase was the result of the proceeds of the insurance
policy mentioned above. The estimated fair value of the Company's securities
approximated cost at March 31, 1998.
Accounts receivable of $181,000 at March 31, 1998 was $69,000 higher than
the December 31, 1997 balance of $112,000. The increase was due to a higher
percentage of credit sales versus prepaid sales in 1998 compared to the
previous period.
Total inventories were $864,000 at March 31, 1998 compared to total
inventories of $883,000 at December 31, 1997. The decrease is the result of
management's continuing effort to reduce overall inventories.
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 first quarter of 1998 totaled $517,000 compared to the
first quarter sales in 1997 of $511,000. The Company continues to experience
slower demand across its product lines, in both domestic and international
markets.
Cost of goods sold was 42% of net sales for the first quarter ended March
31, 1998 which was comparable to 40% for the same period in 1997.
Selling, general and administrative expenses were $222,000 in the first
quarter of 1998 compared to selling, general and administrative expenses of
$248,000 for the first quarter of 1997 representing a 10% decrease due to less
international travel.
Research and development expense in the first quarter of 1998 totaled
$56,000, compared to the 1997 first quarter total of $51,000.
Proceeds from officers life insurance in excess of cash surrender value
of $1,001,000 was the result of the proceeds of an insurance policy payable
upon the death of Ronald R. Jones.
Interest and other income of $2,800 for the first quarter of 1998
compared to $1,600 for the first quarter of 1997.
Interest expense of $19,000 for the first quarter of 1998 consists of the
interest cost on the long-term mortgage collateralized by the Company's
headquarters facility plus the early payment premium which was paid when the
note was paid in full in March 1998. Interest expense of $3,300 for the first
quarter of 1997 consists only of the interest cost on the long-term mortgage.
Net income for the first quarter of 1998 was $1,003,000 compared to net
income of $ 800 for the first quarter of 1997. $1,001,000 of the net income
for the first quarter of 1998 was the result of the proceeds from the insurance
policy in excess of the cash surrender value payable upon the death of Ronald R.
Jones.
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 compliance issue. The
Company expects to be Year 2000 compliant by year end 1998 by continuing to
upgrade its current accounting and financial software. The Company's accounting
software for its financial systems is under a maintenance contract which covers
Year 2000 compliance, so no additional costs are expected to be incurred.
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
Page 9
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
The Company's common shares are no longer listed on the NASDAQ Small Cap
market, but as of April 1, 1998, the shares have been listed on the OTC
Bulletin Board.
On May 5, 1998, pursuant to an agreement between the Company and Ronald R.
Jones, the Company repurchased all of Ronald R. Jones' 187,500 shares from
the estate of Ronald R. Jones for the price of $181,640.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein - None.
(b) Reports on Form 8-K - 8-K filed on January 8, 1998
8-K filed on February 19, 1998
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: May 14, 1998
BY /s/Gary D. Clarkson
Gary D. Clarkson
President (Authorized Officer for
signature)
Page 12