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, 1996
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, 1996
Common stock, $.10 par value 597,682
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CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Condensed Statements of
Operations - Three and nine months ended
September 30, 1996 and 1995 (Unaudited) 5
Consolidated Condensed Statements of Cash
Flows - Nine months ended September 30, 1996
and 1995 (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
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<PAGE>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 September 30, 1996 and
the Consolidated Condensed Statements of Operations for the three
and nine months ended September 30, 1996 and 1995 and the
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 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, 1995.
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. Certain reclassifications
have been made to the financial statements for the nine months
ended September 30, 1995 to conform to the statement
classifications used in 1996. 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.
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CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
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September 30, December 31,
1996 1995
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 54,769 $ 25,974
Securities available-for-sale 196,851 297,667
Accounts receivable, less allowance for
doubtful accounts of $16,520 243,821 162,242
Inventories:
Raw materials and supplies 356,538 437,368
Work in process 341,345 169,640
Finished goods 236,424 229,620
Total inventories 934,307 836,628
Prepaid expenses and other 58,160 67,243
Total current assets 1,487,908 1,389,754
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 497,004 497,004
Furniture and fixtures 390,450 383,523
Machinery and equipment 609,064 564,734
Total 1,627,387 1,576,130
Less accumulated depreciation 1,043,089 981,978
Property, plant and equipment - net 584,298 594,152
OTHER ASSETS - NET 159,814 164,683
STOCKHOLDER NOTES RECEIVABLE 1,081
TOTAL $2,232,020 $2,149,670
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(continued)
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CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
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September 30, December 31,
1996 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $111,721 $ 91,401
Accrued salaries and benefits 43,813 58,004
Accrued professional fees 17,476 27,405
Accrued customer deposits 88,767 99,818
Other accrued expenses and liabilities 32,982 26,210
Long-term debt - current portion 14,941 19,136
Total current liabilities 309,700 321,974
LONG-TERM DEBT - LESS CURRENT PORTION 120,802 138,458
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 494,510 377,324
Unrealized appreciation on securities
available-for sale 4,906
Total stockholders' equity 1,801,518 1,689,238
TOTAL $2,232,020 $2,149,670
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CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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NET SALES $631,295 $488,576 $1,869,587 $1,448,626
COST OF GOODS SOLD 270,308 182,534 775,893 500,032
Gross profit 360,987 306,042 1,093,694 948,594
OPERATING EXPENSES:
Selling, general and
administrative 238,270 292,716 762,236 788,882
Research and development 58,419 100,252 211,087 301,526
Total operating expenses 296,689 392,968 973,323 1,090,408
INCOME (LOSS) FROM OPERATIONS 64,298 (86,926) 120,371 (141,814)
OTHER INCOME (EXPENSE):
Interest and other income 4,215 4,887 12,681 18,060
Interest expense (3,529) (3,674) (15,816) (14,737)
Total other income
(expense) 0 686 1,213 (3,135) 3,323
INCOME (LOSS) BEFORE INCOME
TAXES 64,984(85,713) 117,236 (138,491)
INCOME TAX EXPENSE (BENEFIT) 50 ( 8,000)
NET INCOME (LOSS) $ 64,984$(85,713) $ 117,186 $(130,491)
INCOME (LOSS) PER COMMON
SHARE $.11 $(.14) $.20 $(.22)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 597,682 597,682 597,682 597,682
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CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended
September 30,
1996 1995
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OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 117,186 $(130,491)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET
CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 69,199 64,503
Changes in assets and liabilities:
Accounts receivable (81,579) 37,028
Income taxes receivable 13,000
Inventories (142,969) (74,551)
Prepaid expenses and other 9,083 8,399
Other assets (3,219) (816)
Accounts payable, accrued expenses and
customer deposits (8,079) 107,560
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (40,378) 24,632
INVESTING ACTIVITIES:
Purchase of securities (146,970) (386,309)
Proceeds from sale or maturity of securities 242,880 346,031
Capital expenditures (5,967) (25,038)
Payments received on stockholders' notes 1,081 3,381
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 91,024 (61,935)
FINANCING ACTIVITIES:
Principal payments on long-term debt (21,851) (5,284)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 28,795 (42,587)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 25,974 122,217
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 54,769 $ 79,630
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $15,816 $14,737
Test equipment transferred from Inventories
to Engineering Equipment $45,290
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<PAGE>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 $1,178,200 and the
ratio of current assets to current liabilities was 4.80 to 1 at
September 30, 1996. At December 31, 1995, the Company had net
working capital of $1,067,800 and a current ratio of 4.32 to 1.
Accounts receivable increased $81,600 from $162,200 at
December 31, 1995, to $243,800 at September 30, 1996. The increase
is the direct result of an increase in sales in the third quarter
of 1996 compared to the third quarter of 1995. The average age of
accounts receivable is consistent in both periods.
Total inventories of $934,300 at September 30, 1996 were
$97,700 higher than total inventories of $836,600 at December 31,
1995. The increase in work in process and decrease in raw
materials inventories are due to production runs for the DP100 and
SC100.
The Company's credit line 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 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.
The Company adopted SFAS No. 115 as of January 1, 1995. At
December 31, 1995, the unrealized appreciation on securities
available-for-sale was $4,900. The estimated fair value of the
Company's securities approximates cost at September 30, 1996.
Certain of the statements contained in this document that are not
historical facts, including, without limitation, statements of
future expectations, projections of results of operations and
financial condition, statements of future economic performance and
other forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, are subject to
known and unknown risks, uncertainties and other factors which may
<PAGE>7
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
cause the actual results, performance or achievements of the
Company to differ materially from those contemplated in such
forward-looking statements. In addition to the specific matters
referred to herein, important factors which may cause actual
results to differ from those contemplated in such forward-looking
statements include: (i) the results of the Company's efforts to
implement its business strategy; (ii) actions of the Company's
competitors and the Company's ability to respond to such actions;
(iii) changes in governmental regulation, tax rates and similar
matters; and (iv) other risks detailed in the Company's other
filings with the Commission.
<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 1996 totaled $631,300 and
were 29% higher than the third quarter sales in 1995 of $488,600.
The increase was due to shipments of CRL's digital processor, the
DP100, which CRL began shipping in the first quarter of 1996.
.
Cost of goods sold was 43% of net sales for the third
quarter ended September 30, 1996 compared to 37% for the same
period in 1995. 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, 1996 was 64% which was consistent with the same
period of 1995.
Selling, general and administrative expenses were $238,300
in the third quarter of 1996 compared to selling, general and
administrative expenses of $292,700 for the third quarter of 1995.
The decrease was due primarily to a decrease in domestic and
international marketing costs including travel and trade show
costs.
Research and development expense in the third quarter of
1996 totaled $58,400, and was $41,900 lower compared to the 1995
third quarter total of $100,300. 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.
Total other income (expense) of $700 for the third quarter
of 1996 was comparable to other income (expense) of $1,200 for
the third quarter of 1995.
Interest expense consists of the interest cost on the
long-term mortgage collateralized by the Company's headquarters
facility.
The Company's income tax provision for the three and nine
months ended September 30, 1996 is offset by the partial reversal
of the deferred tax valuation allowance recorded at December 31,
1995.
Net income for the third quarter of 1996 was $65,000 as
compared to a net loss of $85,700 for the third quarter of 1995.
Net income for the nine months ended September 30, 1996 increased
$248,000 over the same period of 1995 due to the events explained
above: increased revenue due to the shipments of the DP100;
reduction in selling, general and administrative expenses; and
reduction in research and development expense.
<PAGE>9
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.
<PAGE>10
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, 1996
BY /s/Gary D. Clarkson
Gary D. Clarkson
Treasurer (Authorized
Officer for signature)
<PAGE>11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 54,769
<SECURITIES> 196,851
<RECEIVABLES> 260,341
<ALLOWANCES> 16,520
<INVENTORY> 934,307
<CURRENT-ASSETS> 1,487,908
<PP&E> 1,627,387
<DEPRECIATION> 1,043,089
<TOTAL-ASSETS> 2,232,020
<CURRENT-LIABILITIES> 309,700
<BONDS> 120,802
0
0
<COMMON> 59,768
<OTHER-SE> 1,741,750
<TOTAL-LIABILITY-AND-EQUITY> 2,232,020
<SALES> 1,869,587
<TOTAL-REVENUES> 1,882,268
<CGS> 775,893
<TOTAL-COSTS> 1,749,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,816
<INCOME-PRETAX> 117,236
<INCOME-TAX> 50
<INCOME-CONTINUING> 117,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,186
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
