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 June 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 June 30, 1997
Common stock, $.10 par value 597,682<PAGE>
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
June 30, 1997 (Unaudited) and
December 31, 1996 2
Consolidated Condensed Statements of
Operations - Three and six months ended
June 30, 1997 and 1996 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows - Six months ended June 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 7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Page 1<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 92,021 $ 48,048
Securities available-for-sale 59,477 167,961
Accounts receivable, less allowance
for doubtful accounts of $12,520
(1997) and $16,520 (1996) 186,950 189,616
Inventories:
Raw materials and supplies 278,980 335,072
Work in process 361,524 314,291
Finished goods 304,714 306,559
Total inventories 945,218 955,922
Prepaid expenses and other 67,688 69,628
Total current assets 1,351,354 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 623,762 616,081
Total 1,650,783 1,641,500
Less accumulated depreciation 1,097,341 1,062,936
Property, plant and equipment - net 553,442 578,564
OTHER ASSETS - NET 154,488 159,851
TOTAL $2,059,284 $2,169,590
(continued)
Page 2<PAGE>
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 86,885 $ 64,650
Accrued salaries and benefits 48,821 65,699
Accrued professional fees 5,614 21,976
Customer deposits 5,305 40,432
Other accrued expenses and liabilities 28,521 31,826
Long-term debt - current portion 20,830 15,228
Total current liabilities 195,976 239,811
LONG-TERM DEBT - LESS CURRENT PORTION 106,221 122,287
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 450,079 500,484
Total stockholders' equity 1,757,087 1,807,492
TOTAL $2,059,284 $2,169,590
See accompanying notes to consolidated condensed financial
statements.
Page 3<PAGE>
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months ended
June 30, June 30,
1997 1996 1997 1996
NET SALES $506,287 $599,761 $1,017,139 $1,238,292
COST OF GOODS SOLD 277,351 245,301 484,188 505,585
Gross profit 228,936 354,460 532,951 732,707
OPERATING EXPENSES:
Selling, general and
administrative 224,607 261,282 472,343 523,966
Research and
development 54,513 60,369 105,213 152,668
Total operating
expenses 279,120 321,651 577,556 676,634
(LOSS) INCOME FROM
OPERATIONS (50,184) 32,809 (44,605) 56,073
OTHER INCOME (EXPENSE):
Interest and other
income 2,189 3,461 3,776 8,466
Interest expense (3,223) (5,250) ( 6,526) (12,287)
Total other (expense)
income (1,034) (1,789) (2,750) (3,821)
(LOSS) INCOME BEFORE
INCOME TAXES (51,218) 31,020 (47,355) 52,252
INCOME TAX EXPENSE 0 50 3,050 50
NET (LOSS) INCOME $ (51,218) $ 30,970 $(50,405) $ 52,202
(LOSS) INCOME PER
COMMON SHARE $(.09) $ .05 $(.08) $.09
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<PAGE>
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1997 1996
OPERATING ACTIVITIES:
NET (LOSS) INCOME $ (50,405) $ 52,202
ADJUSTMENTS TO RECONCILE
NET (LOSS) INCOME TO NET CASH USED
IN OPERATING ACTIVITIES:
Depreciation and amortization 39,768 42,508
Changes in assets and liabilities:
Accounts receivable 2,666 22,114
Inventories 10,704 (123,575)
Prepaid expenses and other assets 1,940 ( 3,588)
Accounts payable, accrued expenses
and customer deposits (49,437) (25,265)
NET CASH USED IN OPERATING ACTIVITIES (44,764) (35,604)
INVESTING ACTIVITIES:
Purchase of securities (59,477)(75,000)
Proceeds from sale or maturity of securities 167,961 174,070
Capital expenditures (9,283)
Payments received on stockholders' notes 1,081
NET CASH PROVIDED BY INVESTING ACTIVITIES 99,201 100,151
FINANCING ACTIVITIES:
Principal payments on long-term debt (10,464) (14,789)
NET INCREASE IN CASH AND CASH EQUIVALENTS 43,973 49,758
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 48,048 25,974
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 92,021$75,732
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 6,526 $12,288
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<PAGE>
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 June 30, 1997 and the Consolidated Condensed
Statements of Operations for the three and six months ended June
30, 1997 and 1996 and the Consolidated Condensed Statements of
Cash Flows for the six months ended June 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
Page 6<PAGE>
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 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.
Page 7<PAGE>
Item. 2
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 $1,155,000 and the
ratio of current assets to current liabilities was 6.9 to 1 at
June 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.
Accounts receivable of $187,000 at June 30, 1997 was
comparable to the December 31, 1996 balance of $190,000.
Total inventories of $945,000 at June 30, 1997 compared to
total inventories of $956,000 at December 31, 1996.
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
approximated cost at June 30, 1997.
Page 8<PAGE>
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 second quarter of 1997 totaled $506,000
and were 16% lower than the second quarter sales in 1996 of
$600,000. The decrease was due to slower sales across CRL's
product lines, in both domestic and international markets. In the
second quarter of 1996, the Company had a large single
international order that also contributed to the difference.
Cost of goods sold was 55% of net sales for the second
quarter ended June 30, 1997 compared to 41% 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%.
Selling, general and administrative expenses were $225,000
in the second quarter of 1997 compared to selling, general and
administrative expenses of $261,000 for the second quarter of
1996. The decrease was due to lower marketing expenses both in the
domestic and international market place, primarily as the result
of less media advertising and lower trade shows cost.
Research and development expense in the second quarter of
1997 totaled $55,000, compared to the 1996 second quarter total
of $60,000. 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 $2,200 for the second quarter
of 1997 compared to $3,500 for the second 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 second quarter of 1997 was $51,000 compared
to net income of $31,000 for the second quarter of 1996.
Year-to-date net sales were approximately $221,000 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 47% of net sales for the six months ended
June 30, 1997 compared to 41% for the same period in 1996. The
Page 9<PAGE>
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 an $100,000 decrease in operating expenses
for the six months ended June 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 $45,000 loss from operations for the first six
months of 1997, compared to a $56,000 profit for the same period
of 1996. Increased marketing efforts and an increased acceptance
of CRL's new products is expected to increase the levels of sales
in future quarters.
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.
Page 10<PAGE>
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
Part 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 11<PAGE>
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: August 12, 1997
BY /s/Gary D. Clarkson
Gary D. Clarkson
Treasurer (Authorized Officer
for (signature)
Page 12<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 92,021
<SECURITIES> 59,477
<RECEIVABLES> 199,470
<ALLOWANCES> 12,520
<INVENTORY> 945,218
<CURRENT-ASSETS> 1,351,354
<PP&E> 1,650,783
<DEPRECIATION> 1,097,341
<TOTAL-ASSETS> 2,059,284
<CURRENT-LIABILITIES> 195,976
<BONDS> 106,221
0
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<COMMON> 59,768
<OTHER-SE> 1,697,319
<TOTAL-LIABILITY-AND-EQUITY> 2,059,284
<SALES> 1,017,139
<TOTAL-REVENUES> 1,020,915
<CGS> 484,188
<TOTAL-COSTS> 1,110,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,526
<INCOME-PRETAX> (47,355)
<INCOME-TAX> 3,050
<INCOME-CONTINUING> (50,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,405)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
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