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, 1999
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, 1999
Common stock, $.10 par value 410,182
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 1999 (Unaudited) and
December 31, 1998 2
Consolidated Condensed Statements of
Operations - Three months ended
March 31, 1999 and 1998 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows - Three months ended March 31, 1999
and 1998 (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 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1999 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 147,196 $ 128,691
Securities available-for-sale 532,947 486,961
Accounts receivable, less allowance for
doubtful accounts of $6,520 120,248 87,942
Inventories:
Raw materials and supplies 38,560 28,844
Work in process 17,601 25,090
Finished goods 172,966 330,433
Total inventories, less obsolescence reserve
of $699,751 at March 31 ,1999 and
$696,751 at December 31, 1998 229,127 384,367
Prepaid expenses and other 17,727 9,566
Total current assets 1,047,245 1,097,527
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 503,000 503,000
Furniture and fixtures 305,072 305,072
Machinery and equipment 533,825 555,878
Total 1,472,766 1,494,819
Less accumulated depreciation 1,051,992 1,061,082
Property, plant and equipment - net 420,774 433,737
OTHER ASSETS - NET 0 1,310
TOTAL $1,468,019 $1,532,574
(continued)
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1999 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 56,117 $ 44,748
Accrued salaries and benefits 139,386 36,703
Accrued professional fees 11,951 27,986
Customer deposits 30,061 17,355
Other accrued expenses and liabilities 17,461 12,215
Long-term debt - current portion 11,000 21,000
Total current liabilities 265,976 160,007
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 59,768 59,768
Additional paid-in capital 1,247,240 1,247,240
Retained earnings 76,675 247,199
1,383,683 1,554,207
Less common stock in treasury - at
cost, 187,500 shares (181,640) (181,640)
Total stockholders' equity 1,202,043 1,372,567
TOTAL $1,468,019 $1,532,574
See accompanying notes to consolidated condensed financial statements.
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1999 1998
NET SALES $374,293 $517,210
COST OF GOODS SOLD 243,667 220,905
Gross profit 130,626 296,305
OPERATING EXPENSES:
Selling, general and administrative 167,410 221,877
Research and development 29,348 55,989
Severance expense 118,000
Total operating expenses 314,758 277,866
(LOSS) INCOME FROM OPERATIONS (184,132) 18,439
OTHER (EXPENSE) INCOME:
Proceeds from officer's life insurance in
excess of cash surrender value 1,000,681
Interest and other income 13,608 2,829
Interest expense (19,156)
Total other income (expense) 13,608 984,354
(LOSS) NET INCOME $(170,524) $1,002,793
(LOSS) INCOME PER COMMON SHARE Basic and Diluted $(.42) $1.68
See accompanying notes to consolidated condensed financial
statements.
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
OPERATING ACTIVITIES:
NET (LOSS) INCOME $(170,524) $1,002,793
ADJUSTMENTS TO RECONCILE NET (LOSS)
INCOME TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization 7,570 15,347
Loss on sale of assets 393
Proceeds from officer's life insurance in
excess of cash surrender value (1,000,681)
Changes in assets and liabilities:
Accounts receivable (32,306) (68,882)
Inventories 155,240 19,493
Prepaid expenses and other assets (6,851) 3,772
Accounts payable, accrued expenses and
customer deposits 115,969 (52,924)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 69,491 (81,082)
INVESTING ACTIVITIES:
Proceeds from officer's life insurance 1,033,051
Purchase of securities (143,616) (948,156)
Proceeds from sale or maturity of securities 102,630 89,607
Capital expenditures (3,707)
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (40,986) 170,795
FINANCING ACTIVITIES:
Principal payments on long-term debt (10,000) (101,176)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 18,505 (11,463)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 128,691 119,851
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $147,196 $ 108,388
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 19,156
See accompanying notes to consolidated condensed financial statements.
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, 1999 and the Consolidated Condensed
Statements of Operations for the three months ended March 31,
1999 and 1998 and the Consolidated Condensed Statements of Cash
Flows for the three months ended March 31, 1999 and 1998 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, 1998.
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. In calculating earnings per share for the three months ended
March 31, 1999 and the three months ended March 31, 1998, the
effects of 14,062 and 15,312 total shares, respectively, related
to options to purchase common stock were not used for computing
diluted earnings per share because the results would be
antidulitive.
3. At the Annual Meeting of Shareholders of the Company held on
May 11, 1999, the shareholders passed a proposal to dissolve the
Company. The dissolution may be revoked by the Board of Directors
at any time up to 120 days after its effective date without
stockholder action relating to such revocation. The effective date
will be the date the articles of dissolution are filed with the
Arizona Corporation Commission, which is expected to occur during
June 1999.
Because the Board of Directors has the right to revoke the
dissolution, the Company's financial statements as of March 31,
1999, and for the three months then ended are presented under the
going concern basis. Had the Board of Directors actually begun
dissolution procedures, the Company's financial statements as of
March 31, 1999, and for the three months then ended would have
been presented on a liquidation basis, where assets are valued at
their estimated net realizable value and liabilities include the
estimated costs of carrying out the dissolution. Under such
presentation, the net assets available at liquidation would have
been approximately $1,040,000, compared to $1,202,043 as presented
under the going concern basis. Taking into account the projected
operating losses of $290,000 through June 1999, the Company
estimates that net assets available for liquidation at an assumed
June 30, 1999 dissolution will be approximately $750,000.
Estimates of net assets available at liquidation assume that the Company can
sell its assets for an aggregate net cash price that is equal to
book value at March 31, 1999, and that there will be no unusual or
unanticipated costs which are not considered in the amounts above.
There can be no assurance that these assumptions or the amount of
projected operating losses or costs of dissolution will prove to
be accurate.
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 approximately
$781,000 and the ratio of current assets to current liabilities
was 3.94 to 1 at March 31, 1999. At December 31, 1998, the
Company had net working capital of approximately $938,000 and a
current ratio of 6.86 to 1.
Securities increased $46,000 from $487,000 at December 31,
1998 to $533,000 at March 31, 1999. The increase was the result of
more cash equivalents invested in T-Bills.
Accounts receivable of $120,000 at March 31, 1999 compared
to $88,000 at December 31, 1998. One large credit sale in March
accounted for the increase in 1999.
Total inventories were $229,000 at March 31, 1999 compared
to total inventories of $384,000 at December 31, 1998. The
decrease is the result of the Company ceasing production of new
equipment and selling finished goods from current inventory.
Accrued salaries and benefits increased from $37,000 at
December 31, 1998 to $139,000 at March 31, 1999. The increase was
the result of committed severance expenses totaling $118,000 for
the quarter relating to the dissolution of the Company.
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
does not have any available credit facilities. The Company
presently does not have any commitments for capital expenditures.
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 1999 totaled $374,000
compared to the first quarter sales in 1998 of $517,000. The
Company continues to experience slower demand across its product
lines, in both domestic and international markets. Discounts were
increased to move excess inventory. One of the Company's product
lines was sold along with the inventory associated with that
product line.
Cost of goods sold was 65% of net sales for the first
quarter ended March 31, 1999 compared to 43% for the same period
in 1998. The increase in cost of goods sold was a result of the
decrease in net sales and increase in discounts.
Selling, general and administrative expenses were $167,000
in the first quarter of 1999 compared to selling, general and
administrative expenses of $222,000 for the first quarter of 1998.
The decrease in selling, general and administrative expenses in
1999 was the result of a decrease in personnel and cutbacks in
both domestic and international sales and marketing.
Research and development expense in the first quarter of
1999 totaled $29,000, compared to the 1998 first quarter total of
$56,000. The decrease is the result of a decrease in the staff in
engineering.
Interest and other income of $14,000 for the first quarter
of 1999 compared to $3,000 for the first quarter of 1998. The
increase was the result of an increase in funds invested as a
result of insurance proceeds.
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, and therefore
the Company incurred no interest expense during the first quarter
of 1999. Interest expense of $19,000 for the first quarter of 1998
consists of the interest cost on this mortgage.
The loss for the first quarter of 1999 was $171,000 compared
to net income of $1,000,000 for the first quarter of 1998.
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.
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 25, 1999
8-K filed on March 8, 1999
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 21, 1999
BY /s/Gary D. Clarkson
Gary D. Clarkson
President (Authorized
Officer for signature)
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<PERIOD-END> MAR-31-1999
<CASH> 147,196
<SECURITIES> 532,947
<RECEIVABLES> 126,768
<ALLOWANCES> 6,520
<INVENTORY> 229,127
<CURRENT-ASSETS> 1,047,245
<PP&E> 1,472,766
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<COMMON> 59,768
<OTHER-SE> 1,202,043
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<SALES> 374,293
<TOTAL-REVENUES> 387,901
<CGS> 243,667
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<INCOME-PRETAX> (170,524)
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<NET-INCOME> (170,524)
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