U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
December 31, 1999 0-11353
(For the year ended) (Commission File No.)
CIRCUIT RESEARCH LABS, INC.
Arizona 86-0344671
State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
Address of principal executive offices:
2522 West Geneva Drive Tempe, Arizona 85282
Registrant's Telephone No. (602) 438-0888
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
This registrant has filed all reports required to be filed by
Section 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and has been subject to such filing
requirements for the past 90 days.
Disclosure of delinquent filers in response to Item 405 of
Regulation SB is not contained in this form, and no disclosure will
be contained, to the best of Registrant's knowledge in definitive
proxy or information statements, incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB.
The registrant's revenues for fiscal 1999 were $ 1,054,885.
The aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant on February 29, 2000,
based on the closing sales price for such stock in the
Over-the-Counter market as reported by NASDAQ on such date was
$1,155,480.
At February 29, 2000, 597,682 shares of the registrant's common
stock were issued and outstanding.
The registrant's December 31, 1999 Annual Report to Stockholders is
incorporated by reference in Parts I, II and III.
Exhibit Index located on page Fourteen.
<PAGE>1
CIRCUIT RESEARCH LABS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
PART I Page
Item 1 Description of Business 3
Item 2 Description of Property 7
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of
Security Holders 7
PART II
Item 5 Market for Common Equity and Related
StockholderMatters 8
Item 6 Management's Discussion and Analysis
or Plan ofOperations 8
Item 7 Financial Statements 8
Item 8 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 8
PART III
Item 9 Directors, Executive Officers,
Promoters and Control Persons: Compliance
with Section 16(a) of the Exchange Act 9
Item 10 Executive Compensation 11
Item 11 Security Ownership of Certain Beneficial
Owners and Management 13
Item 12 Certain Relationships and Related
Transactions 14
Item 13 Exhibits and Reports on Form 8-K 14
<PAGE>2
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
This information is incorporated by reference from "Corporate
Profile" and "Selected Financial Information" on pages 1, 9 and 12
of Circuit Research Labs, Inc.'s ("CRL" or the "Company") 1999
Annual Report to Stockholders (the "1999 Report"); "Corporate
Overview" and " Corporate Strategy" on page 3 of the 1999 Report;
and Notes 1, 7 and 11 to the Company's Consolidated Financial
Statements on pages 15-26 of the 1999 Report.
Letter of Intent to Acquire Orban, Inc.
On January 5, 2000, the Company and Harman International
Industries, Inc. (NYSE: HAR) announced that they have signed a
letter of intent whereby the Company will acquire Harman's Orban,
Inc. subsidiary. Based on a series of negotiations, the purchase
price is $10.5 million, of which $500,000 has been paid. The
transaction is expected to close in the second quarter of 2000.
Management believes that the funding for the purchase of Orban,
Inc. is expected to be provided by a private placement of equity of
CRL and a combination of seller financing and asset based lending.
As of April 10, 2000, there is no assurance that the Company will
be able to acquire the necessary financing. The transaction is
subject to the ratification of a definitive agreement as well as
customary closing conditions.
Based in San Leandro, California, Orban, Inc. is a leading
manufacturer of audio processing for radio and TV stations
worldwide. Orban has about 70 employees and annual sales of
approximately $15 million. CRL will retain the Orban brand and
employees, including founder and chief engineer Bob Orban.
The management of the Company believes this business combination is
highly complementary and synergistic, since roughly 80% of Orban's
products are digital and approximately 80% of CRL's products are
analog. Upon the acquisition being completed, the Company will be
equipped to offer a full range of digital and analog audio
processing solutions at many price points.
Circuit Research Labs, Inc.'s Principal Products
Audio Processing Products
Audio processing equipment produced by the Company is used by radio
and television stations, entertainers and recording studios. The
Company's equipment "repackages" audio signals produced by
microphones, recordings and other audio sources. The equipment
alters such signals to control audio loudness (amplitude) and tonal
balance (equalization) prior to transmission. Audio processing
shapes the audio sound wave when it is in electrical impulse form
before it is transmitted by a carrier wave.
Radio stations utilize audio processing equipment to control the
electrical amplitude limit of audio signals (modulation limit) as
required by government regulations and to control the quality of
radio station signals received by listeners. All radio stations
utilize some type of audio processing to comply with governmental
<PAGE>3
and environmental regulations and to improve the apparent quality
of their signals. Approximately 10,800 AM and FM stations in the
United States use audio processing, as well as more than 19,000
radio stations in other countries. Of the approximately 1,600
television stations in the United States, about two-thirds of them
now broadcast in stereo, which requires audio processing. Based on
replacement equipment orders, the Company estimates that the
average useful life of audio processing equipment is less than five
years. Other recently developed products are appropriate for the
audio processing needs of the recording and performing industry.
CRL's audio processing equipment for radio broadcast can be
separated into four different series or product families, FM
Series, AM Series, TV Series and Other.
FM Series
Millennium Digital Audio Processor - The CRL Millennium digital
processor is the newest addition to the Company's FM processing
line. It is currently the only digital audio processor to use 32
bit floating-point technology. Its advanced design allows the unit
to serve a long life in the customer's hands. The modular
construction makes it possible for CRL to offer specific PCB
upgrades without changing the main chassis. This design approach
allows CRL to sell additional upgrade products to current users of
the Millennium. The Millennium FM digital processor gives a
strong, high quality sound that attracts and holds the listening
audience. The radio audience will enjoy a clear, bright and
appealing sound that is easy to listen to for long periods of time.
The Millennium uses the latest digital technology to its fullest
potential to produce the most advanced digital audio processor on
the market. The Millennium includes a true digital stereo
multiplex generator, gated AGC (Audio Gain Controller), 5 band
compressor, multi-band limiter and graphic equalizer. Also
included is CRL's exclusive stereo sound enhancement.
FM Amigo Audio Processor - CRL's FM Amigo processor is an
integrated "one box" processing system designed for the small to
mid-size station in both international and domestic markets. The
FM Amigo processor is one of the best performing processors in its
class. It is a combination of a dual band AGC, a variable pre-
emphasis multi-band limiter and digitally synthesized stereo
generator. The single unit contains a complete FM audio processing
system. The FM Amigo is flexible and powerful, yet designed for
easy set up and use. The FM Amigo is one of CRL's most popular
selling systems.
The Modulation Signature Audio Processor - The Modulation Signature
has a powerful multi-band limiter giving the radio station a
natural sound with superior loudness while maintaining superior
quality. A digitally synthesized multiplex generator provides the
station with a flawless, maintenance free stereo signal. Separate
stereo generator and audio limiter outputs are provided for added
flexibility. CRL's patented high performance audio filtering
guarantees the optimum performance of the radio station's SCA and
RDS/RBDS subcarriers.
SG-800A Stereo Generator - The SG-800A is an excellent companion to
virtually any audio processing system or transmitter exciter on the
market. The digitally synthesized SG-800A Stereo Generator
produces laboratory grade composite signals even with the complex
waveforms produced by large amounts of competitive audio
processing. The digital design of the SG-800A provides absolute
stability and maintenance free composite/ pilot synchronization.
The SCA-300B Subcarrier Generator - The SCA-300B is a complete
subcarrier system using advanced concept in SCA generation
techniques. The frequency-locked digital design ensures superior
carrier frequency stability, while providing linear modulation
<PAGE>4
characteristics. The SCA-300B is designed to handle any type of
data or audio application. Integral dual band audio limiting
provides consistent full modulation for music or voice
applications.
AM Series
Amigo AM Audio Processor - The Amigo AM is a complete stereo audio
processing system. It includes CRL's patented AM stereo processing
circuitry as found in the modular AM systems. The system includes
a dual band AGC, triband limiter, and NRSC (National Radio Systems
Committee) output filtering. The Amigo AM can be used in mono for
customers waiting to convert to stereo.
The AGC-400 Automatic Gain Controller - The AGC400 provides
accurate, distortion-free automatic gain control over a wide range
of program levels. The CRL AGC combines a wide band AGC with a
dual-band AGC, which control average audio levels and audio peaks,
respectively. This unique combination provides a smooth natural
sound while preventing the amplification of background noise.
SEC-400 Multi-band Compressor/equalizer - The SEC-400 is a multi-
band compressor/equalizer that allows adjustment of tonal balance.
However, there is more to this unit than simply control. The SEC-
400 splits the audio into four bands. Each compressor then
aggressively adds RMS density and loudness to the program material.
The output equalization of each band is adjustable from +6 to -12
dB, which then allows the station to fine tune easily by boosting
or cutting bass, mid range or treble.
PMC-450 Limiter - The PMC 450 final peak limiter is designed to
give the radio station maximum peak levels and loudness, without
the distortion. This tri-band unit has an adjustable mid-band
limiter drive control which can add vocal clarity and punch to any
signal. In addition, the PMC-450 provides transmitter correction
controls, which allows the station to interface the unit with any
type of AM transmitter.
AM 4 Mono Audio Processing System - The AM4 will extend coverage
area of most AM stations by maximizing the audio energy delivered
to the transmitter, carefully reshaping the audio waveform to allow
modulation as high as possible without side effects. This three
unit system consists of the AGC-400 Audio Gain Controller, the SEC-
400 Four Band Compressor, and the PMC-450 Limiter.
The BAP-2000 is a complete stand alone audio processor for any mono
FM. The system consists of an advanced dual band audio AGC and
limiter. Internal options, selected by the radio station, allow
the BAP-2000 to be tailored to handle most any mono audio control
job.
MBL-100 Multi-band Audio Limiter - The MBL-100 is a multi-band
limiter specifically designed for either HF/short-wave and
news/talk radio. This unit offers maximum loudness capability to
extend coverage area and help overcome noise and interference in
the reception area. It also improves intelligibility of speech and
fidelity of musical programming.
Television Products
CRL has a complete line of quality audio processing, plus Stereo,
SAP (secondary audio program, primarily designed for public second
<PAGE>5
language usage) and PRO channel (non-public use with integrated
input limiter, data and telemetry inputs) generators. The audio
processing was designed with surround sound compatibility in mind.
Many first generation stereo users are converting over to the TVS-
3000 series of products because of it surround sound capabilities.
TVS-3001 - The TVS-3001 is a state-of-the-art stereo television
processing system that offers maximum control of the audio program
material. It includes a precision tri-band AGC with horizontal
sync rejection filter, exclusive CRL/CBS loudness control
circuitry, reversed phase audio corrector and audio asymmetry
removal circuits.
TVS-3003 - The TVS-3003 is a digitally synthesized MTS generator
with dbx encoding, advanced transfer function pre-emphasis limiter
and a proprietary stereo sound field enhancer.
TVS-3004 - The TVS-3004 Professional Channel (PRO) generator is a
digitally synthesized subcarrier generator for non-public use with
integrated input limiter, data and telemetry inputs.
TVS-3005 - The TVS-3005 is a digitally synthesized subcarrier
generator for a secondary audio program (SAP) channel, primarily
designed for public second language usage.
BAP-2000 - The BAP-2000 is a complete audio processor with
horizontal sync rejection filter for mono television applications.
The system consists of an advanced dual band audio AGC and limiter.
Internal options selected by the radio station allow the BAP-2000
to be tailored to handle most any mono control job.
Other Products
SGC-800 Stereo Gain Controller - The SGC-800 provides accurate,
distortion-free automatic gain control over a wide range of program
levels. The SGC-800 contains a programmable "dual, wide band" mode
AGC/Compressor that can work as multi-band, wide band or a
combination of both. This provides a smooth natural sound. This
product is also used in post-production recording studios.
AGC-400 Audio Gain Controller (Monaural) - The AGC-400 provides
accurate, distortion-free automatic gain control over a wide range
of program levels (24dB). The AGC-400 contains a programmable
"dual, wide band" mode AGC/Compressor that can work as multi-band,
wide-band or a combination of both. Average audio levels are
controlled by the wideband AGC, while audio peaks are controlled by
a dual band AGC. This provides a very smooth, natural sound which
cannot be accomplished with other audio processors.
Event Timer - This advanced microprocessor-based timing system that
can store and sequence up to 255 events. Each event can control up
to 8 contact closures. The user can program events for each day of
the week, for each different month of the year. Advanced software
makes the unit easy to use.
DAA-50 - With the conversion of audio technology to digital, CRL
recognized the need for an inexpensive test and analysis tool and
developed the DAA-50. The DAA-50 receives and decodes audio data.
A variety of information about the signal can be determined through
easily defined LED status indicator lights. Compact and light
weight, the DAA-50 can be used when and wherever it's needed.
<PAGE>6
ITEM 2 - DESCRIPTION OF PROPERTY
In June 1983, the Company contracted for the purchase of land and
construction of a building at 2522 West Geneva Drive, Tempe,
Arizona. In February 1984, the Company moved its operations into
this 5,300 square foot building on a 37,500 square foot parcel of
land that currently houses the Company's executive, administrative,
sales and research facilities. There is no mortgage on the
property.
In August 1990, the Company entered into a contract for the
construction of an addition to the existing building at 2522 West
Geneva Drive. The project was completed in January 1991 and was
financed through cash reserves. The 5,000 square foot addition is
being utilized by corporate manufacturing.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
<PAGE>7
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference from "Stock Market
Information" on page 27 of the 1999 Report.
Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This information is incorporated by reference from "Management's
Discussion and Analysis" on pages 9 through 14 of the 1999 Report.
ITEM 7 - FINANCIAL STATEMENTS
This information is incorporated by reference from the Consolidated
Financial Statements on pages 15 through 26 of the 1999 Report.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>8
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Name Age Position
Charles Jayson Brentlinger 45 ChiefExecutive Officer,
President and a Director
Gary D. Clarkson 47 Director, Secretary
Erle M. Constable 81 Assistant Treasurer and
Director
Carl E. Matthusen 56 Director
Dennis L. Drew 54 Treasurer, General Manager
and Vice President of
Operations
DIRECTORS
Charles Jayson Brentlinger is President and CEO of the Company and
Chairman of the Board. He is also the President and owner of
Rainbow Broadcasting Inc. and Brentlinger Broadcasting, Inc.
Rainbow Broadcasting is the owner of radio station KBZG and is
purchasing radio station KESP, both of Phoenix, Arizona.
Brentlinger Broadcasting, Inc. was the owner of KBZR Radio in
Arizona City, Arizona. In September 1999, Brentlinger Broadcasting
Inc. sold KBZR to Big City Broadcasting. Mr. Brentlinger
previously sold radio station KPTY Gilbert Arizona, to New Planet
Radio.
Mr. Brentlinger has over 26 years of experience in the radio
industry. He has worked as a consultant for almost every radio
station in the Phoenix area. He formed his own broadcast
engineering firm in 1986. Some of his many clients have included,
Scripps Howard Broadcasting, Adams Radio Communications
Corporation, Adams Satellite/ABC, Transtar Radio Network, Pulitzer
Broadcasting Phoenix, Duchossois Communications Corporation,
Sundance Communications Corporation, Arizona Radio and Television
Corporation, Cook Inlet Corporation, First Media Corporation,
Duffey II Corporation, TransCOM/Transcolumbia Corporation.
Mr. Brentlinger attended DeVry Institute of Technology and the
University of Arkansas at Little Rock. He is a member of Society
of Broadcast Engineers and National Association of Broadcasters.
He holds a FCC General Radiotelephone license, valid for life.
Gary D. Clarkson In June of 1999, Mr. Clarkson resigned as Chief
Executive Officer, President and Chairman, as a result of the sale
of his stock to Charles Jayson Brentlinger. Mr. Clarkson will
remain with the Company as a Director, Secretary to the board and
Advanced Products Engineer under a 3 year employment contract. In
January 1998, following the death of Mr. Ronald R. Jones, Mr.
Clarkson was elected to the positions of Chief Executive Officer,
President and Chairman. Mr. Clarkson had been Secretary and a
director of the Company since its incorporation and was elected
Treasurer in July 1992. Mr. Clarkson founded CRL with Mr. Jones in
1974, and has devoted substantially all of his business efforts to
the Company's business since that time. He has been a design
engineer for the Company from 1974 to present. He holds an
associate degree in electronics engineering technology from DeVry
Institute of Technology, Phoenix, Arizona. Mr. Clarkson served as
assistant and chief engineer at several radio stations from 1971
until 1978.
<PAGE>9
Erle M. Constable has served as a director of the Company since
1983 and Treasurer from January 1987 to November 1988 when he
reduced his activity to Assistant Treasurer. In 1983, Mr.
Constable retired from Dynalectron Corporation (now DYNCORP), then
a publicly held diversified technical services company where he
served as Vice President of Finance and Corporate Development. He
was employed by Dynalectron in 1973, and was in charge of an
acquisition program which merged 15 companies into Dynalectron.
Prior to joining Dynalectron, Mr. Constable worked for Fairchild
Industries, Lockheed Aircraft Corporation, Glenn L. Martin Company
and Trans World Airlines. He holds undergraduate and masters
degrees in business administration received in 1939 and 1940 from
the University of Nebraska. Periodically, Mr. Constable acts as a
consultant to the Company and receives an hourly consulting fee for
his services. Mr. Constable is a director of CRL International,
Inc., the Company's wholly owned foreign sales corporation.
Carl E. Matthusen has served as a director of the Company since
February 1988. Mr. Matthusen began his career in the broadcast
industry in 1963 serving in various capacities at seven radio
broadcast stations in Arizona, Wisconsin, Minnesota and Virginia.
Since 1978, he has been General Manager of KJZZ/Sun Sounds operated
by the Mesa Community College in Mesa, Arizona. In addition, he is
a guest lecturer at Mesa Community College, Phoenix College and
Arizona State University as well as a consultant to Arizona Western
Community College and the Arizona Commission on Post-secondary
Education. Mr. Matthusen also served as Chairman of the Board of
Directors of the National Public Radio Network from 1992 to 1996,
where he was a director from 1990 to 1997.
OTHER EXECUTIVE OFFICERS
Dennis L. Drew - Treasurer, General Manager and Vice President of
Operations. In June 1999, Mr. Drew resigned as Secretary and Mr.
Clarkson was appointed to that position. Mr. Drew was appointed
Secretary/Treasurer in January 1998. He joined the Company in 1993
as Controller. In 1994, he was appointed to the positions of Vice
President of Operations and Assistant Secretary/Treasurer. Before
joining the Company, Mr. Drew spent three years as a Project
Manager for Computer Cable Specialists. Prior to Computer Cable
Specialists, Mr. Drew held several senior financial management
positions with companies in the computer leasing industry. These
positions covered a wide range of responsibilities including
implementing computerized internal controls to negotiating
contracts and loan agreements. Mr. Drew has an MBA from Arizona
State University.
<PAGE>10
ITEM 10 - EXECUTIVE COMPENSATION
The Company did not pay any individual cash compensation in excess
of $100,000 for services provided during the fiscal year. The
following table sets forth compensation paid or accrued to the
chief executive officer during each of the three years ended
December 31, 1999.
Summary Compensation Table
Securities
Name and Underlying Other
Principal Position Year Salary Options SARs (#)Compensation
Charles Jayson Brentlinger 1999 $49,846(1) 671,250(5) -0-
President, CEO
Gary D. Clarkson(2)
Secretary 1999 $98,406 -0- -0-
1998 $69,982 -0- $2,321(4)
Ronald R. Jones(3)
Former President and
Chairman of the Board 1998 $4,194 -0- $3,571(4)
1997 $72,696 -0- -0-
(1) Charles Jayson Brentlinger compensation from July 1, 1999 to
December 31, 1999. As per the stock purchase agreement of September
1999, Mr. Brentlinger is employed by the Company at a salary not to
exceed $125,000 per year for a three year period.
(2) Gary D. Clarkson has a three year employment agreement with
the Company.
(3) Mr. Jones died on January 1, 1998.
(4) Fee paid by Company for the personal guarantee of the SBA
loan.
(5) On September 30, 1999, the Company granted Mr. Charles Jayson
Brentlinger 171,250 options to purchase shares of common stock
of the Company for a purchase price of $2.50 per share, or
$428,125 in the aggregate to be purchased by September 30,
2000, and a 5 year option to purchase 500,000 shares of the
Company's common stock for $2.50 per share for a total of
$1,250,000. This option expires on September 30, 2004.
The Company has agreements with all employees calling for
nondisclosure of trade secrets.
The Company has group life, disability, and medical insurance
plans, a 401(k) pension plan, and an Employee Stock Purchase Plan.
The 1994 Stock Option Plan was approved by the Company's
shareholders at the Company's annual meeting on May 6, 1994.
Compensation of Directors
During the year ended December 31, 1999, outside Directors received
a total of $1,600 in compensation for attending meetings.
Employee Pension Plan
The Company sponsors the CRL, INC. 401(k) PROFIT SHARING PLAN (the
"Plan") for the benefit of all employees meeting certain
eligibility requirements. Under the Plan, participants are
permitted to make pre-tax contributions to their plan accounts.
The Company will match 50% of a participant's contributions up to a
maximum Company matching contribution of 3% of a participant's
annual compensation. Total annual contributions to a participant's
<PAGE>11
account may not exceed 25% of annual compensation. In addition,
the Company, at its sole discretion, may make an annual profit
sharing contribution to the Plan out of its current or accumulated
profits. The annual contribution, if any, is allocated to
participants based upon each participant's annual compensation.
The Company has not made an annual contribution and currently has
no plans to do so. The Company did not make a contribution to the
account of the individuals listed in the preceding cash
compensation table for the year ended December 31, 1999.
Stock Purchase Plan
The Company has an employee stock purchase plan which is offered to
substantially all employees, including officers. Employees may
purchase the Company's common stock through payroll deductions not
exceeding $50 per week and shares are purchased at the market
price, by a nonaffiliated dealer on the open market. During 1999,
no employees participated in this plan.
Stock Options
In May 1994, the Company's stockholders approved the Company's 1994
Stock Option Plan, which set aside an aggregate of 60,000 shares of
common stock for which options may be granted to employees,
officers, directors, and consultants. There are no options
outstanding to this group at this time.
The following table sets forth information regarding options
granted in fiscal 1999 to executive officers named in the Summary
Compensation Table:
Option/SAR Grants in Last Fiscal Year
[Individual Grants]
Percent
Number of of Total
Securities Options/S Exercise
Underlying ARs or
Options/SARS Granted Base Expiration
Name Granted to Price Date
Employees ($/Sh)
in Fiscal
Year
Charles Jayson 171,250 26% $2.50 2000
Brentlinger
Charles Jayson 500,000 74% 2.50 2004
Brentlinger
Fiscal Year End Option/SAR Values
Number of Value of
Unexercised Unexercised In-the-
Options/SARs at Money Options/SARs
Name Fiscal Year End (#) at Fiscal Year (1)
Exercisable/Unexer- ($)
cisable Exercisable/Unexer-
cisable
Charles Jayson 671,250/-0- -0-/-0-
Brentlinger
(1) Calculated by multiplying the number of shares underlying
outstanding in-the-money options by the difference between the last
sales price of the Company's Common Stock on December 31, 1999
($2.00 per share) and the exercise prices for both exercisable and
unexercisable shares.
<PAGE>12
Employment Contracts
The Company has a three-year employment agreement with Gary
Clarkson that commenced June 1999. Under this agreement, Mr.
Clarkson will act as Advanced Product Engineer and is to be paid a
salary of $66,456 per year.
<PAGE>13
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. Security Ownership of Certain Beneficial Owners
As of February 29, 1999, the following persons were known by the
Company to be the beneficial owners of more than 5% of the
Company's Common Stock:
Amount and
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial Owner of Class(1)
$.10 par value Charles Jayson
common Brenlinger(2) 308,812 51.67%
of
Circuit Research Labs, Inc.
2522 West Geneva Drive
Tempe, Arizona 85282
(1) On the basis of 597,682 shares outstanding on February 29,
2000.
(2) Brentlinger agreed to purchase by September 30, 2000 171,250
additional shares of common stock of the Company for a purchase
price of $2.50 per share, or $428,125 in the aggregate.
Brentlinger may purchase the shares in such amounts and on such
dates as he may determine, provided that he shall purchase all of
the shares by September 30, 2000. On each date on which
Brentlinger purchases any of the shares, he shall pay the purchase
price in cash for the shares purchased on that date. When Mr.
Brentlinger purchases said 171,250 shares, he will own 62.4% of the
outstanding shares. Brentlinger also has a 5 year option to
purchase 500,000 shares of the Company's common stock for $2.50 per
share for a total of $1,250,000.
B. Security Ownership of Management
The stock ownership by directors and officers of the Company as of
February 29, 2000 is set forth below. Each person named exercises
sole voting power over all shares beneficially owned.
Amount and
Name and Nature of
Address of Beneficial Percent
Title of Class Beneficial Owner Owner
of Class(1)
$.10 par
value common Charles Jayson Brentlinger(2) 308,812 51.67%
$.10 par
value common Erle M. Constable 938(3) * %
All of
Circuit Research Labs, Inc.
2522 West Geneva Drive
Tempe, Arizona 85282
Officer and directors as a group (2 persons) 309,750 51.67%
(1) On the basis of 597,682 shares outstanding on February 29,
2000.
(2) Brentlinger agreed to purchase by September 30, 2000 171,250
additional shares of common stock of the Company for a purchase
price of $2.50 per share, or $428,125 in the aggregate.
Brentlinger may purchase the shares in such amounts and on such
dates as he may determine, provided that he shall purchase all of
the shares by September 30, 2000. On each date on which
Brentlinger purchases any of the shares, he shall pay the purchase
price in cash for the shares purchased on that date. When Mr.
Brentlinger purchases said 171,250 shares, he will own 76.4% of the
outstanding shares When Mr. Brentlinger purchases said 171,250
shares, he will own 62.4% of the outstanding shares. Brentlinger
also has a 5 year option to purchase 500,000 shares of the
Company's common stock for $2.50 per share for a total of
$1,250,000.
(3) Held as community property with Eugenia Constable.
<PAGE>14
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
The following consolidated financial statements of Circuit Research
Labs, Inc. and subsidiaries are included in the annual report of
the registrant to its stockholders for the year ended December 31,
1999 and are incorporated by reference from Item 7:
Consolidated balance sheets - December 31, 1999 and 1998.
Consolidated statements of operations - Years ended December
31, 1999 and 1998.
Consolidated statements of stockholders' equity - Years ended
December 31, 1999 and 1998.
Consolidated statements of cash flows - Years ended December
31, 1999 and 1998.
Notes to consolidated financial statements - Years ended
December 31, 1999 and 1998.
Exhibit Index
(a) Exhibit No.
23 Consent of Deloitte & Touche LLP - see page 15.
In addition to the exhibits previously described, the Company
hereby incorporates the following exhibits by reference pursuant
to Rule 12B-32, each of which was filed as an exhibit to the
Company's Registration Statement on Form S-18 which was effective
October 14, 1983, and subsequent filings in a timely manner.
3 Articles of Incorporation as Amended and Bylaws
previously filed and incorporated herein by reference.
10 Stock Option Plan previously filed and incorporated
herein by reference 1994 Stock Option Plan previously filed and
incorporated herein by reference.
13 1999 Annual Report to Security Holders incorporated by
reference Previous Annual Reports to Security Holders and Forms
10-QSB were previously filed in a timely manner and are
incorporated herein by reference.
21 Subsidiaries of the Registrant - CRL International, Inc. the
Company's wholly-owned Foreign Sales Corporation was incorporated
in Guam in January 1991.
(b) Reports on Form 8-K
(a) Exhibits included herein: none
(b) Reports on Form 8-K Form 8-K filed on October 1, 1999
Form 8-K filed on January 7, 2000
<PAGE>15
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-82176 of Circuit Research Labs, Inc. on Form S-8
of our report dated April 10, 2000 incorporated by reference in
this Annual Report on Form 10-KSB of Circuit Research Labs, Inc.
for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
April 10, 2000
<PAGE>16
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CIRCUIT RESEARCH LABS, INC.
Registrant
Date: April 14,2000 By /s/ Charles Jayson Brentlinger
Charles Jayson Brentlinger,
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Date: April 14,2000 By /s/ Charles Jayson Brentlinger
Charles Jayson Brentlinger,
Chief Executive Officer and
Chairman of the Board
Date: April 14,2000 By /s/ Gary D. Clarkson
Gary D. Clarkson, Secretary and
Director
Date: April 14,2000 By /s/ Erle M. Constable
Erle M. Constable, Assistant
Treasurer and Director
Date: April 14,2000 By /s/ Carl E. Matthusen
Carl E. Matthusen, Director
Date: April 14,2000 By /s/ Dennis L. Drew
Dennis L. Drew, Treasurer, Vice
President of Operations, General
Manager, Controller.
<PAGE>17
CIRCUIT RESEARCH LABS, INC.
CORPORATE PROFILE
Circuit Research Labs, Inc. (the "Company" or "CRL") is an electronics
company developing, manufacturing and marketing high quality audio
processing and transmission encoding equipment for the radio, television
and professional audio markets world wide.
The Company's main product lines control the audio quality and range of
radio and television audio reception including generators allowing radio
and television stations to broadcast in stereo. Professional sound
reinforcement and digital audio test equipment is also produced having a
wide range of applications.
SELECTED FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31
1999 1998 1997 1996 1995
Operating Highlights
Net sales $1,016,807 $1,516,613 $1,953,521 $2,524,870 $1,884,402
Other income 38,078 1,033,940 11,184 16,860 26,524
Total revenues 1,054,885 2,550,553 1,964,705 2,541,730 1,910,926
Net (loss) income (260,229) 9,011 (262,296) 123,160 (306,720)
Net income (loss) per
common share basic
and diluted $(.57) $ .02 $(.44) $.21 $(.51)
Weighted average number
of common shares
outstanding-basic 458,470 474,394 597,682 597,682 597,682
Balance Sheet Highlights
Current assets $1,095,588 $1,098,837 $1,263,249 $1,431,175 $1,389,754
Current liabilities 150,479 160,007 195,746 239,811 321,974
Total assets 1,834,691 1,532,574 1,846,598 2,169,590 2,149,670
Long-term obligations 0 0 105,656 122,287 138,458
Total liabilities 150,479 160,007 301,402 362,098 460,432
Stockholders' equity 1,684,212 1,372,567 1,545,196 1,807,492 1,689,238
No cash dividends have been declared.
Key Statistics
Current ratio 7.28 6.87 6.45 5.97 4.32
Working capital $945,109 $938,830 $1,067,503 $1,191,364 $1,067,780
Order backlog $20,200 $53,785 $138,570 $228,350 $566,720
Employees 17 22 24 35 25
<PAGE>1
Circuit Research Labs, Inc.
2522 W. Geneva Dr.
Tempe, Arizona 85282
Dear Stockholders,
The year 1999 was an eventful one for Circuit Research Labs, Inc. In
January 1999, due to the high cost of marketing and operating losses for
five of the last six years, the Board of Directors proposed that the
Company be sold. Since there were no viable purchase offers, the Board of
Directors subsequently proposed dissolution of the Company and
discontinued production. On May 3, 1999, the stockholders approved the
dissolution proposal.
I had not heard the news of the dissolution until after the annual
meeting. As a broadcaster and user of CRL equipment for over 20 years, I
was sad to hear of the Company going out of business and contacted Gary
Clarkson. It was at that point that I became interested in the
possibility of investing in CRL. In the months that followed I was able
to acquire a controlling interest in CRL and the Board of Directors voted
not to dissolve the corporation, but to continue in business. I have
resumed production, brought in new management and set in place plans to
return the Company to profitability. The turnaround will take some time
but I am confident that CRL will once again be a driving force in the
audio processing market.
On January 5, 2000, we announced that CRL had signed a letter of intent
to acquire the assets of Orban, Inc., a subsidiary of Harman
International Industries, Inc. Based in San Leandro, California, Orban,
Inc. is the leading manufacturer of audio processing for radio and TV
stations world-wide. Orban has 70 employees and annual sales of
approximately $15 million. CRL will retain the Orban brand and
employees, including founder and chief engineer Bob Orban. This business
combination is highly complementary and synergistic, since roughly 80% of
Orban's products are digital and approximately 80% of CRL's products are
analog. The combined companies will offer a full range of digital and
analog audio processing solutions at many price points. The purchase
price is $10.5 million, of which $500,000 has been paid. The transaction
is expected to close in the second quarter of 2000. We believe that the
funding for the purchase of Orban, Inc.is expected to be provided by a
private placement of equity of CRL and a combination of seller financing
and asset based lending. As of April 10, 2000, there is no assurance that
the Company will be able to acquire the necessary financing. The
transaction is subject to the ratification of a definitive agreement as
well as customary closing conditions.
I am very optimistic about the future of our Company and appreciate the
past support of the stockholders.
Very truly yours,
Charles Jayson Brentlinger
President
<PAGE>2
Corporate Overview
Founded in 1974 as broadcast industry consultants, CRL built upon its
understanding of the broadcast industry's needs by expanding into product
development and manufacturing. In 1978, the Company was incorporated, and
in late 1983 became registered as a public company on the NASDAQ stock
exchange.
Since the first product, which was designed to improve the "coverage and
quality" of low powered AM radio stations, CRL has been committed to
improving broadcast quality. CRL's product lines have grown to include
digital and analog audio processing and encoding devices for monaural or
stereo AM or FM radio, international short-wave and mono or stereo
television and audio analyzers. These products are labeled "CRL Systems".
CRL is dedicated to serving the audio processing needs of the broadcast
and professional audio markets with the highest quality products
utilizing state-of-the-art technology. In order to prevent dependency on
one market, when appropriate, consultants, licensing of technology and
acquisition of product lines are also used to diversify operations. CRL
also encourages product engineering and development for other
complementary broadcast manufacturers. An example is the development of
a digital audio analyzer.
CRL's production capabilities are being improved and new marketing
concepts are being developed to provide increased market share. Trusting
in dealers internationally and domestically for final product
distribution, the CRL marketing and sales staff works directly in sales
efforts with potential customers along with and for its dealers.
Supported by an efficient customer service department, CRL maintains a
reputation for excellent business ethics and selling standards.
Corporate Strategy
In January 1999, due to the high cost of marketing the Company's products
and operating losses for five of the last six years, the Board of
Directors proposed that the Company be sold. Since there were no viable
purchase offers, the Board of Directors subsequently proposed dissolution
of the Company and discontinued production. On May 3, 1999, the
stockholders approved the dissolution proposal.
On June 28, 1999, the Company and Mr. Gary Clarkson (then Chairman of the
Board, President and CEO of the Company) entered into an agreement (the
"Stock Purchase Agreement") to sell to Mr. Charles Jayson Brentlinger the
controlling interest in the Company. The transaction closed on September
30, 1999.
Pursuant to the Stock Purchase Agreement, Mr. Brentlinger purchased
187,500 shares of the Company's authorized, but unissued common stock at
$3.05 per share, for a total of $571,875. Within one year of closing, Mr.
Brentlinger is obligated to purchase an additional 171,250 shares of the
Company's common stock at $2.50 per share for a total of $428,125. Mr.
Brentlinger has a 5 year option to purchase an additional 500,000 shares
of the Company's common stock for $2.50 per share for a total of
$1,250,000. Mr.Brentlinger also purchased all of Mr.Clarkson's stock,
121,312 shares, at $3.05 per share. Mr. Brentlinger owns 308,812 shares
of the Company's common stock which is 51.67% of the 597,682 outstanding
shares.
<PAGE>3
Mr. Clarkson has resigned as President and CEO of the Company and was
replaced by Mr. Brentlinger. Mr. Clarkson will remain with the Company as
an Advanced Product Engineer, under a 3 year employment contract, and
will remain on the Board of Directors. Mr. Brentlinger was appointed to
the Board of Directors of the Company, to serve a term to expire at the
next meeting of stockholders duly called to elect a Board of Directors.
The Board of Directors, pursuant to its authority under Arizona Law,
voted not to dissolve the corporation, but to continue in business, as
set forth above.
Letter of Intent to Acquire Orban, Inc.
On January 5, 2000, the Company and Harman International Industries, Inc.
(NYSE: HAR) announced that they have signed a letter of intent whereby
the Company will acquire Harman's Orban, Inc. subsidiary. Based on a
series of negotiations, the purchase price is $10.5 million, of which
$500,000 has been paid. The transaction is expected to close in the
second quarter of 2000. Management believes that the funding for the
purchase of Orban, Inc.is expected to be provided by a private placement
of equity of CRL and a combination of seller financing and asset based
lending. As of April 10, 2000, there is no assurance that the Company
will be able to acquire the necessary financing. The transaction is
subject to the ratification of a definitive agreement as well as
customary closing conditions.
Based in San Leandro, California, Orban, Inc. is a leading manufacturer
of audio processing for radio and TV stations worldwide. Orban has about
70 employees and annual sales of approximately $15 million. CRL will
retain the Orban brand and employees, including founder and chief
engineer Bob Orban.
The management of the Company believes this business combination is
highly complementary and synergistic, since roughly 80% of Orban's
products are digital and approximately 80% of CRL's products are analog.
Upon the acquisition being completed, the Company will be equipped to
offer a full range of digital and analog audio processing solutions at
many price points.
The Broadcast Industry and CRL
CRL was a major participant in the National Radio Systems Committee
(NRSC) which developed standards for AM stations adopted by the FCC.
During 1987, CRL developed and produced equipment enabling AM stations to
meet certain NRSC standards and continues to be a market leader in AM
processing.
CRL is a member of the National Association of Broadcasters (NAB). The
NAB is the world's largest, most extensive broadcaster's association,
offering a wide variety of services to radio and television stations, as
well as organizations that provide products and/or services to the
broadcast industry.
CRL holds several patents on component designs for CRL products within
the broadcast industry.
<PAGE>4
Circuit Research Labs, Inc.'s Principal Products
Audio Processing Products
Audio processing equipment produced by the Company is used by radio and
television stations, entertainers and recording studios. The Company's
equipment "repackages" audio signals produced by microphones, recordings
and other audio sources. The equipment alters such signals to control
audio loudness (amplitude) and tonal balance (equalization) prior to
transmission. Audio processing shapes the audio sound wave when it is in
electrical impulse form before it is transmitted by a carrier wave.
Radio stations utilize audio processing equipment to control the
electrical amplitude limit of audio signals (modulation limit) as
required by government regulations and to control the quality of radio
station signals received by listeners. All radio stations utilize some
type of audio processing to comply with governmental and environmental
regulations and to improve the apparent quality of their signals.
Approximately 10,800 AM and FM stations in the United States use audio
processing, as well as more than 19,000 radio stations in other
countries. Of the approximately 1,600 television stations in the United
States, about two-thirds of them now broadcast in stereo, which requires
audio processing. Based on replacement equipment orders, the Company
estimates that the average useful life of audio processing equipment is
less than five years. Other recently developed products are appropriate
for the audio processing needs of the recording and performing industry.
CRL's audio processing equipment for radio broadcast can be separated
into four different series or product families, FM Series, AM Series, TV
Series and Other.
FM Series
Millennium Digital Audio Processor - The CRL Millennium digital processor
is the newest addition to the Company's FM processing line. It is
currently the only digital audio processor to use 32 bit floating-point
technology. Its advanced design allows the unit to serve a long life in
the customer's hands. The modular construction makes it possible for CRL
to offer specific PCB upgrades without changing the main chassis. This
design approach allows CRL to sell additional upgrade products to current
users of the Millennium. The Millennium FM digital processor gives a
strong, high quality sound that attracts and holds the listening
audience. The radio audience will enjoy a clear, bright and appealing
sound that is easy to listen to for long periods of time. The Millennium
uses the latest digital technology to its fullest potential to produce
the most advanced digital audio processor on the market. The Millennium
includes a true digital stereo multiplex generator, gated AGC (Audio Gain
Controller), 5 band compressor, multi-band limiter and graphic equalizer.
Also included is CRL's exclusive stereo sound enhancement.
FM Amigo Audio Processor - CRL's FM Amigo processor is an integrated "one
box" processing system designed for the small to mid-size station in both
international and domestic markets. The FM Amigo processor is one of the
best performing processors in its class. It is a combination of a dual
band AGC, a variable pre-emphasis multi-band limiter and digitally
synthesized stereo generator. The single unit contains a complete FM
audio processing system. The FM Amigo is flexible and powerful, yet
designed for easy set up and use. The FM Amigo is one of CRL's most
popular selling systems.
<PAGE>5
The Modulation Signature Audio Processor - The Modulation Signature has a
powerful multi-band limiter giving the radio station a natural sound with
superior loudness while maintaining superior quality. A digitally
synthesized multiplex generator provides the station with a flawless,
maintenance free stereo signal. Separate stereo generator and audio
limiter outputs are provided for added flexibility. CRL's patented high
performance audio filtering guarantees the optimum performance of the
radio station's SCA and RDS/RBDS subcarriers.
SG-800A Stereo Generator - The SG-800A is an excellent companion to
virtually any audio processing system or transmitter exciter on the
market. The digitally synthesized SG-800A Stereo Generator produces
laboratory grade composite signals even with the complex waveforms
produced by large amounts of competitive audio processing. The digital
design of the SG-800A provides absolute stability and maintenance free
composite/ pilot synchronization.
The SCA-300B Subcarrier Generator - The SCA-300B is a complete subcarrier
system using advanced concept in SCA generation techniques. The
frequency-locked digital design ensures superior carrier frequency
stability, while providing linear modulation characteristics. The SCA-
300B is designed to handle any type of data or audio application.
Integral dual band audio limiting provides consistent full modulation for
music or voice applications.
AM Series
Amigo AM Audio Processor - The Amigo AM is a complete stereo audio
processing system. It includes CRL's patented AM stereo processing
circuitry as found in the modular AM systems. The system includes a dual
band AGC, triband limiter, and NRSC (National Radio Systems Committee)
output filtering. The Amigo AM can be used in mono for customers waiting
to convert to stereo.
The AGC-400 Automatic Gain Controller The AGC400 provides accurate,
distortion-free automatic gain control over a wide range of program
levels. The CRL AGC combines a wide band AGC with a dual-band AGC, which
control average audio levels and audio peaks, respectively. This unique
combination provides a smooth natural sound while preventing the
amplification of background noise.
SEC-400 Multi-band Compressor/equalizer The SEC-400 is a multi-band
compressor/equalizer that allows adjustment of tonal balance. However,
there is more to this unit than simply control. The SEC-400 splits the
audio into four bands. Each compressor then aggressively adds RMS
density and loudness to the program material. The output equalization of
each band is adjustable from +6 to 12 dB, which then allows the station
to fine tune easily by boosting or cutting bass, mid range or treble.
PMC-450 Limiter The PMC 450 final peak limiter is designed to give the
radio station maximum peak levels and loudness, without the distortion.
This tri-band unit has an adjustable mid-band limiter drive control which
can add vocal clarity and punch to any signal. In addition, the PMC-450
provides transmitter correction controls, which allows the station to
interface the unit with any type of AM transmitter.
AM 4 Mono Audio Processing System The AM4 will extend coverage area of
most AM stations by maximizing the audio energy delivered to the
<PAGE>6
transmitter, carefully reshaping the audio waveform to allow modulation
as high as possible without side effects. This three unit system
consists of the AGC-400 Audio Gain Controller, the SEC-400 Four Band
Compressor, and the PMC-450 Limiter.
The BAP-2000 is a complete stand alone audio processor for any mono FM.
The system consists of an advanced dual band audio AGC and limiter.
Internal options, selected by the radio station, allow the BAP-2000 to be
tailored to handle most any mono audio control job.
MBL-100 Multi-band Audio Limiter The MBL-100 is a multi-band limiter
specifically designed for either HF/short-wave and news/talk radio. This
unit offers maximum loudness capability to extend coverage area and help
overcome noise and interference in the reception area. It also improves
intelligibility of speech and fidelity of musical programming.
Television Products
CRL has a complete line of quality audio processing, plus Stereo, SAP
(secondary audio program, primarily designed for public second language
usage) and PRO channel (non-public use with integrated input limiter,
data and telemetry inputs) generators. The audio processing was designed
with surround sound compatibility in mind. Many first generation stereo
users are converting over to the TVS-3000 series of products because of
it surround sound capabilities.
TVS-3001 - The TVS-3001 is a state-of-the-art stereo television
processing system that offers maximum control of the audio program
material. It includes a precision tri-band AGC with horizontal sync
rejection filter, exclusive CRL/CBS loudness control circuitry, reversed
phase audio corrector and audio asymmetry removal circuits.
TVS-3003 - The TVS-3003 is a digitally synthesized MTS generator with dbx
encoding, advanced transfer function pre-emphasis limiter and a
proprietary stereo sound field enhancer.
TVS-3004 - The TVS-3004 Professional Channel (PRO) generator is a
digitally synthesized subcarrier generator for non-public use with
integrated input limiter, data and telemetry inputs.
TVS-3005 - The TVS-3005 is a digitally synthesized subcarrier generator
for a secondary audio program (SAP) channel, primarily designed for
public second language usage.
BAP-2000 - The BAP-2000 is a complete audio processor with horizontal
sync rejection filter for mono television applications. The system
consists of an advanced dual band audio AGC and limiter. Internal
options selected by the radio station allow the BAP-2000 to be tailored
to handle most any mono control job.
Other Products
SGC-800 Stereo Gain Controller - The SGC-800 provides accurate,
distortion-free automatic gain control over a wide range of program
levels. The SGC-800 contains a programmable "dual, wide both" mode
AGC/Compressor that can work as multi-band, wide band or a combination of
both. This provides a smooth natural sound. This product is also used
in post-production recording studios.
<PAGE>7
AGC-400 Audio Gain Controller (Monaural) - The AGC-400 provides accurate,
distortion-free automatic gain control over a wide range of program
levels (24dB). The AGC-400 contains a programmable "dual, wide both"
mode AGC/Compressor that can work as multi-band, wide-band or a
combination of both. Average audio levels are controlled by the wideband
AGC, while audio peaks are controlled by a dual band AGC. This provides
a very smooth, natural sound which cannot be accomplished with other
audio processors.
Event Timer - This advanced microprocessor-based timing system that can
store and sequence up to 255 events. Each event can control up to 8
contact closures. The user can program events for each day of the week,
for each different month of the year. Advanced software makes the unit
easy to use.
DAA-50 - With the conversion of audio technology to digital, CRL
recognized the need for an inexpensive test and analysis tool and
developed the DAA-50. The DAA-50 receives and decodes audio data. A
variety of information about the signal can be determined through easily
defined LED status indicator lights. Compact and light weight, the DAA-
50 can be used when and wherever it's needed.
<PAGE>8
CIRCUIT RESEARCH LABS, INC.MANAGEMENT'S DISCUSSION AND ANALYSIS YEARS
ENDED DECEMBER 31, 1999 AND 1998
RESULTS OF OPERATIONS
The following tables set forth financial information for each of the four
quarters of the year ended December 31, 1999 and for the years ended
December 31, 1999 and 1998.
1999 Quarters Ended
March 31 June 30 September 30 December 31
Net sales $ 374,293 $ 274,683 $196,000 $ 171,831
Other income 13,608 6,619 7,795 10,056
Total revenues $387,901 $ 281,302 $203,795 $ 181,887
Gross profit on
net sales $ 130,626 $ 64,031 $ 88,486 $ 492,368
Gross profit percent 35% 23% 45% 287%
Net (loss) income $ (170,524) $ (56,295) $(134,273) $ 100,863
Net (loss) income
percent of net sales (46%) (20%) (69%) 59%
(Loss) income per share
basic and diluted $(.42) $(.14) $(.33) $.17
Years Ended December 31
1999 1998
Net sales $ 1,016,807 $1,516,613
Other income 38,078 1,033,940
Total revenues $ 1,054,885 $2,550,553
Gross profit on net sales $ 775,511 $ 247,528
Gross profit percent 76% 16%
Net (loss) income $ (260,229) $9,011
Net (loss) income percent of net sales (26%) .1%
Loss) income per share basic and diluted $(.57) $ .02
<PAGE>9
The primary factor affecting the results of the Company's 1999 operations
compared to 1998 was the Board of Directors' proposed dissolution of the
Company. Production was stopped and personnel were terminated in
anticipation of the dissolution. Following the sale of stock on September
30,1999 to Charles Jayson Brentlinger, the Board of Directors voted not
to dissolve the corporation, production was resumed and new personnel
were hired. The decrease in sales was a direct result of customers not
buying the Company's products due to the proposed dissolution. Net sales
in 1999 decreased 33% to $1,017,000 compared to $1,517,000 for 1998.
Cost of goods sold in 1999 was 24% of net sales compared to 84% in 1998.
The improvement was due to the change in inventory obsolescence reserves.
The inventory obsolescence reserve expensed in 1998 was $552,000. The
decision to cease production in early 1999 in anticipation of the
proposed dissolution of the Company resulted in the reduction of net
realizable value of the inventory at December 31, 1998. In the fourth
quarter of 1999, $303,000 of this reserve was reversed since the Company
resumed production and certain inventory items reserved for at December
31, 1998 were sold in the current year.
Selling, general and administrative expense in 1999 of $850,000 was lower
than selling, general and administrative expense in 1998 of $900,000 due
primarily to a decrease in personnel and a decrease in international
travel.
Research and development expense for the year ended December 31, 1999 was
$223,000, a decrease of $32,000 compared to $255,000 for the same period
of 1998. The decrease was a result of a decrease in engineering
personnel.
Other income (expense) for the year ended December 31, 1999 was $38,000
consisting of interest income from investments. Other income (expense)
for the year ended December 31, 1998 of $916,000 included $1,001,000 of
officer's life insurance proceeds received in excess of the policy's cash
surrender value from an insurance policy payable upon the death of Ronald
R. Jones, $33,000 of interest income from investments, $20,000 of
interest expense and $98,000 paid to Royce T. Jones as a settlement of
any and all claims that Royce T. Jones or the Estate of Ronald R. Jones,
may have had against the Company.
FINANCIAL POSITION
At December 31, 1999, the Company had net working capital of $945,000 and
a current ratio of 7.28 to 1 compared to net working capital of $939,000
and a current ratio of 6.87 to 1 at December 31,1998.
Receivables at December 31, 1999 of $48,000 were $40,000 lower than the
December 31, 1998 balance of $88,000. The decrease was due to the
decrease in sales in 1999. The Company's credit policy remains the same
as in previous years, with letters-of-credit for international shipments
and short-term extension of payment terms to domestic dealers.
Inventories were $561,000 at December 31, 1999 compared to $384,000 at
December 31, 1998, an increase of $177,000. Work in progress and finished
goods decreased $36,000 and $167,000, respectively, as a result of the
ceasing of production in the first six months of 1999. Sales were from
existing finished goods and assemblies. In the third quarter of 1999,
production was resumed necessitating the purchase of raw materials and
production supplies resulting in an increase of $63,000 in raw materials.
The obsolescence reserve for inventory in 1998 was $697,000. The decision
to cease production in 1999 in anticipation of the proposed dissolution
<PAGE>10
of the Company resulted in the reduction of net realizable value of the
inventory. In 1999, the balance of the reserve was $380,000, a decrease
of $317,000. The Company resumed production and certain inventory items
reserved for at December 31, 1998 were sold in the current year.
There were no major capital expenditures in 1999; however, during the
fourth quarter the Company incurred approximately $298,000 in costs
related to the proposed acquisition of Orban, Inc., including a $250,000
non-refundable deposit. After year-end, the Company paid an additional
$250,000 deposit toward the $10.5 million purchase price.
<PAGE>11
CIRCUIT RESEARCH LABS, INC.MANAGEMENT'S DISCUSSION AND ANALYSIS YEARS
ENDED DECEMBER 31, 1998 AND 1997
RESULTS OF OPERATIONS
The following tables set forth financial information for each of the four
quarters of the year ended December 31, 1998 and for the years ended
December 31, 1998 and 1997.
1998 Quarters Ended
March 31 June 30 September30 December 31
Net sales $ 517,210 $ 324,665 $421,598 $ 253,140
Other income 1,003,510 7,240 14,785 8,405
Total revenues $1,520,720 $ 331,905 $436,383 $ 261,545
Gross profit on
net sales $ 296,305 $ 174,835 $230,440 $(454,052)
Gross profit percent 57% 54% 55% (179%)
Net income (loss) $1,002,793 $(178,735) $(26,594) $(788,453)
Net income (loss)
percent of net sales 194% (55%) (6%) (311%)
Income (loss) per share
basic and diluted $1.68 $(.38) $(.06) $(1.92)
Years Ended December 31
1998 1997
Net sales $ 1,516,613 $ 1,953,521
Other income 1,033,940 11,184
Total revenues $ 2,550,553 $ 1,964,705
Gross profit on net sales $ 247,528 $ 962,895
Gross profit percent 16% 49%
Net income (loss) $ 9,011 $(262,296)
Net income (loss) percent of net sales .1% (13%)
Income (loss) per share basic and diluted $ .02 $ (.44)
The primary factors affecting the results of the Company's 1998
operations compared to 1997 were a continued decrease in sales and the
<PAGE>12
decision in early 1999 to cease production and dissolve the Company. Net
sales in 1998 decreased 22% to $1,517,000 compared to $1,954,000 for
1997. The decrease is the result of slow demand for CRL's audio
processing equipment, in both the domestic and international markets.
Cost of goods sold in 1998 was 84% of net sales compared to 51% in 1997.
The increase was due to the $552,000 increase in the obsolescence reserve
for inventory. The decision to cease production in anticipation of the
proposed dissolution of the Company resulted in the reduction of net
realizable value of the inventory, and therefore the reserve was
significantly increased in the fourth quarter of 1998.
Selling, general and administrative expense in 1998 of $900,000 was
lower than selling, general and administrative expense in 1997 of
$996,000 due primarily to a decrease in personnel and international
travel.
Research and development expense for the year ended December 31, 1998 was
$255,000, an increase of $36,000 compared to $219,000 for the same period
of 1997. The increase was the result of higher salaries and developmental
costs.
Other income (expense) for the year ended December 31, 1998 of $916,000
includes $1,001,000 of officer's life insurance proceeds received in
excess of the policy's cash surrender value from an insurance policy
payable upon the death of Ronald R. Jones. Interest and other income and
expense consists of $33,000 of interest income from investments, $20,000
of interest expense and $98,000 paid to Royce T. Jones as a settlement of
any and all claims that Royce T. Jones or the Estate of Ronald R. Jones,
may have had against the Company.
FINANCIAL POSITION
At December 31, 1998, the Company had net working capital of $939,000 and
a current ratio of 6.87 to 1. In 1998, net cash used in operating
activities increased to $325,000 from $42,000 in 1997, primarily as a
result of the Company's operating losses.
On February 6, 1998, the Company received $1,033,000 proceeds of an
insurance policy payable upon the death of Ronald R. Jones. 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 $181,640.
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.
On July 16, 1998, the Company paid Royce T. Jones $98,000 as a settlement
of any and all claims that Royce T. Jones or the Estate of Ronald R.
Jones, may have had against the Company.
Receivables at December 31, 1998 of $88,000 were $24,000 lower than the
December 31, 1997 balance of $112,000. The decrease was due to the
decrease in sales in 1998. The Company's credit policy remained the same
as in previous years, with letters-of-credit for international shipments
and short-term extension of payment terms to domestic dealers.
<PAGE>13
Inventories were $385,000 at December 31, 1998 compared to $883,000 at
December 31, 1997. The decision to cease production in anticipation of
the proposed dissolution of the Company resulted in the reduction of net
realizable value of the inventory. The decrease was due to the $552,000
increase in the obsolescence reserve for inventory. The proposed
dissolution of the Company resulted in the net realizable value of the
inventory being re-evaluated assuming dissolution of the Company in 1999.
There were no major capital expenditures in 1998.
The document includes "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act of 1996. 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>14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Circuit Research Labs, Inc.
Tempe, Arizona
We have audited the accompanying consolidated balance sheets of Circuit
Research Labs, Inc. and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December
31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 5, on January 5, 2000, the Company and Harman
International Industries, Inc. announced that they have signed a letter
of intent whereby the Company would acquire Harman's Orban, Inc.
subsidiary. The purchase price is $10.5 million, of which $500,000 has
been paid as a non-refundable deposit. There is no assurance that the
Company will be able to acquire the necessary financing to complete this
transaction.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
April 10, 2000
<PAGE>15
CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
CURRENT ASSETS:
Cash $ 62,597 $ 128,691
Securities available-for-sale (Note 2) 383,905 486,961
Accounts receivable, less allowance for
doubtful accounts of $9,715 in 1999
and $6,520 in 1998 47,662 87,942
Inventories (Note 3) 561,205 384,367
Prepaid expenses and other 40,219 10,876
Total current assets 1,095,588 1,098,837
PROPERTY, PLANT AND EQUIPMENT - Net (Note 4) 440,888 433,737
DEFERRED ACQUISITION COSTS (Note 5) 298,215
TOTAL $1,834,691 $1,532,574
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 70,732 $ 44,748
Accrued salaries and benefits 34,684 36,703
Accrued professional fees 30,933 27,986
Customer deposits 3,623 17,355
Other accrued expenses and liabilities 10,507 12,215
Current portion of long-term debt (Note 6) 21,000
Total current liabilities 150,479 160,007
Total liabilities 150,479 160,007
COMMITMENTS AND CONTINGENCIES (Notes 1, 6 and 12)
STOCKHOLDERS' EQUITY (Notes 7 and 9):
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 1,637,474 1,247,240
Retained (deficit) earnings (13,030) 247,199
Less treasury stock at cost 187,500 shares (181,640)
Total stockholders' equity 1,684,212 1,372,567
TOTAL $1,834,691 $1,532,574
See notes to consolidated financial statements.
<PAGE>16
CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
NET SALES (Note 11) $1,016,807 $ 1,516,613
COST OF GOODS SOLD 241,296 1,269,085
Gross profit 775,511 247,528
OPERATING EXPENSES (Note 12):
Selling, general and administrative 850,377 899,535
Research and development 223,441 254,717
Total operating expenses 1,073,818 1,154,252
LOSS FROM OPERATIONS (298,307) (906,724)
OTHER INCOME (EXPENSE):
Life insurance proceeds 1,000,681
Interest and other income 38,078 33,259
Interest and other expense (118,205)
Total other income (expense) 38,078 915,735
(LOSS) INCOME BEFORE INCOME TAX
(BENEFIT) PROVISION (260,229) 9,011
INCOME TAX (BENEFIT) PROVISION (Note 10): 0 0
NET (LOSS) INCOME $(260,229) $ 9,011
NET (LOSS) INCOME PER COMMON SHARE - BASIC AND
DILUTED (Note 8) $(.57) $.02
See notes to consolidated financial statements.
<PAGE>17
CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional Retained
Common Paid-in Earnings Treasury
Stock Capital (Deficit) Stock Total
BALANCE,
JANUARY 1, 1998 $59,768 $1,247,240 $238,188 $1,545,196
Purchase of
treasury stock ($181,640) (181,640)
Net income 9,011 9,011
BALANCE,
DECEMBER 31, 1998 59,768 1,247,240 247,199 (181,640) 1,372,567
Sale of treasury
stock 390,234 181,640 571,874
Net loss (260,229) (260,229)
BALANCE,
DECEMBER 31, 1999 $59,768 $1,637,474 $ (13,030) 0 $1,684,212
See notes to consolidated financial statements.
<PAGE>18
CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
OPERATING ACTIVITIES:
Net (loss) income $(260,229) $ 9,011
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization 33,861 126,215
Loss on disposal assets 5,930
Proceeds from officer's life insurance in
excess of cash surrender value (1,000,681)
(Decrease) increase in inventory reserves (317,122) 552,328
Changes in assets and liabilities:
Accounts receivable 40,280 24,378
Inventories 140,284 (53,570)
Prepaid expenses and other (29,343) 57,746
Deferred acquisition costs (298,215)
Accounts payable and other accrued expenses 11,472 (40,258)
Net cash used in operating activities (673,082) (324,831)
INVESTING ACTIVITIES:
Capital expenditures (51,942) (19,249)
Purchase of securities (870,198) (1,829,918)
Proceeds from sale or maturity of securities 973,254 1,432,564
Proceeds from officer's life insurance 1,033,051
Net cash provided by investing
activities 51,114 616,448
FINANCING ACTIVITIES:
Principal payments on long-term debt (16,000) (101,137)
Sale of treasury stock 571,874
Purchase of treasury stock (181,640)
Net cash provided by (used in)
activities 555,874 (282,777)
NET (DECREASE) INCREASE IN CASH (66,094) 8,840
CASH, BEGINNING OF YEAR 128,691 119,851
CASH, END OF YEAR $ 62,597 $128,691
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 19,156
Sale of assets in exchange for balance on
payable $5,000
See notes to consolidated financial statements.
<PAGE>19
CIRCUIT RESEARCH LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Circuit Research Labs, Inc. (the "Company") has been involved in the
business of manufacturing and selling audio processing equipment to radio
and television stations. In January 1999, due to the high cost of
marketing the Company's products and operating losses for five of the
last six years, the Company announced that it was being offered for sale.
Subsequently, the Company discontinued production of its products and the
Company's Board of Directors proposed dissolution of the Company. On May
3, 1999, the stockholders approved the dissolution proposal.
On June 28, 1999, the Company and Mr. Gary Clarkson (then Chairman of the
Board, President and CEO of the Company) entered into an agreement (the
"Stock Purchase Agreement") to sell to Mr. Charles Jayson Brentlinger the
controlling interest in the Company. The transaction closed on September
30, 1999.
Pursuant to the Stock Purchase Agreement, Mr. Brentlinger purchased
187,500 shares of the Company's authorized, but unissued common stock at
$3.05 per share, for a total of $571,875. Within one year of closing, Mr.
Brentlinger is obligated to purchase an additional 171,250 shares of the
Company's common stock at $2.50 per share for a total of $428,125. Mr.
Brentlinger has a 5 year option to purchase an additional 500,000 shares
of the Company's common stock for $2.50 per share for a total of
$1,250,000. Mr.Brentlinger also purchased all of Mr.Clarkson's stock,
121,312 shares, at $3.05 per share. Mr. Brentlinger owns 308,812 shares
of the Company's common stock which is 51.67% of the 597,682 outstanding
shares.
Mr. Clarkson has resigned as President and CEO of the Company and was
replaced by Mr. Brentlinger. Mr. Clarkson will remain with the Company as
an Advanced Product Engineer, under a 3 year employment contract, and
will remain on the Board of Directors. Mr. Brentlinger was appointed to
the Board of Directors of the Company, to serve a term to expire at the
next meeting of stockholders duly called to elect a Board of Directors.
The Board of Directors, pursuant to its authority under Arizona Law,
voted not to dissolve the corporation, but to continue in business, as
set forth above.
Principles of Consolidation - The consolidated financial statements
include the accounts of Circuit Research Labs, Inc. and its wholly owned
subsidiaries: CRL Systems, Inc., National Communications Research
Center, Inc. ("NCRC") and CRL International, Inc. (collectively, the
"Company"). Significant intercompany accounts and transactions have
been eliminated in consolidation.
Significant accounting policies are as follows:
<PAGE>20
a. Securities available-for-sale are securities being held for
indefinite periods of time, including securities that management intends
to use for liquidity needs or that may be sold in response to changes in
interest rates, prepayments or other factors and are carried at estimated
fair value, with the net, after-tax unrealized gain or loss recorded as a
separate component of stockholders' equity with no effect on current
results of operations. Realized gains and losses are included in other
income and are computed using specific identification.
b. Inventories are stated at the lower of cost (first-in, first-out
method) or net realizable value.
c. Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the related assets ranging from 2 to 5 years for furniture, fixtures,
machinery and equipment, and 31.5 years for building and improvements.
d. Long-lived assets - In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
Company reviews the carrying value of its long-lived assets and
identifiable intangibles for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of assets to
be held and used may not be recoverable. For assets to be disposed of,
the Company reports long-lived assets and certain identifiable
intangibles at the lower of carrying amount or fair value less cost to
sell.
e. Revenue is recognized on sales of products at the time of shipment.
f. Research and development costs are charged to expense as incurred.
g. Income taxes - Income tax expense is calculated under the liability
method as required under SFAS No. 109. Under the liability method,
deferred tax assets and liabilities are determined based upon the
differences between financial statement carrying amounts and the tax
bases of existing assets and liabilities and are measured at the tax
rates that will be in effect when these differences reverse.
h. Financial instruments - SFAS No. 107 "Disclosures About Fair Value
of Financial Instruments" requires disclosures of the estimated fair
value of certain financial instruments. The Company has estimated the
fair value of its financial instruments using available market data.
However, considerable judgement is required in interpreting market data
to develop estimates of fair value. The use of different market
assumptions or methodologies may have a material effect on the estimates
of fair value. The carrying values of cash, securities available-for-
sale, receivables, accounts payable and long-term debt approximate fair
values due to the short-term maturities or market rates of interest of
these instruments.
i. Income (loss) per share - Basic income per common share is computed
on the weighted average number of shares of common stock outstanding
during each period. Diluted income per common share is computed on the
weighted average number of shares of common stock outstanding plus
additional shares representing the exercise of outstanding common stock
options using the treasury stock method.
j. New accounting pronouncements - In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133, which will
be effective for the Company's financial statements as of January 1,
2001, requires that entities record all derivatives as assets or
liabilities, measured at fair value, with the change in fair value
recognized in earnings or in comprehensive income, depending on the use
of the derivative and whether it qualifies for hedge accounting. The
Company is evaluating the impact, if any, that will result from the
adoption of this standard.
<PAGE>21
k. Use of estimates The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
required management to make estimates and assumptions that affect the
reporting amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from these estimates.
l. Reclassifications Certain reclassifications have been made to the
1998 financial statements to conform to the classifications used in 1999.
<PAGE>22
2. SECURITIES AVAILABLE-FOR-SALE
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" 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 fair value of the Company's securities are estimated based on quoted
market prices for those or similar instruments.
A summary of the Company's securities is as follows at December 31:
1999 1998
Amortized cost and estimated fair value:
United States Government Securities $383,905 $486,961
At December 31, 1999, the United States Government Securities mature in
2000.
3. INVENTORIES
Inventories consist of the following at December 31:
1999 1998
Raw materials and supplies $343,745 $280,563
Work in process 214,933 250,909
Finished goods 382,156 549,646
Total 940,834 1,081,118
Less obsolescence reserve 379,629 696,751
Inventories, net $561,205 $ 384,367
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
1999 1998
Land $130,869 $ 130,869
Building and improvements 503,000 503,000
Furniture and fixtures 285,167 305,072
Machinery and equipment 518,272 555,878
1,437,308 1,494,819
Less accumulated depreciation 996,420 1,061,082
Property, plant and equipment - net $440,888 $ 433,737
5. DEFERRED ACQUISITION COSTS
On January 5, 2000, the Company announced that it had signed a letter of
intent to acquire one of its competitors, Orban, Inc., a subsidiary of
Harman International Industries, Inc. The purchase price is $10.5
million, of which $500,000 has been paid. The transaction is expected to
close in the second quarter of 2000. The Company believes that the
funding for the purchase of Orban, Inc. is expected to be provided by a
private placement of equity of CRL and a combination of seller financing
and asset based lending. As of April 10, 2000, there is no assurance that
the Company will be able to acquire the necessary financing. The
<PAGE>23
transaction is subject to the ratification of a definitive agreement as
well as customary closing conditions. As of December 31, 1999, the total
costs deferred relating to this acquisition were $298,215, including a
$250,000 non-refundable deposit. Subsequent to December 31, 1999, an
additional $250,000 non-refundable deposit was paid to Harman
International Industries, Inc..
6. LONG-TERM DEBT
At December 31,1998, long-term debt consisted of a noninterest-bearing
note requiring annual payments of $11,000 through January 2000. Such
debt was paid in full in 1999. The Company had no outstanding debt at
December 31, 1999.
7. STOCKHOLDERS' EQUITY
Until March 31, 1998, the Company was listed on the NASDAQ Small Cap
market. In 1998, NASDAQ raised its requirements for continued listing
requiring among other criteria, a public float of 500,000 shares,
compared to the Company's public float of approximately 295,000 shares.
NASDAQ also requires a minimum market value of the public float of
$1,000,000, compared to the Company's public float at March 31, 1998 of
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.
8. INCOME (LOSS) PER SHARE
As discussed in Note 1, the following is a reconciliation of the
numerator and denominator of the basic and diluted income per share
computations for the year ended December 31, 1998 as required by SFAS No.
128. Loss per share amounts for the year ended December 31, 1999 are
calculated using only the weighted average outstanding shares of 458,470.
Options to purchase 671,250 shares of common stock at $2.50 per share,
were outstanding during the year ended December 31, 1999 but were not
included in the computation of diluted EPS because their effect would be
anti-dilutive.
For the Year Ended December 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic $9,011 474,394 $.02
Effect of dilutive stock
options 4,319
Diluted $9,011 478,713 $.02
9. STOCK OPTIONS
In May 1994, the Company's stockholders approved the Company's 1994 Stock
Option Plan, which set aside an aggregate of 60,000 shares of common
stock for which options may be granted to employees, officers, directors,
<PAGE>24
and consultants. Options are typically exercisable upon the grant date
for up to 3 years at a price equal to 100% of the fair market value at
the date of grant. There are no options outstanding under this plan at
December 31, 1999.
In September 1999, the Company granted to its President two sets of stock
options. The first, pursuant to the terms of the Stock Purchase
Agreement, required the President to purchase 171,250 shares of the
Company's common stock at $2.50 per share within 1 year. The second
grant, which vests immediately, is for options to purchase 500,000 shares
over the next 5 years for $2.50 per share. None of the above options were
exercised in 1999. Therefore, at December 31, 1999, the Company had
outstanding 671,250 options at a weighted average exercise price of
$2.50.
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for these stock options.
Accordingly, no compensation cost has been recognized for the stock
options. Had compensation cost for the Company's stock options been
determined based on the fair value at the grant dates for awards
consistent with the method of SFAS No.123, the Company's net loss and net
loss per share for the year ended December 31, 1999 would have been
increased to the pro forma amounts indicated below:
Net loss - as reported $ (260,229)
Net loss - pro forma (730,863)
Loss per share - as reported (0.57)
Loss per share - pro forma (1.59)
The fair market value of each option grant is estimated on the date of
grant using the Black-Scholes options pricing model with the following
weighted-average assumptions used for grants: no dividend yield, expected
volatility of 85%, risk-free interest rate of 6.25%, and expected lives
of two years.
10. INCOME TAXES
The principal reasons for the difference between the income tax (benefit)
provision and the amounts computed by applying the statutory income tax
rates to (loss) income before income tax provision for the years ended
December 31, are as follows:
1999 1998
Federal tax at statutory rates $(88,500) $3,100
State tax at statutory rates (15,600) 500
Officer's life insurance proceeds (13,200) (400,000)
Officer's life insurance 1,600 3,000
Increase in valuation allowance 115,700 393,400
Total $0 $ 0
At December 31, deferred taxes represent the tax effect of temporary
differences related to:
1999 1998
Current deferred taxes:
Inventory capitalization $89,200 $33,000
Prepaid expenses (13,100) (3,800)
Inventory obsolescence reserve 151,900 278,700
Allowance for doubtful accounts 3,800 2,600
Deferred tax valuation allowance (231,800) (310,500)
Total $ 0 $ 0
<PAGE>25
Non-current deferred taxes:
Depreciation and amortization $(25,900) $(16,400)
Operating loss carryforward 446,300 267,000
Federal general business credit carryforward 65,400 65,400
Other 46,000 21,400
Deferred tax valuation allowance (531,800) (337,400)
Total $ 0 $ 0
At December 31, 1999, a valuation allowance totaling $ 763,600 was
recorded which relates to, among other items, federal and state net
operating losses and federal general business credit carryforwards for
which the utilization is not reasonably assured. Net operating loss
carryforwards of approximately $1,116,000 which expire through 2019 are
available for federal income tax purposes.
11. SEGMENT REPORTING, SALES TO MAJOR CUSTOMERS AND EXPORT SALES
The Company engages in business activities in a single reporting segment
which manufactures and sells audio processing equipment to radio and
television stations. The chief operating decision makers are provided
information about the revenues generated by individual products, with all
products having similar production processes, customers and distribution
channels. The Company's long-lived assets are all located in the U.S.
Sales during each of the two years ended December 31, 1999 were conducted
primarily through wholesale distributors and dealers. No wholesale
distributors accounted for 10% or more of net sales during the year ended
December 31, 1999. Two wholesale distributors accounted for 10% and 7%,
respectively, for the year ended December 31, 1998.
International sales in 1999 and 1998 totalled approximately $501,000 and
$820,000, respectively. Foreign sales are made through the Company's
wholly-owned foreign sales corporation. The Company requires that all
sales be paid in U.S. currency. Accordingly, there are no foreign
currency gains or losses for the years ended December 31, 1999 or 1998.
The Company's export sales by region are as follows:
Region 1999 % 1998 %
Europe $ 42,000 8% $ 92,500 11%
Pacific Rim 253,000 50 331,200 40
Latin and South America 23,000 5 83,000 10
Canada and Mexico 94,000 19 135,000 17
Other 89,000 18 178,300 22
Total $501,000 100% $820,000 100%
12. EMPLOYEE BENEFIT PLAN
As of January 1, 1991, the Company adopted a 401(k) profit sharing plan
(the "Plan") for the benefit of all employees who meet certain
eligibility requirements. The Company will match 50% of employee
contributions up to a maximum contribution by the Company of 3% of a
participant's annual compensation. Total annual contributions to a
participant's account may not exceed 25% of compensation. Company
contributions made to the Plan were $16,480 and $16,307 in 1999 and 1998,
respectively.
<PAGE>26
Circuit Research Labs, Inc.
STOCK MARKET INFORMATION
The Company's common stock is publicly traded on the OTC Bulletin Board
(NASDAQ symbol: CRLI) and commenced trading on November 4, 1983. As of
February 29, 2000, there were 597,682 shares of common stock issued and
outstanding, with an estimated 400 stockholders of record. The following
table sets forth the high and low closing bid prices as reported by the
National Association of Securities Dealers Automated Quotations (NASDAQ).
1999 - Quarters Ended
March 31 June 30 September 30 December 31
Bid Quotation Range
High $2.00 $1.50 $1.75 $2.00
Low $1.50 $1.50 $1.50 $2.00
1998 - Quarters Ended
March 31 June 30 September 30 December 31
Bid Quotation Range
High $2.25 $3.00 $4.50 $1.63
Low $.94 $1.30 $1.90 $ 1.63
Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
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.
DIVIDENDS
The Company has not paid any dividends on its common stock for the two
most recent fiscal years.
<PAGE>27
Circuit Research Labs, Inc.
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS:
Charles Jayson Brentlinger
Chairman of the Board of Directors, President, Chief Executive Officer
and
Chief Operating Officer
Gary D. Clarkson
Secretary and Director
Erle M. Constable
Assistant Treasurer and Director
Carl E. Matthusen
Director
General Manager KJZZ/Sun Sounds
Dennis L. Drew
Treasurer, General Manager and Vice President of Operations
CORPORATE INFORMATION
Corporate Headquarters:
Circuit Research Labs, Inc.
2522 West Geneva Drive
Tempe, Arizona 85282
Transfer Agent and Registrar: Independent Auditors:
Harris Trust and Savings Bank Deloitte & Touche LLP
311 W. Monroe, 11th Floor 2901 North Central Avenue
Chicago, Illinois 60690 Suite 1200
Phoenix, Arizona 85012
Financial Public Relations Counsel: Corporate Counsel:
The Equity Group Inc. James S. Freedman, Esquire
919 Third Avenue 4455 E. Camelback Rd., E160
New York City, New York 10022 Phoenix, Arizona 85018
Additional Information:
A copy of Circuit Research Labs, Inc.'s current Form 10-KSB has been
filed with the Securities and Exchange Commission and is available on
request without charge by writing to the Company's corporate headquarters
and marked: Attention: Investor Relations.
<PAGE>28
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