<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(AMENDMENT NUMBER TWO
TO FORM 8-K FILED JUNE 15, 2000)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 15, 2000
Date of Amendment Number Two: November 20, 2000
Circuit Research Labs, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 0-11353 86-0344671
-------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2522 West Geneva Drive
Tempe, Arizona 85282
(Address of principal executive offices)(Zip Code)
(602) 438-0888
(Registrant's telephone number)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Orban, Inc.
(A Wholly-Owned Subsidiary of Harman International Industries, Inc.)
Financial Statements
Three-Month Periods Ended March 31, 2000
and 1999 (unaudited) and Years Ended
December 31, 1999 and 1998 and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
Board of Directors
Orban, Inc.
Phoenix, Arizona
We have audited the accompanying balance sheets of Orban, Inc. (a wholly-owned
subsidiary of Harman International Industries, Inc.) (the "Company") as of
December 31, 1999 and 1998, and the related statements of operations,
stockholder's 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 auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 15, 2000
2
<PAGE> 3
ORBAN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HARMAN INTERNATIONAL INDUSTRIES, INC.)
<TABLE>
<CAPTION>
BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999 AND 1998
-----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 303,378 $ 7,234 $ 54,518
Accounts receivable, less allowance for doubtful
accounts of $1,000 at March 31, 2000, $39,400 in 1999 and
$48,700 in 1998 1,347,055 1,069,967 1,446,759
Inventories (Note 2) 2,642,916 2,451,691 2,574,291
Prepaid expenses and other 334,853 54,126 103,213
Due from affiliates (Note 6) 648,165 1,202,382 1,139,750
----------- ----------- -----------
Total current assets 5,276,367 4,785,400 5,318,531
PROPERTY, PLANT AND EQUIPMENT - Net (Note 3) 1,618,226 1,780,930 1,791,685
OTHER ASSETS - Net 39,000 42,000 89,044
----------- ----------- -----------
TOTAL $ 6,933,593 $ 6,608,330 $ 7,199,260
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 453,689 $ 513,094 $ 610,669
Accrued salaries and benefits 450,549 353,120 433,361
Customer deposits 22,814 140,337 111,496
Airtime reserve 91,977 91,977 631,575
Other accrued expenses and liabilities 191,367 125,873 278,317
Deposit on pending sale of assets (Note 9) 500,000 250,000
----------- ----------- -----------
Total current liabilities 1,710,396 1,474,401 2,065,418
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value - authorized, 600 shares;
issued, 160 shares 8,930,000 8,930,000 8,930,000
Additional paid-in capital 1,240,761 1,240,761 1,240,761
Deficit (4,947,564) (5,036,832) (5,036,919)
----------- ----------- -----------
Total stockholders' equity 5,223,197 5,133,929 5,133,842
----------- ----------- -----------
TOTAL $ 6,933,593 $ 6,608,330 $ 7,199,260
=========== =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE> 4
ORBAN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HARMAN INTERNATIONAL INDUSTRIES, INC.)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------------------
THREE-MONTH PERIOD YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ------------
2000 1999 1999 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES (Note 8) $ 3,005,895 $ 3,483,285 $ 12,368,054 $ 14,844,950
COST OF GOODS SOLD 1,834,789 1,817,467 6,755,921 7,749,965
------------ ------------ ------------ ------------
Gross profit 1,171,106 1,665,818 5,612,133 7,094,985
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 677,711 876,409 3,635,271 3,846,087
Research and development 349,678 463,743 1,989,495 2,351,109
Airtime exit costs (Note 4) 1,777,479
------------ ------------ ------------ ------------
Total operating expenses 1,027,389 1,340,152 5,624,766 7,974,675
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 143,717 325,666 (12,633) (879,690)
OTHER INCOME (EXPENSE):
Interest and other income 7,904 5,858 17,720 63,348
Other expense - net (353) (1,000) (87,577)
------------ ------------ ------------ ------------
Total other income (expense) 7,551 4,858 17,720 (24,229)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX
(PROVISION) BENEFIT 151,268 330,524 5,087 (903,919)
INCOME TAX (PROVISION) BENEFIT (62,000) (134,000) (5,000) 353,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 89,268 $ 196,524 $ 87 $ (550,919)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
4
<PAGE> 5
ORBAN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HARMAN INTERNATIONAL INDUSTRIES, INC.)
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTH PERIOD ENDED MARCH 31, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999 AND 1998
-----------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 8,930,000 $ 1,153,000 $(4,215,000) $ 5,868,000
Dividends paid (271,000) (271,000)
Contributed capital 87,761 87,761
Net loss (550,919) (550,919)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 8,930,000 1,240,761 (5,036,919) 5,133,842
Net income 87 87
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 8,930,000 1,240,761 (5,036,832) 5,133,929
Net income (unaudited) 89,268 89,268
----------- ----------- ----------- -----------
BALANCE, MARCH 31, 2000
(unaudited) $ 8,930,000 $ 1,240,761 $(4,947,564) $ 5,223,197
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
ORBAN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HARMAN INTERNATIONAL INDUSTRIES, INC.)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------------
THREE-MONTH PERIOD
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------
2000 1999 1999 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 89,268 $ 196,524 $ 87 $ (550,919)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 151,117 117,476 526,341 524,910
Loss on exiting Airtime 1,777,479
Loss on disposal of assets 11,587 12,184 35,349
Changes in assets and liabilities:
Accounts receivable (277,088) 103,759 376,792 52,241
Inventories (191,225) 19,395 122,600 (375,964)
Prepaid expenses and other (280,727) 7,649 49,087 39,987
Other assets 3,000 21,044 47,044 28,290
Accounts payable and other accrued expenses (14,005) (489,501) (301,419) 338,843
Airtime reserve (539,598)
----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities (508,073) (23,654) 293,118 1,870,216
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (265,315) (527,770) (824,709)
Deposit on pending sale of assets 250,000 250,000
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities 250,000 (265,315) (277,770) (824,709)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (271,000)
Stockholder contribution 87,761
Decrease (increase) in due from parent and related parties 554,217 245,451 (62,632) (854,750)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 554,217 245,451 (62,632) (1,037,989)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 296,144 (43,518) (47,284) 7,518
CASH, BEGINNING OF PERIOD 7,234 54,518 54,518 47,000
----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 303,378 $ 11,000 $ 7,234 $ 54,518
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-
Cash paid to parent for income taxes $ 649,000
===========
</TABLE>
See notes to financial statements.
6
<PAGE> 7
ORBAN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HARMAN INTERNATIONAL INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999 AND 1998
-------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Orban, Inc., a Delaware corporation, (the "Company") is
a wholly-owned subsidiary of Harman International Industries, Inc.
("Harman"). The Company develops, manufactures and markets products to
the worldwide broadcast market. Its product line is dominated by a
series of audio processing products and an audio editor for radio
applications.
SIGNIFICANT ACCOUNTING POLICIES - The Company prepares its financial
statements in accordance with accounting principles generally accepted
in the United States of America. The following describes the
significant accounting policies of the Company:
a. Inventories are stated at the lower of cost (first-in,
first-out method) or net realizable value.
b. Property, plant and equipment are stated at cost. The
equipment is being depreciated over its useful life, which is
estimated to be between three and eight years. Leasehold
improvements are depreciated over the shorter of the lease
term or the estimated useful life of the improvements.
Depreciation is computed using the straight-line method.
c. Impairment of Long-Lived Assets - In accordance with Statement
of Financial Accounting Standards ("SFAS") No. 121, the
Company reviews the carrying value of its long-lived assets
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 at the
lower of carrying amount or fair value less cost to sell.
d. Revenue is recognized on sales of products at the time of
shipment.
e. Research and development costs are charged to expense as
incurred.
f. Income taxes are provided based upon the provisions of SFAS
No. 109, Accounting for Income Taxes, which among other
things, requires that recognition of deferred income taxes be
measured by the provisions of enacted tax laws in effect at
the date of the financial statements. The Company's operations
are included in the consolidated federal income tax return of
Harman. In accordance with the income tax allocation policy,
income tax provision is determined on a separate return basis
and any current federal income tax liability is assumed by
Harman through intercompany accounts.
g. Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported 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 reporting
period. Actual results could differ from these estimates.
h. New Accounting Pronouncement - In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities.
7
<PAGE> 8
SFAS No. 133 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 other comprehensive
income, depending on the use of the derivative and whether it
qualifies for hedge accounting. The statement (as amended) is
effective for the Company's fiscal year beginning January 1,
2001. The statement is not expected to have a material impact
on the Company's results of operations, financial position or
cash flows.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies $ 1,846,797 $ 1,917,504 $ 1,589,844
Work in process 950,733 876,899 1,194,615
Finished goods 672,386 661,288 1,009,832
----------- ----------- -----------
Total 3,469,916 3,455,691 3,794,291
Less obsolescence reserve (827,000) (1,004,000) (1,220,000)
----------- ----------- -----------
Inventories - net $ 2,642,916 $ 2,451,691 $ 2,574,291
=========== =========== ===========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements $ 902,166 $ 902,166 $ 898,199
Machinery and equipment 3,427,863 3,439,450 3,044,258
Furniture and fixtures 348,153 348,153 343,082
----------- ----------- -----------
Total 4,678,182 4,689,769 4,285,539
Less accumulated depreciation (3,059,956) (2,908,839) (2,493,854)
----------- ----------- -----------
Property, plant and equipment - net $ 1,618,226 $ 1,780,930 $ 1,791,685
=========== =========== ===========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is a party to various Credit Agreements for which
it is jointly and severally liable with its parent, Harman, and
other Harman affiliates. These Credit Agreements allow the
Company and other Harman affiliates to borrow money and incur
other liabilities up to $270 million. The Credit Agreements
expire on September 30, 2002.
AIRTIME - In December 1998, due to slow sales and increasing
development costs, the Company made the decision to discontinue its
Airtime product line effective January 1, 1999. Dealers and customers
were notified of the Company's intention to discontinue the product
line, and arrangements were made to offer customers a replacement
system produced by a competitor at the expense of the Company. As a
result of this decision, the Company recorded a one-time charge to
operations of $1,777,479 at December 31, 1998 to reflect the costs
associated with discontinuing
8
<PAGE> 9
the product line. Included in this charge was the write down of various
assets, including goodwill, inventory, fixed assets and capitalized
technology associated with the Airtime product line in addition to
third-party replacement costs. The balance in accrued Airtime exit
costs at December 31, 1999 and 1998 of $91,977 and $631,575,
respectively, reflect the Company's estimate of remaining costs to be
incurred related to Airtime, including severance costs and costs to
return and/or replace customers' existing Airtime equipment. Management
believes that the remaining estimated accrual will be adequate to meet
future costs of the existing Airtime product line.
LEASE AGREEMENTS - The Company leases its manufacturing and office
facilities under a noncancelable operating lease which expires in
December, 2001. The total minimum rental commitments at December 31,
1999 are as follows:
<TABLE>
<S> <C>
2000 $ 70,783
2001 70,783
--------
Total $141,566
========
</TABLE>
LITIGATION - The Company is party to various legal actions arising in
the ordinary course of business. In the opinion of management the final
disposition of these matters will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
5. INCOME TAXES
Income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ------------
2000 1999 1999 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Current $(124,000) $ 101,000 $(329,000) $ 105,000
Deferred 186,000 33,000 334,000 (458,000)
--------- --------- --------- ---------
Total provision (benefit) $ 62,000 $ 134,000 $ 5,000 $(353,000)
========= ========= ========= =========
</TABLE>
The principal reasons for the difference between the income tax
provision and the amounts computed by applying the statutory income tax
rates to income (loss) before income tax provision are as follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ------------
2000 1999 1999 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal tax at statutory rates $ 51,000 $ 112,000 $ 2,000 $(307,000)
State tax at statutory rates 9,000 20,000 500 (54,000)
Meals and entertainment 2,000 2,000 2,500 8,000
--------- --------- --------- ---------
Total provision (benefit) $ 62,000 $ 134,000 $ 5,000 $(353,000)
========= ========= ========= =========
</TABLE>
9
<PAGE> 10
Deferred tax assets are included in amounts due from affiliates and
represent the tax effect of temporary differences related to:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------------
2000 1999 1998
<S> <C> <C> <C>
Current deferred taxes:
Inventory obsolescence reserve $ 331,000 $ 402,000 $ 488,000
Airtime reserve 37,000 37,000 253,000
Other 115,000 130,000 148,000
---------- ---------- ----------
Total current 483,000 569,000 889,000
Noncurrent deferred taxes - Depreciation
and amortization 100,000 100,000 114,000
---------- ---------- ----------
Total deferred taxes $ 583,000 $ 669,000 $1,003,000
========== ========== ==========
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The balance in due from affiliates resulted from the following
transactions with Harman and affiliates:
a. Certain expenses are charged by Harman to the Company each
year as management fees. These expenses do not necessarily
indicate the amount of expenses the Company would have
incurred if it operated independently. The total charges from
Harman and related companies were approximately $38,000
(unaudited) and $36,000 (unaudited) for the three-months ended
March 31, 2000 and 1999, respectively, and $164,000 and
$177,000 for the years ended December 31, 1999 and 1998,
respectively.
b. The Company has received advances from Harman of approximately
$233,000 at March 31, 2000 (unaudited) and had advanced to
Harman approximately $398,000 and $342,000 at December 31,
1999 and 1998, respectively. Interest on such advances was $0
(unaudited) and $8,000 (unaudited) for the three-months ended
March 31, 2000 and 1999, respectively, and $51,000 and $74,000
for the years ended December 31, 1999 and 1998, respectively.
c. The Company pays certain expenses on behalf of one of its
affiliates with whom it shares office space and employees. The
amount due from the affiliate was approximately $12,000 at
March 31, 2000 (unaudited) and $89,000 and $198,000 at
December 31, 1999 and 1998, respectively.
d. In accordance with the income tax allocation policy, income
tax provision is determined on a separate return basis and any
current federal income tax liability is assumed by Harman
through intercompany accounts.
(7) EMPLOYEE BENEFIT PLAN
After certain conditions have been met, the Company's employees are
eligible to participate in the Harman International Industries, Inc.
401(k) Retirement Savings Plan (the "Plan"). The Company will match 50
percent of employee contributions up to a maximum contribution by the
Company of 6 percent of a participant's annual compensation. Total
annual contributions to a participant's account may not exceed 15
percent of compensation. Company contributions made to the Plan were
approximately $35,000 (unaudited) and $36,000 (unaudited) for the
three-months ended March 31, 2000 and 1999, respectively and
approximately $141,000 and $155,000 in 1999 and 1998, respectively.
10
<PAGE> 11
(8) MAJOR CUSTOMERS
One customer accounted for approximately 39 percent (unaudited) for the
three months ended March 31, 2000, and 34 percent and 31 percent of the
Company's total revenues in 1999 and 1998, respectively.
(9) SUBSEQUENT EVENT
On May 31, 2000, the Company sold the majority of its net assets to CRL
Systems, Inc. ("CRL"). Included in deposit on pending sale of assets at
March 31, 2000 and December 31, 1999 is $500,000 and $250,000,
respectively, in a nonrefundable deposit that CRL paid to the Company
for the asset sale. Including these deposits, the total purchase price
was $11.6 million, $2 million of which was paid in cash, $8.5 million
was financed by the Company (the "seller financing") and with the
remainder represented by warrants to purchase 500,000 shares of CRL's
common stock for $4.50 per share, valued at approximately $1.1 million
by an independent appraisal. Excluded from the sale are balances due
from parent and subsidiaries, deferred income and any deferred tax
assets or liabilities.
The seller financing is evidenced by two promissory notes, the Senior
Subordinated Tranche A Note (the "Tranche A Note") and the Senior
Subordinated Tranche B Note (the "Tranche B Note"). The Tranche A Note,
in the amount of $5,000,000, bears interest at 8 percent per annum and
requires quarterly principal payments beginning March 31, 2001, with a
balloon payment of $3,000,000 due on March 31, 2003. The Tranche B
Note, in the amount of $3,500,000, bears interest at 8 percent per
annum for the period from June 1, 2000 to July 31, 2000 and 10 percent
per annum from August 1, 2000 up to its September 30, 2000 maturity
date. The September 30, 2000 maturity date on the Tranche B note has
been extended to November 30, 2000. The notes are collateralized by,
among other things, all receivables, inventory and equipment,
investment property, including the capital stock in CRL Systems, and
intellectual property of CRL Systems and its related company, Circuit
Research Labs, Inc., as defined in the "Guarantee and Collateral
Agreement". The Asset Sale Agreement between CRL and the Company
contains a provision to allow the Company to rescind the transaction
if, as of November 30, 2000, CRL has not paid in full the $3.5 million
short-term note. If the Company exercises its option to rescind the
agreement, it is to return $9,250,000 of the purchase price to CRL,
with the difference due to the Company as liquidating damages.
(10) UNAUDITED INTERIM PERIODS
The accompanying unaudited financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and the
instructions to Form 10-QSB and Item 310 of Regulation S-B. In the
opinion of management, all adjustments and reclassifications necessary
for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three-month periods
are not necessarily indicative of the results that may be expected for
the years ended December 31.
* * * * * *
11
<PAGE> 12
(b) Pro forma financial information.
CIRCUIT RESEARCH LABS, INC.
PRO FORMA FINANCIAL INFORMATION
SEPTEMBER 30, 2000
On May 31, 2000, CRL Systems Inc., a Nevada corporation, a wholly owned
subsidiary of Circuit Research Labs Inc., an Arizona corporation ("CRL"),
consummated its previously announced acquisition of the net assets of Orban,
Inc. ("Orban"), a wholly-owned subsidiary of Harman International Industries,
Inc. Including the $500,000 previously paid to Orban, the total stated purchase
price was $10.5 million, $2 million of which was paid in cash, the balance a
combination of short term and long-term seller financing. In order to raise the
cash necessary for the purchase, the Company sold approximately $1,171,000 in
common stock through private placements, the Company's majority shareholder,
Charles Jayson Brentlinger, advanced $150,000 to the Company, and the Company's
Tempe, Arizona office building was mortgaged for $335,000. The seller financing
consists of a $3.5 million short term and a $5 million long-term note to Orban,
Inc. The Asset Sale Agreement between CRL Systems and Orban, Inc. ("the Asset
Sale Agreement") contains a provision to allow Orban to rescind the transaction
if, as of November 30, 2000, CRL Systems has not paid in full the $3.5 million
short term note. If Orban exercises its option to rescind the agreement, it is
to return $9,250,000 of the purchase price to CRL Systems, with the difference
due to Orban as liquidating damages.
In addition to the stated purchase price, CRL issued to Orban, Inc. warrants to
purchase 1,000,000 shares of its common stock, immediately exercisable for $2.25
per share. The warrants have a 3 year term, and can be exercised either in cash
or by reducing the unpaid principal amount of the $5 million long-term note, or
in any combination thereof. At June 30, 2000, in the absence of a independent
valuation, the warrants were valued using a Black-Scholes valuation model at
$4,125,000. When combined with the stated purchase price, this results in a
total purchase price of Orban's assets of $14,625,000. This purchase price was
used in the June 30, 2000 10-QSB. The Company obtained an independent valuation
of the warrants in November 2000 which valued the warrants at $1,050,000. When
combined with the stated purchase price, this results in a total purchase price
of Orban's assets of $11,550,000.
The acquisition transaction was negotiated at arm's length between CRL and
Harman International Industries Inc. Prior to the acquisition, none of the
directors, officers or associates of Harman International Industries Inc. or
Orban Inc., or their affiliates, were or are affiliated with CRL, it affiliates,
its directors and officers and their associates. CRL is accounting for the
acquisition of Orban as a purchase.
The following unaudited pro forma balance sheet has been derived from the
balance sheets of CRL and Orban at March 31, 2000 and adjusts such information
to give effect to the asset purchase as if the transaction had occurred at March
31, 2000. The following unaudited pro forma statements of operations have been
derived from the statements of operations of CRL and Orban for the three months
ended March 31, 2000 and the year ended December 31, 1999 and adjust such
information to give effect to the asset purchase as if the transaction had
occurred on January 1, 1999.
The pro forma balance sheet and statements of operations are presented for
informational purposes only and do not purport to be indicative of the financial
condition or the results of operations that actually would have resulted if the
transaction had been consummated at March 31, 2000 or January 1, 1999, nor which
may result from future operations.
12
<PAGE> 13
On July 7, 2000, the Board of Directors declared a 100 percent stock dividend of
one share of common stock for each share held, payable on August 15, 2000 to all
shareholders of record as of the close of business on July 31, 2000. Unless
otherwise noted, all references in the financial statements with regard to
number of shares of common stock and related dividends declared and income per
share amounts have been restated to reflect the stock dividend.
As a result of the combined operations of CRL and Orban, staff reductions were
made that would have resulted in a decrease of employee-related expenses of
$232,000 and $1,249,000 for the three months ended March 31, 2000 and the year
ended December 31, 1999, respectively. No adjustment for these reductions has
been made in the following unaudited pro forma financial information.
13
<PAGE> 14
CIRCUIT RESEARCH LABS, INC. & SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
-----------------------------------------------------------------------------------------------------------------------------
CRL ORBAN PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED TOTAL
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52,771 $ 303,378 $ (94,000)(c) $ 262,149
Accounts receivable - net of allowance 60,683 1,347,055 1,407,738
Inventories - net of allowance 587,193 2,642,916 3,230,829
Prepaids and deposits 58,840 334,853 393,693
Due from affiliates -- 648,165 (648,165)(a) --
------------ ------------ ------------ ------------
Total current assets 759,487 5,276,367 (742,165) 5,293,689
PROPERTY AND EQUIPMENT - Net 438,187 1,618,226 2,056,413
DEFERRED ACQUISITION COSTS 548,215 (548,215)(c)
OTHER ASSETS 39,000 39,000
GOODWILL -- -- 6,728,183(b) 6,728,183
------------ ------------ ------------ ------------
TOTAL $ 1,745,889 $ 6,933,593 $ 5,437,803 $ 14,117,285
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 57,262 $ 453,689 $ 510,951
Accrued salaries and benefits 42,676 450,549 493,225
Accrued professional fees 33,158 33,158
Shareholder advances $ 150,000(c) 150,000
Customer deposits 19,370 22,814 42,184
Other accrued expenses and liabilities 16,059 191,367 207,426
Airtime reserve 91,977 91,977
Deposit on pending sale of assets 500,000 (500,000)(a)
Current portion of long-term debt -- -- 3,835,000(c) 3,835,000
------------ ------------ ------------ ------------
Total current liabilities 168,525 1,710,396 3,485,000 5,363,921
LONG-TERM DEBT - Net of current portion -- -- 4,955,000(c) 4,955,000
------------ ------------ ------------ ------------
Total liabilities 168,525 1,710,396 8,440,000 10,318,921
STOCKHOLDERS' EQUITY:
Common stock, .10 par value 124,536 8,930,000 (8,930,000)(a)
79,542(c) 204,078
Additional paid-in capital 1,672,706 1,240,761 (1,240,761)(a)
2,141,458(c) 3,814,164
Deficit (219,878) (4,947,564) 4,947,564(a) (219,878)
------------ ------------ ------------ ------------
Net stockholders' equity 1,577,364 5,223,197 (3,002,197) 3,798,364
------------ ------------ ------------ ------------
TOTAL $ 1,745,889 $ 6,933,593 $ 5,437,803 $ 14,117,285
============ ============ ============ ============
</TABLE>
(a) Reflects a pro forma adjustment to eliminate the net assets of Orban,
Inc. not included in the asset sale to CRL
(continued)
14
<PAGE> 15
CIRCUIT RESEARCH LABS, INC. & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
------------------------------------------------------------------------------
(b) Reflects a pro forma adjustment for the capitalization of the cost of
acquisition, in excess of the net assets acquired resulting from the
application of purchase accounting as follows:
<TABLE>
<CAPTION>
<S> <C>
Total purchase price $11,550,000
Costs incurred 253,215
-----------
Sub total 11,803,215
Net assets acquired 5,075,032
-----------
Goodwill $ 6,728,183
</TABLE>
(c) Reflects a pro forma adjustment of debt and capital stock issued to
acquire funds used for the acquisition as follows:
<TABLE>
<S> <C>
Seller financing (discounted) $ 8,250,000
Debt issued to stockholder in exchange
for certain acquisition costs 205,000
Mortgage loan 335,000
Stockholder advance 150,000
795,418 shares common stock issued 1,171,000
Warrants issued 1,050,000
Deferred acquisition costs (including
$500,000 deposit) 548,215
Cash 94,000
-----------
Total costs of acquisition $11,803,215
===========
</TABLE>
15
<PAGE> 16
CIRCUIT RESEARCH LABS, INC. & SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000
-----------------------------------------------------------------------------------------------------------------
CRL ORBAN PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED TOTAL
<S> <C> <C> <C> <C>
NET SALES $ 208,068 $ 3,005,895 $ 3,213,963
COST OF GOODS SOLD 90,987 1,834,789 1,925,776
----------- ----------- -----------
Gross profit 117,081 1,171,106 1,288,187
OPERATING EXPENSES:
Selling, general and administrative 242,529 677,711 $ (38,000)(a) 882,240
Research and development 97,611 349,678 447,289
Depreciation and amortization 240,000(b) 240,000
----------- ----------- ----------- -----------
Total operating expenses 340,140 1,027,389 202,000 1,569,529
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (223,059) 143,717 (202,000) (281,342)
----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME:
Interest and other expense 16,211 (187,000)(c) (170,789)
Interest and other income 7,904 7,904
Other expense - net (353) (353)
----------- ----------- ----------- -----------
Total other (expense) income 16,211 7,551 (187,000) (163,238)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX
(PROVISION) BENEFIT (206,848) 151,268 (389,000) (444,580)
INCOME (PROVISION) TAX BENEFIT (62,000) 62,000 (d)
----------- -----------
NET INCOME (LOSS) $ (206,848) $ 89,268 $ (327,000) $ (444,580)
=========== =========== =========== ===========
NET (LOSS) INCOME PER COMMON
SHARE - BASIC AND DILUTED ($ 0.17) ($ 0.22)
=========== ===========
WEIGHT AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,200,310 795,418 (e) 1,995,728
=========== =========== ===========
</TABLE>
(a) Reflects a pro forma adjustment for management fees paid to Harman
International by Orban.
(b) Reflects a pro forma adjustment for amortization expense associated
with the capitalization of the cost of acquisition in excess of the net
assets acquired resulting from the application of purchase accounting
principles. Amortization expense is recorded over seven years.
(c) Reflects a pro forma adjustment for interest expense on the debt
incurred for the acquisition, assuming 8 percent per annum in the
seller financed debt of $8,500,000 and 15.25 percent on the $335,000
mortgage, and 7.5 percent on note to shareholder of $205,000.
(d) Reflects a pro forma adjustment for the elimination of income tax
expense as a result of the net loss.
(e) Reflects a pro forma adjustment for the issuance of Circuit Research
Labs Inc. Common Stock, the proceeds of which were used to purchase
Orban.
16
<PAGE> 17
CIRCUIT RESEARCH LABS, INC. & SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------------------------------------------------
CRL ORBAN PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED TOTAL
<S> <C> <C> <C> <C>
NET SALES $ 1,016,807 $ 12,368,054 $ 13,384,861
COST OF GOODS SOLD 241,296 6,755,921 6,997,217
------------ ------------ ------------
Gross profit 775,511 5,612,133 6,387,644
OPERATING EXPENSES:
Selling, general and administrative 850,377 3,635,271 $ (164,000)(a) 4,321,648
Research and development 223,441 1,989,495 2,212,936
Depreciation and amortization 960,000(b) 960,000
------------ ------------
Total operating expenses 1,073,818 5,624,766 796,000 7,494,584
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (298,307) (12,633) (796,000) (1,106,940)
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME:
Interest and other expense (748,000)(c) (748,000)
Interest and other income 38,078 17,720 55,798
------------ ------------ ------------ ------------
Total other (expense) income 38,078 17,720 (748,000) (692,202)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX
(PROVISION) BENEFIT (260,229) 5,087 (1,544,000) (1,799,142)
INCOME (PROVISION) TAX BENEFIT (5,000) 5,000(d)
------------ ------------
NET INCOME (LOSS) $ (260,229) $ 87 $ (1,539,000) $ (1,799,142)
============ ============ ============ ============
NET (LOSS) INCOME PER COMMON
SHARE - BASIC AND DILUTED $ (0.28) $ (1.05)
============ ============
WEIGHT AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 916,940 795,418(e) 1,712,358
============ ============ ============
</TABLE>
(a) Reflects a pro forma adjustment for management fees paid to Harman
International by Orban.
(b) Reflects a pro forma adjustment for amortization expense associated
with the capitalization of the cost of acquisition in excess of the net
assets acquired resulting from the application of purchase accounting
principles. Amortization expense is recorded over seven years.
(c) Reflects a pro forma adjustment for interest expense on the debt
incurred for the acquisition, assuming 8 percent per annum in the
seller financed debt of $8,500,000 and 15.25 percent on the $335,000
mortgage, and 7.5 percent on note to shareholder of $205,000.
(d) Reflects a pro forma adjustment for the elimination of income tax
expense as a result of the net loss.
(e) Reflects a pro forma adjustment for the issuance of Circuit Research
Labs Inc. Common Stock, the proceeds of which were used to purchase
Orban.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CIRCUIT RESEARCH LABS, INC.
Date: November 20, 2000 By : /s/ Charles Jayson Brentlinger
------------------------------
Charles Jayson Brentlinger,
President
18
