UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
Commission File Number 0-11353
CIRCUIT RESEARCH LABS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0344671
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2522 West Geneva Drive, Tempe, Arizona 85282
(Address of Principal executive office) (Zip Code)
Registrant's telephone number,
including area code
(602) 438-0888
172743 20 5
(CUSIP Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report.
Outstanding at
Class June 30, 2000
Common stock, $.10 par value 996,429
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
INDEX
Page
number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets
June 30, 2000 and December 31, 1999 2
Consolidated Condensed Statements of
Operations - Six months ended
June 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash
Flows - Six months ended June 30, 2000
and 1999 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. OTHER INFORMATION:
Item 2. Changes in use of securities and use
of proceeds 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 172,105 $ 62,597
Securities available-for-sale 0 383,905
Accounts receivable, less allowance for
doubtful accounts of $5,000 at June 30,2000
and $9,715 at December 31, 1999 873,321 47,662
Inventories:
Raw materials and supplies 1,794,558 137,247
Work in process 603,701 118,233
Finished goods 1,395,208 305,725
Total inventories, net of obsolescence
reserve of $651,000 at June 30, 2000 and
$380,000 at December 31, 1999 3,793,467 561,205
Prepaid expenses and other 652,097 40,219
Total current assets 5,490,990 1,095,588
PROPERTY, PLANT AND EQUIPMENT:
Land 130,869 130,869
Building and improvements 874,696 503,000
Furniture and fixtures 913,115
Machinery and equipment 1,132,504 518,272
Total 3,051,184 1,437,308
Less accumulated depreciation 1,044,459 996,420
Property, plant and equipment - net 2,006,725 440,888
GOODWILL - (Net of amortization of $107,154) 8,922,859 0
OTHER ASSETS 174,500 298,215
TOTAL $16,595,074 $1,834,691
(continued)
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 883,454 $ 70,732
Accrued salaries and benefits 156,796 34,684
Accrued professional fees 21,798 30,933
Customer deposits 38,069 3,623
Due to shareholders 292,500 0
Other accrued expenses and liabilities 15,698 10,507
Long-term debt - current portion 4,449,040 0
Total current liabilities 5,857,355 150,479
Long-Term Debt Less Current Portion 4,409,347 0
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value - authorized
500,000 shares, none issued
Common stock, $.10 par value - authorized
20,000,000 shares, 996,429 and 597,682
shares issued 99,642 59,768
Additional paid-in capital 6,903,841 1,637,474
Accumulated dedficit (675,111) (13,030)
Total stockholders' equity 6,328,372 1,684,212
TOTAL $16,595,074 $1,834,691
See accompanying notes to consolidated condensed financial statements.
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
NET SALES $1,039,679 $274,683 $1,247,747 $648,976
COST OF GOODS SOLD 556,075 210,652 647,062 454,319
Gross profit 483,604 64,031 600,685 194,657
OPERATING EXPENSES:
Selling, general and
administrative 663,809 70,714 906,338 356,124
Research and development 213,092 56,231 310,703 85,579
Total operating expenses 876,901 126,945 1,217,041 441,703
LOSS FROM OPERATIONS (393,297) (62,914) (616,356) (247,046)
OTHER INCOME (EXPENSE):
Interest and other income 736 6,619 16,947 20,227
Interest expense (62,672) (62,672)
Total other income (expense) (61,936) 6,619 (45,725) 20,227
(LOSS) BEFORE INCOME TAXES (455,233) (56,295) (662,081) (226,819)
INCOME TAX (BENEFIT) PROVISION
NET (LOSS) INCOME $(455,233) $(56,295) $(662,081) $(226,819)
(LOSS)
Basic $(.58) $(.14) $(.96) $(.55)
Diluted $(.58) $(.14) $(.96) $(.55)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
Basic 783,663 410,182 691,771 410,182
Diluted 783,663 410,182 691,771 410,182
See accompanying notes to consolidated condensed financial statements.
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2000 1999
OPERATING ACTIVITIES:
NET (LOSS) $(662,081) $(226,819)
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME
TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Depreciation and amortization 162,320 15,535
Loss on sale of assets 5,394
Changes in assets and liabilities:
Accounts receivable 261,006 64,005
Inventories (292,488) 289,600
Prepaid expenses and other assets (192,115) 4,116
Accounts payable and accrued expenses 364,606 (85,231)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (358,752) 66,600
INVESTING ACTIVITIES:
Purchase of net assets of Orban, Inc. (1,775,852)
Purchase of securities (243,003)
Proceeds from sale or maturity of securities 383,905 295,928
Capital expenditures (16,921)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,408,868) 52,925
FINANCING ACTIVITIES:
Proceeds from debt issuance 403,387
Shareholder advances 292,500
Principal payments on long-term debt (21,000)
Deposit on purchase of Company's common stock 300,000
Proceeds from sale of common stock 1,181,241
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,877,128 279,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 109,508 398,525
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 62,597 128,691
CASH AND CASH EQUIVALENTS AT END OF PERIOD $172,105 $527,216
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $6,005 $19,156
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of net assets of Orban, Inc.:
Fair value of assets acquired, including goodwill $15,504,797
Debt issued to seller (8,500,000)
Fair values of warrants issued to seller (4,125,000)
Debt issued to stockholder (205,000)
Liabilities assumed (600,730)
Costs paid in 1999 (298,215)
Cash and costs paid $ 1,775,852
Unrealized appreciation of securities
available-for-sale $ 9,074
See accompanying notes to consolidated condensed financial statements.
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
Common Stock Paid-In Accumulated Total
Shares Amount Capital Deficit
BALANCE, January 1, 1999 597,682 $ 59,768 $1,637,474 $ (13,030) $2,281,894
Net loss (662,081) (662,081)
Issuance of common shares 398,747 39,874 1,141,367 1,579,988
Issuance of warrants 4,125,000 4,125,000
BALANCE, June 30, 2000 996,429 $ 99,642 $ 6,903,841 $(675,111) 7,324,801
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The Consolidated Condensed Financial Statements included herein
have been prepared by Circuit Research Labs, Inc. ("CRL") include
the accounts of CRL and all of its subsidiaries, CRL Systems, Inc.
("CRL Systems"), and CRL International, Inc. ("CRLI"),
collectively, "the Company"). The Consolidated Condensed Balance
Sheet as of December 31, 1999 and June 30, 2000 and the
Consolidated Condensed Statements of Operations for the three and
six months ended June 30, 2000 and 1999 and the Consolidated
Condensed Statements of Cash Flows for the six months ended June
30, 2000 and 1999 have been prepared without audit.
Certain information and note disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the
consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
In the opinion of management, the Consolidated Condensed Financial
Statements for the unaudited interim periods presented herein
include all adjustments, consisting only of normal recurring
adjustments, necessary to present a fair statement of the results
of operations for such interim periods. Net operating results for
any interim period may not be comparable to the same interim
period in previous years, nor necessarily indicative of the
results that may be expected for the full year.
2. Earnings per Share
In calculating earnings per share for the three and six months
ended June 30, 2000, the effects of 591,250 shares relating to
options to purchase common stock and 793,747 shares relating to
warrants were not used for computing diluted earnings per share
because the results would be antidilutive
3. Business Combination
On May 31, 2000, CRL Systems acquired the net assets of Orban,
Inc., a wholly-owned subsidiary of Harman International
Industries, Inc. Including the $500,000 previously paid to Orban,
the total cash 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
$1,000,000 in common stock through a private placement, 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 cash purchase
price to CRL Systems, with the difference due to Orban as
liquidating damages.
In addition to the cash purchase price, CRL issued to Orban, Inc.
warrants to purchase 500,000 shares of its common stock,
immediately exercisable for $4.50 per share. The warrants have a
3 year term, and can be exercised either in cash or by reducing
the unpaid princicpal amount of the $5 million long-term note, or
in any combination thereof. The warrants have an estimated fair
value of $4,125,000 which, when combined with the cash purchase
price, results in a total purchase price of Orban's assets of
$14,625,000. The Company is in the process of obtaining an
independent valuation of the warrants. In the absence of such
a valuation, the Company has valued the warrants using a
Black-Scholes valuation model at $4,125,000 which, when combined
with the cash purchase price, results in a total purchase price of
Orban's assets of $14,625,000.
As part of the acquisition, CRL Systems purchased the rights to
the name "Orban" and is currently operating under the dba "Orban".
The acquisition has been accounted for as a purchase and
accordingly the net assets and results of operations of Orban have
been included in the consolidated financial statements commencing
May 31, 2000. The excess of the total acquisition costs over the
fair value of the assets acquired of approximately $9.3 million is
being amortized over 7 years. CRL is still gathering certain
information required to complete the allocation of the Orban asset
purchase price. Further adjustments may arise as a result of this
analysis.
The following unaudited pro-forma summary combines the
consolidated results of operations of Circuit Research Labs and
Orban as if the acquisition had occurred on January 1 of that
period after giving effect to certain adjustments including
amortization of the purchase price in excess of net assets
acquired, corporate general and administrative expenses, and income
taxes. This pro-forma summary is not necessarily indicative of
the results of operations that would have occurred if Circuit
Research Labs and Orban had been combined during such periods.
Moreover, the pro-forma summary is not intended to be indicative
of the results of operations to be attained in the future.
Six Months Ended
June 30
2000 1999
Net revenues $6,200,000 $7,400,000
Net loss (89,000) (510,000)
Net loss per common share $(.13) $(1.24)
4. Debt
Long term-debt at June 30, 2000 consisted of the following:
Orban, Inc. Tranche A Note $4,750,000
Orban, Inc. Tranche B Note 3,500,000
Note to shareholder 205,000
Mortgage note 335,000
Unsecured promissory note 68,387
Total long-term debt $8,858,387
Less current portion (4,449,040)
Total long-term debt, less
current portion $4,409,347
There was no debt at June 30, 1999.
In conjunction with the Asset Sale Agreement between Orban, Inc.
and CRL Systems, Inc., CRL Systems and Orban entered into a
Credit Agreement to establish the terms and conditions of the
$8,500,0000 loan from Orban to CRL Systems. The loan 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, based on
current interest rates this includes a discount of $250,000.
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 notes are secured by, among
other things, all receivables, inventory and equipment,
investment property, including CRL's capital stock in CRL
ystems, and intellectual property of CRL and CRL Systems, as
defined in the "Guarantee and Collateral Agreement".
In consideration for arranging the above financing with Orban, the
Company incurred financing fees of $97,500 to a shareholder, the
total of which is included Due to Shareholders at June 30, 2000.
Such deferred financing fees are included in other assets and will
be amortized over the term of the related notes.
The Company issued $205,000 in long-term debt to a shareholder in
consideration for his role in the acquisition of the assets of
Orban, Inc. The note bears interest at 7.5 per cent per annum,
with principal and interest due monthly beginning July 1, 2000 for
four years. The original amount of the note has been included in
the total acquisition costs of the Orban assets.
At June 30, 2000, included in Due to Shareholders is $195,000 the
Company received in non-interest bearing cash advances from Mr.
Brentlinger. There is no stated term on the advances.
On May 30, 2000, the Company mortgaged its office building and
manufacturing facility in Tempe, Arizona for $335,000. The
mortgage note bears interest at 15.25 percent per annum, payable
monthly, and the full principal balance due in November 2000.
On June 12, 2000 the Company entered into a promissory note for
$68,387 from an employee. The note bears interest at 12 percent
per annum. All principal and interest is due September 12, 2000.
The note is unsecured.
The following represents the principal maturities of debt over the
next five years:
June 30, 2001 $4,449,040
June 30, 2002 1,049,202
June 30, 2003 3,303,021
June 30, 2004 57,214
5. Stockholders' Equity
Common Stock and Warrants Subscription Agreement: During the
period ended June 30, 2000, the Company sold in a private
placement, for $3.00 per share, 293,747 units of common stock and
warrants under a subscription agreement (the "Subscription
Agreement") with accredited investors. Under the agreement, each
unit consists of one share the Company's common stock and one
warrant (the "Class A Warrants") to purchase at an exercise price
of $3.50 per share one share of the Company's common stock and
one Class B Warrant (as defined). The Class A Warrant may be
exercised for a sixty day period following the registration of the
shares issuable upon exercise of the Class A Warrants. The holder
of a Class A Warrant shall not have the right to obtain a Class B
Warrant if the Class A Warrant is not timely exercised.
Each Class B Warrant, if and when issued, will be a warrant to
purchase at an exercise price of $4.00 per share one share of
Company's common stock and one Class C Warrant. The holder of a
Class B Warrant shall not have the right to obtain a Class C
Warrant if the Class B Warrant is not timely exercised, as defined
in the subscription agreement.
Each Class C Warrant, if and when issued, will be a warrant to
purchase at an exercise price of $4.50 per share one share of
Company's common stock and one Class D Warrant. The holder of a
Class C Warrant shall not have the right to obtain a Class D
Warrant if the Class C Warrant is not timely exercised, as defined
in the subscription agreement.
Each Class D Warrant, if and when issued, will be a warrant to
purchase at an exercise price of $5.00 per share one share of
Company's common stock.
Stock Options Exercised: During the three months ended June 30,
2000, Mr. Brentlinger purchased 80,000 shares of the Company's
common stock for $2.50 per share under the 1999 stock purchase
agreement between himself and the Company. Under such agreement,
Mr. Brentlinger was obligated to purchase 171,250 shares on or
before September 30, 2000 for $2.50 per share. At June 30, 2000,
he remains obligated to purchase 91,250 shares on or before
September 30, 2000 for a total price of $228,125.
6. Subsequent Events
Stock dividend: 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.
Common stock: During July and August, 2000, the Company
received funds for an additional 63,332 units under the
Subscription Agreement for the total consideration of $189,996
and accordingly issued 63,332 shares of its common stock.
Item. 2
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
On May 31, 2000, CRL Systems acquired the net assets of Orban,
Inc., a wholly-owned subsidiary of Harman International
Industries, Inc. Including the $500,000 previously paid to Orban,
the total cash purchase price was $10.5 million. Accordingly, the
net asset s and results of operations of CRL Systems Inc d.b.a.
Orban ("Orban") have been included in these financial statements
commencing May 31, 2000.
Results of Operations
Net Revenues. Total net revenues during the three and six months
ended June 30, 2000, were $1.0 million and $1.2 million,
respectively, compared to $275,000 and $649,000 during the
comparable periods in 1999, respectively, reflecting an increase
of 279% and 92%, respectively. The increase in the net revenues
was primarily attributable to Orban revenues, offset by a decrease
in CRL revenues, as the Company continues to experience slower
demand across its product lines, in both domestic and
international markets.
Gross Profit. The increased revenue levels generated gross profit
of $484,000 and $601,000 for the three and six months ended June
30, 2000, which was an increase of 655% and 201% over the
comparable periods in 1999, respectively. Gross profit as a
percentage of net revenues increased from 23% to 47% for the three
months ended June 30, 2000 as compared to the three months ended
June 30, 1999. Gross profit as a percentage of net revenues
increased from 30% to 48% for the six months ended June 30, 2000.
The gross profit percentage improved as a result of the Company's
decision not to dissolve in May 1999 and thereby returning to
selling it's inventory at normal margins subsequent to such time.
Selling, General and Administrative. Total selling, general, and
administrative expenses ("SG&A") increased 839% and 155% for the
three and six months ended June 30, 2000 as compared to the same
periods during 1999, respectively. As a percentage of revenues,
SG&A went from 26% to 64% for the three months ended June 30, 1999
versus 2000, respectively, and from 55% to 73% for the six months
ended June 30, 1999 versus 2000, respectively. The increased
SG&A dollars are due in part to the variable component of
SG&A (commissions and other domestic and international sales
and marketing expenses) associated with the increased revenues
resulting from the acquisition of Orban. The fixed component of
SG&A has also increased due to additional personnel in sales,
marketing and administration, amortization of goodwill, and costs
related to Orban. As a result SG&A is expected to be higher
throughout 2000 compared to 1999.
Research and Development. Research and development expenses
increased 279% and 263% for the three and six months ended June 30,
2000 as compared to the same periods during 1999. The increase is
the result of an increase in the number of engineering staff at
CRL and ongoing research and development activities at Orban.
Other Income (Expense). Other income (expense) was ($62,000) and
($46,000) for the three and six months ended June 30, 2000
compared to $7,000 and $20,000 for the same periods in 1999.
Other income in 1999 consisted of interest on the Company's
marketable securities and the cash surrender value of a life
insurance policy. In 2000, the marketable securities had been
sold, leaving no source for interest income after the first
quarter and the Company entered into various forms of debt to
finance the purchase of Orban's assets, resulting in interest
expense of $63,000 for the three and six months ended June 30,
2000.
CRL plans to attempt to raise additional capital during fiscal year
2000 with a private equity placement of an undetermined number of
shares of CRL's common stock. CRL intends to apply any such
additional capital to debt repayment with any excess funds to be
used for product development, and working capital requirements
above those funded from operations. The Company has not yet
entered into any agreements for this planned private equity
funding. See "Liquidity and Capital Resources."
Liquidity and Capital Resources
As discussed above, on May 31, 2000, CRL Systems acquired the net
assets of Orban, Inc., a wholly-owned subsidiary of Harman
International Industries, Inc. Including the $500,000 previously
paid to Orban, the total cash 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
$1,000,000 in common stock through a private placement, 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 cash purchase
price to CRL Systems, with the difference due to Orban as
liquidating damages.
In addition to the cash purchase price, CRL issued to Orban, Inc.
warrants to purchase 500,000 shares of its common stock,
immediately exercisable for $4.50 per share. The warrants have a
3 year term, and can be exercised either in cash or by reducing
the unpaid princicpal amount of the $5 million long-term note, or
in any combination thereof. The Company is in the process of
obtaining an independent valuation of the warrants. In the
absence of such a valuation, the Company has valued the warrants
using a Black-Scholes valuation model at $4,125,000 which, when
combined with the cash purchase price, results in a total purchase
price of Orban's assets of $14,625,000. The fair value of the
assets acquired is estimated to be $15,500,000 and the Company
assumed approximately $600,000 in liabilities and incurred
approximately $300,000 in costs. The acquisition has been
accounted for as a purchase.
The Company issued $205,000 in long-term debt to a shareholder in
consideration for his role in the acquisition of the assets of
Orban, Inc. The note bears interest at 7.5 per cent per annum,
with principal and interest due monthly beginning July 1, 2000 for
four years. The original amount of the note has been included in
the total acquisition costs of the Orban assets.
In conjunction with the Asset Sale Agreement between Orban, Inc.
and CRL Systems, Inc., CRL Systems and Orban entered into a
Credit Agreement to establish the terms and conditions of the
$8,500,0000 loan from Orban to CRL Systems. The loan 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 notes are secured by, among other things, all
receivables, inventory and equipment, investment property,
including CRL's capital stock in CRL Systems, and intellectual
property of CRL and CRL Systems, as defined in the "Guarantee and
Collateral Agreement". In consideration for arranging the above
financing with Orban, the Company incurred financing fees of
$97,500 to a shareholder.
As of June 30, 2000, there was outstanding $195,000 in non-
interest bearing cash advances the Company received from Mr.
Brentlinger. There is no stated term on the advances.
On May 30, 2000, the Company mortgaged its office building and
manufacturing facility in Tempe, Arizona for $335,000. The
mortgage note bears interest at 15.25 percent per annum, payable
monthly, and the full principal balance due in November 2000.
On June 12, 2000 the Company entered into a promissory note for
$68,387 from an employee. The note bears interest at 12 percent
per annum. All principal and interest is due September 12, 2000.
The note is unsecured.
During the period ended June 30, 2000, the Company sold in a
private placement, for $3.00 per share, 293,747 units of common
stock and warrants under a subscription agreement (the
"Subscription Agreement") with accredited investors. Under the
agreement, each unit consists of one share the Company's common
stock and one warrant (the "Class A Warrants") to purchase at an
exercise price of $3.50 per share one share of the Company's
common stock and one Class B Warrant (as defined). The Class A
Warrant may be exercised for a sixty day period following the
registration of the shares issuable upon exercise of the Class A
Warrants. The holder of a Class A Warrant shall not have the
right to obtain a Class B Warrant if the Class A Warrant is not
timely exercised. Each Class B Warrant, if and when issued, will
be a warrant to purchase at an exercise price of $4.00 per share
one share of Company's common stock and one Class C Warrant. The
holder of a Class B Warrant shall not have the right to obtain a
Class C Warrant if the Class B Warrant is not timely exercised, as
defined in the subscription agreement. Each Class C Warrant, if
and when issued, will be a warrant to purchase at an exercise
price of $4.50 per share one share of Company's common stock and
one Class D Warrant. The holder of a Class C Warrant shall not
have the right to obtain a Class D Warrant if the Class C Warrant
is not timely exercised, as defined in the subscription agreement.
Each Class D Warrant, if and when issued, will be a warrant to
purchase at an exercise price of $5.00 per share one share of
Company's common stock.
During the three months ended June 30, 2000, Mr. Brentlinger
purchased 80,000 shares of the Company's common stock for $2.50
per share under the 1999 stock purchase agreement between himself
and the Company. Under such agreement, Mr. Brentlinger was
obligated to purchase 171,250 shares on or before September 30,
2000 for $2.50 per share. At June 30, 2000, he remains obligated
to purchase 91,250 shares on or before September 30, 2000 for a
total price of $228,125.
At June 30, 2000, the Company had cash of $172,000. The Company
had a negative net working capital of approximately $310,000 June
30, 2000 compared to positive working capital of $938,000 at
December 31, 1999. The Company will attempt to address the deficit
in working capital through seeking a combination of accounts
receivable and asset based financing.
The Company will need additional capital during the next three
months, primarily to meet its debt obligations described above.
The Company will attempt to seek such capital through a private
equity placement of its common stock, through asset-based lending,
or a combination thereof. There is no assurance that the Company
will be able to attract additional capital or that the funds, if
acquired, will be sufficient to meet its debt obligations or
operating capital requirements.
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
Part II. OTHER INFORMATION
Item 2. Changes in use of securities and use of proceeds
During the period ended June 30, 2000, the Company sold in a
private placement, for $3.00 per share, 293,747 units of common
stock and warrants under a subscription agreement (the
"Subscription Agreement") with accredited investors. Under the
agreement, each unit consists of one share the Company's common
stock and one warrant (the "Class A Warrants") to purchase at an
exercise price of $3.50 per share one share of the Company's
common stock and one Class B Warrant (as defined). The Class A
Warrant may be exercised for a sixty day period following the
registration of the shares issuable upon exercise of the Class A
Warrants. The holder of a Class A Warrant shall not have the
right to obtain a Class B Warrant if the Class A Warrant is not
timely exercised. Each Class B Warrant, if and when issued, will
be a warrant to purchase at an exercise price of $4.00 per share
one share of Company's common stock and one Class C Warrant. The
holder of a Class B Warrant shall not have the right to obtain a
Class C Warrant if the Class B Warrant is not timely exercised, as
defined in the subscription agreement. Each Class C Warrant, if
and when issued, will be a warrant to purchase at an exercise
price of $4.50 per share one share of Company's common stock and
one Class D Warrant. The holder of a Class C Warrant shall not
have the right to obtain a Class D Warrant if the Class C Warrant
is not timely exercised, as defined in the subscription agreement.
Each Class D Warrant, if and when issued, will be a warrant to
purchase at an exercise price of $5.00 per share one share of
Company's common stock.
Item 5. Other Information
The Company's common shares are no longer listed on the NASDAQ
Small Cap market, but as of April 1, 1998, the shares have been
listed on the OTC Bulletin Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein: none
(b) Reports on Form 8-K - 8-K filed on June 15, 2000
CIRCUIT RESEARCH LABS, INC. and SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Registrant
CIRCUIT RESEARCH LABS, INC.
DATE: August 21, 2000
BY /s/Charles Jayson Brentlinger
Charles Jayson Brentlinger
President (Authorized Officer for
signature)
