FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File No.: 09081
CERTRON CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-246104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1545 Sawtelle Boulevard, Los Angeles, CA 90025
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (310) 914-0300
N/A
Former name, former address and former fiscal year, if changed since last
report.
Indicate by a 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 preceeding 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
3,128,306 shares of Common Stock, without par value, as of January 31, 1995
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
----------------------------------
($ in Thousands)
<CAPTION>
January 31, October 31,
1995 1994
----------- ----------
(Unaudited)
ASSETS
- - ---------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $2,010 $1,860
Trade accounts receivable, net 368 867
Inventories:
Finished goods 1,028 933
Raw materials 240 261
Work in process 8 9
------ ------
Total inventories 1,276 1,203
Other current assets 96 165
------ ------
Total current assets 3,750 4,095
------ ------
NOTE RECEIVABLE 250 250
------ ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 221 221
Dies and molds 168 168
Furnitures, fixtures and leasehold improvements 218 218
------ ------
607 607
Less accumulated depreciation and amortization ( 495) ( 482)
------ ------
Net equipment and leasehold improvements 112 125
------ ------
MARKETABLE SECURITIES 229 206
ASSETS 35 34
------ ------
TOTAL ASSETS $4,376 $4,710
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- - --------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 7 $ 16
Accrued advertising 205 176
Accrued professional fees 78 83
Other accrued expenses 311 408
------ ------
Total current liabilities 601 683
------ ------
STOCKHOLDERS' EQUITY:
Common stock, no par value; stated value
$1 per share; authorized 10,000,000 shares;
issued 3,128,000 3,128 3,128
Additional paid-in capital 1,824 1,824
Net unrealized loss on marketable securities ( 176) ( 87)
Accumulated deficit ( 1,001) ( 838)
------ ------
Total stockholders' equity 3,775 4,027
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,376 $4,710
====== ======
<FN>
See notes to consolidated financial statements
</TABLE>
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<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
($ in Thousands)
<CAPTION>
For the Three Months Ended
--------------------------
01-31-95 01-31-94
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $1,054 $2,005
------ ------
COST AND EXPENSES
Cost of products sold 810 1,590
Selling, general & administrative 420 521
Depreciation and amortization 13 25
------ ------
Total costs and expenses 1,243 2,136
------ ------
Loss before other income ( 189) ( 131)
Other income - Interest 26 23
------ ------
Net Loss ($ 163) ($ 108)
====== ======
PER SHARE INFORMATION:
Net loss per share ($ .05) ($ .03)
====== ======
Average number of common shares
outstanding 3,128,000 3,128,000
<FN>
See notes to consolidated financial statements
</TABLE>
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<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
($ in Thousands)
<CAPTION>
For the Three Months Ended
--------------------------
01-31-95 01-31-94
--------- ---------
(Unaudited)(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 163) ($ 108)
------ ------
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 13 25
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 499 23
Increase in inventories ( 73) ( 42)
Decrease in other assets 68 13
Decrease in trade accounts payable ( 9) ( 19)
Decrease in accrued expenses ( 73) ( 67)
------ ------
Net cash provided by (used in) operating
activities 262 ( 175)
CASHED FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 0 ( 6)
Purchase of marketable securities ( 112) 0
------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 150 ( 181)
CASH AND CASH EQUIVALENTS, beginning of quarter 1,860 1,960
------ ------
CASH AND CASH EQUIVALENTS, end of quarter $2,010 $1,779
====== ======
<FN>
See notes to consolidated financial statements
</TABLE>
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<PAGE>
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
For the Three Months Ended January 31, 1995
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position and
results of operation for the periods presented. The only adjustments made
were normal recurring adjustments.
The results for such three-month periods are not necessarily indicative of
results for a full fiscal year. For the year ended October 31, 1994, the
Company reported net sales of $7,951,000 and a net loss of $170,000.
NOTE B - NOTES PAYABLE
The Company had no indebtedness to the bank as of January 31, 1995.
NOTE C - CUSTOM ASSEMBLY CONTRACTS
During the first quarter of fiscal 1995, sales in the contract assembly
division dropped from $953,000 in the first quarter of 1994 to $5,000 due to
the non renewal of the contracts of two contract assembly customers which
accounted for most of the sales of this division. The loss of these contract
assembly customers has had a material adverse affect on the Company's first
quarter and is expected to continue to have a material adverse affect for the
remainder of fiscal 1995.
NOTE D - MARKETABLE EQUITY SECURITIES
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS
115). In accordance with FAS 115, Management determines the appropriate
classification of its investments in debt and equity securities at the time of
purchase and reevaluates such determination at each balance sheet date.
Securities available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of
shareholders' equity. At January 31, 1995, the Company had no investments
that qualified as trading or held to maturity. Marketable equity securities
are valued based on quoted market prices.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
As demonstrated by the following chart, the Company's current ratio
increased to 6.24 to 1 at January 31, 1995.
01/31/95 10/31/94
-------- --------
Working capital $3,149,000 $3,412,000
Current ratio 6.24 to 1 6.00 to 1
The Company's liquidity has been supplied by internally generated funds
and short-term borrowing. During the second quarter of fiscal 1994, the
Company renewed its line of credit with its bank. This line of credit totals
$1,000,000 in the aggregate, with the allowable loan based on a formula of 80%
of the Company's eligible accounts receivable plus 50% of finished goods
inventory or $500,000, whichever is less, as evidenced by outstanding letters
of credit, less 100% of the letters of credit and banker's acceptances
outstanding at any time are not to exceed $500,000. At January 31,
1995, the Company had no material commitments for capital expenditures.
The following schedule sets forth the borrowing availability under the
Companys' short-term line of credit at January 31, 1995 and at October 31,
1994.
01/31/95 10/31/94
-------- --------
Available loan $1,000,000 $1,000,000
Outstanding loan balance 0 0
Borrowing availability $1,000,000 $1,000,000
The intense competition in the magnetic media field has made it difficult
for the Company to maintain prices on its magnetic media products and has
continually reduced the Company's margins on these products. As a result, the
Company has discontinued sales of certain magnetic media products and refused
to sell magnetic media products at prices not resulting in certain minimum
margin returns. Thus, there has been a general decline in the Company's sales
of magnetic media sales and an attendant reduction in related inventories and
accounts receivable and notes payable to Bank. The Company does not believe
that price competition in the magnetic media field will lessen in the
foreseeable future, and therefore, there may not presently be meaningful
opportunities for the Company to substantially increase its sales and
operating profit in this segment. The Company is, therefore, actively
investigating acquiring other product lines or business. If any of these
investigation result in an acquisition of assets or a business, the Company
believes that, due to its existing financial condition, it can obtain any
necessary cash financing for such acquisition from bank borrowing. There can
be no assurance, however, that the Company can find such an acquisition.
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<PAGE>
RESULTS OF OPERATIONS
First Quarter Fiscal 1995 compared to First Quarter Fiscal 1994
- - ---------------------------------------------------------------
During the first quarter of fiscal 1995, the Company had a net loss of
$163,000,compared to a net loss of $108,000 in the first quarter of fiscal
1994. The increase in the net loss for the first quarter of fiscal 1995
compared to the first quarter of 1994 was due to reduced sales of $951,000
that resulted in a decrease in the gross profit margin of $171,000 that was
offset by a reduction in operating expenses of $113,000 and an increase in
interest income of $3,000.
Sales were $1,054,000 for the first quarter of 1995 as compared to sales
of $2,005,000 in the first quarter of 1994. The decrease was $951,000 or
47.4%. Contract assembly sales decreased by $948,000 over the first quarter
of fiscal 1994, from $953,000 for the quarter ended January 31, 1994 to $5,000
for the quarter ended January 31, 1995. Magnetic media sales decreased by
$3,000 from $1,052,000 for quarter ended January 31, 1994 to $1,049,000 for
quarter ended January 31, 1995. The decrease in sales was primarily due to
loss of contract assembly customers, Gillette Company and Spectrol Company,
which accounted for most of the sales in this segment.
The contract with Gillette expired October 31, 1994. Spectrol contract
expired August 31, 1994. Spectrol and Gillette did not renew their contracts.
The loss of both customers without replacement assembly sales has had material
adverse affect on the company and is expected to continue throughout 1995.
Gross margins decreased by $171,000 for the quarter ended January 31,
1995, from $415,000 in the first quarter of fiscal 1994 to $244,000 in the
first quarter of fiscal 1995. The primary reason for the decrease is due to
decreased sales in contract assembly.
Selling, general and administrative expenses decreased by $101,000 during
the first quarter of fiscal 1995 from $521,000 in the first quarter of fiscal
1994 compared to $420,000 in the first quarter of fiscal 1995. The decrease
is due to reduced personnel expenses of $13,000, freight expense of $49,000,
and other related expenses of $39,000.
The Company has invested cash not needed in operations in publicly traded
common stocks of other companies and may purchase additional common stocks in
the future. Investments in common stocks are subject to risks of the market
and market prices may fluctuate and be adversely effected on account of the
operating results of the issuer, as well as general economic, political and
market conditions. As of January 31, 1995 the Company held common stocks
having a cost of approximately $405,934 and market value of approximately
$229,688. In accordance with accounting rules, the Company has reduced the
value of all of its investments in marketable securities on its Balance Sheet
to market value and this reduction of approximately $176,246 is reflected in
stockholder's equity as unrealized holding loss. If the Company sells
securities, the carrying value of which has been reduced, the Company will
recognize a loss in its statement of operations equal to the amount of the
reduction. Although the Company presently intends to hold these securities,
if, on account of its capital requirements or for any other reason, the
Company should decide to liquidate these or other investments at a time when
their fair market value is less than their cost, the Company would recognize a
loss which could adversely effect the results of operations for the period in
which the sale occurs.
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<PAGE>
PART II. OTHER INFORMATION.
------------------
Item 6. Exhibit and Reports on Form 8-K
-------
(a) Exhibits: None
(b) Reports on Form 8-K:
During the quarter ended January 31, 1995, no reports on Form
8-K were filed.
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 thereunto duly authorized.
(REGISTRANT) CERTRON CORPORATION
BY (SIGNATURE) /s/ Jesse A. Lopez
(NAME AND TITLE) Jesse A. Lopez, Controller (Principal Accounting Officer)
March 6, 1995
BY (SIGNATURE) /s/ Marshall I. Kass
(NAME AND TITLE) Marshall I. Kass, Chairman of the Board and
Chief Executive Officer
March 6, 1995
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