<TABLE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
----------------------------------
($ in Thousands)
<CAPTION>
April 30, October 31,
1995 1994
--------- -----------
ASSETS
- ----------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,902 $1,860
Trade accounts receivable, net 309 867
Inventories:
Finished goods 1,226 933
Raw materials 160 261
Work in process 6 9
------ ------
Total inventories 1,392 1,203
Other current assets 87 165
------ ------
Total current assets 3,690 4,095
------ ------
NOTE RECEIVABLE 250 250
------ ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 234 221
Dies and molds 168 168
Furnitures, fixtures and
leasehold improvements 218 218
------ ------
620 607
Less accumulated depreciation
and amortization ( 508) ( 482)
------ ------
Net equipment and leasehold
improvements 112 125
------ ------
MARKETABLE SECURITIES 14 206
OTHER ASSETS 16 34
------ ------
TOTAL ASSETS $4,082 $4,710
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 25 $ 16
Accrued advertising 237 176
Accrued professional fees 39 83
Other accrued expenses 292 408
------ ------
Total current liabilities 593 683
------ ------
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 ( 341) ( 87)
Accumulated deficit ( 1,122) ( 838)
------ ------
Total stockholders' equity 3,489 4,027
------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,082 $4,710
====== ======
<FN>
See notes to consolidated financial statements
</TABLE>
1
<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
($ in Thousands)
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
---------------------------- --------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 963 $2,122 $2,017 $4,127
------ ------ ------ ------
COST AND EXPENSES
Cost of products
sold 734 1,624 1,544 3,213
Selling, general
& administrative 359 480 778 1,001
Depreciation and
amortization 13 26 27 51
------ ------ ------ ------
Total costs and
expenses 1,106 2,130 2,349 4,265
Loss before other
income ( 143) ( 8) ( 332) ( 138)
Other income -
Interest 22 21 48 44
------ ------ ------ ------
Net Income (Loss) ($ 121) $ 13 ($ 284) ($ 94)
====== ======= ====== ======
PER SHARE INFORMATION:
Net income
(loss) per share ($ .04) $ .00 ($ .09) ($ .03)
====== ======= ====== ======
Average number of
common shares
outstanding 3,128,000 3,128,000 3,128,000 3,128,000
========= ========= ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
2
<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
($ in Thousands)
<CAPTION>
Six Months Ended April 30,
--------------------------
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 284) ($ 94)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 27 51
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable 558 ( 173)
(Increase) decrease in inventories ( 189) 141
Decrease in other assets 95 23
Decrease in trade accounts payable
and accrued expenses ( 90) ( 174)
------- ------
Net cash provided by (used in)
operating activities 117 ( 226)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and
leasehold improvements ( 13) ( 6)
Proceeds from sale of marketable securities 71 -
Purchase of marketable securities ( 133) ( 100)
------- ------
Net cash used in investing activities ( 75) ( 106)
------- ------
CASH FLOWS FROM FINANCING ACTIVITES:
Borrowings under line of credit agreement 460,000 -
Payments under line of credit agreement (460,000) -
------- ------
Net cash used in financing activities 0 0
NET INCREASE (DECREASE) CASH AND CASH EQUIVALENTS 42 ( 332)
CASH AND CASH EQUIVALENTS, beginning of period 1,860 1,960
------- ------
CASH AND CASH EQUIVALENTS, end of period $ 1,902 $1,628
======= ======
<FN>
See notes to consolidated financial statements
</TABLE>
3
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
For the Three and Six Months Ended April 30, 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 and six-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 - CUSTOM ASSEMBLY CONTRACTS
During the six month of fiscal 1995, sales in the contract assembly
division dropped from $2,017,000 in the six month of fiscal 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 three
and six month periods ended April 30, 1995 and is expected to continue to have
a material adverse affect for the remainder of the fiscal 1995.
NOTE C - 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 April 30, 1995, the Company had no investments that
qualified as trading or held to maturity. Marketable equity securities are
value based on quoted market prices.
Included among the Company's investments are shares of Common Stock of
Stuarts Department Stores with a cost of approximately $341,000. On May 11,
1995 Stuarts Department Stores filed under Chapter 11 of the Federal
Bankruptcy Act. As of April 30, 1995 this investment is included in Marketable
Securities on the Balance Sheet at nominal value and the cost thereof is
reflected in Stockholders' Equity as Unrealized Holding Loss on marketable
securities.
4
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 6.22 to 1 at April 30, 1995.
<TABLE>
<CAPTION>
04/30/95 10/31/94
---------- ----------
<S> <C> <C>
Working capital $3,097,000 $3,412,000
Current ratio 6.22 to 1 6.00 to 1
</TABLE>
The Company elected not to renew its bank line of credit which expired on
March 31, 1995. The Company believes that it will be able to fund its
existing business out of current cash flow without the necessity of bank
borrowings and, therefore, concluded not to incur the cost and expenses of
extending and maintaining the bank line of credit until such time as bank
borrowings are required. At April 30, 1995, the Company had no material
commitments for capital expenditures.
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. The Company is, therefore, actively investigating acquiring
other product lines or businesses. If any of these investigations 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.
5
RESULTS OF OPERATIONS
- ---------------------
Second Quarter Fiscal 1995 compared to Second Quarter Fiscal 1994
- ------------------------------------------------------------------
During the second quarter of fiscal 1995, the Company had a net loss of
$121,000, compared to net income of $13,000 in the second quarter of fiscal
1994 primarily due to a substantial reduction in sales which resulted in a
decreased in gross margin of $269,000, partially offset by a reduction in
overhead expense of $134,000.
Sales were $963,000 for the second quarter of 1995 as compared to sales
of $2,122,000 in the second quarter of 1994. The decrease was $1,159,000 or
54.6%. Contract assembly sales were $1,065,000 for the second quarter of 1994
and no sales for the second quarter of 1995 due to loss of contract assembly
customers Gillette Company and Spectrol Company. Magnetic media sales
decreased by $94,000 from $1,057,000 for quarter ended April 30, 1994 to
$963,000 for quarter ended April 30, 1995.
The assembly contract with Gillette expired October 31, 1994. Spectrol
contract expired August 31, 1994. Both Spectrol and Gillette did not renew
their contracts. The loss of both customers without replacement assembly sales
has had and will have a material adverse effect on this segment.
Gross margins decreased by $269,000 for the quarter ended April 30, 1995,
from $498,000 in the second quarter of fiscal 1994 to $229,000 in the second
quarter of fiscal 1995. The primary reason for the decrease is due to
decreased sales and changes in the product mix.
Selling, general and administrative expenses decreased by $134,000
(26.5%) during the second quarter of fiscal 1995 from $506,000 in the second
quarter of fiscal 1994 compared to $372,000 in the second quarter of fiscal
1995. The decrease is due to reduced freight expense of $46,000 and
commission and advertising expense of $33,000 which is a result of reduced
sales volume and a decrease of personnel and related expenses of $55,000.
The Company 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 April 30, 1995 the Company held common stocks,
having a cost of approximately $355,000 and a market value of approximately
$14,000. Included among these common stocks were shares of common stock of
Stuarts Department Store. On May 11, 1995, Stuarts Department Store filed
under Chapter 11 of the Federal Bankruptcy Act. The investment in Stuarts
Department Store is carried on the April 30, 1995 Balance Sheet at nominal
value in Marketable Securities and the $341,000 cost of such investment is
reflected on the Stockholders' Equity as unrealized holding loss which has not
been recognized as a loss in the income statement. If the Company sells these
or other securities, the carrying value of which has been reduced, the Company
will recognized a loss in its statement of operation equal to the amount of
the then reduction. Although the Company presently intends to hold all of
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.
6
Six Months Fiscal 1995 compared to Six Months Fiscal 1994
- ---------------------------------------------------------
For the first six months of fiscal 1995, the Company had a net loss of
$284,000, compared to a net loss of $94,000 for the first six months of fiscal
1994.
Net sales for the six months ended April 30, 1995 decreased by $2,110,000
(51.1%), from $4,127,000 for the first six months of fiscal 1994 to $2,017,000
for the first six months period of fiscal 1995.
Net sales of contract assembly decreased by $2,012,000 (99.8%), from
$2,017,000 for the first six months of fiscal 1994 to $5,000 for the first six
months of fiscal 1995. The decreased in sales was primarilty due to loss of
contract assembly customers, Gillette Company and Spectrol company, which
accounts for most of the sales in this segment.
The contract with Gillette expired October 31, 1994. Spectrol contract
expired August 31, 1994. Both Spectrol and Gillette did not renew their
contracts. The loss of both customers without replacement assembly sales has
had and will have a material adverse effect on this segment.
Gross margins for the first six months of fiscal 1995 decreased by
$441,000 (48.2%), from $914,000 in the first six months of fiscal 1994 to
$473,000 in the first six months of fiscal 1995. The primary reason for the
decrease is due to decreased sales and changes in the product mix.
Selling, general, administrative expenses decreased by $247,000 (23.5%)
during the first six months of fiscal 1995 from $1,052,000 in the first six
months of fiscal 1994 compared to $805,000 in the first six months of fiscal
1995. The decrease is due to reduced freight expenses of $95,000 and
commission and advertising expense of $44,000 which is a result of reduced
sales volume and a decrease in related expenses of $108,000.
The Company 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 April 30, 1995 the Company held common stocks,
having a cost of approximately $355,000 and a market value of approximately
$14,000. Included among these common stocks were shares of common stock of
Stuarts Department Store. On May 11, 1995, Stuarts Department Store filed
under Chapter 11 of the Federal Bankruptcy Act. The investment in Stuarts
Department Store is carried on the April 30, 1995 Balance Sheet at nominal
value in Marketable Securities and the $341,000 cost of such investment is
reflected on the Stockholders' Equity as unrealized holding loss which has not
been recognized as a loss in the income statement. If the Company sells these
or other securities, the carrying value of which has been reduced, the Company
will recognized a loss in its statement of operation equal to the amount of
the then reduction. Although the Company presently intends to hold all of
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.
7
PART II. OTHER INFORMATION.
------------------
Item 2. Changes in Securities.
-------
On March 31, 1995, the Acceptance Letter of Credit, Loan and Security
Agreement between Registrant and Union Bank dated August 25, 1989 as amended
expired in accordance with its terms.
Item 4. Submission of Matters to a Vote of Security-Holders.
-------
(a) On March 28, 1995, the Registrant held its Annual Meeting of
Shareholders.
(b) Proxies for the meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees as listed in the Proxy Statement and all
of such nominees were elected.
(c) At the meeting, the following persons were elected by the vote
indicated (there were no broker non-votes) as directors to serve until the
next Annual Meeting of Shareholders and their successors are duly elected and
qualified:
<TABLE>
<CAPTION>
Vote
Name For Withheld
-------- --------- ----------
<C> <S> <C> <C>
Marshall I. Kass 2,650,676 81,609
Allan H. Kurtzman 2,650,728 81,557
Michael S. Kass 2,650,693 81,592
Jonathan F. Kass 2,650,728 81,557
Susan K. Rubien 2,650,628 81,657
Eric J. Lomas 2,650,728 81,557
</TABLE>
At the meeting, an amendment to the Executive Stock Option Plan
of the Company increasing the number of shares of Common Stock from 150,000 to
300,000 covered by the Executive Stock Option Plan and extending the
expiration date of the Executive Stock Option Plan to January 27, 2005 was
approved by the shareholders by the following vote (there were no broker
non-votes).
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<C> <C> <C>
2,457,245 272,720 2,320
</TABLE>
8
Item 6. Exhibits and Reports of Form 8-K.
-------
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended April 30, 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)
June 9, 1995
BY (SIGNATURE) /s/ Marshall I. Kass
(NAME AND TITLE) Marshall I. Kass, Chairman of the Board and
Chief Executive Officer
June 9, 1995
9
EXHIBIT INDEX
TO
CERTRON CORPORATION QUARTERLY REPORT ON FORM 10-Q
NO. ITEM PAGE
- --- ---- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER REPORT ENDED APRIL 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<CASH> 1,902
<SECURITIES> 14
<RECEIVABLES> 380
<ALLOWANCES> 71
<INVENTORY> 1,392
<CURRENT-ASSETS> 3,690
<PP&E> 620
<DEPRECIATION> 508
<TOTAL-ASSETS> 4,082
<CURRENT-LIABILITIES> 593
<BONDS> 0
<COMMON> 3,128
0
0
<OTHER-SE> 361
<TOTAL-LIABILITY-AND-EQUITY> 4,082
<SALES> 2,050
<TOTAL-REVENUES> 2,017
<CGS> 1,544
<TOTAL-COSTS> 805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (284)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (284)
<EPS-DILUTED> (.09)
</TABLE>
