<TABLE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
($ in Thousands)
(Unaudited)
<CAPTION>
July 31, October 31,
1995 1994
-------- -----------
ASSETS
-------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,820 $1,860
Trade accounts receivable, net 260 867
Deposit and other accounts receivable 133 0
Inventories:
Finished goods 1,008 933
Raw materials 148 261
Work in process 6 9
------ ------
Total inventories 1,162 1,203
Other current assets 104 165
------ ------
Total current assets 3,479 4,095
------ ------
NOTE RECEIVABLE 250 250
------ ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 243 221
Dies and molds 196 168
Furnitures, fixtures and leasehold improvements 218 218
------ ------
657 607
Less accumulated depreciation
and amortization ( 522) ( 482)
------ ------
Net equipment and leasehold improvements 135 125
------ ------
MARKETABLE SECURITIES 37 206
OTHER ASSETS 14 34
------ ------
TOTAL ASSETS $3,915 $4,710
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 3 $ 16
Accrued advertising 174 176
Accrued professional fees 81 83
Other accrued expenses 287 408
------ ------
Total current liabilities 545 683
------ ------
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 ( 12) ( 87)
Accumulated deficit ( 1,570) ( 838)
------ ------
Total stockholders' equity 3,370 4,027
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,915 $4,710
====== ======
<FN>
See notes to consolidated financial statements
</TABLE>
1
<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
($ in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
--------------------------- --------------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $ 832 $2,248 $2,849 $6,375
------ ------ ------ ------
COST AND EXPENSES
Cost of products
sold 655 1,800 2,199 5,013
Selling, general
& administrative 341 482 1,119 1,483
Depreciation and
amortization 13 26 40 77
------ ------ ------ ------
Total costs and
expenses 1,009 2,308 3,358 6,573
------ ------ ------ ------
Loss before other
income and
expense ( 177) ( 60) ( 509) ( 198)
Realized loss on
marketable
security ( 341) - ( 341) -
Other income -
Interest 70 28 118 72
------ ------ ------ ------
Net Loss ($ 448) ($ 32) ($ 732) ($ 126)
====== ====== ====== ======
PER SHARE INFORMATION:
Net loss per share ($ .14) ($ .01) ($ .23) ($ .04)
====== ====== ====== ======
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)
(Unaudited)
<CAPTION>
Nine Months Ended July 31,
--------------------------
1995 1994
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 732) ($ 126)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 40 77
Realized loss on marketable securities 341 0
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts
receivable 607 ( 238)
Decrease in inventories 41 193
Increase in other assets ( 52) ( 6)
Decrease in trade accounts payable
and accrued expenses ( 138) ( 0)
------ ------
Net cash provided by (used in)
operating activities 107 ( 131)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and
leasehold improvements ( 50) ( 6)
Proceeds from sale of marketable securities 92 -
Purchase of marketable securities ( 189) ( 186)
------ ------
Net cash used in investing activities ( 147) ( 192)
------ ------
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 DECREASE CASH AND CASH EQUIVALENTS ( 40) ( 323)
CASH AND CASH EQUIVALENTS, beginning of period 1,860 1,960
------ ------
CASH AND CASH EQUIVALENTS, end of period $1,820 $1,637
====== ======
<FN>
See notes to consolidated financial statements
</TABLE>
3
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
For the Three and Nine Month Periods Ended July 31, 1995
(Unaudited)
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 nine-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 nine month period of fiscal 1995, sales in the contract
assembly division dropped from $3,198,000 in the nine month period 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 nine month periods ended July 31, 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 July 31, 1995, the Company had no investments that
qualified as trading or held to maturity. Marketable equity securities are
value based on quoted market prices.
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 6.38 to 1 at July 31, 1995.
<TABLE>
<CAPTION>
07/31/95 10/31/94
---------- ----------
<S> <C> <C>
Working capital $2,934,000 $3,412,000
Current ratio 6.38 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 July 31, 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 products and an attendant reduction in related inventories
and accounts receivable. 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 through its
traditional outlets.
In order to reverse the sales slide, the Company has made every effort to
become a private label manufacturer of magnetic media products for several
large national and international companies by emphasizing the Company's
consistency in quality and manufacturing expertise. Recently, the Company was
successful in obtaining opening orders from two major users of magnetic media
products for certain private label audio products. Although no assurances can
be given, the Company expects to receive additional orders for these private
label products in the months to come with an anticipated increase in magnetic
media sales showing up in the second quarter of fiscal 1996.
In addition, the Company is 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
---------------------
Third Quarter Fiscal 1995 compared to Third Quarter Fiscal 1994
----------------------------------------------------------------
During the third quarter of fiscal 1995, the Company had a net loss of
$448,000, compared to net loss of $32,000 in the third quarter of fiscal 1994.
The increase in operational net loss is primarily due to loss of investment in
common stock of Stuarts Department Stores of $341,000, and a substantial
reduction in sales which resulted in a decrease in gross margin of $271,000,
partially offset by a reduction in overhead expense of $154,000, and an
increase in interest income of $42,000.
A reserve for loss on Stuarts common stock in the amount of $341,000, a
Company that is in Chapter 11 of the Federal Bankruptcy Code, was taken and
provided for in the balance sheet as unrealized holding loss as of April 30,
1995. During the third quarter, management concluded that the investment
should be written off as any recovery is highly doubtful, and thus, the loss
of $341,000 is reflected in the profit and loss statement for the period
ending July 31, 1995.
Net sales were $832,000 for the third quarter of 1995 as compared to
sales of $2,248,000 in the third quarter of 1994. The decrease was $1,416,000
or 62.9%. Contract assembly sales were $1,181,000 for the third quarter of
1994 as compared to no sales in this segment for the third quarter of 1995 due
to the loss of contract assembly customers' Gillette Company and Spectrol
Company. Magnetic media sales decreased by $235,000 from $1,067,000 for
quarter ended July 31, 1994 to $832,000 for quarter ended July 31, 1995.
The assembly contract with Gillette expired October 31, 1994. The
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 $271,000 (60.5%) for the quarter ended July
31, 1995, from $448,000 in the third quarter of fiscal 1994 to $177,000 in the
third quarter of fiscal 1995. The primary reason is due to decreased sales.
Selling, general and administrative expenses decreased by $154,000
(30.3%) during the third quarter of fiscal 1995 from $508,000 in the third
quarter of fiscal 1994 compared to $354,000 in the third quarter of fiscal
1995. The decrease is due to reduced freight expense of $66,000 and
commission and advertising expense of $41,000 both of which are a result of
reduced sales volume, and a decrease of related expenses of $47,000.
The Company has invested cash not needed in operations in publicly traded
common stocks and debentures of other companies and may purchase additional
common stocks and debentures in the future. Investments in common stocks and
debentures 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 July 31,
1995 the Company held, excluding the common stock of Stuarts Department
Stores, common stocks and debentures, having a cost of $49,000 and a market
value of approximately $37,000. The excess of the cost over the market value
is reflected in Stockholders' Equity as unrealized holding loss which has not
been recognized as a loss in the statement of operations. If the Company
sells these or other 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 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
Nine Months Fiscal 1995 compared to Nine Months Fiscal 1994
-----------------------------------------------------------
During the nine month period of fiscal 1995, the Company had a net loss
of $732,000, compared to net loss of $126,000 for the nine month period of
fiscal 1994. The increase in operation net loss is primarily due to loss of
investment in common stock of Stuarts Depratment Stores of $341,000, and a
substantial reduction in sales which resulted in a decrease in gross margin of
$712,000 partially offset by a reduction in overhead expense of $401,000, and
an increase in interest income of $46,000.
A reserve for loss on Stuarts common stock in the amount of $341,000, a
Company that is in Chapter 11 of the Federal Bankruptcy Code, was taken and
provided for in the balance sheet as unrealized holding loss as of April 30,
1995. During the third quarter, management concluded that the investment
should be written off as any recovery is highly doubtful, and thus, the loss
of $341,000 is reflected in the profit and loss statement for the period
ending July 31, 1995.
Net sales were $2,849,000 for the nine month period ended July 31, 1995
as compared to sales of $6,375,000 for the nine month period ended July 31,
1994. The decrease was $3,526,000 or 55.3%. Contract assembly sales were
$3,198,000 for the nine month period ended July 31, 1994 as compared to $5,000
for the nine month period ended July 31, 1995 due to the loss of contract
assembly customers' Gillette Company and Sepctrol Company. Magnetic media
sales decreased by $333,000 from $3,177,000 for nine month period ended July
31, 1994 to $2,844,000 for nine month period ended July 31, 1995.
The assembly contract with Gillette expired October 31, 1994. The
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 $712,000 (52.3%) from $1,362,000 in the nine
month period ended July 31, 1994 to $650,000 in the nine month period ended
July 31, 1995. The primary reason is due to decreased sales.
Selling, general, administrative expenses decreased by $401,000 (25.7%)
during the first nine months of fiscal 1995 from $1,560,000 in the first nine
months of fiscal 1994 compared to $1,159,000 in the first nine months of
fiscal 1995. The decrease is due to reduced freight expense of $161,000 and
commission and advertising expense of $86,000 both of which are a result of
reduced sales volume, and a decrease in depreciation expenses of $37,000,
general insurance of $24,000, director fees of $19,000 and related expenses of
$74,000.
The Company has invested cash not needed in operations in publicly traded
common stocks and debentures of other companies and may purchase additional
common stocks and debentures in the future. Investments in common stocks and
debentures 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 July 31,
1995 the Company held, excluding the common stock of Stuarts Department
Stores, common stocks and debentures, having a cost of $49,000 and a market
value of approximately $37,000. The excess of the cost over the market value
is reflected in Stockholders' Equity as unrealized holding loss which has not
been recognized as a loss in the statement of operations. If the Company
sells these or other 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 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 6. Exhibits and Reports of Form 8-K.
-------
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended July 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)
September 11, 1995
BY (SIGNATURE) /s/ Marshall I. Kass
(NAME AND TITLE) Marshall I. Kass, Chairman of the Board and
Chief Executive Officer
September 11, 1995
8
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 THIRD
QUARTER REPORT ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 1,820
<SECURITIES> 37
<RECEIVABLES> 458
<ALLOWANCES> 65
<INVENTORY> 1,162
<CURRENT-ASSETS> 3,479
<PP&E> 657
<DEPRECIATION> 522
<TOTAL-ASSETS> 3,915
<CURRENT-LIABILITIES> 545
<BONDS> 0
<COMMON> 3,128
0
0
<OTHER-SE> 242
<TOTAL-LIABILITY-AND-EQUITY> 3,915
<SALES> 2,898
<TOTAL-REVENUES> 2,849
<CGS> 2,199
<TOTAL-COSTS> 3,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (732)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (732)
<EPS-DILUTED> (.23)
</TABLE>
