<TABLE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
($ in Thousands)
<CAPTION>
April 30, October 31,
1996 1995
--------- ----------
ASSETS (Unaudited)
- -----------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,399 $1,792
Trade accounts receivable, net 344 381
Inventories:
Finished goods 1,226 822
Raw materials 406 299
Work in process 13 9
------ ------
Total inventories 1,645 1,130
Other current assets 97 138
------ ------
Total current assets 3,485 3,441
------ ------
NOTE RECEIVABLE 250 250
------ ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 270 243
Dies and molds 214 203
Furnitures, fixtures and
leasehold improvements 218 218
------ ------
702 664
Less accumulated depreciation
and amortization ( 561) ( 537)
------ ------
Net equipment and leasehold
improvements 141 127
------ ------
MARKETABLE SECURITIES 25 115
OTHER ASSETS 32 32
------ ------
TOTAL ASSETS $3,933 $3,965
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 0 $ 0
Accrued advertising 166 236
Accrued professional fees 44 66
Other accrued expenses 316 295
------ ------
Total current liabilities 526 597
------ ------
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 gain on marketable
securities 4 28
Accumulated deficit ( 1,549) ( 1,612)
------ ------
Total stockholders' equity 3,407 3,368
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,933 $3,965
====== ======
See notes to consolidated financial statements
1
</TABLE>
<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
($ in Thousands)
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
---------------------------- --------------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $1,686 $ 963 $2,688 $2,017
------ ------ ------ ------
COST AND EXPENSES
Cost of products sold 1,198 734 1,959 1,544
Selling, general
& administrative 385 359 698 778
Depreciation and
amortization 12 13 24 27
------ ------ ------ ------
Total costs and
expenses 1,595 1,106 2,681 2,349
------ ------ ------ ------
Income (loss) before
other income 91 ( 143) 7 ( 332)
Other income -
Interest 28 22 57 48
------ ------ ------ ------
Net income (loss)before
provision for tax $ 119 ($ 121) $ 64 ($ 284)
Provision for taxes 1 0 1 0
------ ------ ------ ------
Net income (loss) $ 118 ($ 121) $ 63 ($ 284)
====== ====== ====== ======
PER SHARE INFORMATION:
Net income
(loss) per share $ .04 ($ .04) $ .02 ($ .09)
====== ====== ====== ======
Average number
of common shares
outstanding 3,128,000 3,128,000 3,128,000 3,128,000
========= ========= ========= =========
See notes to consolidated financial statements
2
</TABLE>
<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
($ in Thousands)
<CAPTION>
Six Months Ended April 30,
--------------------------
1996 1995
--------- ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 63 ($ 284)
Adjustment to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 24 27
Changes in operating assets and liabilities:
Decrease in trade accounts receivable 37 558
Increase in inventories ( 515) ( 189)
Decrease in other assets 41 95
Decrease in trade accounts payable
and accrued expenses ( 71) ( 90)
------ --------
Net cash (used in) provided by operating
activities ( 421) 117
------ --------
CASHED FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and
leasehold improvements ( 38) ( 13)
Proceeds from sale of marketable securities 82 71
Purchase of marketable securities ( 16) ( 133)
------ --------
Net cash provided by (used in)
investing activities 28 ( 75)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit agreement 0 460,000
Payments under line of credit agreement 0 ( 460,000)
------ --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ( 393) 42
CASH AND CASH EQUIVALENTS, beginning of period 1,792 1,860
------ --------
CASH AND CASH EQUIVALENTS, end of period $1,399 $ 1,902
====== ========
See notes to consolidated financial statements
3
</TABLE>
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
For the Three and Six Months Ended April 30, 1996
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,
1995, the Company reported net sales of $3,900,000 and a net loss of $774,000,
$341,000 of which was due to a loss resulting from an investment in Stuarts
Department Store, a discount department store operation located in New
England. Stuart's filed for bankruptcy under the Federal Bankruptcy Code in
April of 1995.
NOTE B - 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, 1996, the Company had no investments that
qualified as trading or held to maturity. Marketable equity securities are
valued based on quoted market prices.
NOTE C - NOTES RECEIVABLE
The Company has a note receivable from an unrelated party which is
collateralized by a first deed of trust and assignment of rents on commercial
property. The note is due in November 1996 and bears interest (payable
monthly) at 14% per annum. At October 31, 1995 this note was in default and
the maker of the note had filed a Chapter 11 Bankruptcy Proceeding. Pending
disposition of the bankruptcy proceeding, maker has agreed to pay interest on
the note. The Company believes that the collateral is sufficient to cover all
amounts due.
4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As set forth in the following chart, the Company's current ratio was 6.63
to 1 at April 30, 1996.
<TABLE>
<CAPTION>
04/30/96 10/31/95
---------- ----------
<S> <C> <C>
Working capital $2,959,000 $2,844,000
Current ratio 6.63 to 1 5.76 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 is required. At April 30, 1996, the Company had no material
commitments for capital expenditures.
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. The Company was successful in obtaining orders from
several major users of magnetic media products for certain private label audio
products. As a result of these orders there has been an increase in magnetic
media sales for the second quarter of 1996 and the Company expects that there
will be an increase in magnetic media sales for the balance of fiscal 1996 as
compared to fiscal 1995. The increase in inventory at April 30, 1996 reflects
the anticipated additional requirement to meet the sales forecasts from the
private label customers.
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
- ---------------------
Second Quarter Fiscal 1996 compared to Second Quarter Fiscal 1995
- -----------------------------------------------------------------
During the second quarter of fiscal 1996, the Company had net income of
$118,000, compared to a net loss of $ 121,000 in the second quarter of fiscal
1995. The net profit for the second quarter of fiscal 1996 compared to the
net loss of the second quarter of 1995 was due to an increase in sales and
gross profit.
Net sales were $1,686,000 for the second quarter of 1996 as compared to
net sales of $963,000 in the second quarter of 1995. The increase was
$723,000 or 75%. The primary reason for the increase is due to increased
private label magnetic media sales to national and international users of
magnetic media products. As described under "Liquidity and Capital
Resources," the Company expects that these sales will result in increased
magnetic media sales for the balance of fiscal 1996 as compared to fiscal
1995.
Primarily as a result of the increased sales, gross margins increased by
$259,000 (113%) for the quarter ended April 30, 1996, from $229,000 in the
second quarter of fiscal 1995 to $488,000 in the second quarter of fiscal
1996.
There were no contract assembly sales for the second quarter of fiscal
1995 or fiscal 1996.
Due to the increase in net sales, selling, general and administrative
expenses increased by $26,000 during the second quarter of fiscal 1996 from
$359,000 in the second quarter of fiscal 1995 compared to $385,000 in the
second quarter of fiscal 1996.
The company has not recorded a provision for federal income taxes in
1996, due to the utilization of net operating loss carry forward to offset
taxable income, the one thousand dollars represent the minimum state tax.
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 April 30, 1996 the Company held common stocks having
a cost of approximately $21,000 and market value of approximately $25,000.
In accordance with accounting rules, the Company has the value of all of its
investments in marketable securities on its Balance Sheet to market value and
this of approximately $4,000 is reflected in stockholders' equity as
unrealized holding gain. 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.
6
Six Months Fiscal 1996 compared to Six Months Fiscal 1995
- ---------------------------------------------------------
For the first six months of fiscal 1996, the Company had a net income of
$63,000, compared to a net loss of $284,000 for the first six months of fiscal
1995.
Net sales for the first six months ended April 30, 1996 increased by
$671,000 (33.3%), from $2,017,000 for the first six months period of fiscal
1995to $2,688,000 for the first six months period of fiscal 1996. The primary
reason for the increase is due to increased private label magnetic media sales
to national and international users of magnetic media products. As described
under "Liquidity and Capital Resources," the Company expects that these sales
will result in increased magnetic media sales for the balance of fiscal 1996
as compared to fiscal 1995.
Primarily as a result of the increased sales, gross margins for the first
six months of fiscal 1996 increased by $256,000 (54.1%), from $473,000 in the
first six months period of fiscal 1995 to $729,000 in the first six months of
fiscal 1996.
There were no contract assembly sales for the first six months period of
fiscal 1996 compared to $5,000 for the first six months period of fiscal 1995.
Although net sales increased, selling, general, administrative expenses
decreased by $80,000 (10.2%) during the first six months of fiscal 1996 from
$778,000 in the first six months of fiscal 1995 compared to $698,000 in the
first six months of fiscal 1996. The decrease which is due primarily to cost
cutting measures is represented by decreased freight expenses of $24,000,
personnel expense of $25,000 and a decrease in miscellaneous expenses of
$31,000.
The company has not recorded a provision for federal income taxes in
1996, due to the utilization of net operating loss carry forward to offset
taxable income, the one thousand dollars represent the minimum state tax.
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 April 30, 1996, the Company held common stocks
having a cost of approximately $21,000 and market value of approximately
$25,000. In accordance with accounting rules, the Company has the value of
all of its investments in marketable securities on its Balance Sheet to market
value and this of approximately $4,000 is reflected in stockholders' 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.
7
PART II. OTHER INFORMATION.
------------------
Item 4. Submission of Matters to a Vote of Security-Holders.
-------
(a) On March 26, 1996, 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 we 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>
Name Vote For Withheld
---- -------- --------
<S> <C> <C>
Marshall I. Kass 2,791,342 40,972
Jonathan F. Kass 2,791,642 40,672
Michael S. Kass 2,791,642 40,672
Susan E. Kass 2,791,642 40,672
Herbert Bronsten 2,793,692 38,622
Rogelio Buenrostro 2,795,392 36,922
Jesse A. Lopez 2,795,392 36,922
</TABLE>
Item 6. Exhibit and Reports on Form 8-K
-------
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended April 30, 1996, no reports were filed
on Form 8-K.
8
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)
May 28, 1996
BY (SIGNATURE) /s/ Marshall I. Kass
--------------------
(NAME AND TITLE) Marshall I. Kass
Chairman of the Board and
Chief Executive Officer
May 28, 1996
9
EXHIBIT INDEX
TO
CERTRON CORPORATION QUARTERLY REPORT ON FORM 10-Q
NO. ITEM PAGE
- --- ---- ----
27 Financial Data Schedule
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER REPORT ENDED APRIL 30, 1996 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-31-1996
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1996
<CASH> 1,399
<SECURITIES> 25
<RECEIVABLES> 344
<ALLOWANCES> 42
<INVENTORY> 1,645
<CURRENT-ASSETS> 3,485
<PP&E> 702
<DEPRECIATION> 561
<TOTAL-ASSETS> 3,933
<CURRENT-LIABILITIES> 526
<BONDS> 0
0
0
<COMMON> 3128
<OTHER-SE> 279
<TOTAL-LIABILITY-AND-EQUITY> 3,933
<SALES> 2,733
<TOTAL-REVENUES> 2,688
<CGS> 1,959
<TOTAL-COSTS> 722
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 64
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 63
<EPS-DILUTED> .02
</TABLE>