<TABLE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
($ in Thousands)
<CAPTION>
January 31, October 31,
1996 1995
----------- -----------
ASSETS (Unaudited)
- --------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,250 $1,792
Trade accounts receivable, net 446 381
Inventories:
Finished goods 1,339 822
Raw materials 334 299
Work in process 10 9
------ ------
Total inventories 1,683 1,130
Other current assets 88 138
------ ------
Total current assets 3,467 3,441
------ ------
NOTE RECEIVABLE 250 250
------ ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 250 243
Dies and molds 214 203
Furnitures, fixtures and
leasehold improvements 218 218
------ ------
682 664
Less accumulated depreciation
and amortization ( 549) ( 537)
------ ------
Net equipment and leasehold
improvements 133 127
------ ------
MARKETABLE SECURITIES 44 115
OTHER ASSETS 32 32
------ ------
TOTAL ASSETS $3,926 $3,965
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 0 $ 0
Accrued advertising 278 236
Accrued professional fees 64 66
Other accrued expenses 302 295
------ ------
Total current liabilities 644 597
------ ------
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 (loss) on marketable
securities ( 4) 28
Accumulated deficit ( 1,666) ( 1,612)
------ ------
Total stockholders' equity 3,282 3,368
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,926 $3,965
See notes to consolidated financial statements
1
</TABLE>
<TABLE>
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
($ in Thousands)
<CAPTION>
For the Three Months Ended
--------------------------
01-31-96 01-31-95
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $1,002 $1,054
COST AND EXPENSES
Cost of products sold 761 810
Selling, general & administrative 313 420
Depreciation and amortization 12 13
------ ------
Total costs and expenses 1,086 1,243
------ ------
Loss before other income ( 84) ( 189)
Other income - Interest 29 26
------ ------
Net Loss ($ 55) ($ 163)
====== ======
PER SHARE INFORMATION:
Net loss per share ($ .02) ($ .05)
====== ======
Average number of common shares
outstanding 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>
For the Three Months Ended
--------------------------
01-31-96 01-31-95
------------ -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss ($ 55) ($ 163)
------ --------
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 12 13
Changes in operating assets and liabilities:
(Increase) decrease in trade
accounts receivable ( 65) 499
Increase in inventories ( 553) ( 73)
Increase in other assets 50 68
Decrease in trade accounts payable 0 ( 9)
Increase (decrease) in accrued expenses 47 ( 73)
------ ------
Net cash (used in) provided by operating
activities ( 564) 262
CASHED FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 18) 0
Proceeds from sale of marketable securities 56 0
Purchase of marketable securities ( 16) ( 112)
------ ------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ( 542) 150
CASH AND CASH EQUIVALENTS, beginning of quarter 1,792 1,860
------ ------
CASH AND CASH EQUIVALENTS, end of quarter $1,250 $2,010
====== ======
See notes to consolidated financial statements
3
</TABLE>
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
For the Three Months Ended January 31, 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 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 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 - NOTES PAYABLE
The Company had no indebtedness to the bank as of January 31, 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 January 31, 1996, the Company had no investments
that qualified as trading or held to maturity. Marketable equity securities
are valued 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 set forth in the following chart, the Company's current ratio was 5.38
to 1 at January 31, 1996.
<TABLE>
<CAPTION>
01/31/96 10/31/95
---------- ----------
<S> <C> <C>
Working capital $2,823,000 $2,844,000
Current ratio 5.38 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 are required. At January 31, 1996, 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.
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. The Company was
successful in obtaining opening orders from two 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 month of
February 1996 and the Company expects that there will be an increase in
magnetic media sales for the balance of the second quarter of 1996. The
increase in inventory at January 31, 1996 reflects the anticipated additional
requirement to meet the sales forecasts from the private label customers.
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 in 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
- ---------------------
First Quarter Fiscal 1996 compared to First Quarter Fiscal 1995
- ---------------------------------------------------------------
During the first quarter of fiscal 1996, the Company had a net loss of
$55,000, compared to a net loss of $163,000 in the first quarter of fiscal
1995. The decrease in the net loss for the first quarter of fiscal 1996
compared to the first quarter of 1995 was due to decrease in selling, general
and administrative expenses of $107,000 and an increase in interest income of
$3,000. The gross profit margin decreased by $3,000.
Sales were $1,002,000 for the first quarter of 1996 as compared to sales
of $1,054,000 in the first quarter of 1995. The decrease was $52,000 or .05%.
Contract assembly sales for the first quarter of fiscal 1995 was $5,000.
There were no contract assembly sales for the first quarter of fiscal 1996 due
to loss of contract assembly customers, Gillette Company and Spectrol Company,
which accounted for most of the sales in this segment.
Gross margins decreased by $3,000 for the quarter ended January 31, 1996,
from $244,000 in the first quarter of fiscal 1995 to $241,000 in the first
quarter of fiscal 1996. The primary reason for the decrease is due to
decreased magnetic media sales.
Selling, general and administrative expenses decreased by $107,000 during
the first quarter of fiscal 1995 from $420,000 in the first quarter of fiscal
1995 compared to $313,000 in the first quarter of fiscal 1996. The decrease
is due to reduced personnel expenses of $35,000, commission expense of
$13,000, and other related expenses of $59,000.
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, 1996 the Company held common stocks
having a cost of approximately $48,000 and market value of approximately
$44,000. 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 $4,000 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.
6
PART II. OTHER INFORMATION.
------------------
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 January 31, 1996, 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 11, 1996
BY (SIGNATURE) /s/ Marshall I. Kass
--------------------
(NAME AND TITLE) Marshall I. Kass
Chairman of the Board and
Chief Executive Officer
March 11, 1996
7
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 FIRST
QUARTER REPORT ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 1,250
<SECURITIES> 44
<RECEIVABLES> 446
<ALLOWANCES> 40
<INVENTORY> 1,683
<CURRENT-ASSETS> 3,467
<PP&E> 682
<DEPRECIATION> 549
<TOTAL-ASSETS> 3,926
<CURRENT-LIABILITIES> 644
<BONDS> 0
0
0
<COMMON> 3,128
<OTHER-SE> 154
<TOTAL-LIABILITY-AND-EQUITY> 3,926
<SALES> 1,023
<TOTAL-REVENUES> 1,002
<CGS> 761
<TOTAL-COSTS> 1,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (55)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (55)
<EPS-DILUTED> (.02)
</TABLE>
