PART I
Item 1. Business.
- ------------------
Certron Corporation is referred to herein as the "Company" or "Certron"
and such reference includes both the corporation and its subsidiary unless
otherwise indicated. Certron was incorporated under the laws of the State of
California in 1966.
Certron's business consists primarily of the design, development and
distribution of magnetic media products and the contract assembly and
manufacturing of products for the proprietary use of others.
The following table sets forth, for the years ended October 31, 1997,
1996, and 1995, the amounts of net sales and operating profit before general
corporate expense and interest expense, together with identifiable assets at
October 31, 1997, 1996 and 1995 attributable to each of the Company's
industry segments.
<TABLE>
<CAPTION>
Year ended October 31,
-----------------------------
1997 1996 1995
-----------------------------
(In Thousands)
Net sales to unaffiliated customers:
<S> <C> <C> <C>
Magnetic Media products $4,988 $5,382 $3,895
Contract Assembly - $ - $ 5
Operating profit before general corporate expense:
Magnetic Media products $1,079 $ 911 $ 365
Contract Assembly - - -
Identifiable assets:
Magnetic Media products $1,806 $2,652 $1,638
Contract Assembly - - -
</TABLE>
Magnetic Media Products
- -----------------------
The Company's magnetic media products consist primarily of blank audio
and video cassettes. The Company also distributes magnetic media accessories
for computers. All video tape and most audio tape and related plastics are
presently being procured by the Company primarily from offshore sources.
During the fiscal years ended October 31, 1997, 1996 and 1995, net sales of
the Company's magnetic media products were as follows:
<TABLE>
<CAPTION>
Net Sales
-----------------------------
Product 1997 1996 1995
- ---------------------------- ------ ------ ------
<S> <C> <C> <C>
Audio magnetic tape products $4,044 $4,170 $2,975
Video cassettes 944 1,212 920
------ ------ ------
$4,988 $5,382 $3,895
====== ====== ======
</TABLE>
1
Certron sells blank audio magnetic tapes in several cassette
configurations of various sizes and playing times, and distributes VHS and
8mm video cassettes. The Company purchases substantially all of its
requirements for audio and video cassettes from sources both in the Far East
and Mexico. Although the majority of purchases from the Far East is from one
vendor, all the products produced by this vendor are available from other
sources and the Company does not anticipate that it will be unable to obtain
these products. Some audio cassette assembly and packaging (primarily of
micro and mini cassettes) by the Company takes place at the facility operated
by Certron in Mexicali, B.C., Mexico (where some slitting also occurs).
Certron's magnetic media products are marketed and sold primarily in the
United States to wholesale distributors, original equipment manufacturers,
mail order companies and major retail outlets. Less than 5% of the Company's
net sales during the last three fiscal years were to foreign customers. The
Company's products are distributed under its own labels and under different
customer labels. Standard sized and miniaturized cassettes for dictation
purposes and cassettes for telephone answering devices are also sold to
office supply outlets and distributors.
For the fiscal year ended October 31, 1997, the Company's ten largest
customers of magnetic media products accounted in the aggregate for
approximately 86.39% of the Company's total net sales of such magnetic media
products. During fiscal 1997, the two largest single magnetic media
customers accounted for $1,036,234 and $815,808 or 20.77% and 16.35% of total
magnetic media sales, respectively. In the fourth quarter of fiscal 1996,
the magnetic media customer which accounted for $815,808 of magnetic sales in
fiscal 1997 informed the Company that the following delivery of products
ordered for early February, 1997, such customer would no longer use Certron
as its major supplier for certain of its private label audio products. The
customer subsequently gave the company reduced orders on the magnetic media
product throughout fiscal 1997. Although the Company has orders from this
customer for delivery through April 1998, the Company is not certain whether
other orders for delivery after April 1998 will follow. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations".
The Company believes that the amount of its backlog on any given date is
not necessarily indicative of trends in its magnetic media business in as
much as orders received for such products are generally completed in less
than 60 days.
Most of the Company's magnetic media products are available from multiple
sources, although certain components utilized in the manufacture of the
Company's magnetic media products are available from a few sources. The
Company has no reason to anticipate that it will be unable to purchase
components from those sources.
Contract Assembly
- -----------------
The Company assembles products for others. Sales from contract assembly
result from contracts negotiated directly with the customer. The products
are designed by the customer and assembled by the Company in accordance with
customer specifications. The customer supplies the raw materials. The
Company's responsibility and sales are limited to the assembly service. All
of the assembly occurs in the Company's facilities in Mexicali, B.C., Mexico.
The Company did not have any meaningful sales in the contract assembly
segment of its business in fiscal 1996 and 1997.
2
Competition
- -----------
In all areas of Certron's magnetic media business, competition is now,
and is expected to continue to be, active and intense. There are many
substantial competitors with larger resources than Certron in each market for
its magnetic media products. The Company believes that it occupies a small
portion of the total market for its magnetic media products. The principal
methods of competition in the magnetic media market involve price, quality
and advertisement, with the promotional priced audio tape products and video
cassettes being the most price sensitive. Since the Company has not spent
substantial amounts in consumer advertising of its high performance blank
tape products, and video cassettes, it has been at a competitive disadvantage
in these areas and has had to charge a lower per unit price than some
competitors selling comparable products having strong brand recognition. The
Company has experienced extensive price competition from Far East
manufacturers and distributors of low-cost audio cassettes and from other
manufacturers and distributors for sales of video cassettes, which has made
it difficult for the Company to maintain prices. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources". Although the Company believes that the
current release of the new digital video disk system will not have a material
adverse impact on the Company's operations over the next few years, the
introduction of digital products may, depending upon price and the amount of
hardware sales, in the long run have an adverse competitive impact on
Certron's sales of competitive magnetic media products. The Company sees no
effect on sales in fiscal 1998. The foregoing statements concerning the
effect of sales of digital products on the Company's operations are forward
looking statements and actual results could differ materially. Factors which
could cause actual results to differ are the price of competitive digital
products and the price and availability of hardware for the use of such
products.
Employees
- ---------
At January 1, 1998, Certron employed 56 people in its various operations,
consisting of 45 people at its operations in Mexicali, B.C., Mexico, 4 people
at its facility in Corona, California and 7 people at its facility in Los
Angeles, California.
3
Item 2. Properties.
- --------------------
The principal office, assembling and warehousing facilities of the Company
are as follows:
<TABLE>
<CAPTION>
Approx. Area Approx.
Location Sq. ft. Lease Expires annual rent Principal use
- ----------------------------------------------------------------------------
<C> <S> <C> <C> <C> <S>
422 N. Smith Avenue 15,970 8-31-98(1) $73,000 Warehouse and
Corona, CA packaging
1600 South Broadway 3,196 8-31-98(1) $15,000 Warehouse and
Los Angeles, CA storage area
1545 Sawtelle Blvd. 2,176 2-28-98(1) $55,000 Administration
Los Angeles, CA
Calle Venus # 90
Parque Industrial 15,000 2-28-98 $56,000 Magnetic Media
Mexicali, B.C., Mexico assembly &
packaging
and contract
assembly and
manufacturing
</TABLE>
- ----------------------------------------------
(1) 422 N. Smith Avenue, 1600 South Broadway and 1545 Sawtelle Blvd. are
leased from Louart Corporation, a principal stockholder of Certron. The 1600
South Broadway is subleased by Certron for $1,200 a month which ended on
October 25, 1997.
The Company believes that its facilities are satisfactorily maintained in
satisfactory operating condition and are adequate for its needs.
Item 3. Legal Proceedings.
- ---------------------------
There are some pending legal proceedings to which the Company is a party,
none of which the Company believes are material.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
4
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
- ----------------------------------------------------------------------
Certron's Common Stock is traded in the Over-the-Counter market. The
following table shows the high and low bid quotations for such stock in the
Over-the-Counter market for each fiscal quarter during the two fiscal years
ended October 31, 1997. During this two year period the common stock was
listed in the NASDAQ SmallCap market. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
Certron's common stock ceased to be listed in the NASDAQ SmallCap market
effective with the close of trading on January 2, 1998 due to the failure to
maintain a minimum closing bid price of $1.00 per share or the alternative
minimum market value public float required for continued listing. The common
stock of the Company has since January 5, 1998 traded in the NASDAQ Bulletin
Board under the symbol CRTN.
<TABLE>
<CAPTION>
Fiscal period High Low
------------- ---- ---
1996
----
<S> <C> <C>
First quarter 15/16 5/8
Second quarter 7/8 5/8
Third quarter 1-3/16 11/16
Fourth quarter 15/16 5/8
1997
----
First quarter 13/16 5/8
Second quarter 13/16 5/8
Third quarter 13/16 11/16
Fourth quarter 25/32 11/32
</TABLE>
As of January 9, 1998, the approximate number of holders of record of the
Company's Common Stock was 1,463. The Company has never paid a cash dividend
on its Common Stock.
Item 6. Selected Financial Data
- --------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $4,988,000 $5,382,000 $3,900,000 $7,951,000 10,568,000
Net income
(loss) before
extraordinary
credit $ 77,000 $ 28,000 ($ 774,000) ($ 170,000)($ 47,000)
Net income (loss)$ 77,000 $ 28,000 ($ 774,000) ($ 170,000)($ 47,000)
Net income (loss)
per common
share $.02 $.01 ($.25) ($.05) ($.02)
Total assets $4,063,000 $4,062,000 $ 3,965,000 $4,710,000 $ 5,054,000
Long-term debt - - - - -
Working capital $2,839,000 $2,791,000 $ 2,844,000 $3,412,000 $ 3,772,000
Stockholders'
equity $3,450,000 $3,355,000 $ 3,368,000 $4,027,000 $ 4,284,000
</TABLE>
No cash dividends have been paid during the five-year period ended October
31,1997.
5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- ------------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
As demonstrated by the following chart, the Company's working capital and
cash flow from operations increased at October 31, 1997 as compared to that
at October 31, 1996. The increase in cash flow from operations was primarily
the result of decrease in sales. Accounts receivable decreased by $9,000,
inventories decreased by $788,000, cash increased by $876,000, and other
assets decreased by $125,000. Accounts payable and accrued expenses
decreased by $94,000.
<TABLE>
<CAPTION>
October 31
-------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Working Capital $2,839,000 $2,791,000 $2,844,000
Current Ratio 5.63 to 1 4.94 to 1 5.76 to 1
Cash Flows from Operations $ 972,000 ($ 750,000) $ 124,000
</TABLE>
The Company's liquidity has been supplied by internally generated funds
and, prior to 1995, short-term borrowing. The Company elected not to renew
its bank line of credit which expired on March 31, 1995. The Company elected
not to incur the cost and expenses of extending and maintaining the bank line
of credit until such time as bank borrowings were required. The Company
believes that it will be able to fund its existing business out of current
cash flow without the necessity of bank borrowings. At October 31, 1997, 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. 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 it to
substantially increase its sales and operating profit through its traditional
outlets. As described below, the Company is attempting to become a private
label manufacturer of magnetic media products for several large national and
international companies.
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 borrowings. There can be no assurance, however, that
the Company can find such an acquisition.
6
Results of Operations
- ---------------------
Fiscal 1997 Compared to Fiscal 1996
-----------------------------------
During fiscal 1997, the Company had a loss from operations of $34,000 and
net income of $77,000 on sales of $4,988,000 as compared to a loss from
operations of $67,000 and net income of $28,000 for fiscal 1996 on sales of
$5,382,000. Gross profit increased by $17,000 between fiscal 1997 and fiscal
1996. Selling, general and administrative expenses decreased by $32,000,
depreciation and amortization expense increased by $16,000 and interest
income increased by $5,000.
Sales of magnetic media products were $4,988,000 in fiscal 1997 as
compared to $5,382,000 in fiscal 1996. The decrease of 7.3% was primarily
the result of the decrease in sales of audio cassettes by $106,000 and video
cassettes by $253,000. In the fourth quarter of fiscal 1996, the Company was
informed by a private label customer, which accounted for approximately
$978,500 of the Company's net sales for the fiscal year ended October 31,
1996 and $815,808 for fiscal year ended October 31, 1997, that following
delivery of products ordered for early February 1997, such Customer would no
longer use Certron as a major resource for certain of its private label audio
products. This customer assured the Company that its decision was not due to
price, quality or delivery. In addition, the customer indicated that it
would continue to purchase other private label audio products from the
Company. The customer subsequently gave the company reduced orders for
magnetic media product throughout fiscal 1997. Although the Company has
orders from this customer through April 1998, the Company is not certain
whether other orders for delivery after April, 1998 will follow. At the same
time, another private label customer had projected increased purchases
beginning December, 1996. While sales to this customer during the 1997
fiscal year nearly doubled from $208,459 to $405,438, sales did not
materialize as originally projected.
Total gross margin as a percentage of net sales was 29.3% in fiscal 1997
and 26.8% in fiscal 1996. This change was due to decrease in cost of audio
magnetic media products. Margins increased by $17,000 (1.17%) in fiscal
1997. Margins in fiscal 1997 were $1,462,000 and in fiscal 1996 were
$1,445,000.
Selling, general and administrative expense decreased by $32,000 during
fiscal 1997 from $1,461,000 in 1996 to $1,429,000 in 1997. The decrease was
due to a decrease in advertising by $145,000,on, decrease in commissions by
$8,000, travel by $11,000 and offset by increase in personnel expense by
$58,000, supplies by $24,000, bad debts by $47,000 and other expenses by
$3,000.
Interest income increased by $5,000 in fiscal 1997 due to the increase in
cash and cash equivalents. Interest income in fiscal 1996 was $96,000
compared to $101,000 in fiscal year 1997.
During fiscal 1997, 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 affected by the operating results of the issuer, as well as general
economic, political and market conditions. As of October 31, 1997, the
Company held common stocks which had a cost of approximately $40,000 and
market value of approximately $45,000.
7
Sales for the first two months of the first quarter of fiscal 1998 were
down approximately $352,000 as compared to sales for the first two months of
the first quarter of fiscal 1997. The primary reason for the decrease in
sales is that sales to two private label customers were off over $203,000 and
sales of video cassette and other magnetic media products were off $149,000
from the same period in fiscal 1997. Although the Company expects that net
sales for the first quarter of fiscal 1998 will be less than the comparable
quarter of fiscal 1997 and a loss for the first quarter of fiscal 1998 is
anticipated, the Company cannot predict the profit or loss picture for the
balance of fiscal 1998.
In accordance with generally accepted accounting principles, the Company
has recorded the value of its investments in marketable securities on its
balance sheet at market value and the difference of approximately $5,000
between cost and market value is recorded as an unrealized holding gain, a
separate component of equity (see Notes 1 and 3 of Notes to Consolidated
Financial Statements). If the Company sells these securities, the Company
will recognize a gain in its statement of operations equal to the amount of
the increase. 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 market value is less than their cost, the Company would
recognize a loss which could adversely affect the results of operations for
the period in which the sale occurs.
Fiscal 1996 Compared to Fiscal 1995
- -----------------------------------
During fiscal 1996, the Company had a loss from operations of $67,000 and
net income of $28,000 on sales of $5,382,000 as compared to a loss from
operations of $596,000 and a net loss of $774,000 for fiscal 1995 on sales of
$3,900,000. Gross profit increased by $532,000 between fiscal 1996 and
fiscal 1995. Selling, general and administrative expenses increased by
$7,000, depreciation and amortization expense decreased by $4,000 and
interest income decreased by $68,000.
Sales of magnetic media products were $5,382,000 in fiscal 1996 as
compared to $3,895,000 in fiscal 1995. The increase of 38% was primarily the
result of sales to two major private label users of magnetic media products.
In the fourth quarter of fiscal 1996, the Company was informed by one of
those private label customers, which accounted for approximately $978,500 of
the Company's net sales for fiscal year ended October 31, 1996, that
following delivery of products ordered for early February 1997, such Customer
would no longer use Certron as a major resource for certain of its private
label audio products. This customer assured the Company that its decision
was not due to price, quality or delivery. In addition, the customer
indicated that it would continue to purchase other private label audio
products from the Company. At the same time, another private label customer
had projected increased purchases beginning December, 1996 which did not
materialize as projected.
An investment in Stuart's Department Store, a discount department store
operation located in New England, was written off during the third quarter of
fiscal year 1995 resulting in a charge to operations in the amount of
$341,000. Stuarts filed for bankruptcy under the Federal Bankruptcy Code in
April of 1995 and management has concluded that the chances of recovery from
the Stuart's bankruptcy are high doubtful.
8
Total gross margin as a percentage of sales was 26.8% in fiscal 1996 and
23.4% in fiscal 1995. This change was due to increased sales of audio
magnetic media products. Margins increased by $532,000 (58.3%) in fiscal
1996. Margins in fiscal 1996 were $1,445,000 and fiscal 1995 were $913,000.
Selling, general and administrative expense increased by $7,000 during
fiscal 1996 from $1,454,000 in 1995 to $1,461,000 in 1996. The increase was
due to an increase of personnel expense by $31,000, advertising by $34,000
and offset by decrease of commission by $24,000, insurance by $21,000 and
other expenses by $27,000.
Interest income decreased by $68,000 in fiscal 1996 due to decrease in
cash and cash equivalents. Interest income in fiscal 1995 was $164,000
compared to $96,000 in fiscal year 1996.
During fiscal 1996, 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 affected by the operating results of the issuer, as well as general
economic, political and market conditions. As of October 31, 1996 the
Company held common stocks which had a cost of approximately $114,000 and
market value of approximately $101,000.
In accordance with generally accepted accounting principles, the Company
has recorded the value of its investments in marketable securities on its
balance sheet at market value and the difference of approximately $13,000
between cost and market value is recorded as an unrealized holding loss, a
separate component of equity (see Notes 1 and 3 of Notes to Consolidated
Financial Statements). If the Company sells these securities, the Company
will recognize a loss in its statement of operations equal to the amount of
decrease. 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 market value is less than their cost, the Company would recognized a
loss which could adversely affect the results of operations for the period in
which the sale occurs.
Forward-Looking Statements
- --------------------------
The Company's statements herein which are not historical facts, including
statements as to the Company's anticipation that sales will decline and a
loss incurred in the first quarter of the 1998 fiscal year and the Company's
uncertainty as to its outlook for fiscal 1998 are forward-looking statements.
These statements involve risks and uncertainties that could cause actual
results to differ materially from these forward-looking statements. Factors
which could cause actual results to differ materially include economic
conditions, the Company's success in maintaining its current customer base
including continuing sales to the private label customer which accounted for
approximately $815,808 of net sales in fiscal 1997, the Company's ability to
obtain additional customers and business, pricing factors and competition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- --------------------------------------------------------------------
Not applicable.
9
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
[Letterhead of Singer, Lewak, Greenbaum & Goldstein, L.L.P.]
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Certron Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Certron
Corporation (a California Corporation) and subsidiary as of October 31, 1997
and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years ended
October 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Certron
Corporation and subsidiary as of October 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows
for each of the three years ended October 31, 1997, in conformity with
generally accepted accounting principles.
We have also audited Schedule II for each of the three years ended October
31, 1997. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 15, 1997
10
<TABLE>
<CAPTION>
CERTRON CORPORATION AND SUBSIDIARY
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
October 31,
-------------------------
ASSETS 1997 1996
------ ---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 9) $1,786,000 $ 910,000
Trade accounts receivable, less allowance
for doubtful accounts of $50,000 in 1997
and $40,000 in 1996 (Note 7) 518,000 527,000
Inventories:
Finished products 820,000 1,390,000
Work in process 82,000 14,000
Raw materials 178,000 464,000
---------- ----------
Total inventories 1,080,000 1,868,000
Other current assets 68,000 193,000
---------- ----------
Total current assets 3,452,000 3,498,000
---------- ----------
NOTE RECEIVABLE (Note 2) 326,000 250,000
---------- ----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Machinery and equipment 327,000 314,000
Dies and molds 312,000 233,000
Furnitures, fixtures and leasehold improvements 224,000 222,000
---------- ----------
863,000 769,000
Less accumulated depreciation
and amortization ( 655,000) ( 588,000)
---------- ----------
Net Equipment and Leasehold Improvements 208,000 181,000
---------- ----------
MARKETABLE SECURITIES (Note 3) 45,000 101,000
OTHER ASSETS 32,000 32,000
---------- ----------
$4,063,000 $4,062,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ - $ 17,000
Accrued advertising 263,000 314,000
Accrued professional fees 63,000 66,000
Accrued payroll and related items 164,000 171,000
Other accrued expenses 123,000 139,000
---------- ----------
Total current liabilities 613,000 707,000
---------- ----------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY (Note 4):
Common stock, no par value; stated value
$1 per share; authorized 10,000,000 shares;
issued and outstanding, 3,128,000 shares
(1997 and 1996) 3,128,000 3,128,000
Additional paid-in capital 1,824,000 1,824,000
Net unrealized gain (loss) on marketable
equity securities (Note 3) 5,000 ( 13,000)
Accumulated deficit ( 1,507,000) ( 1,584,000)
---------- ----------
Total Stockholders' Equity 3,450,000 3,355,000
---------- ----------
$4,063,000 $4,062,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
11
<TABLE>
<CAPTION>
CERTRON CORPORATION AND SUBSIDIARY
----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Year Ended October 31,
----------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NET SALES (Note 7) $4,988,000 $5,382,000 $ 3,900,000
COSTS AND EXPENSES:
Cost of products sold 3,526,000 3,937,000 2,987,000
Selling, general and
administrative (Note 8) 1,429,000 1,461,000 1,454,000
Depreciation and amortization 67,000 51,000 55,000
---------- ---------- -----------
5,022,000 5,449,000 4,496,000
LOSS FROM OPERATIONS ( 34,000) ( 67,000) ( 596,000)
OTHER INCOME (EXPENSE)
Realized gain on marketable
equity securities 11,000 - -
Loss on write down of marketable
equity securities - - ( 341,000)
Interest Income (net) 101,000 96,000 164,000
---------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR TAXES 78,000 29,000 ( 773,000)
PROVISIONS FOR TAXES (Note 5) 1,000 1,000 1,000
---------- ---------- -----------
NET INCOME (LOSS) $ 77,000 $ 28,000 ($ 774,000)
========== ========== ===========
Net income (loss) per share $.02 $.01 ($.25)
==== ==== ====
Weighted average common shares
outstanding 3,128,000 3,128,000 3,128,000
</TABLE>
See notes to consolidated financial statements.
12
<TABLE>
<CAPTION>
CERTRON CORPORATION AND SUBSIDIARY
----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Net
Unrealized
(Loss)
Gain on
Common Stock Additional Marketable
------------ paid-in Equity Accumulated
Shares Amount capital Securities deficit Total
--------- ---------- ---------- ---------- ---------- ----------
BALANCE
October 31,
<C> <C> <C> <C> <C> <C> <C>
1994 3,128,000 $3,128,000 $1,824,000($ 87,000)($ 838,000) $4,027,000
Unrealized
Gain on
Marketable
Securities 115,000 115,000
Net Loss ( 774,000)( 774,000)
--------- ---------- ---------- -------- ---------- ----------
BALANCE
October 31,
1995 3,128,000 3,128,000 1,824,000 28,000 ( 1,612,000) 3,368,000
Unrealized
Loss on
Marketable
Securities ( 41,000) ( 41,000)
Net Income 28,000 28,000
--------- ---------- ---------- -------- ---------- ----------
BALANCE
October 31,
1996 3,128,000 3,128,000 1,824,000( 13,000)( 1,584,000) 3,355,000
Unrealized
Gain on
Marketable
Securities 18,000 18,000
Net Income 77,000 77,000
--------- ---------- ---------- -------- ---------- ----------
BALANCE
October 31,
1997 3,128,000 $3,128,000 $1,824,000 5,000 ($1,507,000) $3,450,000
</TABLE>
See notes to consolidated financial statements.
13
<TABLE>
<CAPTION>
CERTRON CORPORATION AND SUBSIDIARY
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended October 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 77,000 $ 28,000 ($ 774,000)
---------- ---------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 67,000 51,000 55,000
Loss on write down marketable - - 341,000
equity Securities
Changes in operating assets and
liabilities:
Decrease (increase) in trade
accounts receivable 9,000 ( 146,000) 486,000
Decrease(increase) in inventories 788,000 ( 738,000) 73,000
Decrease (increase) in other assets 125,000 ( 55,000) 29,000
(Decrease)increase in accounts
payable ( 17,000) ( 17,000) ( 16,000)
(Decrease) increase in accrued
expenses ( 77,000) 93,000 ( 70,000)
---------- ---------- ----------
Total adjustments 895,000 ( 778,000) 898,000
---------- ---------- ----------
Net cash provided by (used in)
operating activities 972,000 ( 750,000) 124,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and
leasehold improvements ( 94,000) ( 105,000) ( 57,000)
Proceeds from sale of marketable
securities 197,000 82,000 91,000
Purchase of marketable securities ( 123,000) ( 109,000) 226,000
Increase in notes receivable ( 76,000) - -
---------- ---------- ----------
Net cash used in investing activities ( 96,000) ( 132,000) ( 192,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit - - 460,000
Payments of line of credit - - ( 460,000)
Net cash used in financing activities - - -
---------- ---------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 876,000 ( 882,000) ( 68,000)
CASH AND CASH EQUIVALENTS,
beginning of year 910,000 1,792,000 1,860,000
---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of year $1,786,000 $ 910,000 $1,792,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 13,000 $ 13,000 $ 14,000
Income taxes $ 1,000 $ 1,000 $ 1,000
</TABLE>
See notes to consolidated financial statements.
14
CERTRON CORPORATION AND SUBSIDIARY
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
-------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Certron
Corporation and its wholly owned subsidiary, Certron Audio, S.A.
(collectively the "Company") All material intercompany profits,
transactions and balances have been eliminated.
Translation of Foreign Currencies
---------------------------------
All balance sheet accounts of foreign operations are translated into US
dollars at the year-end rate of exchange, and statement of operations items
are translated at the weighted average exchange rates for the year. Since
foreign activities are considered to be an extension of the U.S. operations,
the gain or loss resulting from remeasuring these transactions into U.S.
dollars are included in operations.
The Company has not used the hyperinflationary accounting standards in SFAS
52 for accounting for its subsidiary in Mexico. That subsidiary is part of
the Maquiladora program, the purpose of which is to act as manufacturing and
assembly division of the Company at lower labor cost. Its largest asset is
machinery and equipment carried on the Company's books at historical cost
less straight-line depreciation. It does not sell merchandise for pesos.
Cash and Cash Equivalents
-------------------------
The Company considers all cash on hand and on deposit, and securities with
original purchased maturities of less than three months to be cash and cash
equivalents.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Equipment and Leasehold Improvements
------------------------------------
Equipment and leasehold improvements are stated at cost and are depreciated
or amortized using the straight-line method over the lesser of the estimated
useful lives of the assets (generally five years) or the applicable lease
terms.
Marketable Equity Securities
----------------------------
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 market value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders' equity. At October 31,
1997, the Company had no investments that qualified as trading or held to
maturity.
15
Marketable equity securities are valued based on quoted market prices. The
cost of securities sold is determined by the "identified cost" method.
Taxes on Income
---------------
The Company files tax returns excluding its subsidiary for United States
federal tax purposes and combined returns with its subsidiary for state
purposes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled. Reserves for
deferred tax assets are recorded when ultimate recovery of such assets is
deemed uncertain.
Income (Loss) Per Common Share
------------------------------
Income (loss) per common share is based on the weighted average number of
common shares outstanding during the year and the effect of common stock
equivalents, if dilutive.
Estimates
---------
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions
that affect the amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Long-Lived Assets
-----------------
In March of 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS")No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, effective for fiscal years beginning after December 15,
1995. Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted SFAS No. 121 effective November 1, 1996.
Such adoption did not have a significant effect on the financial position or
results of operations of the Company.
Concentrations and Uncertainties
--------------------------------
For fiscal year 1997, the Company's ten largest customers accounted for
approximately 86% of the Company's net sales. Two of these customers
accounted for 21% and 16% of the Company's net sales, respectively. The
loss of one or both of these customers would have a negative short-term
affect on the Company's financial position, results of operations and cash
flows. The Company was informed by one of these customers that it will no
longer use the Company as a major supplier after February, 1997. However,
purchases on a reduced scale continued for the fiscal year.
The intense competition in the magnetic media field has made it difficult
for the Company to maintain prices on its products. There are substantial
competitors in each of the Company's markets that have greater resources
than the Company in order to gain more recognition.
16
The Company purchases substantially all of its materials for audio and video
cassettes from sources both in the Far East and Mexico.
Recently Issued Accounting Pronouncement
----------------------------------------
The Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings Per Share," which is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Early
adoption is not permitted. SFAS No. 128 requires public companies to
present basic earnings per share and, if applicable, diluted earnings per
share instead of primary and fully-diluted earnings per share. The Company
does not believe that diluted earnings per share in accordance with SFAS No.
128 will be materially different from the earnings per share previously
reported.
SFAS No. 129, "Disclosure of Information about Capital Structures," issued
by FASB is effective for financial statements ending after December 15,
1997. The new standard reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board ("APB")
Opinion No. 15, "Computing Earnings per Share," which has been superseded by
SFAS No. 128. The Company does not expect adoption of SFAS No. 129 to have
a material effect, if any, on its financial position or results of operations.
SFAS No. 130, "Reporting Comprehensive Income," issued by FASB is effective
for financial statements with fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full presentation of
general- purpose financial statements. The Company does not expect
adoption of SFAS No. 130 to have a material effect, if any, on its financial
position or results of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued by FASB is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS No. 131 requires that
public business enterprises report certain information about operating
segments in complete sets of financial statements of the enterprise and in
condensed financial statement of interim periods issued to shareholders. It
also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they
operate, and their major customers. The Company does not expect adoption
SFAS No. 131 to have a material effect, if any, on its financial position or
results of operations.
Reclassifications
-----------------
Certain reclassifications have been made to the October 31, 1996 and October
31, 1995 financial statements to conform to the October 31, 1997 presentation.
Note 2 - Note 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 was originally due in November 1996 and bore
interest (payable monthly) at 14% per annum. At October 31, 1995 this note
was in default and the maker of the note filed a Chapter 11 bankruptcy
proceeding. Subsequently, the note was rewritten to reflect the expense of
collection and the bankruptcy proceeding was dismissed. The note now stands
at $326,000. The interest rate was adjusted to 12 3/4%. The note is due
August, 1998.
17
Note 3 - Marketable Securities
- ------------------------------
The Company has investments in marketable equity securities, which have been
classified as non current, available-for-sale, at October 31, 1996 and 1997.
The investments in equity securities at October 31, 1996 had an original
cost of $114,000 and a fair value of $101,000, resulting in unrealized gains
of $3,000 and gross unrealized losses of $16,000 respectively. The
investments in equity securities at October 31, 1997 have an original cost
of $40,000 and a fair value of $45,000, resulting in gross unrealized gains
of $6,000 and gross unrealized losses of $1,000, respectively.
Note 4 - Options
- ----------------
Under the Company's 1983 Stock Option Plan, 450,000 shares of common stock
were reserved for issuance to officers, directors and key employees. The
1983 plan expired by its terms in January 1993. The expiration of the 1983
plan has no effect on outstanding options granted thereunder prior to the
expiration of the 1983 plan.
The Company's Executive Stock Option Plan (the "Executive Plan") was
approved by shareholders in March 1989. In January 1995, the Board of
Directors adopted an amendment to the Executive Plan changing its name to
the Executive Stock Option Plan, increasing the number of shares of Common
Stock covered thereby from 150,000 to 300,000 and extending the expiration
date of the Executive Plan from January 1999 to January 2005. The increase
in the number of shares and the extension of the expiration date of the plan
were approved by shareholders in March 1995. Options under the plan have
been reserved for issuance to officers, directors and key employees.
Options under both Plans may be exercised in various installments, may not
be exercised beyond ten years and the option price may not be less than the
market value of the common stock on the date the option is granted.
<TABLE>
<CAPTION>
Options
available Options
for granted and
1983 Stock Option Plan grant outstanding Price Range
-------------------------- --------- ----------- -------------
<S> <C> <C> <C> <S><C>
Balance, November 1, 1994 133,000 $.937 - $1.66
Cancelled ( 9,000) $.968 - $1.50
------- -------
Balance, October 31, 1995 - 124,000 $.968 - $1.50
Cancelled - ( 60,000) $.968
------- -------
Balance, October 31, 1996 64,000 $.968 - $1.66
Cancelled ( 44,000) $.968
------- -------
Balance, October 31, 1997 - 20,000 $1.50 - $1.66
======= =======
</TABLE>
18
<TABLE>
<CAPTION>
Options
available Options
Executive Stock for granted and
Option Plan grant outstanding Price Range
- ----------------- --------- ----------- -----------
<S> <C> <C> <C> <S><C>
Balance, October 31, 1994 70,000 80,000 $1.060 - $1.719
Increase in Shares Reserved
for issuance 150,000
Granted ( 10,000) 10,000 $0.810
Cancelled 20,000 (20,000) $1.060 - $1.719
------- ------
Balance, October 31, 1995 230,000 70,000 $0.810 - $1.375
Granted ( 64,500) 64,500 $1.000
Cancelled 30,000 ( 30,000) $1.375
------- -------
Balance, October 31, 1996 195,500 104,500 $0.810 - $1.375
Granted ( 64,500) 64,500 $1.000
Cancelled 500 ( 500) $1.000
------- -------
Balance, October 31, 1997 131,500 168,500 $0.810 - $1.375
</TABLE>
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans and does not
recognize compensation expense for its stock-based compensation plans other
than for restricted stock and options/warrants issued to outside third
parties. If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS 123, the Company's net
income and earnings per share would be reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
October 31, October 31,
1997 1996
----------- -----------
<S> <C> <C>
Net income as reported $77,000 $28,000
Income(loss), pro forma 48,000 ( 1,000)
Income per share as reported .02 .01
Income (loss) per share, pro forma .02 -
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1996.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Risk free interest rate 5.7% 6.1%
Expected lives (years) 5 5
Expected volatility 65.0% 65.0%
Expected dividends $ 0 $ 0
</TABLE>
The weighted-average fair value of options granted during the year ended
October 31, 1997 and 1996, was $0.45. The exercise price of the options
granted is $1.00, and the market price on the dates of grant was $0.81.
19
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have character-
istics significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not
necessarily provide a single measure of the fair value of its employee stock
options.
At October 31, 1997, there were 188,500 options outstanding and 104,000 and
exercisable, respectively. These options had a weighted average remaining
contractual life of three years. The weighted average exercise price of the
options outstanding and exercisable was $1.11 and $1.17, respectively.
The fair value of options granted in 1997 and 1996 was $29,000 for each
year.
Note 5 - Taxes on Income
- ------------------------
The provision for taxes on income is comprised of the minimum state income
taxes of $1,000.
A reconciliation of the federal statutory rates to the effective rates is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% (34.0%)
State taxes, net of federal
benefit 1.3% 3.5% .1%
Unrecognized benefit of
net operating losses (34.0%) (34.0%) 33.9%
Effective tax rate 1.3% ( 3.5%) - %
</TABLE>
For federal income tax return purposes, net operating losses of
approximately $2,400,000 are available through October 31, 2005. For state
income tax purposes, net operating losses of approximately $91,000 expire
beginning October 31, 1998. The company also has general business credit
carry forwards totalling $96,000 that expire in fiscal year 2000.
Significant components of the Company's deferred tax asset consist of the
following:
<TABLE>
<CAPTION>
October 31, October 31,
1997 1996
---------- ----------
<S> <C> <C>
Net operating loss carry forward $ 880,000 $ 873,000
Vacation and severance accruals 70,000 69,000
Allowance for bad debts 20,000 16,000
Inventory 114,000 172,000
Depreciation 7,000 9,000
Loss on marketable equity
securities 137,000 136,000
General business credit 96,000 96,000
---------- ----------
Total deferred tax assets 1,324,000 1,371,000
Valuation allowance for deferred
tax assets ( 1,324,000) ( 1,371,000)
---------- ----------
$ - $ -
========== ==========
</TABLE>
20
The deferred tax assets have been offset in entirety by a valuation allowance
due to the uncertainty of their realization.
Note 6 - Commitments
- --------------------
Operating Leases -
The Company leases office, production and warehouse facilities under
long-term operating leases. The Company leases its office space from Louart
Corporation ("Louart"), a stockholder of the Company. Aggregate minimum net
lease payments under non-cancelable operating leases as of October 31, 1997,
are $73,000.
Total rental expense charged to operations amounted to $202,000, $199,000
and $183,000 for the years ended October 31, 1997, 1996 and 1995
respectively. Rent paid to Louart for the years ended October 31, 1997, 1996
and 1995 totalled $144,000, $144,000 and $130,000 respectively.
Some leases contain renewal options, inflation escalation clauses and under
some leasing arrangements, the Company pays maintenance, insurance, taxes
and other expenses in addition to the above minimum annual rentals.
Employment Contract -
On November 1, 1993, the Company entered into an employment agreement with
its Chairman/Chief Executive Officer under which the Company is committed to
annual salary payments to the officer in the amount of $200,000 through
fiscal 1998. During the fiscal years ended October 31, 1996 and October 31,
1997, the Chairman and CEO voluntarily reduced his compensation to $175,000.
Note 7 - Industry Segment Information
- -------------------------------------
The Company operates principally in two segments: magnetic media products
and contract assembly. Operations in magnetic media products primarily
involve the design, development, assembly and sale of blank magnetic media
and related products.
Sales to two single customers in the magnetic media products field accounted
for $1,852,000 (37% of total magnetic media sales) in 1997, $2,249,473
(41.8% of total magnetic media sales) in 1996; $819,000 (21% of total
magnetic media sales) and $494,000 (12.6%) in 1995. Receivables from these
customers totalled $111,000 and $99,600, respectively at October 31, 1997.
Identifiable assets by industry segment are those that are used in the
Company's operation in each industry. Corporate assets are principally cash
and other assets.
21
Financial information for 1997, 1996 and 1995 by industry segment, is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
Net sales to unaffiliated customers:
<S> <C> <C> <C>
Magnetic media products $4,988,000 $5,382,000 $3,895,000
Contract assembly - - 5,000
---------- ---------- ----------
Consolidated $4,988,000 $5,382,000 $3,900,000
========== ========== ==========
Operating profit:
Magnetic media products $1,079,000 $ 911,000 $ 365,000
Contract assembly - - -
---------- ---------- ----------
1,079,000 911,000 365,000
General corporate expenses ( 1,114,000) ( 978,000) ( 961,000)
Realized gain & loss on
marketable securities 11,000 - ( 41,000)
Interest expense ( 13,000) ( 13,000) ( 14,000)
Other income-interest 114,000 109,000 178,000
---------- ---------- ----------
Income (loss) before taxes on
income(benefit) and
extraordinary credit $ 77,000 $ 29,000 ($ 773,000)
========== ========== ==========
Identifiable assets:
Magnetic media products $1,806,000 $2,652,000 $1,638,000
Contract assembly - - -
---------- ---------- ----------
Total identifiable assets 1,806,000 2,652,000 1,638,000
General corporate assets 2,257,000 1,410,000 2,327,000
---------- ---------- ----------
Total assets $4,063,000 $4,062,000 $3,965,000
========== ========== ==========
Depreciation and amortization:
Magnetic media products $ 67,000 $ 51,000 $ 55,000
Contract assembly - - -
---------- ---------- ----------
Total depreciation and
amortization $ 67,000 $ 51,000 $ 55,000
========== ========== ==========
Capital expenditures:
Magnetic media products $ 94,000 $ 105,000 $ 57,000
Contract assembly - - -
---------- ---------- ----------
Total capital expenditures $ 94,000 $ 105,000 $ 57,000
========== ========== ==========
</TABLE>
22
Intercompany transfers to the Company's wholly owned subsidiary operating
under a Maquiladora program in Mexicali, B.C., Mexico amounted to $404,000
(1997), $411,000 (1996), and $359,000 (1995) The net book value of
tangible identifiable assets of the subsidiary amounted to $144,000 at
October 31, 1997.
Note 8 - Related Party Transactions
- -----------------------------------
The Company made payments to Louart, a stockholder of the Company, for rent
of warehouse and office space, secretarial and administrative services,
consulting services, and an automobile. These fees are included in
selling, general and administrative expenses.
The payments made to Louart for these items are as follows:
<TABLE>
<CAPTION>
<C> <C>
1997 $272,000
1996 $256,000
1995 $259,000
</TABLE>
Note 9 - Cash
- -------------
The Company maintains cash deposits at several banks located in California.
Deposits at each bank are insured by the Federal Deposit Insurance
Corporation up to $100,000. As of October 31, 1997, uninsured portions of
balances held at those banks aggregated to $1,309,736.
23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ------------------------------------------------------------------------
None.
PART III
The information called for by Part III (items 10, 11, 12 and 13) is
incorporated by reference from Certron's definitive proxy statement to be
filed pursuant to Regulation 14A which involves the election of directors
and which Certron intends to file with the Securities and Exchange Commission
not later than 120 days after October 31, 1997, the end of the fiscal year
covered by this Form 10-K. If such definitive proxy statement is not filed
with the Securities and Exchange Commission in the 120-day period, the items
comprising the Part III information will be filed as an amendment to this
Form 10-K, under cover of Form 10-KA, not later than the end of the 120-day
period.
24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) 1.FINANCIAL STATEMENTS
The following consolidated financial statements of Certron Corporation
and its subsidiary are included in Part II, Item 8:
Report of Independent Certified Public Accountants -
Singer, Lewak, Greenbaum & Goldstein LLP 10
Consolidated balance sheets - October 31, 1997 and 1996 11
Consolidated statements of operations - years ended
October 31, 1997, 1996 and 1995 12
Consolidated statements of stockholders' equity - years
ended October 31, 1997, 1996 and 1995 13
Consolidated statements of cash flows - years ended
October 31, 1997, 1996 and 1995 14
Notes to consolidated financial statements 15
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and qualifying accounts 27
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
25
3. EXHIBITS
3.1 Articles of Incorporation of Registrant, as amended (incorporated
by reference to Exhibit 3.1 to Registrant's Annual Report of from 10-K for
them year ended October 31, 1981 and Exhibit "A" and Exhibit "B" to
Registrant's Proxy Statement dated February 17, 1988).
3.2 By-Laws of Registrant, as amended (incorporated by reference to
Exhibit 3.2 to Registrant's Quarterly Report on form 10-Q for the quarter
ended April 30, 1989).
*10.1 Registrant's 1983 Stock Option Plan (incorporated by reference to
Exhibit "A" to Proxy Statement dated February 14, 1983).
*10.2 First Amendment to Registrant's 1983 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on
form 10-K for the year ended October 31, 1986).
*10.3 Second Amendment to Registrant's 1983 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on
form 10-K for the year ended October 31, 1986).
*10.4 Registrant's 1989 Stock Option Plan (incorporated by reference
to Exhibit "B" to Registrant's Proxy Statement dated February 21, 1989).
*10.5 Amendment to Registrant's 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Annual Report on form 10-K for the
year ended October 31, 1995).
10.6 Form of Indemnification Agreement between Registrant and its
Directors and selected officers and agents (incorporated by reference to
Exhibit "C" to Registrant's Proxy Statement dated February 17, 1988).
*10.7 Employment Agreement effective as of November 1, 1993 between
Registrant and Marshall I. Kass (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for quarter ended January 31,
1994).
21. Subsidiaries of Registrant (incorporated by reference to Exhibit
22 to Registrant's Annual report on form 10-K for the year ended October 31,
1981).
23 Singer, Lewak, Greenbaum and Goldstein LLP consent.
27 Financial Data Schedule
* Indicates management contract or compensation plan or arrangement
required to be filed as an Exhibit to this Form 10-K
(b) During the fourth quarter of Registrant's fiscal year ended
October 31, 1997, no reports on form 8-K were filed by Registrant.
26
<TABLE>
<CAPTION>
CERTRON CORPORATION AND SUBSIDIARY
----------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
Balance at Additions Balance of Balance at
beginning charged to accounts end of
Classifications of period expense written off period
- --------------- ---------- ---------- ----------- ----------
YEAR ENDED OCTOBER 31, 1997
Allowance for doubtful
<S> <C> <C> <C> <C>
accounts $40,000 $49,000 $39,000 $50,000
======= ======= ======= =======
YEAR ENDED OCTOBER 31, 1996
Allowance for doubtful
accounts $40,000 0 0 $40,000
======= ======= ======= =======
YEAR ENDED OCTOBER 31, 1995
Allowance for doubtful
accounts $71,000 0 $31,000 $40,000
======= ======= ======= =======
</TABLE>
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY (SIGNATURE) /s/ Marshall I. Kass
(NAME AND TITLE) Marshall I. Kass
Chairman of the Board and
Chief Executive and
Operating Officer
January 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
BY (SIGNATURE) /s/ Marshall I. Kass
(NAME AND TITLE) Marshall I. Kass
Chairman of the Board and
Chief Executive Officer and Director
(Principal Executive Officer and
Principal Financial Officer)
January 26, 1998
BY (SIGNATURE) /s/ Jonathan F. Kass
(NAME AND TITLE) President and Director
January 26, 1998
BY (SIGNATURE) /s/ Michael S. Kass
(NAME AND TITLE) Michael S. Kass
Executive Vice President and Director
January 26, 1998
BY (SIGNATURE) /s/ Susan E. Kass
(NAME AND TITLE) Secretary-Treasurer and Director
January 26, 1998
BY (SIGNATURE) /s/ Jesse A. Lopez
(NAME AND TITLE) Jesse A. Lopez
Corporate Controller and Director
(Principal Accounting Officer)
January 26, 1998
BY (SIGNATURE) /s/ Herbert Bronsten
(NAME AND TITLE) Divisional Vice President and Director
January 26, 1998
BY (SIGNATURE) /s/ Rogelio Buenrostro
Manager and Chief Executive Officer-Certron, Mexicali
and Director
January 26, 1998
28
EXHIBIT INDEX
--------------
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Articles of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report of from 10-K for the
year ended October 31, 1981 and Exhibit "A" and Exhibit "B" to Registrant's
Proxy Statement dated February 17, 1988).
3.2 By-Laws of Registrant, as amended (incorporated by reference to
Exhibit 3.2 to Registrant's Quarterly Report on form 10-Q for the quarter
ended April 30, 1989).
*10.1 Registrant's 1983 Stock Option Plan (incorporated by reference to
Exhibit "A" to Proxy Statement dated February 14, 1983).
*10.2 First Amendment to Registrant's 1983 Stock Option Plan (incorporated
by reference to Exhibit 10.2 to Registrant's Annual Report on form 10-K for
the year ended October 31, 1986).
*10.3 Second Amendment to Registrant's 1983 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on
form 10-K for the year ended October 31, 1986).
*10.4 Registrant's 1989 Stock Option Plan (incorporated by reference to
Exhibit "B" to Registrant's Proxy Statement dated February 21, 1989).
*10.5 Amendment to Registrant's 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Annual Report on form 10-K for the
year ended October 31, 1995).
10.6 Form of Indemnification Agreement between Registrant and its
Directors and selected officers and agents (incorporated by reference to
Exhibit "C" to Registrant's Proxy Statement dated February 17, 1988).
*10.7 Employment Agreement effective as of November 1, 1993 between
Registrant and Marshall I. Kass (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for quarter ended January 31,
1994).
21. Subsidiaries of Registrant (incorporated by reference to Exhibit 22
to Registrant's Annual report on form 10-K for the year ended October 31,
1981).
23 Singer, Lewak, Greenbaum and Goldstein LLP consent.
27 Financial Data Schedule
* Indicates management contract or compensation plan or arrangement
required to be filed as an Exhibit to this Form 10-K
(b) During the fourth quarter of Registrant's fiscal year ended October
31, 1997, no reports on form 8-K were filed by Registrant.
[Letterhead of Singer, Lewak, Greenbaum & Goldstein, L.L.P.]
Consent of Independent Certified Public Accountants
We have issued our report dated December 15, 1997, accompanying the
consolidated financial statements and schedules incorporated by reference
included in the Annual Report of Certron Corporation and subsidiary on Form
10-K for the year ended October 31, 1997. We hereby consent to the
incorporation by reference of said report in the Registration Statement of
Certron Corporation and subsidiary on Form S-8 (File No. 33-27930).
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
January 19, 1998
EXHIBIT 23
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL YEAR
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SUCH FINANCIAL STATEMENTS.
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