<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from_____________to______________
Commission File No. 0-9081
CERTRON CORPORATION
(Exact name of registrant as specified in its charter)
California 95-2464104
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1545 Sawtelle Boulevard
Los Angeles, California 90025
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 914-0300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].
The aggregate market value of registrant's voting stock held by non-affiliates
as of January 21, 2000, based upon the average bid and asked price of such stock
as reported by Reuters Limited for that day, was $421,191.
As of January 21, 2000, registrant had outstanding 3,128,306 shares of its
common stock, no par value, its only authorized class of common stock.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by part III is incorporated by reference to
registrant's definitive proxy statement which registrant intends to file
pursuant to regulation 14A by a date no later than 120 days after October 31,
1999. If such definitive proxy statement is not filed in the 120-day period, the
information called for by Part III will be filed as an amendment to this Form
10-K not later than the end of the 120-day period.
<PAGE> 3
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,
manufacturing 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, 1999,
1998, and 1997, the amounts of net sales and operating profit before general
corporate expense and interest expense, together with identifiable assets at
October 31, 1999, 1998 and 1997 attributable to each of the Company's industry
segments.
<TABLE>
<CAPTION>
Year ended October 31,
-----------------------------------
1999 1998 1997
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Magnetic Media products $2,765 $3,879 $4,988
Contract Assembly 130 $ 52 $ -
Operating profit before general corporate expense:
Magnetic Media products $ 331 $ 849 $1,079
Contract Assembly 31 20 -
Identifiable assets:
Magnetic Media products $1,220 $1,398 $1,806
Contract Assembly 20 22 -
</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, 1999, 1998 and 1997, net sales of the Company's magnetic
media products were as follows:
<TABLE>
<CAPTION>
Net Sales
-----------------------------------
Product 1999 1998 1997
- -------------------------------- ------ ------ ------
<S> <C> <C> <C>
Audio magnetic tape products $2,093 $3,256 $4,044
Video cassettes 672 623 944
------ ------ ------
$2,765 $3,879 $4,988
====== ====== ======
</TABLE>
1
<PAGE> 4
Certron sells blank audio magnetic tapes in several cassette
configurations of various sizes and playing times, and distributes VHS video
cassettes. The Company purchases substantially all of its products 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.
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, 1999, the Company's ten largest
customers of magnetic media products accounted in the aggregate for
approximately 80% of the Company's total net sales of such magnetic media
products. During fiscal 1999, the two largest single magnetic media customers
accounted for $877,000 and $350,000 or 32% and 13% of total magnetic media
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 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. The assembly
service occurs in the Company's facilities in Mexicali, B.C., Mexico.
For the past several years the Company has not been successful in
obtaining agreements to render assembly services for others at its Mexicali,
Mexico facility. During the second quarter of fiscal 1998 the Company signed a
one-year agreement with a United States company to oversee its Mexicali
operations through the rendering of administrative services by the Company. In
May 1999, this agreement was extended for two years with a sixty day
cancellation clause. Due to a change in emphasis on product development by the
customer, the customer exercised its option to terminate the contract. The
termination was completed on August 1, 1999. In May 1999, the Company signed a
two-year contract with a
2
<PAGE> 5
customer to assemble and package products at the Company's Mexicali, Mexico
facility, and in June 1999, the Company began assembly work for another
customer. Although neither or both of these existing arrangements are expected
to have a material effect on the Company's sales or results of operations, they
made a minor contribution to the Company's gross margin in fiscal 1999 and are
expected to make a minor contribution to the Company's gross margin in fiscal
2000. The foregoing statement is a forward looking statement which involves
risks and uncertainties that could cause actual results to differ materially
from the forward looking statement. Factors which could cause actual results to
differ materially include a reduction in the volume of business of either of
these customers, either of these customers ceasing to do business with the
Company, and general economic conditions. The Company is actively seeking other
assembly/manufacturing business to oversee. In November 1999, the Company began
assembly/repair work in Mexicali, Mexico for a large international company. The
amount of business which the Company is presently doing for this customer is not
material. Although the Company may not be successful, it is attempting to
increase the volume of assembly business it is doing for this customer.
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".
The Company believes that the release of the new digital video disk system and
rewritable CD equipment and CDs, depending upon price and the amount of hardware
sales, will have a material adverse impact on the Company's operations over the
next few years. The foregoing statements concerning the effect of sales of
digital products and rewritable CD equipment 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 rewritable CDs and the price and availability of hardware for the
use of such products.
Employees
At January 1, 2000, Certron employed 57 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 8 people at its facility in
Los Angeles, California.
3
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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
- --------------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
422 N. Smith Avenue 17,186 8-31-03(1) $79,000 Warehouse and
Corona, CA packaging
1545 Sawtelle Blvd. 2,811 11-30-03(1) $55,000 Administration
Los Angeles, CA
Calle Venus # 90
Parque Industrial 15,000 02-29-00 $66,000 Magnetic Media
Mexicali, B.C., Mexico assembly &
packaging
and contract
assembly and
manufacturing
</TABLE>
- ----------------------------------------------
(1) 422 N. Smith Avenue and 1545 Sawtelle Blvd. are leased from Louart
Corporation, a principal stockholder of Certron.
The Company believes that its facilities are maintained in satisfactory
operating conditions and are adequate for its needs.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company is
a party.
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.
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<PAGE> 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Prior to January 1998, Certron's common stock was listed in the NASDAQ
Small Cap Market. Certron's common stock ceased to be listed in the NASDAQ Small
Cap 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.
Since January 5, 1998, the common stock of the Company has traded in the NASDAQ
Bulletin Board under the symbol CRTN.
The following table shows the high and low bid quotations for the first
quarter of fiscal 1998 through December 31, 1997 as furnished by NASDAQ and the
high and low prices for such stock for each fiscal quarter during the fiscal
year ended October 31, 1998 from January 1, 1998 as provided by Commodity
Systems, Inc., and for the fiscal year ended October 31, 1999 as furnished by
Bloomberg. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal period High Low
------------- ---- ---
1998
----
<S> <C> <C>
First quarter
(through December 31, 1997) .5312 .3750
First quarter
from (January 1 through January 31, 1998) .4219 .1719
Second quarter .4375 .2031
Third quarter .3750 .3125
Fourth quarter .3750 .2656
1999
----
First quarter .3700 .3100
Second quarter .4200 .2800
Third quarter .3800 .2800
Fourth quarter .3100 .2000
</TABLE>
As of January 14, 2000, the approximate number of holders of record of
the Company's Common Stock was 1,411. The Company has never paid a cash dividend
on its Common Stock.
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<PAGE> 8
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 2,895,000 $ 3,931,000 $ 4,988,000 $ 5,382,000 $ 3,900,000
Net (loss)
income before
extraordinary
credit ($ 460,000) $ 38,000 $ 77,000 28,000 ($ 774,000)
Net (loss)
income ($ 460,000) $ 38,000 $ 77,000 28,000 ($ 774,000)
Net (loss)
income per
common share ($ .15) $ .01 $ .02 $ .01 ($ .25)
Total assets $ 3,446,000 $ 3,950,000 $ 4,063,000 $ 4,062,000 $ 3,965,000
Long-term debt - - - - -
Working capital $ 2,769,000 $ 3,055,000 $ 2,839,000 $ 2,791,000 $ 2,844,000
Stockholders'
equity $ 3,017,000 $ 3,445,000 $ 3,450,000 $ 3,355,000 $ 3,368,000
</TABLE>
No cash dividends have been paid during the five-year period ended
October 31, 1999.
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
decreased at October 31, 1999 as compared to that at October 31, 1998. The
decrease in cash flow from operations in fiscal 1999 was primarily the result of
a decrease in sales. Accounts receivable decreased by $45,000, inventories
decreased by $72,000, cash decreased by $225,000, and other assets decreased by
$20,000. Accounts payable and accrued expenses decreased by $76,000.
<TABLE>
<CAPTION>
October 31
------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Working Capital $ 2,769,000 $ 3,055,000 $ 2,839,000
Current Ratio 7.45 to 1 7.05 to 1 5.63 to 1
Cash Flows from Operations ($ 326,000) $ 339,000 $ 972,000
</TABLE>
The Company's liquidity has been supplied from internally generated
funds. The Company believes that it will be able to fund its existing business
out of current cash flow without the necessity of bank borrowing. At October 31,
1999, the Company had no material commitments for capital expenditures.
The Company completed its Year 2000 compliance program during the last
quarter of fiscal 1999, and its total expenditure on such program was $91,000.
As of January 16, 2000, the Company has not experienced any Year 2000 problems
either internally or from outside sources.
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
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<PAGE> 9
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. The Company has been
attempting to become a private label manufacturer of magnetic media products for
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
borrowing. There can be no assurance, however, that the Company can find such an
acquisition.
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
During fiscal 1999, the Company had a loss from operations of $537,000
and net loss of $460,000 on sales of $2,895,000 as compared to a loss from
operations of $96,000 and net income of $38,000 for fiscal 1998 on sales of
$3,931,000. Gross profit decreased by $476,000 between fiscal 1999 and fiscal
1998. Selling, general and administrative expenses decreased by $42,000,
depreciation and amortization expense increased by $7,000 and interest income
decreased by $53,000.
Sales of magnetic media products were $2,765,000 in fiscal 1999 as
compared to $3,879,000 in fiscal 1998. The decrease of 28.7% was primarily the
result of the decrease in sales of micro cassettes by $985,000. The reduction in
sales of micro cassettes was primarily the result of decreased sales to a
private label customer, sales to whom had decreased from $917,000 in fiscal 1998
to $49,000 in fiscal 1999.
Total gross margin as a percentage of net sales was 23.7% in fiscal 1999
and 29.6% in fiscal 1998. This change was due to a decrease in the sales price
of audio cassettes and a sale made to a Canadian company, which the Canadian
company felt the price quoted was in Canadian dollars rather than U.S. dollars.
In order to avoid costly litigation, a compromise was reached for a reduced
sales price which caused a decrease in the gross margins. Due primarily to
reduced sales, margins decreased by $476,000 (40.9%) in fiscal 1999. The gross
margin in fiscal 1999 was $687,000 and in fiscal 1998 was $1,163,000.
Selling, general and administrative expense decreased by $42,000 during
fiscal 1999 from $1,193,000 in 1998 to $1,151,000 in 1999. The decrease was due
to a decrease in personnel of $92,000, net recovered bad debts of $26,000, and
other expenses of $11,000, offset by an increase in advertising expense of
$87,000.
Interest income decreased by $53,000 in fiscal 1999 due to the decrease
in cash and cash equivalents. Interest income in fiscal 1998 was $128,000
compared to $75,000 in fiscal 1999.
Sales in the fourth quarter of fiscal 1999 were lower than anticipated
due to the fact that a private label customer delayed the delivery of $225,000
of
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merchandise. The customer has advised the Company that the merchandise is
expected to be shipped within in the first six months of fiscal year 2000.
For the past several years the Company has not been successful in
obtaining agreements to render assembly services for others at its Mexicali,
Mexico facility. During the second quarter of fiscal 1998 the Company signed a
one-year agreement with a United States company to oversee its Mexicali
operations through the rendering of administrative services by the Company. In
May 1999, this agreement was extended for two years with a sixty day
cancellation clause. Due to a change in emphasis on product development by the
customer, the customer exercised its option to terminate the contract. The
termination was completed on August 1, 1999. In May 1999, the Company signed a
two-year contract with a customer to assemble and package products at the
Company's Mexicali, Mexico facility, and in June 1999, the Company began
assembly work for another customer. Although neither or both of these existing
arrangements are expected to have a material effect on the Company's sales or
results of operations, they made a minor contribution to the Company's gross
margin in fiscal 1999 and are expected to make a minor contribution to the
Company's gross margins in fiscal 2000. The foregoing statement is a forward
looking statement which involves risks and uncertainties that could cause actual
results to differ materially from the forward looking statement. Factors which
could cause actual results to differ materially include a reduction in the
volume of business of either of these customers, either of these customers
ceasing to do business with the Company, and general economic conditions. The
Company is actively seeking other assembly/manufacturing business to oversee. In
November 1999, the Company began assembly/repair work in Mexicali, Mexico for a
large international company. The amount of business which the Company is
presently doing for this customer is not material. Although the Company may not
be successful, it is attempting to increase the volume of assembly business it
is doing for this customer.
During fiscal 1999, the Company invested cash not needed in operations,
in publicly traded common stock of other companies and may purchase additional
common stock in the future. Investments in common stock 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, 1999, the Company held common stock which
had a cost of approximately $66,000 and market value of approximately $60,000.
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 $6,000 between
cost and market value is recorded as an unrealized holding loss, a separate
component of equity (see Notes 1 and 2 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 the 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 recognize a loss which could adversely
affect the results of operations for the period in which the sale occurs.
Sales for the first two months of the first quarter of fiscal 2000 were
down approximately $33,000 compared to sales for the first two months of the
first quarter of fiscal 1999. Although the Company expects that net sales for
the first quarter of fiscal 2000 will be less than the comparable quarter of
fiscal 1999 and a loss for the first quarter of fiscal 2000 is anticipated, the
Company cannot predict the profit or loss picture for the remainder of fiscal
2000.
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<PAGE> 11
Fiscal 1998 Compared to Fiscal 1997
During fiscal 1998, the Company had a loss from operations of $96,000
and net income of $38,000 on sales of $3,931,000 as compared to a loss from
operations of $34,000 and net income of $77,000 for fiscal 1997 on sales of
$4,988,000. Gross profit decreased by $299,000 between fiscal 1998 and fiscal
1997. Selling, general and administrative expenses decreased by $236,000,
depreciation and amortization expense decreased by $1,000 and interest income
increased by $27,000.
Sales of magnetic media products were $3,879,000 in fiscal 1998 as
compared to $4,988,000 in fiscal 1997. The decrease of 22.2% was primarily the
result of the decrease in sales of micro cassettes by $620,000 and video
cassettes by $338,000. The reduction in sales of micro cassettes was primarily
the result of decreased sales to a private label customer, sales to whom had
increased from $208,459 in fiscal 1996 to $405,438 in fiscal 1997.
Total gross margin as a percentage of net sales was 29.6% in fiscal 1998
and 29.3% in fiscal 1997. This change was due to a decrease in the cost of audio
magnetic media products. Due primarily to reduced sales, margins decreased by
$299,000 (20.5%) in fiscal 1998. The gross margins in fiscal 1998 was $1,163,000
and in fiscal 1997 was $1,462,000.
Selling, general and administrative expense decreased by $236,000 during
fiscal 1998 from $1,429,000 in 1997 to $1,193,000 in 1998. The decrease was due
to a decrease in advertising by $123,000, decrease in supplies by $45,000, bad
debts by $49,000 and other expenses by $19,000.
Interest income increased by $27,000 in fiscal 1998 due to the increase
in cash and cash equivalents. Interest income in fiscal 1997 was $101,000
compared to $128,000 in fiscal 1998.
For the past several years the Company has not been successful in
obtaining agreements to render assembly services for others at its Mexicali,
Mexico facility. During the second quarter of fiscal 1998 the Company signed a
one-year agreement with a United States company to oversee its Mexicali
operations through the rendering of administrative services by the Company and,
in addition, commenced packaging products at its Mexicali, Mexico facility for
another company on an order by order basis. Although neither of these
arrangements have had a material effect on the Company's sales or results of
operations, they made a minor contribution to the Company's gross margins in
fiscal 1998 and are expected to make a minor contribution to the Company's gross
margins in fiscal 1999. The foregoing statement is a forward looking statement
which involves risks and uncertainties that could cause actual results to differ
materially from the forward looking statement. Factors which could cause actual
results to differ materially include a reduction in the volume of business of
either of the companies, the company for whom the Company is packaging products
ceasing to do business with the Company, and general economic conditions.
During fiscal 1998, the Company invested cash not needed in operations,
in publicly traded common stock of other companies and may purchase additional
common stock in the future. Investments in common stock 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, 1998, the Company held common stocks which
had a cost of approximately $177,000 and market value of approximately $139,000.
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<PAGE> 12
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 $38,000
between cost and market value is recorded as an unrealized holding loss, a
separate component of equity (see Notes 1 and 2 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 the
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 recognize a loss which
could adversely affect the results of operations for the period in which the
sale occurs.
Forward-Looking Statements
Certain statements herein, including statements as to the Company's
anticipation that sales will decline and a loss incurred in the first quarter of
the 2000 fiscal year and the Company's uncertainty as to its outlook for fiscal
2000 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, 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.
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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, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years ended October 31, 1999. 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 audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Certron Corporation
and subsidiary as of October 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years ended October 31,
1999, in conformity with generally accepted accounting principles.
We have also audited Schedule II for each of the three years ended October 31,
1999. 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, 1999
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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $2,012,000 $2,237,000
Trade accounts receivable, less allowance
for doubtful accounts of $46,000 in 1999
and 1998 278,000 323,000
Inventories:
Finished products 605,000 666,000
Work in process 28,000 29,000
Raw materials 173,000 183,000
---------- ----------
Total inventories 806,000 878,000
Other current assets 102,000 122,000
---------- ----------
Total current assets 3,198,000 3,560,000
---------- ----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Machinery and equipment 327,000 327,000
Dies and molds 317,000 317,000
Furniture, fixtures and leasehold improvements 306,000 296,000
---------- ----------
950,000 940,000
Less accumulated depreciation
and amortization (794,000) (721,000)
---------- ----------
Net equipment and leasehold improvements 156,000 219,000
---------- ----------
MARKETABLE EQUITY SECURITIES 60,000 139,000
OTHER ASSETS 32,000 32,000
---------- ----------
$3,446,000 $3,950,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ - $ -
Accrued advertising 136,000 160,000
Accrued professional fees 28,000 51,000
Accrued payroll and related items 165,000 164,000
Other accrued expenses 100,000 130,000
---------- ----------
Total current liabilities 429,000 505,000
---------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, authorized 500,000
shares, no shares issued and outstanding
Common stock, $1.00 par value; authorized 10,000,000
shares; issued and outstanding, 3,128,000 shares
(1999 and 1998) 3,128,000 3,128,000
Additional paid-in capital 1,824,000 1,824,000
Net unrealized (loss) gain on marketable
equity securities (6,000) (38,000)
Accumulated deficit (1,929,000) (1,469,000)
---------- ----------
Total stockholders' equity 3,017,000 3,445,000
---------- ----------
$3,446,000 $3,950,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
12
<PAGE> 15
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 2,895,000 $ 3,931,000 $ 4,988,000
COSTS AND EXPENSES:
Cost of products sold 2,208,000 2,768,000 3,526,000
Selling, general and
administrative 1,151,000 1,193,000 1,429,000
Depreciation and amortization 73,000 66,000 67,000
----------- ----------- -----------
3,432,000 4,027,000 5,022,000
LOSS FROM OPERATIONS (537,000) (96,000) (34,000)
OTHER INCOME (EXPENSE)
Realized gain on marketable
equity securities 3,000 7,000 11,000
Interest income (net) 75,000 128,000 101,000
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (459,000) 39,000 78,000
PROVISIONS FOR INCOME TAXES 1,000 1,000 1,000
----------- ----------- -----------
NET (LOSS) INCOME ($ 460,000) $ 38,000 $ 77,000
=========== =========== ===========
Basic and diluted (loss) income per share ($ .15) $ .01 $ .02
=========== =========== ===========
Weighted average common shares
outstanding 3,128,000 3,128,000 3,128,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
13
<PAGE> 16
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
(Loss)
Gain on
Common Stock Additional Marketable
----------------------- paid-in Equity Accumulated
Shares Amount capital Securities deficit Total
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
Unrealized
Loss on
Marketable
Securities ( 43,000) ( 43,000)
Net Income 38,000 38,000
---------- ---------- ---------- -------- ---------- ----------
BALANCE
October 31,
1998 3,128,000 $3,128,000 $1,824,000 ($38,000) ($1,469,000) $3,445,000
Unrealized
Gain on
Marketable
Securities 32,000 32,000
Net Loss ( 460,000) ( 460,000)
---------- ---------- ---------- -------- ---------- ----------
BALANCE
October 31,
1999 3,128,000 $3,128,000 $1,824,000 ( 6,000) ($1,929,000) $3,017,000
========== ========== ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
14
<PAGE> 17
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($ 460,000) $ 38,000 $ 77,000
----------- ----------- -----------
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization 73,000 66,000 67,000
Changes in operating assets and
liabilities:
Decrease in trade
accounts receivable 45,000 195,000 9,000
Decrease in inventories 72,000 202,000 788,000
Decrease(Increase) in other assets 20,000 (54,000) 125,000
Decrease in accounts payable - - (17,000)
Decrease in accrued expenses (76,000) (108,000) (77,000)
----------- ----------- -----------
Total adjustments 134,000 301,000 895,000
----------- ----------- -----------
Net cash (used in)provided by
operating activities (326,000) 339,000 972,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment and
leasehold improvements (10,000) (77,000) (94,000)
Proceeds from sale of marketable
equity securities 468,000 580,000 197,000
Purchase of marketable
equity securities (357,000) (717,000) (123,000)
Decrease (increase) in notes
receivable - 326,000 (76,000)
----------- ----------- -----------
Net cash (used in) provided by
investing activities 101,000 112,000 (96,000)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (225,000) 451,000 876,000
CASH AND CASH EQUIVALENTS,
beginning of year 2,237,000 1,786,000 910,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 2,012,000 $ 2,237,000 $ 1,786,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 12,000 $ 14,000 $ 13,000
Income taxes $ 1,000 $ 1,000 $ 1,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
15
<PAGE> 18
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
The Company's business consists primarily of the design, development,
manufacturing and distribution of magnetic media products and the
contract assembly and manufacturing of products for the proprietary use
of others.
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 significant intercompany accounts and
transactions have been eliminated in consolidation.
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 rate 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
the Statement of Financial Accounting Standards (SFAS)No. 52, "Foreign
Currency Translations" 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 costs. 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.
Trade Accounts Receivable
Trade accounts receivable consist primarily of amounts due from
customers. The Company has provided for an allowance for doubtful
accounts of $46,000 for accounts it considers uncollectible. Management
believes this to be sufficient to account for all uncollectible amounts.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
16
<PAGE> 19
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
The Company accounts for marketable securities in accordance with the
provisions of SFAS No. 115, "Accounting for Certain Investments in Debt
and 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. The Company has classified all of its investments as
available-for-sale securities as of October 31, 1999. Securities
available for sale are reported at market value, with the unrealized
gains and losses, net of tax, reported as a separate component of
stockholders' equity.
Marketable equity securities are valued based on quoted market prices.
The cost of securities sold is determined by the specific identification
of cost method.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising costs
for the the years ended October 31, 1999, 1998 and 1997 were $131,000,
$45,000 and $168,000 respectively.
Income Taxes
The Company files tax returns excluding its subsidiary for United States
federal tax purposes and combined returns with its subsidiary for state
purposes.
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Net Loss Per Share
For the year ended October 31, 1999, the Company adopted SFAS No. 128,
"Earnings per Share." Basic (loss) income per share is computed by
dividing the net (loss) income by the weighted-average number of common
shares available. Diluted (loss) income per share is computed similar to
basic (loss)income per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
17
<PAGE> 20
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.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
Concentrations and Uncertainties
For fiscal year 1999, the Company's ten largest customers accounted for
approximately 80% of the Company's net sales. During 1999, two of these
customers accounted for 32% and 13% of the Company's net sales,
respectively. The loss of one or both of these customers would have a
negative short-term effect on the Company's financial position, results
of operations and cash flows.
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.
The Company purchases substantially all of its materials for audio and
video cassettes from sources both in the Far East and Mexico. All of the
Company's manufacturing activities are conducted in Mexico.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period from
non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency
translation adjustments and unrealized gains and losses on
available-for-sale securities.
Segment Reporting
The Company accounts for segments in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
which requires that companies disclose "operating segments" based on the
way management desegregates the Company for internal operating
decisions. See Note 6 for further information about the Company's
segments.
18
<PAGE> 21
Recently Issued Accounting Pronouncement
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-Retirement Benefits." This statement is
not applicable to the Company.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The Company does not expect adoption of SFAS No. 133 to have
a material effect, if any, on its financial position or results of
operations.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for financial statements with the first fiscal
quarter beginning after December 15, 1998. This statement is not
applicable to the Company.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years
beginning February 1999. This statement is not applicable to the
Company.
In June 1999, the FASB issued SFAS No. 136, "Transfer of Assets to a
Not-for- Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement is not applicable to the
Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect
adoption of SFAS No. 137 to have a material impact, if any, on its
financial position or results of operations.
Note 2 - Marketable Equity Securities
The Company has investments in marketable equity securities, which have
been classified as non current, available-for-sale, at October 31, 1998
and 1999. The investments in equity securities at October 31, 1998 had
an original cost of $177,000 and a fair value of $139,000, resulting in
gross unrealized loss of $43,000 and gross unrealized gain of $5,000
respectively. The investments in equity securities at October 31, 1999
have an original cost of $66,000 and a fair value of $60,000, resulting
in gross unrealized loss of $14,000 and gross unrealized gain of $8,000,
respectively.
During the year ended October 31, 1999, the Company recognized
investment income of $90,000, which represented interest income of
$87,000 and a realized gain of $3,000.
Note 3 - 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.
19
<PAGE> 22
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>
Balance, October 31, 1996 64,000 $.968 - $1.66
Canceled (44,000) $.968
--------- -------
Balance, October 31, 1997 - 20,000 $1.50 - $1.66
Canceled (20,000) $1.50 - $1.66
--------- -------
Balance, October 31, 1998 - -
Balance, October 31, 1999 - -
========= =======
</TABLE>
<TABLE>
<CAPTION>
Options
available Options
Executive Stock for granted and
Option Plan grant outstanding Price Range
--------------- ---------- ----------- --------------
<S> <C> <C> <C>
Balance, October 31, 1996 195,500 104,500 $0.810 - $1.375
Granted ( 64,500) 64,500 $1.000
Canceled 500 ( 500) $1.000
------- -------
Balance, October 31, 1997 131,500 168,500 $0.810 - $1.375
Canceled 30,000 ( 30,000) $1.375
------- -------
Balance, October 31, 1998 161,500 138,500 $0.810 - $1.000
Canceled 20,000 ( 20,000) $0.810 - $1.000
------- -------
Balance, October 31, 1999 181,500 118,500 $1.000
======= =======
</TABLE>
At October 31, 1999, there were 118,500 options outstanding and exercisable.
These options had a weighted average remaining contractual life of two years.
The weighted average exercise price of the options outstanding and exercisable
was $1.00.
20
<PAGE> 23
Note 4 - Income Taxes
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,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal
benefit 2.1% 2.1% 1.3%
Unrecognized benefit of
net operating losses (34.0%) (34.0%) (34.0%)
------ ------ ------
Effective tax rate 2.1% 2.1% 1.3%
====== ====== ======
</TABLE>
For federal income tax return purposes, net operating losses of
approximately $2,800,000 expire beginning October 31, 2005. For state
income tax purposes, net operating losses of approximately $418,000
expire beginning October 31, 2000.
Significant components of the Company's deferred tax asset consist of
the following:
<TABLE>
<CAPTION>
October 31, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carry forward $ 797,000 $ 806,000
State Taxes 28,000 31,000
Vacation and severance accruals 71,000 71,000
Allowance for bad debts 19,000 19,000
Inventory 114,000 120,000
Depreciation 20,000 20,000
Loss on marketable equity
securities 141,000 140,000
General business credit - -
----------- -----------
Total deferred tax assets 1,190,000 1,324,000
Valuation allowance for deferred
tax assets (1,190,000) (1,324,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The deferred tax assets have been offset in entirety by a valuation allowance
due to the uncertainty of their realization.
Note 5 - 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, 1999, are $553,000.
21
<PAGE> 24
Total rental expense charged to operations amounted to $201,000,
$207,000, and $202,000, for the years ended October 31, 1999, 1998, and
1997 respectively.
Rent paid to Louart for the years ended October 31, 1999, 1998 and 1997
totaled $135,000, $147,000, and $144,000 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 $184,000, in fiscal year ended October 31, 1998 to
$160,000, and in fiscal year ended October 31, 1999 to $153,000. In 1998
the Employment Agreement was amended to extend the term thereof through
October 31,2001 on the same terms and conditons.
Note 6 - 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 $1,227,000 (44.4% of total magnetic media sales) in 1999,
$1,662,000 (42.8% of total magnetic media sales) in 1998; $1,852,000
(37% of total magnetic media sales) in 1997. Receivables from these
customers totaled $76,000 and $48,000, respectively at October 31, 1999.
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.
22
<PAGE> 25
Financial information for 1999, 1998 and 1997 by industry segment, is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Magnetic media products $ 2,765,000 $ 3,879,000 $ 4,988,000
Contract assembly 130,000 52,000 -
----------- ----------- -----------
Consolidated $ 2,895,000 $ 3,931,000 $ 4,988,000
=========== =========== ===========
Operating profit:
Magnetic media products $ 331,000 $ 849,000 $ 1,079,000
Contract assembly 31,000 20,000 -
----------- ----------- -----------
362,000 869,000 1,079,000
General corporate expenses (899,000) (965,000) (1,113,000)
Realized gain & loss on
marketable securities 3,000 7,000 11,000
Interest expense (12,000) (14,000) (13,000)
Other income-interest 87,000 142,000 114,000
----------- ----------- -----------
(Loss) income before taxes on
income(benefit) and
extraordinary credit ($ 459,000) $ 39,000 $ 78,000
=========== =========== ===========
Identifiable assets:
Magnetic media products $ 1,220,000 $ 1,398,000 $ 1,806,000
Contract assembly 20,000 22,000 -
----------- ----------- -----------
Total identifiable asset 1,240,000 1,420,000 1,806,000
General corporate assets 2,206,000 2,530,000 2,257,000
----------- ----------- -----------
Total assets $ 3,446,000 $ 3,950,000 $ 4,063,000
=========== =========== ===========
Depreciation and amortization:
Magnetic media products $ 73,000 $ 66,000 $ 67,000
Contract assembly - - -
----------- ----------- -----------
Total depreciation and
amortization $ 73,000 $ 66,000 $ 67,000
=========== =========== ===========
Capital expenditures:
Magnetic media products $ 10,000 $ 77,000 $ 94,000
Contract assembly - - -
----------- ----------- -----------
Total capital expenditures $ 10,000 $ 77,000 $ 94,000
=========== =========== ===========
</TABLE>
23
<PAGE> 26
Intercompany transfers to the Company's wholly owned subsidiary
operating under a Maquiladora program in Mexicali, B.C., Mexico amounted to
$269,000 (1999), $367,000 (1998), and $404,000 (1997). The net book value of
tangible identifiable assets of the subsidiary amounted to $20,000 at October
31, 1999.
Note 7- 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>
<S> <C>
1999 $274,000
1998 $291,000
1997 $272,000
</TABLE>
Note 8- 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, 1999, uninsured
portions of balances held at those banks aggregated to $1,460,000.
Note 9- Year 2000 Issue
The Company completed its Year 2000 compliance program during the last
quarter of fiscal 1999, and its total expenditure on such program was $91,000.
As of January 16, 2000, the Company has not experienced any Year 2000 problems
either internally or from outside sources.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
24
<PAGE> 27
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, 1999, 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.
25
<PAGE> 28
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:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants -
Singer, Lewak, Greenbaum & Goldstein LLP 11
Consolidated balance sheets - October 31, 1999 and 1998 12
Consolidated statements of operations - years ended
October 31, 1999, 1998 and 1997 13
Consolidated statements of stockholders' equity - years
ended October 31, 1999, 1998 and 1997 14
Consolidated statements of cash flows - years ended
October 31, 1999, 1998 and 1997 15
Notes to consolidated financial statements 16
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Schedule II - Valuation and qualifying accounts 28
</TABLE>
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.
26
<PAGE> 29
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 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).
*10.8 Amendment to Employment Agreement between Registrant and Marshall
I. Kass dated November 1, 1998 (incorporated by reference to Exhibit 10.8 to
Registrants Annual Report on Form 10-K for the year ended October 31, 1998).
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,
1999, no reports on form 8-K were filed by Registrant.
27
<PAGE> 30
CERTRON CORPORATION AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Balance of Balance at
beginning charged to accounts end of
Classifications of period expense written off period
- --------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1999
Allowance for doubtful
accounts $46,000 0 $ 0 $46,000
======= ======= ======= =======
YEAR ENDED OCTOBER 31, 1998
Allowance for doubtful
accounts $50,000 0 $ 4,000 $46,000
======= ======= ======= =======
YEAR ENDED OCTOBER 31, 1997
Allowance for doubtful
accounts $40,000 $49,000 $39,000 $50,000
======= ======= ======= =======
</TABLE>
28
<PAGE> 31
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.
Date: January 24, 2000
CERTRON CORPORATION
By: /s/ MARSHALL I. KASS
---------------------------------
Marshall I. Kass
Chairman of the Board and
Chief Executive and
Operating Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ MARSHALL I. KASS Chairman of the Board and January 24, 2000
- ------------------------ Chief Executive Officer and Director
Marshall I. Kass (Principal Executive Officer and
Principal Financial Officer)
/s/ JONATHAN F. KASS President and Director January 24, 2000
- ------------------------
Jonathan F. Kass
/s/ MICHAEL S. KASS Executive Vice President and January 24, 2000
- ------------------------ Director
Michael S. Kass
/s/ SUSAN E. KASS Secretary-Treasurer and January 24, 2000
- ------------------------ Director
Susan E. Kass
/s/ JESSE A. LOPEZ Corporate Controller and Director January 24, 2000
- ------------------------ (Principal Accounting Officer)
Jesse A. Lopez
/s/ ROGELIO BUENROSTRO Manager and Chief Executive January 24, 2000
- ------------------------ Officer-Certron, Mexicali
Rogelio Buenrostro and Director
</TABLE>
29
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
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).
*10.8 Amendment to Employment Agreement between Registrant and Marshall I.
Kass dated November 1, 1998 (incorporated by reference to Exhibit
10.8 to Registrants Annual Report on Form 10-K for the year ended
October 31, 1998).
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
</TABLE>
<PAGE> 1
EXHIBIT 23
[Letterhead of Singer, Lewak, Greenbaum & Goldstein, L.L.P.]
Consent of Independent Certified Public Accountants
We have issued our report dated December 15, 1999, accompanying the consolidated
financial statements and schedule included in the Annual Report of Certron
Corporation and subsidiary on Form 10-K for the year ended October 31, 1999. 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).
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
- ------------------------------------------
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
January 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 2,012,000
<SECURITIES> 60,000
<RECEIVABLES> 324,000
<ALLOWANCES> 46,000
<INVENTORY> 806,000
<CURRENT-ASSETS> 3,198,000
<PP&E> 950,000
<DEPRECIATION> 794,000
<TOTAL-ASSETS> 3,446,000
<CURRENT-LIABILITIES> 429,000
<BONDS> 0
0
0
<COMMON> 3,128,000
<OTHER-SE> (111,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,446,000
<SALES> 2,895,000
<TOTAL-REVENUES> 2,945,000
<CGS> 1,893,000
<TOTAL-COSTS> 3,433,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> (459,000)
<INCOME-TAX> (1,000)
<INCOME-CONTINUING> (460,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (460,000)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
