FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
(X)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended April 30, 2004 | ||
| OR | ||
( )
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the transition period from to |
Commission File No.: 09081
CERTRON CORPORATION
CALIFORNIA
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95- 2461404 | |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.) | |
11845 W.Olympic Boulevard, Suite 1080, Los Angeles, CA
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90064 | |
(Address of principal executive office)
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(Zip Code) | |
Registrant’s telephone number, including area code: (310)914-0300
N/A
Indicate by a 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 reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date:
3,128,306 shares of Common Stock, without par value, as of May 1, 2004
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ in Thousands)
| April 30, | October 31, | |||||||
| 2004 |
2003 |
|||||||
ASSETS |
(Unaudited) | |||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 289 | $ | 432 | ||||
Trade accounts receivable, net |
12 | 25 | ||||||
Prepaid Expenses |
20 | 48 | ||||||
Total Current Assets |
321 | 505 | ||||||
EQUIPMENT AND LEASEHOLD IMPROVEMENTS: |
||||||||
Machinery and equipment |
— | 17 | ||||||
Furniture, fixtures and leasehold improvements |
80 | 142 | ||||||
| 80 | 159 | |||||||
Less accumulated depreciation and amortization |
(80 | ) | (159 | ) | ||||
Net equipment and leasehold improvements |
— | — | ||||||
MARKETABLE SECURITIES |
— | 58 | ||||||
TOTAL ASSETS |
$ | 321 | $ | 563 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accrued professional fees |
51 | 49 | ||||||
Accrued payroll and related items |
9 | 27 | ||||||
Other accrued expenses |
75 | 72 | ||||||
Total Current Liabilities |
135 | 148 | ||||||
STOCKHOLDERS’ EQUITY: |
||||||||
Preferred Stock, $1.00 par value, authorized
500,000 shares, no shares issued and outstanding |
||||||||
Common Stock, no par value; stated value $1.00
per share, authorized 10,000,000 shares;
issued and outstanding 3,128,000 |
3,128 | 3,128 | ||||||
Additional paid-in capital |
1,824 | 1,824 | ||||||
Net unrealized loss on marketable equity securities |
— | (77 | ) | |||||
Accumulated deficit |
(4,766 | ) | (4,460 | ) | ||||
Total Stockholders’ Equity |
186 | 415 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 321 | $ | 563 | ||||
The accompanying notes are an integral part of these financial statements.
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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in Thousands except Per Share Information)
(Unaudited)
| Three Months ended April 30, |
Six Months ended April 30, |
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| 2004 |
2003 |
2004 |
2003 |
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| (Unaudited) | (Unaudited) | |||||||||||||||||||||||
NET SALES |
$ | 18 | $ | 108 | $ | 34 | $ | 207 | ||||||||||||||||
COST OF PRODUCTS SOLD |
— | 108 | — | 193 | ||||||||||||||||||||
GROSS PROFIT |
18 | — | 34 | 14 | ||||||||||||||||||||
COST AND EXPENSES |
||||||||||||||||||||||||
Reserve for inventory write down |
— | — | — | 161 | ||||||||||||||||||||
Selling, general & administrative |
128 | 145 | 299 | 309 | ||||||||||||||||||||
Depreciation and amortization |
— | 4 | — | 9 | ||||||||||||||||||||
Total Costs and Expenses |
128 | 149 | 299 | 479 | ||||||||||||||||||||
Loss before other income and expenses |
(110 | ) | (149 | ) | (265 | ) | (465 | ) | ||||||||||||||||
Interest (net) |
1 | 2 | 2 | 5 | ||||||||||||||||||||
Gain (Loss) on sale of stock |
6 | 1 | (74 | ) | 1 | |||||||||||||||||||
Gain on sale of equipment |
— | — | 12 | — | ||||||||||||||||||||
Other income |
12 | — | 20 | — | ||||||||||||||||||||
Net loss before provision for taxes |
(91 | ) | (146 | ) | (305 | ) | (459 | ) | ||||||||||||||||
Provision for taxes |
— | — | — | — | ||||||||||||||||||||
Net Loss |
(91 | ) | (146 | ) | (305 | ) | (459 | ) | ||||||||||||||||
OTHER COMPREHENSIVE INCOME(LOSS): |
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Unrealized
gain (loss) on marketable securities |
— | 6 | — | 17 | ||||||||||||||||||||
Comprehensive Loss |
$ | (91 | ) | $ | (140 | ) | $ | (305 | ) | $ | (442 | ) | ||||||||||||
PER SHARE INFORMATION: |
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Basic loss per share |
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.09 | ) | $ | (0.15 | ) | ||||||||||||
Diluted loss per share |
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.09 | ) | $ | (0.15 | ) | ||||||||||||
Average number of common shares
outstanding |
3,128,000 | 3,128,000 | 3,128,000 | 3,128,000 | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
| Six Months Ended April 30, |
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| 2004 |
2003 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
$ | (305 | ) | $ | (459 | ) | ||
Adjustment to reconcile net loss
to net cash used in operating activities: |
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Depreciation and amortization |
— | 9 | ||||||
Changes in operating assets and liabilities: |
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Decrease in trade accounts receivable |
13 | 13 | ||||||
Decrease in inventories |
— | 211 | ||||||
(Increase) Decrease in other assets |
74 | (21 | ) | |||||
Decrease in other current assets |
28 | 32 | ||||||
Decrease in current liabilities |
(13 | ) | (31 | ) | ||||
Net cash used in operating activities |
(203 | ) | (246 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from sale of marketable securities |
60 | 109 | ||||||
Purchase of marketable securities |
— | (31 | ) | |||||
Net cash provided by investing activities |
60 | (12 | ) | |||||
Net decrease in cash and cash equivalents |
(143 | ) | (258 | ) | ||||
Cash and cash equivalents, beginning of period |
432 | 642 | ||||||
Cash and Cash equivalents, end of period |
$ | 289 | $ | 384 | ||||
The accompanying notes are an integral part of these financial statements.
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CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended April 30, 2004
(Unaudited)
NOTE A — BASIS OF PRESENTATION
The accompanying financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. The interim financial statements are unaudited; however, in the opinion of Certron Corporation (the Company), the interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of those to be expected for the full year.
NOTE B — 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 fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders’ equity. At April 30, 2004 the Company had no investments that qualified as trading or held to maturity.
Marketable equity securities are valued based on quoted market prices. The cost of securities sold is determined by the specific identification of cost method.
NOTE C — LOSS OF A MAJOR CUSTOMER
As discussed in the Company’s Annual Report on Form 10-K for the year ended October 31, 2003, the Company expected to lose the business of its largest customer. The loss of the largest customer was confirmed in the first quarter of fiscal 2004, and with the exception of merchandise that has been ordered for delivery in March, future orders are expected to be nominal.
During the quarter ended April 30, 2004, the Company experienced a much more severe decline in sales than was expected. This decline was largely a result of the loss of its major customer and the lack of new customers to replace a portion of those sales.
NOTE E — LEGAL PROCEEDINGS
The Company was notified by a letter dated June 2, 2000 received June 6, 2000 that the Company may have a potential liability from waste disposal in the Casmalia Disposal Site at Santa Barbara County, California. The Company was given a choice of either signing an agreement that would toll the statute of limitations for eighteen (18) months in order to allow the Company to resolve any liability with the government without incurring costs associated with being named a defendant in a lawsuit, or becoming an immediate defendant in a lawsuit. The Company signed the tolling agreement. On November 20, 2001, the tolling agreement was extended for an additional 18 months and on May 20, 2003, the tolling agreement was again extended for an additional 18 months. While the amount which will be required to settle this matter is not expected to be material, Certron is unable to estimate the amount that may be required to settle this matter. The Company is waiting for communication from the government concerning settlement of this claim.
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The Company received a judgment against a former client of Certron Mexicali operation on February 9, 2004 in the amount of $19,300. The judgment is being paid over a course of six months and the company has received $12,800 as of April 30, 2004.
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operation
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the following chart, the Company’s current ratio was 2.37 to 1 at April 30, 2004.
| 04/30/04 |
10/31/03 |
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Working capital |
$ | 186,000 | $ | 357,000 | ||||
Current ratio |
2.37 to 1 | 3.41 to 1 | ||||||
The Company’s liquidity has been supplied from internally generated funds. As a result of substantially reduced sales, maintaining a minimal number of employees and the legal, accounting and other costs of remaining a public company, the Company expects that its cash flow will remain negative. The Company is unable to predict how long it will have a sufficient amount of cash to continue as a viable entity.
Intense competition in the magnetic media field has made it difficult for the Company to maintain prices on its magnetic media products and has continually reduced the Company’s margins on these products. As a result, the Company has discontinued sales of certain magnetic media products and refused to sell magnetic media products at prices not resulting in certain minimum margin returns. In addition, the release of the digital video disk system and other digital products had a material adverse impact on the Company’s magnetic media sales and on the Company’s operations. As a result of the intense price competition and technological changes, the Company has lost its significant customers and has been unable to compete at a profit in its marketplace.
Over the past several years, in an attempt to increase its sales and operating profits the Company has attempted without success to acquire other businesses or product lines. More recently, the Company has attempted to maximize shareholder value through the sale of the Company.
RESULTS OF OPERATIONS
Second Quarter Fiscal 2004 compared to Second Quarter Fiscal 2003
During the second quarter of fiscal 2004, the Company had a net loss from operations of $91,000 as compared to a net loss from operations of $146,000 during the second quarter of fiscal 2003. The decrease in net loss for the second quarter of 2004 compared to the net loss in the second quarter of 2003 was due to a decrease in operating expenses in the second quarter of 2004.
Net sales were $18,000 for the second quarter of 2004 as compared to net sales of $108,000 in the second quarter of 2003. The Company expects the sales in the third quarter of fiscal 2004 to be approximately the same or less than the sales in the second quarter of fiscal 2004.
As discussed above and in the Company’s Annual Report on Form 10-K for the year
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ended October 31, 2003, due to continuing intense price competition and technological changes in the marketplace for its products, during the year ended October 31, 2003 the Company lost its remaining significant customers and fully reserved remaining inventory. As a result of these occurrences, the Company concluded that its audio tape businesses were no longer viable and some of its product lines were obsolete and the Company placed its emphasis on attempting to find a buyer for the Company. The Company’s major emphasis has been attempting to sell the Company.
Gross margins increased by $18,000 for the quarter ended April 30, 2004, from $0 in the second quarter of fiscal 2003 to $18,000 in the second quarter of fiscal 2004. The primary reason for the increase is due to inventory being fully reserved as of October 31, 2003.
The Company has not recorded a provision for federal income tax for the second quarter of 2004 due to utilization of net operating loss carry forward to offset taxable income.
The Company has from time to time invested cash, not needed in operations, in commercial paper and 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 April 30, 2004, the Company did not have any investment in common stocks.
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. At the beginning of the second quarter of fiscal 2004, the Company sold all of the common stocks held.
Six Months Fiscal 2004 compared to Six Months Fiscal 2003
For the first six months of fiscal 2004, the Company had a net loss from operations of $305,000 as compared to a net loss from operations of $459,000 for the first six months of 2003. The decrease in net loss for the first six months of fiscal 2004 compared to the net loss in the first six months of fiscal 2003 was due to a decrease in operating expenses in the first six months of fiscal 2004.
Net sales were $34,000 for the first six months of fiscal 2004 as compared to net sales of $207,000 for the first six months of fiscal 2003.
As discussed above and in the Company’s Annual Report on Form 10-K for the year ended October 31, 2003, due to continuing intense price competition and technological changes in the marketplace for its products, during the year ended October 31, 2003 the Company lost its remaining significant customers and fully reserved remaining inventory. As a result of these occurrences, the Company concluded that its audio tape businesses were no longer viable and some of its product lines were obsolete and the Company placed its emphasis on attempting to find a buyer for the Company. The Company’s major emphasis has been attempting to sell the Company.
Gross margins increased by $20,000 for the first six months of fiscal 2004, from $14,000 in the first six months of fiscal 2003 to $34,000 in the first six months of fiscal 2004. The primary reason for the increase is due to inventory being fully reserved as of October 31, 2003.
The Company has not recorded a provision for federal income tax for the first six months of fiscal 2004 due to utilization of net operating loss carry forward to
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offset taxable income.
The Company has from time to time invested cash, not needed in operations, in commercial paper and 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 April 30, 2004, the Company did not have any investment in common stocks.
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. At the beginning of the second quarter of fiscal 2004, the Company sold all of the common stocks held.
Forward-Looking Statements
The Company’s statements herein which are not historical facts, including the statement as to the Company’s anticipated sales in the third quarter of the 2004 fiscal year 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 small customer base, the Company’s failure to consummate a sale of the Company and the Company running out of cash prior to consummating the sale of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures
An evaluation was carried out by the Company’s chief executive officer and chief financial officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13-a-15e or 15(d)-15(e) of the Securities Exchange Act of 1934) as of April 30, 2004. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective. During the period covered by this report, there have been changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION.
Item 5. Exhibits and Reports on Form 8-K
| (a) | Exhibit: |
| 31. | Rule 13(a)-14(a)/15(d)-14(a) Certification | |||
| 32. | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| (b) | Reports on Form 8-K: |
During the quarter ended April 30, 2004, a report on Form 8-K/A was filed on February 24, 2004 amending a Form 8K filed on February 11, 2004 reporting under Item 4 a change in registrant’s principal accountant to audit registrant’s financial statements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| CERTRON CORPORATION |
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| Date: May 26, 2004 | /s/ Marshall I. Kass | |||
| Marshall I. Kass | ||||
| Chairman of the Board, Chief Executive Officer and Principal Financial Officer | ||||
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