FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

(Mark One)

For the quarterly period ended July 31, 2004

OR

For the transition period from                     to                    

Commission File No.: 09081

CERTRON CORPORATION

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.

Yes x     No o

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No x

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 August 16, 2004

Table of Contents

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ in Thousands)

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)

The accompanying notes are an integral part of these financial statements.

2

CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)

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 Nine Months Ended July 31, 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 July 31, 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. Future orders are expected to be nominal.

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. On June 29, 2004, the company received a proposed settlement from the EPA in the amount of $21,131. The Company is waiting for communication from the government concerning payment of the proposed settlement. As of July 31, 2004, the Company has accrued sufficient amount to cover any potential liabilities from this matter.

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 $16,600 as of July 31, 2004.

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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 July 31, 2004.

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

Third Quarter Fiscal 2004 compared to Third Quarter 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.

On August 16, 2004, the Company reached an agreement in principle with Cybrdi, Inc., a privately-held corporation, concerning the possible acquisition by the Company of Cybrdi, Inc. in exchange for shares of common stock of the Company that would aggregate approximately 93.8% of the Company’s common shares outstanding after the transaction. Cybrdi, Inc. manufactures both human and animal tissue micro-arrays for a wide variety of scientific uses, such as drug discovery and development. The transaction is subject to, among other things, satisfactory completion of due diligence, the execution and delivery of mutually acceptable definitive agreements, approval by the shareholders of the Company and

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approval by the shareholders of Cybrdi. No assurances can be given that these conditions will be satisfied and the transaction will be consummated.

During the third quarter of fiscal 2004, the Company had a net loss of $16,000 as compared to a net loss of $164,000 during the third quarter of fiscal 2003. The decrease in net loss for the third quarter of 2004 compared to the net loss in the third quarter of 2003 was due to a decrease in operating expenses in the third quarter of 2004, the inventory being fully reserved as of October 31, 2003 and a gain of almost $70,000 from surrendering an insurance policy.

Net sales were $17,000 for the third quarter of 2004 as compared to net sales of $39,000 in the third quarter of 2003. The Company expects the sales in the fourth quarter of fiscal 2004 to be approximately the same or less than the sales in the third quarter of fiscal 2004.

Gross margins increased by $36,000 for the quarter ended July 31, 2004, from ($19,000) in the third quarter of fiscal 2003 to $17,000 in the third 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 third quarter of 2004 due to the net operating loss carry forward. The Company fully reserves the deferred tax benefit of the loss carry forward due to doubtful utilization.

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. 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 July 31, 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.

Nine Months Fiscal 2004 compared to Nine Months Fiscal 2003

For the first nine months of fiscal 2004, the Company had a net loss of $322,000 as compared to a net loss of $623,000 for the first nine months of 2003. The decrease in net loss for the first nine months of fiscal 2004 compared to the net loss in the first nine months of fiscal 2003 was due to a decrease in operating expenses in the first nine months of fiscal 2004, the inventory being fully reserved as of October 31, 2003 and the gain of over $100,000 in sales of assets and surrendering of insurance policy.

Net sales were $51,000 for the first nine months of fiscal 2004 as compared to net sales of $246,000 for the first nine 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.

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Gross margins increased by $56,000 for the first nine months of fiscal 2004, from ($5,000) in the first nine months of fiscal 2003 to $51,000 in the first nine months of fiscal 2004. The primary reason for the increase is due to the inventory being fully reserved as of October 31, 2003.

The Company has not recorded a provision for federal income tax for the first nine months of fiscal 2004 due to the net operating loss carry forward. The Company fully reserves the deferred tax benefit of the loss carry forward due to doubtful utilization.

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. 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 July 31, 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 fourth 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 July 31, 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 July 31, 2004, no reports on Form 8-K were filed.

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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.

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