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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

(X)		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended     July 31, 2002

OR

(   )		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

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.
Yes    [  x ]       No    [   ]

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 22, 2002

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PART I.  FINANCIAL INFORMATION

     Item 1. Financial Statements

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

					July 31,				October 31,
					2002				2001
					(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents				$	837			$	1,075
	Notes Receivable					8				99
	Trade accounts receivable, net					89				129
	Inventories:
		Finished products				523				653
	Other current assets					25				81
		Total current assets				1,482				2,037
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
	Machinery and equipment					132				132
	Dies and molds					317				317
	Furniture, fixtures and leasehold improvements					175				175
						624				624
			Less accumulated depreciation and amortization			(599	)			(586	)
			Net equipment and leasehold improvements			25				38
MARKETABLE SECURITIES						78				113
OTHER ASSETS						20				20
NET ASSETS FROM DISCONTINUED OPERATIONS						—				12
			TOTAL ASSETS		$	1,605			$	2,220
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accrued advertising				$	14			$	37
	Accrued professional fees					35				35
	Accrued payroll and related items					25				54
	Other accrued expenses					73				80
			Total current liabilities			147				206
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					(99	)			(87	)
	Accumulated deficit					(3,395	)			(2,851	)
			Total stockholders’ equity			1,458				2,014
			TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,605			$	2,220

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 July 31,								Nine Months ended July 31,
				2002				2001				2002				2001
				(Unaudited)								(Unaudited)
NET SALES				$	186			$	348			$	592			$	1,153
COST AND EXPENSES
		Cost of products sold			187				274				553				904
		Selling, general & administrative			167				236				586				722
		Depreciation and amortization			4				13				13				41
		Total costs and expenses			358				523				1,152				1,667
Loss before other income and expenses					(172	)			(175	)			(560	)			(514	)
Other income -
		Interest (net)			4				17				16				59
		Gain on sales of stock			—				—				1				4
Net loss before provision					($168	)			($158	)			($543	)			($451	)
Provision for taxes					—				—				1				1
Loss from continuing operations					($168	)			($158	)			($544	)			($452	)
Gain (loss) from Discontinued operations					—				22				—				10
Net Loss					($168	)			($136	)			($544	)			($442	)
OTHER COMPREHENSIVE INCOME (LOSS):
		Unrealized Loss on marketable securities			(12	)			(54	)			(12	)			(54	)
		Comprehensive loss			($180	)			($190	)			($556	)			($496	)
PER SHARE INFORMATION:
Basic loss per share					($0.05	)			($0.04	)			($0.17	)			($0.14	)
Diluted loss per share					($0.05	)			($0.04	)			($0.17	)			($0.14	)
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)

					Nine Months Ended July 31,
					2002				2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss					($544	)			($404	)
	Adjustment to reconcile net loss to net cash used in operating activities:
			Depreciation and amortization			13				41
			Changes in operating assets and liabilities:
			Decrease in trade accounts receivable			131				55
			Decrease in inventories			130				62
			Decrease in other assets			56				41
			Decrease in accrued expenses			(59	)			(93	)
			Decrease in net assets of discontinued Operations			12				—
	Net cash used in operating activities					(261	)			(298	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from sale of marketable securities					85				182
	Purchase of marketable securities					(62	)			(137	)
	Net cash provided by (used in) investing activities					23				45
NET DECREASE IN CASH AND CASH EQUIVALENTS						(238	)			(253	)
CASH AND CASH EQUIVALENTS, beginning of period						1,075				1,559
CASH AND CASH EQUIVALENTS, end of period					$	837			$	1,306

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, 2002
(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 as a separate component of stockholders’ equity. At July 31, 2002 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 — NOTES RECEIVABLE

A custom-assembly customer issued a promissory note to the Company for outstanding accounts in the amount of $109,490 payable in ten equal monthly installments at 10% interest with the first payment due on October 15, 2001 and the final payment due on July 1, 2002. The balance is $8,437 as of July 31, 2002, which is past due as of July 31, 2002.

NOTE D — DISCONTINUED OPERATIONS

On September 7, 2001, the Company closed its Mexicali, Mexico plant and its contract assembly operations which were conducted at that facility. In the opinion of management, all expenses associated with the closing of Mexico operation were either paid or fully accrued in fiscal 2001. The assets in the Mexicali, Mexico facility consists primarily of accounts receivable and fixed assets.

Disposition of the Mexicali facility, represents disposal of a business segment under Accounting Principles Board Opinion No.30. Accordingly, results of this operation have been classified as discontinued, and prior periods have been restated. Operating results of the Mexicali facility for the quarter and nine months ending July 31, 2001 are shown separately in the accompanying income statement. The income statement for the quarter and nine months ending July 31, 2001 has been restated and operating results of the segment are also shown separately.

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Net sales and income from the discontinued operations are as follows:

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. 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. The statement that the Company does not expect the amount to be material is a forward-looking statement which involves risks and uncertainties that could cause actual results to differ include, among other things, an increase in the alleged amount of waste disposal by the Company at the site over that which is alleged in the letter of June 2, 2000 or a refusal by the government to settle based upon the amount of waste disposal by the Company.

NOTE F — MAJOR CUSTOMER

During the nine months ended July 31, 2002 the Company had two major customers which accounted for approximately $344,000 or 58% and $65,000 or 10% of sales. The loss of these customers would have a negative effect on the Company’s financial position. Although the customer has continued to place orders with the Company, the Company has been advised that their largest customer will no longer be using Certron as a prime source. The loss of the major customer will have a material negative effect on earnings and sales.

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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 10.08 to 1 at July 31, 2002.

     The Company’s liquidity has been supplied from internally generated funds. The Company believes it will be able to fund its existing business out of current cash flow without the necessity of bank borrowing. At July 31, 2002, the Company had no material commitments for capital expenditures.

     The intense competition in the magnetic media field has made it difficult for the Company to maintain prices on its magnetic media products and has continually reduced the Company’s margins on these products. As a result, the Company has discontinued sales of certain magnetic media products and refused to sell magnetic media products at prices not resulting in certain minimum margin returns. The Company does not believe that price competition in the magnetic media field will lessen in the foreseeable future and, therefore, there may not presently be meaningful opportunities for it to substantially increase its sales and operating profit through its traditional outlets.

     Although it has continued to place orders with the Company during this quarter, the Company was advised by their largest customer which accounted for approximately $344,000 of sales during the nine month period ended July 31, 2002, that the customer would no longer be using the Company as a prime source. The loss of this customer will have a material adverse effect on sales and earnings.

     Over the past several years, in an attempt to increase its sales and operating profits the Company has investigated companies for possible purchase. None of these companies were found to be satisfactory for acquisition by the Company. The Company is continuing its search for an acquisition of a product line or lines or business and investigating other opportunities for increasing shareholder value, including strategic alliances and the sale of its business. There can be no assurance, however that the Company will be successful in any of these endeavors.

RESULTS OF OPERATIONS

Third Quarter Fiscal 2002 compared to Third Quarter Fiscal 2001

     During the third quarter of fiscal 2002 the Company had a loss from continuing operations of $168,000 on sales from continuing operations of $186,000 as compared to a loss from continuing operations of $158,000 on sales from continuing operations of $348,000 during the third quarter of fiscal 2001.

     On September 7, 2001, the Company closed its Mexicali, Mexico plant and its contract assembly operations which were conducted at that facility. This closure was in response to a decline in the market for micro cassettes which also had been assembled at the Mexicali, Mexico facility, the loss of an existing contract assembly customer and the negative outlook for the retention of its then sole remaining contract assembly customer and additional contract assembly business. The contract assembly operations are reflected as discontinued

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operations in the Company’s financial statements. In the opinion of management, all expenses associated with the closing of Mexico operations were either paid or fully accrued in fiscal 2001.

     Net sales from continuing operations were $186,000 for the third quarter of 2002 as compared to net sales from continuing operations of $348,000 in the third quarter of 2001. The decrease of $162,000 or 47% was the result of a decrease in magnetic media product sales.

     Gross margin decreased by $75,000 for the third quarter of fiscal 2002 from $74,000 for the third quarter of fiscal 2001 to ($1,000) for the third quarter of fiscal 2002. The primary cause of the decrease is the diminishing market for the magnetic media products. Due to this industry decline, the Company wrote down certain inventory items during the third quarter, resulting in a negative gross margin.

     Due to the decrease in net sales, cost of sales decreased by $87,000 during the third quarter of fiscal 2002, from $274,000 in the third quarter of fiscal 2001 to $187,000 in the third quarter of 2002. Selling, general and administrative and depreciation expenses decreased by $78,000 due to the decrease in net sales during the third quarter of fiscal 2002 from $249,000 in the third quarter of fiscal 2001 to $177,000 in the third quarter of fiscal 2002.

     The Company has not recorded a provision for federal income tax for the third quarter of 2001 or 2002 due to losses incurred during those periods. Any future tax benefits from those losses have been offset by a valuation reserve. The $1,000 represents the minimum state tax.

     The Company has invested cash 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 July 31, 2002, the Company held common stocks that had a cost of approximately $177,000 and market value of approximately $78,000.

     The Company has recorded the value of its investments in marketable securities on its Balance Sheet at market value and the decrease of approximately $99,000 is reflected in stockholders’ equity as an unrealized holding loss. If the Company sells these securities at a loss, 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.

Nine Months Fiscal 2002 compared to Nine Months Fiscal 2001

     For the first nine months of fiscal 2002, the Company had a loss from continuing operations of $544,000 on sales from continuing operations of $592,000 as compared to a loss from continuing operations of $452,000 on sales from continuing operations of $1,153,000 during the first nine months of fiscal 2001. The increase in net loss for the first nine months of fiscal 2002 as compared to the first nine months of fiscal 2001 of $92,000 is due primarily to the decrease in gross profit of $210,000, decrease in gain on sales of stock investment of $3,000, decrease in interest income of $43,000 and offset by decrease in selling and general expenses and depreciation of $164,000 over the first nine months of fiscal 2002.

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     Net sales from continuing operations were $592,000 for the first nine months of 2002 as compared to net sales from continuing operations of $1,153,000 for the first nine months of 2001. The decrease of $561,000 or 49% was primarily the result of a decrease in sales of audio cassettes of $24,000, mini and micro cassettes of $93,000, video cassettes of $69,000 and other magnetic products of $375,000.

     Gross margins decreased by $210,000 for the first nine months of fiscal 2002, from $249,000 for the first nine months of fiscal 2001 to $39,000 for the first nine months of fiscal 2002. The primary cause of the decrease is the diminishing market for the magnetic media products.

     Due to the decrease in net sales, selling, general and administrative and depreciation expenses decreased by $164,000 during the first nine months of fiscal 2002 from $763,000 for the first nine months of fiscal 2001 compared to $599,000 for the first nine months of fiscal 2002.

     As discussed under “Third Quarter Fiscal 2002 Compared to Third Quarter Fiscal 2001,” on September 7, 2001, the Company closed its Mexicali, Mexico facility and its contract assembly operations.

     The Company has not recorded a provision for federal income tax for the first nine months of 2002 or 2001 due to losses incurred during those periods. Any future tax benefits from those losses have been offset by a valuation reserve. The $1,000 represents the minimum state tax.

     The Company has invested cash 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 July 31, 2002, the Company held common stocks which had a cost of approximately $177,000 and market value of approximately $78,000.

     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 this decrease of approximately $99,000 is reflected in stockholders’ equity as an unrealized holding loss. If the Company sells these securities at a loss, 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

     The Company’s statements herein which are not historical facts, 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, whether and for how long the Company can retain its major customer who has notified the Company that it will no longer be using the Company as a prime source, the obtaining of increased orders from existing customers, the Company’s ability to obtain additional customers and business, pricing factors and competition.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.

PART II. OTHER INFORMATION.

Item 6. Exhibit and Reports on Form 8-K

     (a)  Exhibits: 99 Certification under Section 906 of the the Sarbanes-Oxley Act of 2002.

     (b)  Reports on Form 8-K:

     During the quarter ended July 31, 2002, no reports on Form 8-K were filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

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Exhibit Index

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