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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 (NO FEE REQUIRED)

           For the fiscal year ended October 31, 2002

OR

o   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

           Registrant’s telephone number, including area code: (310) 914-0300

           Securities registered pursuant to Section 12(b) of the Act:

           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     Noo

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 o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o     No x;

The aggregate market value of registrant’s voting stock held by non-affiliates as of January 27, 2003, based upon the average bid and asked price of such stock as reported by Reuters Limited for that day, was $193,496.

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As of January 27, 2003, registrant had outstanding 3,128,306 shares of its common stock, no par value, its only authorized class of common stock.

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, 2002. 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.

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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 presently consists primarily of the distribution of magnetic media products. 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. In the opinion of management, all expenses associated with the closing of Mexico operations were either paid or fully accrued in fiscal 2001.

     The following table sets forth, for the years ended October 31, 2002, 2001, and 2000, the amounts of net sales and operating profit before general corporate expense and interest expense, together with identifiable assets at October 31, 2002, 2001 and 2000 attributable to each of the Company’s industry segments, its magnetic media products segment and its contract assembly segment which is shown as discontinued operations.

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, 2002, 2001 and 2000, net sales of the Company’s magnetic media products were as follows:

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     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 in the Far East. Although the majority of purchases from the Far East are 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.

     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. Digital telephone answering machines have substantially replaced telephone answering devices using magnetic tape cassettes which has substantially reduced the Company’s sales of micro cassettes.

     For the fiscal year ended October 31, 2002, the Company’s ten largest customers of magnetic media products accounted in the aggregate for approximately 94% of the Company’s total net sales of such magnetic media products. During fiscal 2002, the two largest single magnetic media customers accounted for $463,000 or 62% and $87,000 or 12% of total magnetic media sales, respectively. The Company’s largest customer has informed the Company of its intent to cease ordering products from the Company. Despite its continued placement of orders, the Company does not expect that it will receive significant orders from this customer after January 31, 2003. The loss of this major customer is expected to have a material negative effect on the Company’s earnings and sales. If the Company were to lose its second largest customer, there would be an adverse impact on the Company’s earnings and sales.

     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.

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 release of the

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digital video disk system and other digital products is having an adverse impact on the Company’s magnetic media sales and, depending upon price and the amount of hardware sales, will have a material adverse impact on the Company’s operations in the future as sales of digital products increase. The replacement of telephone answering devices using magnetic tape by digital telephone answering devices has substantially reduced the Company’s sales of micro cassettes for telephone answering devices. The foregoing statements concerning the effect of sales of digital products on the Company’s operations are forward looking statements and actual results could differ materially. Factors which could cause actual results to differ are the price of competitive digital products and the price and availability of hardware for the use of such products.

Employees

     At January 1, 2003, Certron employed seven people in its various operations, consisting of one person at its facility in Corona, California and six people at its facility in Los Angeles, California.

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Item 2. Properties.

The principal office, assembling and warehousing facilities of the Company are as follows:

		Approx. Area								Approx.
Location		Sq. ft.				Lease Expires				annual rent				Principal use
422 N. Smith Avenue Corona, CA			17,186				8-31-03(1)			$	87,000			Warehouse and packaging
11845 W. Olympic Blvd Los Angeles, CA			1,543				10-31-04(1)			$	29,000			Administration

Item 3. Legal Proceedings.

     There are no material pending legal proceedings to which the Company is a party. 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.

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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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     The common stock of the Company is traded in the NASDAQ Bulletin Board under the symbol CRTN. The following table shows the high and low bid quotations for such stock for each fiscal quarter during the fiscal years ended October 31, 2001 and October 31, 2002 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.

     As of January 6, 2002, the approximate number of holders of record of the Company’s Common Stock was 1,342. The Company has never paid a cash dividend on its Common Stock.

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Item 6. Selected Financial Data

     No cash dividends have been paid during the five-year period ended October 31, 2002.

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, 2002 as compared to that at October 31, 2001, which was primarily due to a decline in sales. Cash decreased by $433,000; accounts receivable decreased by $56,000; notes receivable decreased by $99,000; inventories decreased by $401,000; prepaid expenses decreased by $16,000; and other current assets increased by $17,000. Current liabilities decreased by $68,000.

     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, 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. In addition, the release of the digital video disk system and other digital products is having an adverse impact on the Company’s magnetic media sales and, depending upon price and the amount of hardware sales, will have a

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material adverse impact on the Company’s operations in the future as sales of digital products increases. The Company does not believe that price competition in the magnetic media field or sales of digital products 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.

     Over the past several years, in an attempt to increase its sales and operating profits the Company has investigated several 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

Fiscal 2002 Compared to Fiscal 2001

     During fiscal 2002, the Company had an operating loss of $963,000 and a net loss from continuing operations of $945,000 on sales of $750,000 as compared to an operating loss of $528,000 and a net loss from continuing operations of $451,000 for fiscal 2001 on sales of $1,475,000. Gross profit decreased by $266,000 between fiscal 2002 and fiscal 2001. Inventory holding loss increased by $229,000; selling, general and administrative expenses decreased by $33,000; depreciation and amortization expense decreased by $27,000; interest income decreased by $54,000 and realized gain on marketable securities decreased by $5,000.

     Sales of magnetic media products were $750,000 in fiscal 2002 as compared to $1,475,000 in fiscal 2001. The decrease of 49% was primarily the result of the decrease in sales of micro cassettes of $128,000, decrease in sales of video cassettes of $186,000, and decrease in sales of audio cassettes and other office products of $411,000.

     Total gross margin as a percentage of net sales was 10% in fiscal 2002 and 23% in fiscal 2001. Margins decreased from $266,000 in fiscal 2001 to $78,000 in fiscal 2002 due primarily to a decrease in the sales of magnetic media.

     For the fourth quarter of fiscal 2002, the Company incurred a loss from continuing operations of $403,000 of which approximately $222,000 was represented by a write-down of finished goods inventory. Due to the Company’s declining sales and excess inventory, during the fourth quarter of fiscal 2002, the Company established a reserve reducing the value of its inventory to market value. Primarily as a result of this reserve, inventory holding loss increased from $29,000 in fiscal 2001 to $250,000 in fiscal 2002.

     Selling, general and administrative expense decreased by $33,000 during fiscal 2002. The decrease from $799,000 in 2001 to $766,000 in 2002 was due primarily to a decrease in personnel expenses of $74,000 that was offset by an increase in other selling, general and administrative expenses of $41,000.

     During fiscal 2002, the Company invested cash not needed in operations, in publicly traded common stocks of other companies and may purchase additional common stocks in the future. Investments in common stocks are subject to risks

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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, 2002, the Company held common stocks which had a cost of approximately $210,000 and market value of approximately $119,000.

     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 $91,000 between cost and market value is recorded as an unrealized holding loss, a separate component of equity (see Notes 1 and 3 of Notes to Consolidated Financial Statements). If the Company sells these securities, the Company will recognize a loss in its statement of operations equal to the amount of 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.

     In fiscal 2001, the Company was advised that its largest customer would no longer be using the Company as a primary vendor. Although the customer continued to place orders with the Company during fiscal 2002, the Company expects that it will not receive significant orders from this customer after January 31, 2003. Sales for the first month of the first quarter of fiscal 2003 were down approximately 52% as compared to sales for the first month of the first quarter of fiscal 2002 primarily due to continued erosion of sales of magnetic media products. The downward trend is continuing in the second month of the first quarter of fiscal 2003. The Company expects that net sales for the first quarter of fiscal 2003 to be substantially less than the comparable quarter of fiscal 2002. A loss for the first quarter of fiscal 2003 is anticipated. The Company cannot predict its profit or loss for the balance of fiscal 2003.

Fiscal 2001 Compared to Fiscal 2000

     During fiscal 2001, the Company had an operating loss of $528,000 and a net loss from continuing operations of $451,000 on sales of $1,475,000 as compared to an operating loss of $451,000 and a net loss from continuing operations of $329,000 for fiscal 2000 on sales of $2,272,000. Gross profit decreased by $322,000 between fiscal 2001 and fiscal 2000. Net loss on discontinued operations was $30,000 on sales of $603,000 during fiscal 2001 as compared to a net loss of $112,000 on sales of $412,000 during fiscal 2000. Selling, general and administrative expenses decreased by $237,000, depreciation and amortization expense decreased by $1,000, interest income decreased by $32,000 and realized gain on marketable securities decreased by $13,000.

     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 sole remaining contract assembly customer and additional contract assembly business. The contract assembly operations are reflected as discontinued 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.

     The foregoing statement concerning the expenses associated with the closing of the Mexicali facility and assembly operations is a forward-looking statement which involves risks and uncertainties that could cause actual results

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to differ materially from the forward-looking statement. Factors which could cause actual results to differ materially include, among other things, the Company’s reserves for expenses being less than the expenses actually incurred by the Company in connection with the closing of the assembly operations or the incurring by the Company of additional unanticipated liabilities, costs or expenses in connection with the closing of the facility and operations.

     Sales of magnetic media products were $1,475,000 in fiscal 2001 as compared to $2,272,000 in fiscal 2000. The decrease of 35% was primarily the result of the decrease in sales of micro cassettes by $355,000 and decrease in sales of video cassettes by $114,000, audio cassettes of $114,000 and office products of $214,000.

     Total gross margin as a percentage of net sales was 23% in fiscal 2001 and 29% in fiscal 2000. Margins decreased from $666,000 in fiscal 2000 to $322,000 in fiscal 2001 due primarily to a decrease in sales of magnetic media.

     Selling, general and administrative expense decreased by $237,000 during fiscal 2001. The decrease from $1,036,000 in 2000 to $799,000 in 2001 was due primarily to decreases in personnel expense of $18,000, insurance expense of $24,000, other selling, general, and administrative expenses of $55,000, severance pay of $178,000 and offset by an increase in advertising expense of $38,000.

     During fiscal 2001, the Company invested cash not needed in operations, in publicly traded common stocks of other companies and may purchase additional common stocks in the future. Investments in common stocks are subject to risks of the market, and market prices may fluctuate and be adversely affected by the operating results of the issuer, as well as general economic, political and market conditions. As of October 31, 2001, the Company held common stocks which had a cost of approximately $200,000 and market value of approximately $113,000.

     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 $87,000 between cost and market value is recorded as an unrealized holding loss, a separate component of equity (see Notes 1 and 3 of Notes to Consolidated Financial Statements). If the Company sells these securities, the Company will recognize a loss in its statement of operations equal to the amount of 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 2003 fiscal year and the Company’s uncertainty as to its outlook for fiscal 2003 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.

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Item 8. Financial Statements and Supplementary Data.

(Letterhead of Beckman Kirkland & Whitney)

Independent Auditor’s Report

Board of Directors and Shareholders
Certron Corporation
Los Angeles, California

We have audited the accompanying balance sheets of Certron Corporation as of October 31, 2002 and 2001, and the related statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years ended October 31, 2002, 2001 and 2000. In connection with our audit of the financial statements, we have also audited the accompanying financial statement schedule. These financial statements and financial schedule 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 audit in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Certron Corporation as of October 31, 2002 and 2001, and the results of its operations and its cash flows for the years ended October 31, 2002, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

BECKMAN KIRKLAND & WHITNEY

Agoura Hills, California
January 3, 2003

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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

     The accompanying notes are an integral part of these financial statement

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     CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

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CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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CERTRON CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000

Note 1 – Summary of Significant Accounting Policies

		Nature of Operations
		The Company’s business consists primarily of the distribution of magnetic media products.
		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”). Certron Audio ceased operating on September 7, 2001. All material intercompany profits, transactions and balances have been eliminated.
		Translation of Foreign Currencies
		All balance sheet accounts of foreign operations are translated into US dollars at the year-end rate of exchange, and statement of operations items are translated at the weighted average exchange rates for the year. Since foreign activities are considered to be an extension of the U.S. operations, the gain or loss resulting from remeasuring these transactions into U.S. dollars are included in operations.
		The Company has not used the hyperinflationary accounting standards in SFAS 52 for accounting for its subsidiary in Mexico. The operation of Certron Audio, located in Mexicali, Mexico was closed on September 7, 2001.
		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.
		Notes Receivable
		Notes receivable are stated at their outstanding balance, excluding accrued interest. Interest that is earned on notes receivable is included in interest income when it is paid.
		Inventories
		Inventories are stated at the lower of cost (first-in, first-out method) or market.
		Equipment and Leasehold Improvements
		Equipment and leasehold improvements are stated at cost and are depreciated or amortized using the straight-line method over the lesser of the estimated useful lives of the assets (generally five years) or the applicable lease terms.

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		Marketable Equity Securities
		Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities available for sale are carried at market value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders’ equity. At October 31, 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.
		Taxes on Income
		The Company files tax returns excluding its subsidiary for United States federal tax purposes and combined returns with its subsidiary for state purposes.
		Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Reserves for deferred tax assets are recorded when ultimate recovery of such assets is deemed uncertain.
		Income (Loss) Per Common Share
		Income (loss) per common share is based on the weighted average number of common shares outstanding during the year and the effect of common stock equivalents, if dilutive.
		Estimates
		In preparing consolidated financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
		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

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		management desegregates the Company for internal operating decisions. See Note 7 for further information about the Company’s segments. The Company’s Mexicali operation and the contract assembly segment of its business was closed September 2001.
		Recently Issued Accounting Pronouncement
		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 effective for fiscal periods beginning after December 15, 1999. This statement is not applicable to the Company.
		In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective as of June 1999. 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.
		In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” The statement is effective for all fiscal quarters and fiscal years beginning after June 15, 2000. The Company does not expect adoption of SFAS No. 138 to have a material impact, if any, on its financial position or results of operations.
		In June 2000, the FASB issued SFAS No. 139, which rescinded SFAS No. 53 and amended various other SFAS statements. The statement is effective for financial statements with fiscal years beginning after December 15, 2000. This SFAS pertains to producers and distributors of motion picture films and is not applicable to the Company.
		In June 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This statement is effective for financial statements that have transfers and servicing of financial assets and extinguishments of liabilities occuring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years after December 15, 2000. The Company does not expect adoption of SFAS No. 140 to have a material impact, if any, on its financial position or results of operations.
		In June 2001, the FASB issued SFAS No. 141, “Business Combinations.” This statement is effective for all business combinations initiated after June 30, 2001. The Company does not expect adoption of SFAS No. 141 to have a material impact, if any, on its financial position or results of operations.
		In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” This statement is effective for fiscal years beginning after December 31, 2001. The Company does not expect adoption of SFAS No. 142 to have a material impact, if any, on its financial position or results of operations.
		In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement is effective for fiscal years beginning after June 15, 2002. The Company does not expect adoption of SFAS No. 143 to have a material impact, if any, on its financial position or results of operations.
		In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company does not expect adoption of SFAS No. 144 to have a material impact, if any, on its financial position or results of operations.

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In April 2002, the FASB issued SFAS No. 145, which amends and supersedes various other SFAS statements. This statement is effective for financial statements issued on or after May 15, 2002. The Company does not expect adoption of SFAS No. 145 to have a material impact, if any, on its financial position or results of operations.

Note 2 – Discontinued Operation

		On September 7, 2001, the Company closed its Mexicali, Mexico plant and its contract assembly operations that were conducted at that facility. This closure was in response to a decline in market for micro cassettes which also had a been assembled at the Mexicali, Mexico facility, the loss of an existing customer and the negative outlook for the retention of its then sole remaining contract assembly customer and additional contract assembly business. In the opinion of management, all expenses associated with the closing of Mexico operations were either paid or fully accrued in fiscal 2001. The assets in the Mexicali, Mexico facility consists primarily of accounts receivable and fixed assets.
		The estimated loss on the disposal of the discontinued operation of $30,000 (net of income tax benefit of $0), represents the estimated loss on the disposal of the assets of the segment and a provision for expected operating losses during the phase-out period from September 7, 2001 through October 31, 2001.
		Disposition of the Mexicali facility, represents the disposal of a business segment under Accounting Principles Board (“APB”) 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 period of November 1, 1999 through September 7, 2001 are shown separately in the accompanying income statement. The statement of operations for fiscal 2000 has been restated and operating results of the segment are also shown separately.
		Net sales and income from the discontinued operation are as follows:

Note 3 – Marketable Securities

The Company has investments in marketable equity securities, which have been classified as non-current, available-for-sale, at October 31, 2002, 2001 and 2000. The market value of these securities is shown as a non-current asset while the change in market value since the acquisition of these securities is shown as an unrealized holding loss in the shareholders’ equity section of the balance sheet. The investments in equity securities at October 31, 2002 have an original cost of $210,000 and a fair value of $119,000, resulting in gross unrealized loss of $110,000 and gross unrealized gain of $17,000, respectively. The investments in equity securities at October 31,

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2001 had an original cost of $200,000 and a fair value of $113,000, resulting in gross unrealized loss of $91,000 and gross unrealized gain of $4,000 respectively.

Note 4 – Inventory

Due to the apparent loss of the Company’s largest customer, as described in Note 10, declining sales, and excess inventory, the Company has taken charges in each of the past three years and has also established a reserve to reduce the value of its inventory to market value.

Note 5 – Options

		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. In January 2001, the Board of Directors adopted a further amendment to the Executive Plan increasing the number of shares of Common Stock covered thereby to 600,000 shares and extending the expiration date of the Executive Plan to January 24, 2011. This amendment was approved by shareholders in March 2001. Options under the plan have been reserved for issuance to officers, directors and key employees.
		Options under the Plan 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.