SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2004
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
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2461404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Rosemont Avenue Frederick, Maryland 21701
Address of principal executive office
1545 Sawtelle Boulevard, Suite 12, Los Angeles, CA 90064
Former Address of principal executive office (Zip Code)
(301) 644-3901
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
[ ] Yes [X] No
The aggregate market value of registrant's voting and none-voting common equity
held by non-affiliates as of January 31, 2005, based upon the average bid and
asked price of such stock as reported by Reuters Limited for that day, was
$811,920.
As of January 31, 2005, registrant had outstanding 3,128,306 shares of its
common stock, no par value, its only authorized class of common stock.
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 in fiscal 2004 consisted primarily of the distribution of
magnetic media products, primarily blank audio and video cassettes. Prior to
fiscal 2002, the Company was also engaged in the contract assembly of products
for others in Mexicali, Mexico.
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.
As described in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Results of Operations," during fiscal 2004,
due to continuing intense price competition and technological changes in the
marketplace for its products, the Company lost its remaining significant
customers and disposed of or wrote off its remaining inventory. As a result of
these occurrences, the Company concluded that its audio and videotape 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 following table sets forth, for the years ended October 31, 2004, 2003, and
2002, the amounts of net sales and operating profit before general corporate
expense and interest expense, together with identifiable assets at October 31,
2004, 2003 and 2002 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.
Year ended October 31
----------------------
2004 2003 2002
($ in Thousands)
Net sales to unaffiliated customers:
Magnetic Media products $62 $300 $750
Operating profit (loss) before general
corporate expense:
Magnetic Media products $62 ($53) $ 78
Identifiable assets:
Magnetic Media products -- $25 $346
2
The Company's magnetic media products consist primarily of blank audio and video
cassettes. All video tape and most audio tape and related plastics were procured
by the Company primarily from offshore sources. During the fiscal years ended
October 31, 2004, 2003 and 2002, net sales of the Company's magnetic media
products were as follows:
Net Sales
(In Thousands)
Product 2004 2003 2002
------- ---- ---- ----
Audio magnetic tape products $54 $255 $621
Video Cassettes 8 45 129
---- ---- ----
$62 $300 $750
==== ==== ====
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.
On or about August 3, 2004, Chao Ying Biotechnology Research & Development
Incorporated,("Cybrdi")contacted the Company regarding the possible acquisition
of the Company in response to a blind advertisement placed by the Company.
Following several meetings and conferences, on August 16, 2004, the Company
announced that the parties had reached an agreement in principle concerning the
possible acquisition by the Company of the outstanding capital stock of Cybrdi
in exchange for shares of the Company's Common Stock that would aggregate
approximately 93.8% of its Common Stock outstanding after the Transaction. A
form 8-K relating thereto was filed by the Company on August 17, 2004. The
parties then each conducted due diligence on the other and negotiated the terms
of the Agreement and Plan of Merger.
Subsequent Events
- -----------------
The Agreement and Plan of Merger (the "Agreement") was executed between the
Company, Certron Acquisition Corp., a Maryland corporation and a wholly-owned
subsidiary of the Company ("Acquisition Sub"), and Cybrdi, Inc., a Maryland
corporation, on November 12, 2004 relating to the acquisition by the Company of
all of the outstanding capital stock of Cybrdi, Inc. in exchange for shares of
common stock of Certron that would aggregate approximately 93.8% of the issued
and outstanding common stock of Certron immediately after the transaction.
Pursuant to the terms of the Agreement, at the effective time of the proposed
merger, (a) Acquisition Sub will be merged with and into Cybrdi, Inc., with
Cybrdi, Inc. being the surviving corporation, (b) the common stock of Cybrdi
will be cancelled and converted into the right to receive shares of the common
stock of Registrant at an exchange ratio of 1.566641609 (subject to adjustment
as provided in the Agreement), and (c) each share of the common stock of
Acquisition Sub will be converted in to and become one share of the common stock
of Cybrdi resulting in Cybrdi becoming a wholly-owned subsidiary of Registrant.
Based on the foregoing formula, the Company will issue to the Cybrdi
shareholders up to 47,328,263 shares of common stock.
The Agreement was approved by the holders of all of the issued and outstanding
common stock of Cybrdi and at a special meeting of the Company's shareholders
held February 2, 2005. The number of shares voting in favor of the Agreement was
sufficient for approval. The Articles of Merger were filed with the Maryland
Secretary of State on February 10, 2005. Concurrent with the filing of the
Articles of Merger, all then existing officers and directors tendered their
resignation and Yanbiao Bai was appointed as our Chairman and Chief Executive
Officer.
3
Cybrdi, Inc. (Chao Ying Biotechnology Research & Development Incorporated) is a
biogenetics commercialization company specializing in the rapid introduction of
tissue microarray products and services in both the international and Chinese
markets. Cybrdi is a Maryland corporation with its principal operations located
in China. Cybrdi aims to take advantage of China's abundant scientific talent,
low wage rates, less stringent biogenetic regulation, and the huge genetic
population as it introduces its growing list of tissue microarray products.
Upon completion of the merger, all of the magnetic media distribution business
activities will cease and the sole business will be conducted through Cybrdi.
Cybrdi is a biogenetics commercialization company specializing in the rapid
introduction of tissue microarray products and services in both the
international and Chinese markets. Tissue chips, also called microtissue arrays,
represent a newly developed technology providing high-throughput molecular
profiling and parallel analysis of biological and molecular characteristics for
hundreds of pathologically controlled tissue specimens. Tissue arrays can
provide for the rapid and cost-effective localization and evaluation of
proteins, RNA, or DNA molecules, which is particularly useful for functioning
genomic studies. Cybrdi manufactures both human and animal tissue microarrays
for a wide variety of scientific uses, including drug discovery and development
purposes.
Cybrdi aims to take advantage of China's abundant scientific talent, low wage
rates, less stringent biogenetic regulation, and the huge genetic population as
it introduces its growing list of tissue microarray products.
Most of Cybrdi's activities are conducted through its 80% equity ownership in
China Shaanxi Shaoying Bio-technology Co., Ltd. ("Chaoying Biotech") a
sino-foreign equity joint venture established in July 2000 in the People's
Republic of China. Cybrdi became affiliated with Chaoying Biotech in March 2003.
The Chaoying Biotech joint venture agreement provides that the joint venture is
to be terminated 15 years following its formulation. The joint venture may be
extended upon the mutual consent of the parties. Alternatively, subject to
tax-related and other foreign incentives in China, the joint venture may become
a subsidiary of Cybrdi.
Competition
- -----------
In all areas of Certron's magnetic media business, competition has been active
and intense. 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, 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 made it difficult for the
Company to maintain prices. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation". The release of digital products
has had an adverse impact on the Company's magnetic media sales and operations.
Employees
- ---------
At January 1, 2005, Certron employed five full and part time people at its
facility at 1545 Sawtelle Blvd., Los Angeles, California.
4
ITEM 2. PROPERTIES.
The principal facilities of the Company are as follows:
Approx. Area Approx.
Location Sq. ft. Lease Expires annual rent Principal use
- -------- ------------ ------------- ----------- -------------
11845 W. Olympic Blvd 1,543 10-31-04 (1) $29,000 Administration
Los Angeles, CA
1545 Sawtelle Blvd. 940 month to month(1) $12,000 Administration
Los Angeles, CA
1600 So. Broadway 750 month to month(1) $ 5,400 Warehouse and
1620 So. Broadway packaging
Los Angeles, CA
- ------------
(1) 1600 So. Broadway, 1620 So. Broadway and 1545 Sawtelle Blvd. are leased from
Louart Corporation, a principal stockholder of Certron. 11845 W. Olympic
Boulevard Los Angeles California is leased from an unrelated party.
The Company believes that its facilities are maintained in satisfactory
operating conditions and are adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company is a party.
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. On May 20, 2003 the tolling
agreement was again extended for an additional 18 months and on November 24,
2004 the tolling agreement was again extended for 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 October 31, 2004, the
Company has accrued a sufficient amount to cover any potential liabilities from
this matter.
The Company received a judgment against a former client of the Certron Mexicali
operation on February 9, 2004 in the amount of $19,300. The judgment was paid
over a course of six months and the Company has received the full amount as of
October 31, 2004.
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.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
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, 2003 and
October 31, 2004 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.
Fiscal period High Low
------------- ---- ---
2003
----
First quarter .12 .12
Second quarter .11 .11
Third quarter .12 .12
Fourth quarter .11 .11
2004
----
First quarter .45 .11
Second quarter .40 .11
Third quarter .30 .12
Fourth quarter .35 .12
As of January 31, 2005, the approximate number of holders of record of the
Company's Common Stock was 1,311. The Company has never paid a cash dividend on
its Common Stock. The high and the low bid price of the company's common stock
on January 31, 2005 was $0.58 and $0.41 with a close of $0.51. Such market
quotations reflect the high bid and low prices as reflected by the OTCBB or by
prices, without retail mark-up, markdown or commissions and may not necessarily
represent actual transactions.
ITEM 6. SELECTED FINANCIAL DATA
2004 2003 2002 2001 2000
--------- --------- ---------- ---------- ----------
Net sales $62,000 $300,000 $750,000 $1,475,000 $2,272,000
Net loss from continuing
operations ($518,000) ($664,000) ($945,000) ($451,000) ($329,000)
Net loss from discontinued
operations -- -- -- ($30,000) ($112,000)
Net loss ($518,000) ($664,000) ($945,000) ($481,000) ($441,000)
Net loss per common share ($0.17) ($0.21) ($0.30) ($0.15) ($0.14)
Total assets $163,000 $563,000 $1,203,000 $2,220,000 $3,037,000
Long-term debt -- -- -- -- --
Working capital $42,000 $357,000 $911,000 $1,831,000 $2,196,000
Stockholders' equity $42,000 $415,000 $1,065,000 $2,014,000 $2,550,000
No cash dividends have been paid during the five-year period ended October
31, 2004.
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
As described below under "Results of Operations," during fiscal 2004, due to
continuing intense price competition and technological changes in the
marketplace for its products, the Company lost its remaining significant
customers and disposed of or wrote off its remaining inventory. As a result of
these occurrences, the Company concluded that its audio and videotape businesses
were no longer viable and some of its product lines were obsolete and placed its
emphasis on attempting to find a buyer for the Company.
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.
On or about August 3, 2004, Cybrdi contacted the Company regarding the possible
acquisition of the Company in response to a blind advertisement placed by the
Company. Following several meetings and conferences primarily between Marshall
Kass on behalf of the Company and the principals of Cybrdi, on August 16, 2004,
the Company announced that the parties had reached an agreement in principle
concerning the possible acquisition by the Company of the outstanding capital
stock of Cybrdi in exchange for shares of the Company's Common Stock that would
aggregate approximately 93.8% of its Common Stock outstanding after the
Transaction. A form 8-K relating thereto was filed by the Company on August 17,
2004. The parties then each conducted due diligence on the other and negotiated
the terms of and Agreement and Plan of Merger. Those negotiations culminated in
the execution of the Merger Agreement as of November 12, 2004. Closing of the
transaction occurred on February 10, 2005 following required proxy solicitation
and the approval of the shareholders of the respective parties.
Cybrdi, Inc. (Chao Ying Biotechnology Research & Development Incorporated) is a
biogenetics commercialization company specializing in the rapid introduction of
tissue microarray products and services in both the international and Chinese
markets. Cybrdi is a Maryland corporation with its principal operations located
in China. Cybrdi aims to take advantage of China's abundant scientific talent,
low wage rates, less stringent biogenetic regulation, and the huge genetic
population as it introduces its growing list of tissue microarray products.
Most of Cybrdi's activities are conducted through its 80% equity ownership in
China Shaanxi Shaoying Bio-technology Co., Ltd. ("Chaoying Biotech") a
sino-foreign equity joint venture established in July 2000 in the People's
Republic of China. Cybrdi became affiliated with Chaoying Biotech in March 2003.
The Chaoying Biotech joint venture agreement provides that the joint venture is
to be terminated 15 years following its formulation. The joint venture may be
extended upon the mutual consent of the parties. Alternatively, subject to
tax-related and other foreign incentives in China, the joint venture may become
a subsidiary of Cybrdi.
Liquidity and Capital Resources
- -------------------------------
As demonstrated by the following chart, the Company's working capital decreased
at October 31, 2004 as compared to that at October 31, 2003, which was primarily
due to a decline in sales. Cash decreased by $277,000; accounts receivable
decreased by $21,000; prepaid expenses decreased by $92,000; and other current
assets decreased by $10,000. Current liabilities decreased by $15,000. During
the third quarter of fiscal 2004, the Company increased its cash position by
surrendering for its cash value of $70,000 a life insurance policy on the life
of Marshall Kass, Chairman and Chief Executive Officer of the Company.
October 31
----------------------------------------
2004 2003 2002
--------- --------- --------
Working Capital $42,000 $357,000 $911,000
Current Ratio 1.32 to 1 3.41 to 1 7.6 to 1
Cash Used in Operations ($417,000) ($285,000) ($423,000)
With the acquisition of Cybrdi, the Company believes it has sufficient resources
to finance its operations for the coming year.
7
Results of Operations
- ---------------------
For a considerable number of years, intense price competition in the magnetic
media field has made it difficult for the Company to maintain prices of its
magnetic media products and has continually reduced the Company's margins on
these products. As a result, the Company discontinued sales of certain magnetic
media products and refused to sell magnetic media products at prices not
resulting in certain minimum margin returns. More recently, the introduction of
digital products and the substantial reduction in the cost of DVD players have
rendered some of the Company's products noncompetitive or obsolete and had a
material adverse impact on the Company's magnetic media operations and sales.
Digital answering devices have substantially replaced telephone answering
devices using magnetic tape cassettes, substantially reducing the Company's
sales of microcassettes. The sale of DVD players at substantially reduced prices
has curtailed sales of VHS T120s and T160s recording tapes used in VCRs. As a
result of the intense price competition and the technological changes, Certron
has been unable to compete at a profit in this marketplace.
During the last two fiscal years the Company has lost three significant
customers who accounted in the aggregate for approximately 77% of Certron's
sales during fiscal 2002 and 41% of Certron's sales during fiscal 2003. In the
fourth quarter of fiscal 2002, one of these customers informed the Company of
its intent to cease ordering products from the Company by the end of the third
quarter of fiscal 2003. In the fourth quarter of fiscal 2003, another one of
these customers who was the Company's then largest customer informed the Company
that due to technological changes it could no longer commit to purchase the
quantities of private-label products needed by Certron to make the business
worthwhile and would no longer use Certron as a resource. The third of these
customers who was the Company's second largest customer during fiscal 2003 was a
private-label customer for VHS T120 products. Due to the substantial reduction
in VHS tape sales and the fact that the Company had to carry a substantial
inventory of VHS tapes for this customer, the profit margin on this product for
Certron diminished to such an extent that Certron chose to cease fulfilling this
customer's orders. As a result of these occurrences, the Company concluded that
its audio and videotape businesses were no longer viable and some of its product
lines were obsolete.
Since concluding that primarily due to intense price competition and
technological changes, there were no meaningful opportunities for it to
substantially increase sales and operating profit of its magnetic media products
through traditional outlets, the Company attempted without success to acquire
other businesses or product lines. In the last several years it has also
attempted to maximize shareholder value through the sale of the Company.
On or about August 3, 2004, Cybrdi contacted the Company regarding the possible
acquisition of the Company in response to a blind advertisement placed by the
Company. Following several meetings and conferences primarily between Marshall
Kass on behalf of the Company and the principals of Cybrdi, on August 16, 2004,
the Company announced that the parties had reached an agreement in principle
concerning the possible acquisition by the Company of the outstanding capital
stock of Cybrdi in exchange for shares of the Company's Common Stock that would
aggregate approximately 93.8% of its Common Stock outstanding after the
Transaction. A form 8-K relating thereto was filed by the Company on August 17,
2004. The parties then each conducted due diligence on the other and negotiated
the terms of and Agreement and Plan of Merger. Those negotiations culminated in
the execution of the Merger Agreement as of November 12, 2004. The merger
agreement was subject to certain conditions including the consent by the holders
of all of the issued and outstanding shares of common stock of Cybrdi and the
consent by the shareholders owning a majority of the issued and outstanding
shares of common stock of Certron. All consents were secured via proxy for a
duly scheduled meeting of the Cybrdi shareholders on January 28, 2005 and
approved by a majority of the Certron shareholders on February 2, 2005. Articles
of Merger were filed with the Secretary of State on February 10,2005 and as a
result, Cybrdi is now a wholly owned subsidiary of Certron.
8
Cybrdi, Inc. (Chao Ying Biotechnology Research & Development Incorporated) is a
biogenetics commercialization company specializing in the rapid introduction of
tissue microarray products and services in both the international and Chinese
markets. Cybrdi is a Maryland corporation with its principal operations located
in China. Cybrdi aims to take advantage of China's abundant scientific talent,
low wage rates, less stringent biogenetic regulation, and the huge genetic
population as it introduces its growing list of tissue microarray products.
Most of Cybrdi's activities are conducted through its 80% equity ownership in
China Shaanxi Shaoying Bio-technology Co., Ltd. ("Chaoying Biotech") a
sino-foreign equity joint venture established in July 2000 in the People's
Republic of China. Cybrdi became affiliated with Chaoying Biotech in March 2003.
The Chaoying Biotech joint venture agreement provides that the joint venture is
to be terminated 15 years following its formulation. The joint venture may be
extended upon the mutual consent of the parties. Alternatively, subject to
tax-related and other foreign incentives in China, the joint venture may become
a subsidiary of Cybrdi.
The Company does not expect to continue with the sales of its magnetic media
products. Rather, the Company will in all likelihood liquidate the remaining
inventory and use the proceeds thereof, which are likely to be minimal, to
further Cybrdi's activities. We also intend to terminate the employment of any
individuals who were previously employed by Certron who are not directly
involved with Cybrdi's ongoing operations. We may incur additional expenses as a
result of terminating our current business operations. Specifically, we will be
liable for the remaining terms of any leasehold obligations unless we can secure
an acceptable assignee.
With the acquisition of Cybrdi, the Company believes it has sufficient resources
to finance its operations for the coming year.
Fiscal 2004 Compared to Fiscal 2003
- -----------------------------------
During fiscal 2004, the Company had an operating loss of $519,000 and a net loss
of $518,000 on sales of $62,000 as compared to an operating loss of $844,000 and
a net loss of $664,000 on sales of $300,000 for fiscal 2003. Gross profit
increases by $115,000 between fiscal 2004 and fiscal 2003. Selling, general and
administrative expenses decreased by $19,000; depreciation and amortization
expense decreased by $21,000; interest income decreased by $5,000; and realized
gain on marketable securities decreased by $78,000.
Sales of magnetic media products were $62,000 in fiscal 2004 as compared to
$300,000 in fiscal 2003. The decrease of 79% represents a decrease in sales of
micro cassettes, audio cassettes and video cassettes of $238,000 as a result of
price competition and technological changes.
Total gross margin was 100% in fiscal 2004 and negative 18% in fiscal 2003.
Margins increased from negative $53,000 in fiscal 2003 to $62,000 in fiscal 2004
due primarily to sale of inventory that has been fully reserved in fiscal 2003.
For the fourth quarter of fiscal 2004, the Company incurred a loss from
continuing operations of $195,000.
Selling, general and administrative expense decreased by $19,000 during fiscal
2004. The decrease from $600,000 in 2003 to $581,000 in 2004 was due primarily
to decrease in personnel expenses, and decrease in other selling, general and
administrative expenses.
9
Fiscal 2003 Compared to Fiscal 2002
- -----------------------------------
During fiscal 2003, the Company had an operating loss of $844,000 and a net loss
of $664,000 on sales of $300,000 as compared to an operating loss of $963,000
and a net loss of $945,000 on sales of $750,000 for fiscal 2002. Gross profit
decreased by $131,000 between fiscal 2003 and fiscal 2002. Inventory holding
loss decreased by $88,000; selling, general and administrative expenses
decreased by $166,000; depreciation and amortization expense increased by
$4,000; interest income decreased by $ 11,000, realized gain on marketable
securities increased by $ 12,000 and the surrender of an executive life
insurance policy for its cash value resulted in other income of approximately
$161,000.
Sales of magnetic media products were $300,000 in fiscal 2003 as compared to
$750,000 in fiscal 2002. The decrease of 60% represents a decrease in sales of
micro cassettes of $128,000, a decrease in sales of video cassettes of $84,000,
and a decrease in sales of audio cassettes and other office products of $238,000
as a result of price competition and technological changes.
Total gross margin was negative 18% in fiscal 2003 and 10% in fiscal 2002.
Margins decreased from $78,000 in fiscal 2002 to negative $53,000 in fiscal 2003
due primarily to a decrease in sales of magnetic media.
For the fourth quarter of fiscal 2003, the Company incurred a loss from
continuing operations of $41,000. The amount of the loss was lower by
approximately $161,000 due to the surrender of an executive life insurance
policy for payment of its cash value. Due to the Company's declining sales and
the loss of customers, during the fourth quarter of fiscal 2003, the Company
added to a reserve reducing the value of its inventory. As a result of inventory
being sold and a smaller increase in the inventory reserve in fiscal 2003
compared to fiscal 2002, inventory holding loss decreased from $258,000 in
fiscal 2002 to $170,000 in fiscal 2003.
Selling, general and administrative expense decreased by $166,000 during fiscal
2003. The decrease from $ 766,000 in 2002 to $600,000 in 2003 was due primarily
decrease in personnel expenses of $115,000 and a decrease in other selling,
general and administrative expenses of $51,000.
During fiscal 2003, the Company invested cash not needed in operations, 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 October 31, 2003, the Company
held common stocks which had a cost of approximately $135,000 and market value
of approximately $58,000.
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 $77,000 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).
Upon the expected sale of these securities, the Company will recognize a loss in
its statement of operations equal to the amount of the unrealized holding loss,
reduced by any increase in market value since October 31, 2003 and increased by
any decrease in market value since October 31, 2003.
10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT APPLICABLE.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Certron Corporation
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Certron
Corporation (the "Company") as of October 31, 2003 and 2004, and the related
statements of operations and comprehensive income, stockholders' equity, and
cash flows for each of the two years then ended. Our audits also included
financial statement schedule II listed in the index at Item 15. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Certron
Corporation as of October 31, 2004 and 2003, and the results of its operations
and its cash flows for each of the two years then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company disposed of its assembly
operations and has suffered recurring losses from operations at October 31, 2004
that raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Hurley & Company
Granada Hills, California
November 23, 2004, except for Note 10
as to which the date is February 10, 2005
12
Independent Auditors' Report
Board of Directors and Shareholders
Certron Corporation
Los Angeles, California
We have audited the accompanying statements of operations and comprehensive
income, stockholders' equity, and cash flows for the year ended October 31,
2002. 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 audit.
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 audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Certron
Corporation for the year ended October 31, 2002 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
13
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31
--------------------------
2004 2003
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, Note 1 $ 155,000 $ 432,000
Accounts receivable, less allowance for doubtful 5,000 25,000
account of $0 in 2004 and $15,000 in 2003
Inventories:
Finished products, less allowance for obsolescence -- --
of $5,000 in 2004 and $177,000 in 2003, Note 4
Prepaid expenses 3,000 48,000
----------- -----------
Total Current Assets 163,000 505,000
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Machinery and equipment 0 17,000
Furniture, fixtures and leasehold improvements 7,000 142,000
----------- -----------
7,000 159,000
Less accumulated depreciation and amortization (7,000) (159,000)
----------- -----------
Net Equipment and Leasehold Improvements -- --
----------- -----------
MARKETABLE SECURITIES -- 58,000
----------- -----------
Total Assets $ 163,000 $ 563,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued professional fees 61,000 49,000
Accrued payroll and related items 3,000 27,000
Other accrued expenses 57,000 72,000
----------- -----------
Total Current Liabilities 121,000 148,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
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 per share; authorized 10,000,000 shares; issued and
outstanding,
3,128,000 shares (2004 and 2003) 3,128,000 3,128,000
Additional Paid-In Capital 1,892,000 1,824,000
Net unrealized loss on marketable equity securities -- (77,000)
Accumulated deficit (4,978,000) (4,460,000)
----------- -----------
Total Stockholders' Equity 42,000 415,000
----------- -----------
Total Liabilities and Stockholders' Equity $ 163,000 $ 563,000
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements
14
CERTRON CORPORATION AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended October 31
--------------------------------------------
2004 2003 2002
------------ ------------ ------------
Net Sales $ 62,000 $ 300,000 $ 750,000
Cost of Products Sold -- 353,000 672,000
------------ ------------ ------------
Gross Profit 62,000 (53,000) 78,000
------------ ------------ ------------
Costs and Expenses:
Inventory holding loss (Note 4) -- 170,000 258,000
Selling, general and administrative 581,000 600,000 766,000
Depreciation and amortization -- 21,000 17,000
------------ ------------ ------------
581,000 791,000 81,041,000
------------ ------------ ------------
Operating Loss (519,000) (844,000) (963,000)
Other Income
Realized (loss) gain on marketable
equity securities and other assets (75,000) 12,000 --
Interest income 3,000 8,000 19,000
Other income 62,000 161,000 --
Gain on disposal of assets 12,000 -- --
------------ ------------ ------------
Loss From Continuing Operations before tax (517,000) (663,000) (944,000)
Provisions for taxes 1,000 1,000 1,000
------------ ------------ ------------
Net Loss ($518,000) ($664,000) ($945,000)
============ ============ ============
------------ ------------ ------------
Net Loss Per Share ($0.17) ($0.21) ($0.30)
============ ============ ============
Weighted Average Common Shares Outstanding 3,128,000 3,128,000 3,128,000
============ ============ ============
Comprehensive Loss
Unrealized gain (Loss) on marketable
equity securities $0 $14,000 ($4,000)
Net Loss (518,000) (664,000) (945,000)
------------ ------------ ------------
Comprehensive Loss ($518,000) ($650,000) ($949,000)
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
15
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Net Unrealized
(Loss) Gain On
Additional Marketable
Common Stock Paid-In Equity Accumulated
Shares Amount Capital Securities Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
BALANCE
October 31, 2001 3,128,000 $ 3,128,000 $ 1,824,000 ($87,000) ($2,851,000) $ 2,014,000
Unrealized Loss
on Marketable
Securities -- -- -- (4,000) -- (4,000)
Net Loss -- -- -- -- (945,000) (945,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE
October 31, 2002 3,128,000 $ 3,128,000 $ 1,824,000 ($91,000) ($3,796,000) $ 1,065,000
Unrealized Loss
on Marketable
Securities -- -- -- 14,000 -- 14,000
Net Loss -- -- -- -- (664,000) (664,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE
October 31, 2003 3,128,000 $ 3,128,000 $ 1,824,000 ($77,000) ($4,460,000) $ 415,000
Shareholder
contribution (Note 6) -- -- 68,000 -- -- 68,000
Unrealized Loss
On Marketable
Securities -- -- -- 77,000 -- 77,000
Net Loss -- -- -- -- (518,000) (518,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE
October 31, 2004 3,128,000 $ 3,128,000 $ 1,892,000 $0 ($4,978,000) $ 42,000
The accompanying notes are an integral part of these
consolidated financial statements.
16
CERTRON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended October 31
-----------------------------------------
2004 2003 2002
----------- ----------- -----------
Cash Flows From Operating Activities:
Net Loss ($518,000) ($664,000) ($945,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization -- 21,000 17,000
Realized loss on sale of marketable securities 75,000 -- --
Gain on disposal of assets (12,000) -- --
Decrease (Increase) in net assets of
discontinued operations -- -- 12,000
Changes in operating assets and liabilities:
Decrease (Increase) in notes receivable -- -- 99,000
Decrease (Increase) in trade accounts receivable 20,000 48,000 56,000
Decrease in inventories -- 252,000 401,000
Decrease (Increase) in prepaid expenses 45,000 1,000 16,000
Decrease (Increase) in other assets -- 47,000 (11,000)
(Decrease) Increase in current liabilities (27,000) 10,000 (68,000)
----------- ----------- -----------
Net Cash Used in Operating Activities (417,000) (285,000) (423,000)
Cash Flows from Financing Activities:
Proceeds from shareholder contribution (Note 6) 68,000 -- --
----------- ----------- -----------
Net cash provided by financing activities 68,000 -- --
Cash Flows From Investing Activities:
Proceeds from sale of marketable securities 60,000 275,000 85,000
Purchase of marketable securities -- (200,000) (95,000)
Proceeds from sale of assets 12,000 -- --
----------- ----------- -----------
Net cash (used in) provided by investing activities 72,000 75,000 (10,000)
----------- ----------- -----------
Net Decrease in Cash and Cash Equivalents (277,000) (210,000) (433,000)
Cash and Cash Equivalent, beginning of year 432,000 642,000 1,075,000
----------- ----------- -----------
Cash and Cash Equivalent, end of year $ 155,000 $ 432,000 $ 642,000
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for :
Interest -- -- --
Income Taxes $ 1,000 $ 1,000 $ 1,000
The accompanying notes are an integral part of these
consolidated financial statements.
17
CERTRON CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
The Company's business consisted primarily of the distribution of magnetic media
products, until its acquisition of Cybrdi, Inc. in Feb 2005 as stated in Note 10
to the consolidated financial statements.
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. Substantially all deposits are with one institution.
Accounts Receivable
- -------------------
The Company has recorded an allowance for doubtful accounts to cover the
difference between recorded receivables and collections from customers. The
allowance for doubtful accounts is adjusted periodically based upon the
Company's evaluation of historical collection experiences, industry trends and
other relevant factors.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market. At October 31, 2004 the inventory was fully reserved.
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. At
October 31, 2004 all equipment and leasehold improvements were fully
depreciated.
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. The Company does not have investments that
qualify as trading or held to maturity securities. Marketable equity securities
are valued based on quoted market prices. The cost of securities sold is
determined by the specific identification of cost method.
Revenue Recognition
- -------------------
The Company recognizes revenue from product sales upon shipment.
Advertising and Promotion Costs
- -------------------------------
Advertising and promotion costs, which totaled $0 in 2004 and 2003, are expensed
as incurred.
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.
18
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.
Loss Per Common Share
- ---------------------
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.
Stock Options
- -------------
The Company has elected to follow Accounting Principles Board Opinion No. 23,
"Accounting for Stock Issued to Employees" related interpretations in accounting
for its employee stock options. Under APB 25, no compensation expense is
recorded when the exercise price of the option equals the market price of the
underlying stock on the date of the grant. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
148, "Accounting for Stock Based Compensation".
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 management desegregates
the Company for internal operating decisions. Since the Company's Mexicali
operation and the contract assembly segment of its business was closed September
2001, the business consists primarily of the distribution of magnetic media
products, no other reportable segments were reported in the financial
statements.
Recently Issued Accounting Pronouncement
- ----------------------------------------
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
requires certain financial instruments that have both equity and liability
characteristics to be classified as a liability on the balance sheet. SFAS No.
150 is effective for the first interim period beginning after June 15, 2003. The
adoptions of SFAS 150 did not have a material impact on the Company's financial
statements.
19
In April 2004, the Emerging Issues Task Force ("EITF") of the FASB approved EITF
Issue 03-6, "Participating Securities and the Two-Class Method under FAS 128."
EITF Issue 03-6 supersedes the guidance in Topic No. D-95, "Effect of
Participating Convertible Securities on the Computation of Basic Earnings per
Share", and requires the use of the two-class method for participating
securities. The two-class method is an earnings allocation formula that
determines earnings per share for each class of common stock and participating
security according to dividends declared (or accumulated) and participation
rights in undistributed earnings. In addition, EITF Issue 03-6 addresses other
forms of participating securities, including options, warrants, forwards and
other contracts to issue an entity's common stock, with the exception of stock
based compensation (unvested options and restricted stock) subject to the
provisions of Accounting Principles Board ("APB") Opinion No. 25 and SFAS No.
123. EITF Issue 03-6 is effective for reporting periods beginning after March
31, 2004 and should be applied by restating previously reported earnings per
share. The adoption of EITF Issue 03-6 did not have a material impact on the
Company's financial position or results of operations for the year ended October
31, 2004.
In December 2004, the FASB issued SFAS No. 123(Revised), "Share-Based Payment."
This statement replaces SFAS No. 123, "Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS 123(R) requires companies to apply a fair-value-based measurement method in
accounting for share-based payment transactions with employees and to record
compensation cost for all stock awards granted after the required effective date
and to awards modified, repurchased, or cancelled after that date. In addition,
the Company is required to record compensation expense (as previous awards
continue to vest) for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. SFAS 123(R) will be effective for
quarterly periods beginning after June 15, 2005, which is the Company's third
quarter ending July 31, 2005. Management has not yet determined the impact that
SFAS 123(R) will have on its financial position and results of operations.
Reclassifications
- -----------------
Certain prior year amounts in the accompanying consolidated financial statements
have been reclassified to conform to the current year's presentation.
NOTE 2 - MARKETABLE SECURITIES
The Company has investments in marketable equity securities, which have been
classified as non-current, available-for-sale, at October 31, 2003. 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. There
were no investments in equity securities at October 31, 2004. The investment in
equity securities at October 31, 2003 have an original cost of $135,000 and a
fair value of $58,000, resulting from gross unrealized losses of $82,000 and
gross unrealized gains of $5,000 respectively.
Realized loss from the sale of marketable securities were $75,000 for the year
ended October 31, 2004 and realized gain of $12,000, and $0 for the years ended
October 31, 2003 and 2002, respectively. Gross proceeds from the sale of
securities were $60,000, $275,000 and $85,000 for the years ended October 31,
2004, 2003 and 2002, respectively.
NOTE 3 - INVENTORY
Due to the apparent loss of three of the Company's largest customers, declining
sales, and excess inventory, the Company has established a reserve to reduce the
value of its inventory to net realizable value taking into account the cost of
handling and sales.
20
NOTE 4 - 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.
Options Options
Executive Stock Available Granted and Price
Option Plan For Grant Outstanding Range
--------------- --------- ----------- ------
Balance October 31, 2002 562,000 38,000 $1.000
Cancelled 3,000 (3,000) $1.000
Balance October 31, 2003 565,000 35,000 $1.000
Cancelled 35,000 (35,000) $1.000
Balance October 31, 2004 600,000 0 $1.000
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
restricted stock and options/warrants issued to outside third parties. If the
Company had elected to recognize compensation expense based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net income and earnings per share
prescribed by SFAS 123, the Company's net income and earnings per share would be
reduced to the pro forma amounts indicated below:
October 31,
2004
--------
Net Loss as reported $518,000)
Loss, pro forma (518,000)
Loss per share as reported (.17)
Loss per share, pro forma (.17)
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1997.
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in:
1997
--------
Risk free interest rate 5.8%
Expected lives (years) 5
Expected volatility 26.0%
Expected dividends $ 0
21
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a single measure of the
fair value of its employee stock options.
At October 31, 2004, there were no options granted and outstanding.
Incremental common shares (not included in the denominator of diluted earnings
per share because of their anti-dilutive nature):
2004 2003
------ ------
Employee options 0 35,000
0 0
Potential common equivalents 0 35,000
NOTE 5 - TAXES ON INCOME
The provision for taxes on income is comprised of the minimum state income taxes
of $1,000.
A reconciliation of the federal statutory rates to the effective rates is
summarized as follows:
Year Ended October 31,
--------------------------
2004 2003 2002
---- ---- ----
Statutory rate 34% 34.0% 34.0%
State taxes, net of federal
benefit 0% 0% 0.0%
Unrecognized benefit of
net operating losses (34%) (34.0%) (34.0%)
Effective tax rate 0% 0% 0.0%
For federal income tax return purposes, net operating losses of approximately
$5,6 million expire beginning October 31, 2005. For state income tax purposes,
net operating losses of approximately $2,400,000 expire beginning October 31,
2004.
Significant components of the Company's deferred tax asset consist of the
following:
October 31, October 31,
2004 2003
----------- -----------
Net operating loss carry forward $ 2,800,000 $ 2,150,000
Other -- 350,000
----------- -----------
Net deferred income tax assets 2,800,000 2,500,000
Valuation allowance (2,800,000) (2,500,000)
----------- -----------
Net deferred tax assets -- --
=========== ===========
The deferred tax assets have been offset in their entirety by a valuation
allowance due to the uncertainty of their realization.
22
NOTE 6 - CONTRIBUTION FROM SHAREHOLDER
During the year ended October 31, 2004, the Company received $68,000 from the
surrendering of a life insurance policy held on a director of the Company. These
proceeds were recorded as additional paid in capital.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases -
- ------------------
The Company leases warehouse facilities under a month-to-month term operating
leases for $450 per month.
Total rental expense charged to operations amounted to $32,000, $113,000, and
$129,000, for the years ended October 31, 2004, 2003, and 2002 respectively.
Under some leasing arrangements, the Company pays maintenance, insurance, taxes
and other expenses in addition to the above minimum annual rentals.
The Company as of October 30, 2004 moved out of 11845 W. Olympic Blvd., Los
Angeles offices. The company leases a storage area at a facility owned by Louart
Corporation on a month to month basis.
Employment Contract -
---------------------
On November 1, 1993, the Company entered into an employment agreement with its
Chairman/Chief Executive Officer under which the Company is committed to annual
salary payments to the officer in the amount of $200,000 through fiscal 1998.
During the fiscal year ended October 31, 1999, the Chairman and CEO voluntarily
reduced his compensation to $153,000, in fiscal year ended October 31, 2000 to
$139,000, in fiscal year ended October 31, 2001 to $117,000, in fiscal year
ended October 31, 2002 to $113,000 and in fiscal year 2003 to $104,000. In 1998
the Employment Agreement was amended to extend the term thereof through October
31, 2001 and in November 2001 the Agreement was amended to extend the term
thereof through October 31, 2004.
Contingencies -
- ---------------
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 October 31, 2004, the Company has
accrued a sufficient amount to cover any potential liabilities from this matter.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company made payments to Louart, a stockholder of the Company, for rent of
warehouse and office space, secretarial and administrative services, consulting
services, and an automobile. These fees are included in selling, general and
administrative expenses.
The payments made to Louart for these items for the years ended October 31 are
as follows:
2004 $109,000
2003 $190,000
2002 $190,000
23
NOTE 9 - CONCENTRATIONS
For fiscal year ended October 31, 2003, the Company's ten largest customers of
magnetic media products accounted in the aggregate for approximately 93% of the
Company's total net sales of magnetic media products. During fiscal 2003, the
two largest single magnetic media customers accounted for $ 67,000 or 22% and
$33,000 or 11% of the Company's total magnetic media sales, respectively. The
Company's largest customer has informed the Company of their intent to cease
ordering from the Company, despite their continued placement of orders. The loss
of the Company's three largest customers has had a material negative effect on
the Company's earnings and sales.
The Company maintains cash deposits at several banks located in California.
Deposits at each bank are insured by the Federal Deposit Insurance Corporation
up to $100,000. As of October 31, 2004, uninsured portions of balances held at
those banks aggregated to $55,000.
Accounts receivable from the Company's largest customer accounted for $17,600 or
70% of accounts receivable as of October 31, 2003.
NOTE 10 - BASIS OF PRESENTATION
During the three years ended October 31, 2004, 2003 and 2002, the Company had
recurring losses due to continuing intense price competition and technological
changes in the marketplace for its products. The Company concluded that its
audio and videotape businesses were no longer viable and that raises substantial
doubt as to the ability of the Company to continue as a going concern.
To address this problem, Management entered into discussions with Cybrdi, Inc.,
a biogenetics commercialization company specializing in the rapid introduction
of tissue microarray products and services in both the international and Chinese
markets. These negotiations led to the execution of an Agreement and Plan of
Merger which was filed with the Maryland Secretary of State on February 10,
2005.
It is not possible at this time to predict the success of this merger.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of the recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue existence.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
After the end of the year ended October 31, 2003, the Company changed
independent auditors from Beckman Kirkland & Whitney to Hurley & Company
effective with the year ended October 21, 2003. There were no disagreements with
Beckman Kirkland & Whitney.
ITEM 9A. CONTROLS AND PROCEDURES
Yanbiao Bai, our current Chief Executive Officer and Chief Financial officer
only recently assumed office and was not in charge of the Company's disclosure
controls and procedures during the period covered by this report. However, as
part of the due diligence investigation carried on in connection with the merger
with Cybrdi, Mr. Bai evaluated Certron's activities
The evaluation was carried out to determine the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) or 15d-15(e) under the Securities and Exchange Act of 1934 as of
October 31, 2004. Based upon the evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective for Certron's prior
activities.
New controls and procedures will be implemented for the operations of Cybrdi.
During the period covered by this report, there have been no 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.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information about each of the Directors and
Executive Officer of the Company as of January 31, 2005.
Name and Present Position with First Elected
Company or Principal Occupation Age As Director
- ------------------------------- ----- -------------
Marshall I Kass* 75 1988
Chairman of the Board,
Chief Executive Officer and
Chief Operating Officer of
the Company and Chairman
of the Board, Chief
Executive Officer and Chief
Operating Officer of Louart
Corporation, an investment
company
Michael S. Kass* 50 1988
Executive Vice President of
the Company and President
and Director of Louart
Corporation, an investment
company
Susan E. Kass* 48 1988
Secretary and Treasurer of
the Company and Vice
President, Secretary and
Director of Louart
Corporation, an investment
Company
Ivalee E. Francia* 40 2003
Director of the Company and
Accounting Manager of Louart
Corporation, an investment Company
*Effective as of February 10, 2005, with the closing of the agreement and plan
of merger with Cybrdi all of the officers and directors tendered their
resignation and Yanbiao Bai was appointed as the Company's sole officer and
director.
In March 1996, Mr. Michael S. Kass was elected Executive Vice President of the
Company. For the five years prior thereto, he served as Vice President of the
Company. In December 1988, Mr. Marshall I. Kass was elected Chairman of the
Board of Directors and Chief Executive Officer, and in June 1990 he was elected
as the Chief Operating Officer of the Company. For more than five years and
until February 1996, Mr. Kass served as President of Louart Corporation, a
privately held investment company. In February 1996, he was elected Chairman of
the Board, Chief Executive Officer and Chief Operating Officer of Louart
Corporation. He is, and for more than the past five years has been, a Director
thereof. The Company and Marshall I. Kass are parties to an Employment
Agreement, dated as of November 1, 1993, pursuant to which Mr. Kass is employed
as the Chairman of the Board and Chief Executive Officer of the Company.
Although his Employment Agreement provides for an annual salary of $200,000 per
year (subject to adjustment at the discretion of the Board of Directors of the
Company), Mr. Kass has voluntarily taken less than that amount each of the last
three years as noted in the Summary Compensation Table contained in Item 11. The
Employment Agreement has been amended to extend the end of the term thereof to
October 31, 2004. The Employment Agreement may be earlier terminated in the
event of the death or disability of Mr. Kass or for "good cause," defined to
mean conviction of a crime directly related to his employment or a felony, gross
mismanagement of the business and affairs of the Company or breach of any
material provision of the Employment Agreement.
25
In February 1996, Mr. Michael S. Kass was elected President of Louart
Corporation. For the five years prior thereto, he served as Senior Vice
President and Director of Louart Corporation. For more than the past five years,
Ms. Susan E. Kass has served as the Secretary, Vice President and Director of
Louart Corporation. In 1990, she was elected Secretary and Treasurer of the
Company. For more than the past five years, Ms. Ivalee E. Francia has been
Accounting Manager of Louart Corporation. Mr. Marshall I. Kass is the father of
Mr. Michael S. Kass and Ms. Susan E. Kass, both of whom are siblings of one
another.
The Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller
or persons performing similar functions. The Company will provide without charge
upon written request sent to Certron Corporation, 401 Rosemont Avenue Frederick,
Maryland 21701
Current Management
- ------------------
Yanbiao Bai, Chairman and Chief Executive Officer
- -------------------------------------------------
Yanbiao Bai, became The Company's chairman and chief executive officer on
February 10, 2005. He graduated from the Second Military Medical University in
1984, receiving a legal qualification certificate, is an experienced
entrepreneur and corporate executive. After working in the legal field, Mr. Bai
successfully founded a chain of cosmetic and personal care training schools and
franchises, introducing the chain management model into a previously fragmented
sector. Now numbering more than 3,000 schools and shops, the Shaanxi ChaoYing
Personal Care Group Limited has trained more than 20,000 sales associates and
serviced millions of retail customers with personal care products and services.
Long interested in Chinese traditional and modern medicine, Mr. Bai is working
to apply his marketing and management expertise to the emerging biotech field in
China, focusing on rapidly marketable products and services. Mr. Bai has been
awarded one of the Shaanxi Province "Outstanding Young Industrialist Award,"
among other titles and honors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934 requires the Company's executive
officers and directors, as well as persons holding more than 10% of the
Company's outstanding Common Stock, to file initial reports of ownership and
reports of changes of ownership of the Company's common stock with the
Securities and Exchange Commission. Executive officers and directors are
required to furnish the Company with copies of all Section 16(a) forms that they
file.
Upon a review of these filings for the year ended October 31, 2004, the
Company's officers, directors and 10% shareholders complied with the
requirements.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid, during the fiscal year
ended October 31, 2004, to (i) the Chief Executive Officer and (ii) any other
executive officer whose total compensation for such fiscal year exceeded
$100,000, for services rendered by such persons in all capacities to the
Company:
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
-------------------- -----------------------------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Options (#) Compensation ($)(1)
- --------------------------- ------ ---------- ----------- ------------------
Marshall I. Kass, Chairman 2004 $ 98,000 -- $ 0
of the Board, Chief 2003 $104,000 -- $ 5,621
Executive Officer and 2002 $113,000 -- $15,852
Chief Operating Officer
26
Stock Options
- -------------
In January 1989, the Board of Directors adopted the Executive Plan (then known
as the 1989 Stock Option Plan) covering 150,000 shares of Common Stock which 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 27, 2005. In January 2001, the Board
of Directors adopted an additional amendment to the Executive Plan increasing
the number of shares of Common Stock covered thereby from 300,000 to 600,000 and
extending the expiration date of the Executive Plan to January 24, 2011, which
amendments were approved by the Company's shareholders in March 2001.
During the fiscal year ended October 31, 2004, no options were granted or
exercised under the Executive Plan.
The following table sets forth as of January 31, 2005 information as to the
number of unexercised options (none of which are in-the-money options) held by
the Chief Executive Officer of the Company.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Options at
January ___, 2005
(#)
Name Exercisable/Unexercisable
- ---------------- ---------------------------
Marshall I. Kass 0/0
Under the Executive Plan both "incentive stock options" (as defined in Section
422 of the Internal Revenue Code of 1986, as amended) and non-incentive options
can be granted to selected executives, key employees and directors (whether or
not employees) of the Company. However, incentive stock options may be granted
only to employees (including officers and directors who are employees). Under
the Executive Plan, all options are required to be granted at exercise prices of
not less than 100% of the fair market value of the Common Stock at the date the
options are granted. If an incentive stock option is granted to a more than 10%
shareholder, it must be at 110% of the fair market value of the Common Stock at
the date of grant. The number of shares of Common Stock covered by the Executive
Plan is subject to adjustment in the case of stock splits, reverse stock splits,
stock dividends, recapitalization and similar changes in the capitalization of
the Company.
Stock appreciation rights may be granted with all or part of any option granted
under the Executive Plan. Directors who are not employees of the Company are not
eligible to receive these rights. Stock appreciation rights entitle the holder
thereof, upon exercise of such rights, to surrender the related option, or any
portion thereof, and to receive, without payment to the Company (except for
applicable withholding taxes), an amount equal to the excess of the fair market
value, on the date of such exercise, of the Common Stock covered by such option
or portion thereof over the option price of the Common Stock as provided in the
option. The Board of Directors or a committee thereof has sole discretion to
determine the form in which payment may be made to the employee upon the
exercise of any stock appreciation right (i.e., Common Stock, cash, or any
combination thereof). No stock appreciation rights have been granted under the
Executive Plan.
27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of October 31, 2004, the beneficial ownership
of equity securities of the Company by each person known by the Company to own
more than 5% of any class of the Company's voting securities, each Director and
Executive Officer and all Directors and Executive Officers as a group:
Beneficial Ownership of Equity Securities
of Company on October 31, 2004 (1)
-----------------------------------------
Name Common Stock Held Percent of Class
- ------------------------- ----------------- ----------------
Louart Corporation 1,672,537(2) 53.5%
1545 Sawtelle Blvd., Suite 12
Los Angeles, California 90025
Marshall I. Kass 1,481,315(3) 47.4%(3)
Michael S. Kass 1,228,725(3) 39.3%(3)
Susan E. Kass 1,206,200(3) 38.6%(3)
Ivalee E. Francia 0 0%
Directors and Officers as a 1,505,640(3) 48.1%(3)
Group (4 persons)
(1) Except as otherwise indicated, nature of beneficial ownership is possession
of sole voting and investment power. The address for each of the Directors and
Executive Officers is 1545 Sawtelle Boulevard, Suite 12, Los Angeles, California
90025.
(2) Includes 1,205,200 shares owned directly by Louart Corporation, as reported
in its Schedule 13D, dated January 1994 and filed with the Securities and
Exchange Commission. Such Schedule 13D indicates that Louart Corporation has
sole voting and dispositive power of such shares. Also includes 467,337 shares
beneficially owned by officers and directors of Louart Corporation.
(3) Includes 1,205,200 shares owned by Louart Corporation. Messrs. Marshall and
Michael Kass and Ms. Susan Kass, directors and executive officers of the
Company, own shares of the capital stock of Louart Corporation representing a
majority of the voting power of the outstanding capital stock thereof. Includes
for Marshall I. Kass 276,115 shares owned by him, for Michael S. Kass 1,000
shares owned by him and 22,525 shares owned by his SEP/IRA, and for Susan E.
Kass 1,000 shares owned by her. Excludes for Marshall I. Kass 81,500 shares
owned by his wife, of which shares Marshall I. Kass disclaims beneficial
ownership.
28
The following table sets forth certain information regarding the Executive Plan,
the only equity compensation plan of Certron:
EQUITY COMPENSATION PLAN INFORMATION
Number of
securities
remaining
Number of available for
securities future issuance
to be under equity
issued upon Weighted-average compensation
exercise of exercise price plans (excluding
outstanding of outstanding securities
options, warrants options, warrants reflected in
Plan Category and rights and rights column (a)
- ---------------------- ----------------- ------------------ -----------------
(a) (b) (c)
Equity compensation plans 0 $1.00 600,000
approved by security holders:
Equity compensation Plans not 0 0 0
approved by security holders:
Total 0 -- 600,000
The foregoing table does not take into account shares issuable by the Company as
of February 10, 2005 pursuant to the Agreement and Plan of Merger. With the
Closing of this transaction, Certron is obligated to issue up to an additional
47,328,263 shares of its common stock to the shareholders of Cybrdi. Upon
issuance of the required number of shares to the Cybrdi shareholders, Mr. Bai
either directly or indirectly will own 9,156,394 shares of Certron common stock
or approximately 18% of the then issued and outstanding common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Louart Corporation, the beneficial owner of 53.5% of the Common Stock of the
Company and in which Messrs. Marshall and Michael Kass and Ms. Susan Kass,
directors and executive officers of the Company, own a majority of the voting
power and are executive officers and directors, leases to the Company a
warehouse and packaging facility in Corona, California. The facility in Corona,
California is leased on a triple-net basis pursuant to a lease that expires
November 30, 2003 at a monthly rental rate of approximately $7,400. On December
2, 2003, the Company moved out of the Corona property. The Company has leased a
storage area at a facility owned by Louart Corporation on a month-to-month as is
at the rate of $450 per month.
During the fiscal year ended October 31, 2004, the Company paid to Louart
Corporation approximately $109,000 for the provision of certain services,
including rent, secretarial and administrative services, consulting services and
use of an automobile, and will continue to pay Louart for such services during
the Company's current fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following is a summary of the fees billed to Certron, Inc. by its principal
accountants during the fiscal years ended October 31, 2004, and 2003:
Fee Category 2004 2003
Audit fees $19,000 $26,500
Audit-related fees 0 0
Tax fees 0 0
All other fees 0 0
Total fees 0 0
Audit fees - consists of fees for professional services rendered by our
principal accountants for the audit of our annual financial statements and the
review of financial statements included in our Forms 10-Q or services that are
normally provided by our principal accountants in connection with statutory and
regulatory filings or engagements.
Audit-related fees - consists of fees for assurance and related services by our
principal accountants that are reasonably related to the performance of the
audit or review of our financial statements and are not reported under "Audit
Fees".
Tax fees - Consists of fees for professional services rendered by our principal
accountants for tax compliance, tax advice and tax planning.
All other fees - Consists of fees for products and services provided by our
principal accountants, other than for the services reported under the above
listed fees.
29
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Certron Corporation and
its subsidiary are included in Part II, Item 8:
Report of Independent Certified Public Accountants -
Hurley & Company 11
Report of Independent Certified Public Accountants -
Beckman Kirkland & Whitney 12
Consolidated balance sheets - October 31, 2004 and 2003 13
Consolidated statements of operations and comprehensive
income - years ended October 31, 2004, 2003 and 2002 14
Consolidated statements of stockholders' equity - years
ended October 31, 2004, 2003 and 2002 15
Consolidated statements of cash flows - years ended
October 31, 2004, 2003 and 2002 16
Notes to consolidated financial statements 17
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and qualifying accounts 32
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the consolidated financial
statements or notes thereto.
3. EXHIBITS
EXHIBITS
- --------
3.1 Articles of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report of from 10-K for
the year ended October 31, 1981 and Exhibit "A" and Exhibit "B" to
Registrant's Proxy Statement dated February 17, 1988).
3.2 By-Laws of Registrant, as amended (incorporated by reference to Exhibit
3.2 to Registrant's Quarterly Report on form 10-Q for the quarter ended
April 30, 1989).
3.3 Amended Articles of Incorporation as amended increasing the number of
authorized shares filed as an exhibit to the Company's Form 8-k filed
February 15, 2005.
3.4 Articles of Merger filed with the Maryland Secretary of State filed as
an exhibit to the Company's Form 8-k filed February 15, 2005
*10.1 Registrant's Executive Stock Option Plan (incorporated by reference to
Exhibit "B" to Registrant's Proxy Statement dated February 21, 1989).
*10.2 Amendment to Registrant's 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K
for the year ended October 31, 1995).
*10.3 Amendment to Registrant's Executive Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10Q
for the quarter ended April 30, 2001).
*10.4 Form of Indemnification Agreement between Registrant and its Directors
and selected officers and agents (incorporated by reference to Exhibit
"C" to Registrant's Proxy Statement dated February 17, 1988).
*10.5 Employment Agreement effective as of November 1, 1993 between
Registrant and Marshall I. Kass (incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form 10-Q for quarter ended
January 31, 1994).
30
*10.6 Amendment to Employment Agreement between Registrant and Marshall I.
Kass dated November 1, 1998 (incorporated by reference to Exhibit 10.8
to Registrant's Annual Report on Form 10-K for the year ended October
31, 1998).
10.7 Agreement and Plan of Merger among Certron Corporation, Certron
Acquisition Corp. and Cybrdi, Inc. filed as an exhibit to the Company's
Form 8-k filed November 17, 2005.
21. Subsidiaries of Registrant (incorporated by reference to Exhibit 22 to
Registrant's Annual report on form 10-K for the year ended October 31,
1981).
23.1 Beckman Kirkland & Whitney consent.
23.2 Hurley & Company consent.
31. Rule 13a-14(a)/15d-14(a) Certification
32. Certification of Chief Executive Officer and Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002.
* Indicates management contract or compensation plan or arrangement required
to be filed as an Exhibit to this Form 10-K
(b) Form 8-K During the Fourth Quarter of the Registrant's fiscal year ended
October 31, 2994 we filed a Form 8-k on August 17, 2004 in connection with
the proposed agreement with Cybrdi.
31
CERTRON CORPORATION AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
charged to
expense/
Balance at (subtractions Balance of Balance at
beginning charged to accounts end of
Classifications of period income) written off period
- --------------- --------- ------------ ----------- ----------
YEAR ENDED OCTOBER 31, 2004
Allowance for doubtful
accounts $ 15,000 ($15,000) $ 0 $ 0
Inventory reserve for
obsolescence $ 177,000 ($172,000) $ 0 $ 5,000
YEAR ENDED OCTOBER 31, 2003
Allowance for doubtful
accounts $ 7,000 $ 8,000 $ 0 $ 15,000
Inventory reserve for
obsolescence $ 8,000 $ 169,000 $ 0 $ 177,000
YEAR ENDED OCTOBER 31, 2002
Allowance for doubtful
accounts $ 25,000 ($18,000) $ 0 $ 7,000
Inventory reserve for
obsolescence $ 5,000 $ 3,000 $ 0 $ 8,000
32
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.
Date: February 14, 2005
CERTRON CORPORATION
By /s/ Yanbiao Bai
------------------------
Yanbiao Bai
Chairman of the Board and
Chief Executive and
Operating Officer
33
EXHIBIT INDEX
EXHIBITS
-------
3.1 Articles of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report of from 10-K for
the year ended October 31, 1981 and Exhibit "A" and Exhibit "B" to
Registrant's Proxy Statement dated February 17, 1988).
3.2 By-Laws of Registrant, as amended (incorporated by reference to Exhibit
3.2 to Registrant's Quarterly Report on form 10-Q for the quarter ended
April 30, 1989).
3.3 Amended Articles of Incorporation as amended increasing the number of
authorized shares filed as an exhibit to the Company's Form 8-k filed
February 15, 2005.
3.4 Articles of Merger filed with the Maryland Secretary of State filed as
an exhibit to the Company's Form 8-k filed February 15, 2005
*10.1 Registrant's Executive Stock Option Plan (incorporated by reference to
Exhibit "B" to Registrant's Proxy Statement dated February 21, 1989).
*10.2 Amendment to Registrant's 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K
for the year ended October 31, 1995).
*10.3 Amendment to Registrant's Executive Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10Q
for the quarter ended April 30, 2001).
*10.4 Form of Indemnification Agreement between Registrant and its Directors
and selected officers and agents (incorporated by reference to Exhibit
"C" to Registrant's Proxy Statement dated February 17, 1988).
*10.5 Employment Agreement effective as of November 1, 1993 between
Registrant and Marshall I. Kass (incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form 10-Q for quarter ended
January 31, 1994).
*10.6 Amendment to Employment Agreement between Registrant and Marshall I.
Kass dated November 1, 1998 (incorporated by reference to Exhibit 10.8
to Registrant's Annual Report on Form 10-K for the year ended October
31, 1998).
10.7 Agreement and Plan of Merger among Certron Corporation, Certron
Acquisition Corp. and Cybrdi, Inc. filed as an exhibit to the Company's
Form 8-k filed November 17, 2005.
21. Subsidiaries of Registrant (incorporated by reference to Exhibit 22 to
Registrant's Annual report on form 10-K for the year ended October 31,
1981).
23.1 Beckman Kirkland & Whitney consent.
23.2 Hurley & Company consent.
31. Rule 13a-14(a)/15d-14(a) Certification
32. Certification of Chief Executive Officer and Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Represents premiums paid during the fiscal year on life insurance policies
maintained by the Company having as of January 1, 2004 an aggregate estimated
net surrender proceeds of $66,543 on the life and for the benefit of Mr.
Marshall I. Kass. In August 29, 2003, the Company surrendered one of the two
policies listed in fiscal 2002 and received in exchange therefore approximately
$161,000.
34